Private credit is facing a familiar question in 2026: are rising defaults the beginning of a broader credit problem, or simply a normalization after several unusually benign years?

The answer depends heavily on what investors measure.

Proskauer’s Private Credit Default Index shows that defaults have moved higher from the lows reached after 2020, but remain far below the pandemic peak. The overall default rate surged to 8.1% in Q2 2020, then fell rapidly and spent much of 2021 through 2023 between roughly 1% and 2%.

More recently, defaults have drifted upward. The rate reached 2.71% in Q2 2024, 2.67% in Q4 2024, and 2.73% in Q1 2026, before easing to 2.51% in Q2 2026.

That trajectory matters because it looks less like a sudden credit event and more like a gradual repricing of risk. Borrowers have spent several years absorbing higher financing costs, while lenders have had to manage companies through a more difficult operating and refinancing environment.

Still, the headline default rate hides an important shift beneath the surface.

Proskauer’s data by borrower size show that stress is moving across EBITDA cohorts. Among companies with less than $25 million of EBITDA, defaults increased from 1.7% in Q4 2025 to 2.3% in Q1 2026. Borrowers with EBITDA between $25 million and $49.9 million actually improved, with defaults falling from 3.6% to 3.1%.

The biggest change came at the larger end of the sample. Companies with at least $50 million of EBITDA moved from a default rate of just 0.5% in Q1 2025 to 3.0% in Q1 2026.

For private equity sponsors, that dispersion may be more useful than the aggregate number. Size alone is clearly not insulating borrowers from stress. Larger companies can carry more sophisticated capital structures and greater absolute debt burdens, making refinancing conditions and interest coverage increasingly relevant to underwriting.

There is another complication: not every default statistic is measuring the same thing.

Fitch reported a US Private Credit Default Rate of 6.3% for the twelve months through August 2026, a record for its series and materially above Proskauer’s figures. But comparing those numbers directly risks overstating the contradiction. The underlying universes and definitions differ.

Fitch’s data also show why the word default can be misleading if read as synonymous with bankruptcy. Interest payment deferrals and the introduction of PIK interest represented 47% of Fitch default events through August, while stressed maturity extensions represented another 41%. Uncured payment defaults accounted for only 8%, with bankruptcies, liquidations, debt for equity swaps, and certain restructurings representing the remaining 4%.

Proskauer similarly uses a broad definition that captures payment defaults, bankruptcy, financial covenant defaults, certain prolonged defaults, distressed restructurings, and modifications made in anticipation of default. Its index is based on loan count rather than realized losses.

That distinction changes the investment takeaway.

Private credit is showing more stress, but much of that stress is being managed inside the capital structure before a borrower reaches a conventional bankruptcy. PIK, maturity extensions, amendments, and restructurings can give lenders and sponsors time, but they can also delay recognition of deeper operating problems.

Sector data reinforce the need for selectivity. Fitch reported August default rates of 9.9% for both healthcare providers and industrial and manufacturing borrowers. Technology software, despite widespread concerns about disruption from artificial intelligence, recorded just 0.6%, the lowest rate among Fitch’s largest private credit sectors.

For PE firms, the implication is less about whether private credit is broadly safe or broadly distressed. The more important question is where risk is accumulating and how lenders are managing it.

The aggregate numbers remain well below the extraordinary Proskauer peak of 2020. But underneath that relative stability, borrower size, sector exposure, refinancing requirements, and the growing use of softer restructuring tools are creating a much more uneven credit environment.

The next phase of private credit may therefore be defined less by a dramatic default wave than by something harder to spot: more borrowers surviving, but only after their capital structures are rewritten.

Fitch Ratings. (2026). Fitch Ratings’ U.S. Private Credit Default Rate Rose to 6.3% in August 2026. https://www.fitchratings.com/research/corporate-finance/fitch-ratings-us-private-credit-default-rate-rose-to-6-3-in-august-2026-14-09-2026 

JP Morgan. (2026). What is happening in private credit? https://am.jpmorgan.com/us/en/asset-management/liq/insights/market-insights/market-updates/on-the-minds-of-investors/what-is-happening-in-private-credit/ 

Proskauer. (2026). Proskauer’s Private Credit Default Index Reveals Rate of 2.73% for Q1 2026. https://www.proskauer.com/report/proskauers-private-credit-default-index-reveals-rate-of-273-for-q1-2026