Private credit borrowers that took on debt during the low-interest-rate environment of 2021 and 2022 face increasing refinancing risks as their loans approach maturity, with investors warning that defaults across the asset class remain elevated, according to a report by Bloomberg.
The report cites Steve Kuppenheimer, partner and head of private investments at Lord, Abbett & Co, as saying that loans originated when base rates were close to zero could face particular pressure as borrowers refinance at higher interest rates. Speaking at the Milken Asia Summit in Singapore, he estimated that default rates were running at around 3% to 4%, compared with a historical average of approximately 2%.
The warning comes amid heightened scrutiny of the $1.8tn private credit market, where concerns about borrower quality, fund outflows and exposure to software companies vulnerable to artificial intelligence disruption have weighed on sentiment, particularly in the US.
Recent corporate failures have added to questions about underwriting standards and risk management. The collapse of UK non-bank lender Market Financial Solutions earlier this year exposed banks to potential losses amid allegations of financial irregularities, following defaults by US auto parts supplier First Brands Group and subprime lender Tricolor Holdings in the second half of 2025. In Australia, regulators have also stepped up oversight, temporarily restricting the distribution of three additional private credit products on Thursday.
Brigitte Posch, partner and co-head of Asia Pacific Credit and Hybrid at Apollo Global Management, said certain sectors faced greater refinancing pressure as borrowing costs rose and asset valuations declined relative to outstanding debt.
Recoveries may also depend on private equity owners’ ability and willingness to sell underlying businesses. Andrew Konopelski, managing partner at Bridgepoint Credit, noted that lenders have limited influence over the timing of exits, despite asset sales potentially providing a route to repay debt in full. The substantial volume of unsold private equity assets adds to uncertainty over when borrowers and their creditors can realise value.
Despite these challenges, investors at the Singapore forum said higher base rates continued to offer attractive potential returns for private credit lenders. Market volatility is also encouraging greater attention to underwriting discipline, covenant protections and portfolio construction.
