Fitch put the trailing default rate at 6%, KBRA’s own middle-market monitor just posted its own record high, and two listed BDCs have taken net asset value markdowns north of 10%. The bulls call it noise. The sceptics call it a warning sign. US market data serves as an early-warning indicator for UK and European borrowers and markets: our market moves on the same tide, a beat or two behind. Having originated enough of these deals across enough cycles, I’d say both camps are reading the data selectively, and the number everyone’s arguing about isn’t even the one that matters.
By Scott Townsley · Investment Director · 8 min read
The bottom line, up front
- Market: Fitch’s trailing twelve-month US private credit default rate reached 6.0% in Q2 2026, up from 5.7% in Q1, the highest since Fitch began tracking the asset class in August 2024, with consumer products borrowers defaulting at 11.1%, nearly double last year’s rate.
- Shift: KBRA’s Q2 2026 middle-market compendium (covering 2,785 borrowers and over $1.2 trillion of direct lending debt) shows median sponsor-backed borrower EBITDA growth decelerating from 27% to 24%, the largest quarterly slowdown on record, alongside a fresh high in its own default monitor.
- For you: if you’re a UK or European mid-market borrower coming to market in the next two quarters, expect harder covenant negotiations, tighter scrutiny of adjusted EBITDA add-backs, and lenders who are newly selective about which sectors they’ll touch at all. The Bank of England has flagged that UK private markets lean heavily on overseas capital, so when US sentiment turns, our financing conditions feel it quickly.
Key term: maturity extension (a.k.a. “amend-and-extend”)
Fitch counts maturity extensions (where a lender and borrower agree to push a loan’s maturity date out rather than have it repaid or refinanced away) as default events in its methodology, because economically the lender isn’t getting paid on the original terms. More than half of Fitch’s Q2 default events were extensions of this kind, not missed cash payments. That single definitional choice explains most of the gap between the “record 6%” headline and the calmer numbers other rating agencies publish.
But not every extension means the same thing. Some do reflect a borrower who genuinely can’t repay, leaving the lender to support a credit it would rather have refinanced out. Just as often, though, it’s routine: these facilities are rarely built to amortise to zero, a residual balance at maturity is expected, and a lender who knows the business and rates its management is often happy to roll forward, not least for the fresh origination fee.
The number everyone’s citing
Fitch Ratings put the US private credit default rate at 6.0% for the twelve months to Q2 2026, up from 5.7% the prior quarter. That’s the highest reading since Fitch began formally tracking the asset class in August 2024, and it’s the number dominating conversations between lenders and borrowers right now. Of the 32 default events Fitch recorded in the quarter, 20 involved borrowers defaulting for the first time. By sector, consumer products companies are the standout: an 11.1% default rate, up from 5.9% a year earlier, as tariff-exposed input costs and softer discretionary spending catch up with businesses that were underwritten on 2022-vintage growth assumptions.
Set against that, KBRA, which runs its own Middle Market Default Monitor across a much broader sample of nearly 1,000 companies assessed in the quarter, puts its count-based default rate at 3.3% and its debt-weighted rate at 2.4%, both record highs for that index but roughly half Fitch’s figure. KBRA’s full-year 2026 outlook, published before this quarter’s data, had projected a 2.0% default rate by volume for the year, up from 1.5% in 2025.
Two agencies, two default rates
| Metric | Reading | Direction |
|---|---|---|
| Fitch US private credit default rate (LTM, Q2 2026) | 6.0% | Up from 5.7% in Q1 |
| Fitch consumer products sector default rate | 11.1% | Up from 5.9% a year ago |
| KBRA Middle Market Default Monitor, by count | 3.3% | First rise in a year |
| KBRA Middle Market Default Monitor, by debt | 2.4% | New series peak |
| KBRA full-year 2026 default projection (by volume) | 2.0% | Up from 1.5% in 2025 |
Source: Fitch Ratings U.S. Private Credit Default Report, Q2 2026; KBRA Private Credit Q2 2026 Middle Market Compendium and 2026 Private Credit Outlook.
Neither agency is wrong. They’re measuring different populations with different definitions of default, and the gap between “record 6%” and “record 2.4%” is exactly the kind of thing that gets flattened into a single scary headline. What both agencies agree on, though, is the direction of travel: up, and driven increasingly by borrowers who genuinely can’t service the debt on its original terms, rather than by a handful of one-off blowups.
Why a UK borrower should read the American data closely
You might reasonably ask why a Fitch number drawn from US borrowing data should shape financing discussions in the UK and European markets. The answer is that our market is smaller, younger and tightly plumbed into the same capital. The European private credit market is a fraction of the size of the US one, but it has grown faster than almost any corner of European finance, and it is funded to a striking degree by the very same global institutions writing cheques in America. When they reprice risk in the US, UK and European markets typically feel the effects soon after.
Our own regulators are watching it just as nervously. The Bank of England devoted a section of its July 2026 Financial Stability Report to leveraged lending and private credit, warning that UK credit markets are highly exposed to global sentiment in exactly these riskier segments, and that a loss of confidence, triggered by rising defaults or refinancing stress abroad or at home, could tighten conditions for UK corporates fast. The European Central Bank has run a parallel exercise, modelling how a private credit shock would ripple through euro-area institutions. Tellingly, the Bank of England has also flagged a related but distinct risk: payment-in-kind structures (where interest accrues onto the loan balance rather than being paid in cash, generally reflecting looser deal structuring) can let a borrower keep meeting its obligations on paper while leverage quietly builds and future debt service grows heavier. Unlike the amend-and-extend point above, this isn’t just a question of how you count a default; a rising share of PIK is a genuine signal that underlying repayment capacity is deteriorating.
The EBITDA problem underneath the default numbers
The more interesting finding in KBRA’s Q2 compendium isn’t the default rate at all; it’s the deceleration in EBITDA growth sitting beneath it. Median revenue CAGR across KBRA’s sample slipped to 12% from 13% quarter-on-quarter; median EBITDA CAGR fell to 24% from 27%, which KBRA describes as the largest quarterly decline in that metric since it began tracking. Worth being precise about what that 27% and 24% actually represent: this is growth in adjusted, add-back-heavy EBITDA across a population of private-equity-sponsored, middle-market borrowers, where buy-and-build acquisition strategies routinely inflate the growth rate well beyond what organic trading would produce. It is not a read on typical company earnings growth, and that distinction matters for what comes next. For a market that has spent the better part of a decade underwriting leverage multiples off adjusted, add-back-heavy EBITDA, a genuine slowdown in the growth rate of that same number is the thing that should worry you far more than any single quarter’s default print.
Here’s the practitioner’s version of that story, because I’ve sat on both sides of this table. Sponsors present forward EBITDA that’s been generously adjusted for one-off costs, synergies not yet realised, and “run-rate” cost savings that assume a restructuring plan executes perfectly. Lenders, competing for allocation in a market flooded with dry powder, have spent several years accepting those adjustments with less scrutiny than they’d apply in a tighter market. When actual EBITDA growth slows, as KBRA’s data now shows it doing, broadly and simultaneously across nearly 3,000 borrowers, the gap between adjusted EBITDA at origination and cash-generating reality at year three stops being theoretical. That gap is where amend-and-extend requests come from, and it’s why I’d argue the default rate is a lagging symptom, not the disease itself.
What this means for you
If you’re preparing to raise or refinance in the next two quarters, assume your EBITDA add-backs will get more scrutiny than they would have eighteen months ago, not less. Lenders who have just sat through a quarter of fading EBITDA tailwinds across their existing book are going to stress-test your projections harder, and a thinly documented adjustment that would have sailed through in 2023 is now a genuine point of negotiation. Get your add-back schedule audited and defensible before you’re in the room, not during it.
Where the stress is already showing up publicly
Private credit is, by design, opaque; that’s part of its appeal to borrowers who don’t want quarterly earnings scrutiny. But the retail-facing business development companies (BDCs) that hold slices of these same loans report net asset value every quarter, and two recent prints are instructive. FS KKR Capital Corp’s NAV per share fell from $20.89 at the end of 2025 to $18.83 at the end of Q1 2026, a 9.9% decline, with non-accrual loans rising to 4.2% of fair value. BlackRock TCP Capital’s NAV has fallen roughly 50% over the trailing year, with non-accruals around 4% of the portfolio. Meanwhile, industry commentary has noted BDC redemption requests running ahead of new inflows in several structures, pushing some funds toward their redemption gates.
The industry’s counterargument, laid out forcefully by law firm Dechert in a widely circulated June note defending BDCs and private credit, is fair as far as it goes: covenant packages have genuinely improved in the post-2024 reset, managers sitting on dry powder can be more selective about which credits they finance, and the asset class overall (with AUM on track to exceed $2 trillion in 2026 and approaching $4 trillion by 2030 on some estimates) is still attracting substantial new capital despite the headlines. Both things are true at once: the market is becoming more disciplined on new originations, and the back book written during the looser 2021–2022 vintage is now working through the stress that discipline was supposed to prevent.
What this means for you
Don’t read “private credit is tightening” as “private credit is closing.” Capital is still flowing into the asset class in scale; the constraint is on price and structure, not availability. Well-documented, well-run mid-market businesses in resilient sectors will still find willing lenders. The businesses that struggle now are the ones whose last raise leaned on EBITDA assumptions that haven’t held up, and who haven’t started the refinancing conversation early enough to negotiate from strength rather than under a maturity wall.
So: reckoning, or overreaction?
In my view, this is not 2008. A 6% default rate on Fitch’s broad definition, or 2.4% on KBRA’s narrower one, in a market that has scaled past $2 trillion, is not a systemic event; it’s a normalisation after several years in which defaults were unusually, almost implausibly, low. Private credit was always going to have a default cycle; the surprise would have been if it never did. The “crisis” framing that some commentary reaches for overstates what’s actually happening to the median borrower, on either side of the Atlantic. The UK and European market has, if anything, been more conservatively underwritten than the frothier corners of the US one, and headline European default rates remain low.
But I want to complicate my own conclusion, because the tidy version, “it’s fine, this is just the cycle,” lets the industry off too easily, and the messier version cuts both ways. On one hand, some lenders do have incentives to avoid recognising a hard default: it protects reported performance, avoids triggering cross-defaults elsewhere in a fund’s book, and buys time for an EBITDA recovery that may or may not arrive. To that extent the headline number can understate genuine stress. On the other, lumping every maturity extension in with missed payments overstates it just as badly. Plenty of these extensions are nothing of the sort: the debt was never sculpted to amortise to zero, a residual balance at maturity was always anticipated, and a lender who knows the business and rates its management is often perfectly happy to refinance it forward, a decision that keeps a performing borrower funded and books a fresh fee in the process. The “default” bucket, in other words, spans everything from genuine distress to routine, mutually welcome refinancings, which is precisely why the headline figure mischaracterises the health of the median borrower. The KBRA finding on decelerating EBITDA growth is the more honest signal, because it’s harder to manage optically than a default classification. If EBITDA tailwinds keep fading through the second half of the year, the amend-and-extend population becomes the default population, on a lag. Watch that number, not the one making headlines this week.
Scott Townsley
Questions I’m hearing from borrowers
Is a 6% default rate actually a crisis for my business?
Not on its own. It’s a market-wide average driven heavily by specific sectors (consumer products at 11.1% is the standout) and by a broad definition that counts maturity extensions as defaults. A well-run business outside the most exposed sectors is not automatically at higher risk of default; it is, however, likely to face more scrutiny and less generous terms at its next raise.
Why do Fitch and KBRA report such different numbers for the same market?
Different sample sizes, different borrower populations, and, most importantly, different definitions of what counts as a default. Fitch’s methodology includes maturity extensions and amend-and-extend agreements; KBRA’s Middle Market Default Monitor is narrower. Neither is “the” correct number; both are worth watching together.
What does “EBITDA add-back scrutiny” actually mean for my next raise?
It means lenders will ask harder questions about which one-off costs, synergies, or run-rate savings you’ve added back to arrive at your adjusted EBITDA, and will want more documentation supporting each adjustment. Coming prepared with an audited, defensible add-back schedule shortens the process and strengthens your negotiating position on pricing and covenants.
Is private credit still available to mid-market borrowers, or is the market closing up?
Available, and still growing; AUM is on track past $2 trillion in 2026. What’s changed is price and structure, not access. Expect tighter covenants and more selective sector appetite rather than a shortage of capital.
How do I know if my business is more exposed to this shift?
Start with three questions: how much of your covenant-tested EBITDA relies on adjustments rather than reported numbers; when is your next maturity wall; and does your sector sit in one of the higher-stress categories (consumer, retail, auto, hospitality, tech disruption from AI). If two or more of those raise flags, it’s worth starting the refinancing conversation now rather than in six months.
About the author: Scott Townsley originates and structures private credit transactions for lower- and mid-market businesses, drawing on a 20+ year career spanning private credit, banking, investment banking and leveraged finance. To discuss a financing need or get a second opinion on a term sheet, get in touch or subscribe to the weekly memo.
Sources: Fitch Ratings, U.S. Private Credit Default Report (Q2 2026); KBRA, Private Credit: Q2 2026 Middle Market Compendium, “EBITDA’s Fading Tailwinds” (July 2026) and Private Credit 2026 Outlook; Dechert LLP, “Don’t Believe the Headlines: A Defense of BDCs and Private Credit” (June 2026); FS KKR Capital Corp and BlackRock TCP Capital public NAV disclosures, Q1 2026; Bank of England, Financial Stability Report (July 2026) and Financial Policy Committee Record (April 2026); European Central Bank, Financial Stability Review special feature on private credit (2026); Private Debt Investor, “Loan Note” (2026). Views expressed are the author’s own and do not constitute investment advice.