The quality of loans underpinning the largest US private credit funds remain stable, according to investment advisor Heron Finance’s latest state of private credit benchmark report.
The report assesses key risk and performance metrics across the US private credit industry, based on quarterly, fund-level data, as of the fourth quarter of 2025. The data is derived from SEC filings and reporting by 73 fund managers representing more than $1tn (£0.74tn) in aggregate private credit assets under management.
Metrics are presented over a two-year historical period to highlight evolving trends in borrower health, fund leverage and return dynamics across the private credit market.
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Heron Finance argues that no material credit risk deterioration at an industry level has been observed. According to the firm, this is due to loan-to-value ratios (LTV) remaining healthy at about 40 per cent and because approximately 90 per cent of loans are first lien loans, which historically recovered well above 50 per cent in a default scenario.
“Such low LTVs allow for a significant first-loss capital cushion should the credit markets deteriorate,” the report stated.
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Other findings point at payment-in-kind (PIK) interest remaining healthy and lower interest rates providing relief for corporate borrowers.
“The industry as a whole continues to demonstrate resilience, particularly on measures like PIK interest and non-accruals, though the gap between stronger and weaker funds is widening,” said Khang Nguyen, Heron Finance’s chief credit officer. “Lower middle market funds have experienced higher non-accrual rates, yet realised losses have remained low — a reflection of the lower leverage, stronger interest coverage, and tighter covenants typically seen among smaller borrowers.”
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