Weakening profitability among private credit borrowers is likely to lead to further loan defaults in 2026, according to a report by Reuters citing Morningstar DBRS, which has reiterated a negative outlook for the sector.
The ratings agency said margin compression and rising leverage are increasing pressure on borrowers, particularly in the US, where several high-profile bankruptcies earlier this year have heightened investor concerns around credit quality. The private credit market is estimated to total around $3tn globally and is dominated by non-bank lenders such as asset managers.
Morningstar DBRS said its analysis shows US private credit borrowers have reported weaker cash flows and declining interest coverage ratios on a year-on-year basis, with the full impact of US trade tariffs still having the potential to cause further problems.
