Private credit managers are coming under increasing funding pressure as higher borrowing costs, tighter bank lending conditions and rising investor risk premiums weigh on the industry’s financing model, according to a report by the Financial Times.
The report cites data from JPMorgan as showing that the premium investors demand to lend to private credit vehicles has increased by 0.34 percentage points since the start of the year and by 0.83 percentage points since early 2025, reflecting growing concern over portfolio credit quality.
At the same time, banks are becoming more cautious in extending leverage to the sector, while bond investors are asking for higher yields before providing funding. The combined shift is raising overall financing costs across the roughly $2 trillion private credit market.
The tightening has also coincided with a slowdown in issuance from business development companies (BDCs), which sold about $6.8bn of bonds in Q1 2026, down around 22% year-on-year and roughly 36% versus 2024 levels, according to JPMorgan figures.
As market conditions deteriorate, some funds have shifted away from broad syndicated issuance in favour of alternative funding structures and shorter-dated deals to manage interest costs. In one example, a Blue Owl private credit vehicle recently placed $400m of two-year investment-grade bonds in a bilateral transaction with Pimco, rather than launching a wider marketing process.
More broadly, leverage costs have continued to climb. Goldman Sachs’ private credit arm recently issued $750m of debt priced at a floating rate of 2.55 percentage points above US Treasuries, a spread significantly wider than comparable investment-grade corporate debt.
Market participants say investor scrutiny has also intensified, with greater due diligence required before new deals are completed. Some managers have increasingly turned to structured credit markets such as collateralised loan obligations (CLOs), where demand from insurers and other institutional investors has helped keep financing costs comparatively lower.
However, traditional funding channels remain under pressure. Banks that provide credit facilities to private credit funds are reportedly tightening terms and increasing pricing, reducing a key source of leverage that many firms rely on to enhance returns.
The shift comes as investors reassess exposure to private credit portfolios, particularly loans linked to private equity-backed technology companies, where concerns around earnings resilience and AI-driven disruption have grown.
