Private credit defaults ‘contained’ as market heads towards $5tn

Private credit defaults remain “contained”, with a pickup in mergers and acquisitions (M&A) expected to expand deal flow as the market grows towards $5tn (£3.7tn) by the end of the decade.

A 2026 outlook report from private credit investment platform Percent has estimated that the market stood at $3tn at the start of 2025, up from around $2tn in 2020. The firm forecasts the sector will grow to approximately $5tn by 2029.

The report said defaults are not expected to rise, despite the bankruptcies of Tricolor and First Brands Group in September 2025 catching the market off guard. It noted that both bankruptcies were linked to fraud and that, so far, there has been no broad-based increase in default rates.

Percent added that a looming maturity wall, alongside a likely pickup in M&A activity, could boost private credit deal flow, improving spreads and loan terms in 2026.

At the same time, rising demand for artificial intelligence data centres and power capacity is expected to drive issuance across public and private debt markets, potentially increasing supply and putting upward pressure on spreads.

“Private credit is still expanding, but the market is becoming less forgiving,” said Nelson Chu, founder and chief executive of Percent. “In 2026, we expect capital to flow to managers and platforms with strong structuring and transparent data. That means frequent reporting and tighter risk and operational oversight.”

However, the report highlighted a key risk in the form of a widening split among US consumers. Percent flagged growing divergence between prime and subprime borrowers and expects delinquencies to rise among lenders concentrated in subprime and near-prime cohorts.

It also warned of a potential new systemic risk from “algorithmic crowding” and correlated shocks. As more market participants rely on similar artificial intelligence models, shared blind spots could synchronise decision-making and amplify market stress.

“The next wave of growth will be defined by discipline, not hype,” said Prath Reddy, CFA, president of Percent. “Investors are getting more specific about what they want: seniority, collateral, shorter-duration cash flows, and the ability to validate performance in real time.”