Private Credit Default Rates 2025: Three Indices, Three Very Different Numbers
TL;DR: Depending on which index you read, private credit default rates in 2025 were either 9.2%, 2.46%, or less than 1%. All three numbers are accurate. They just measure completely different things.
TL;DR: Depending on which index you read, private credit default rates in 2025 were either 9.2%, 2.46%, or less than 1%. All three numbers are accurate. They just measure completely different things. That definitional gap is not an accident, and it is costing investors money.
When Fitch published a record 9.2% private credit default rate for 2025 in March 2026, the headline landed hard. When the Cliffwater Direct Lending Index reported a 20-year average annual loss rate of 1.01% covering 21,000 loans, the industry pointed to that instead. Both camps are quoting real data. Neither is lying. They are describing different universes, and the absence of any agreed-upon standard is what makes this a genuine information problem for investors.
The $1.7 Trillion Market and the Default Rate Debate
According to the Federal Reserve, global private credit assets under management reached approximately $1.7 trillion at year-end 2023, growing at an 18% compound annual rate since 2000. Preqin forecasts $2.64 trillion by 2029. U.S. banks committed $117 billion to Business Development Companies alone in 2024. The asset class is no longer niche. It is systemically significant.
That scale is exactly why the methodology war matters. Three credible indices give you three very different answers about the same market in the same period. Below I walk through all three, name the funds showing the widest dispersion, and give you a framework for evaluating a fund before you allocate.
Fitch's 9.2%: The Number That Scares People
The Fitch Privately Monitored Ratings portfolio covers 302 companies. These are smaller, lower-rated businesses that Fitch tracks specifically because they carry elevated credit risk. That selection effect matters enormously. The 9.2% rate for 2025 is a record, up from 8.1% in 2024. By January 2026, it had already climbed to 9.4%.
Dig into the EBITDA breakdown and you see exactly where the pain is concentrated. Companies with EBITDA under $25 million posted a 15.8% default rate in 2025. Companies with EBITDA above $100 million posted 4.0%. That is nearly a four-times difference based on borrower size alone. The floating-rate structure of almost every private credit deal is the accelerant. As Fitch put it directly: “Capital structures in the PMR portfolio tend to be predominantly floating rate with minimal interest rate hedges in place, leaving companies' cash flow highly vulnerable to elevated rates.”
What counts as a default in the Fitch universe is also broader than most people realize. Of the 38 defaults Fitch recorded in 2025 across 28 borrowers, 60% were interest payment deferrals or PIK conversions. Twenty-seven percent were distressed maturity extensions. Only 8% were outright bankruptcies or debt-for-equity swaps. These are legitimate default events under standard credit definitions, but they are not the same as a company filing Chapter 11. A lender agreeing to let a borrower defer cash interest and pay in kind is technically a default. It may also be a rational workout that ends in full recovery. The Fitch number counts both the same way.
One counterintuitive data point: in 2025, 6 out of 8 resolved defaults in the Fitch PMR portfolio resulted in full paydowns for first-lien lenders. The remaining two produced recoveries between 70% and 90%. Senior secured lenders are losing principal at a much lower rate than the 9.2% headline suggests.
Proskauer's 2.46%: The Law Firm's View From Inside the Deals
The Proskauer Private Credit Default Index tracked 691 loans representing $144.5 billion in original principal for Q4 2025. That is a much larger loan pool than Fitch's 302 companies, but it comes with its own selection bias. Proskauer is one of the preeminent law firms for private credit transactions. Their client base skews toward established direct lenders and larger, more creditworthy middle-market borrowers. You are not seeing the bottom of the market in this dataset.
The Q4 2025 rate of 2.46% was up from 1.84% in Q3 2025. The highest default cohort was companies with $25 million to $49.9 million in EBITDA, at a 3.6% rate. That finding rhymes with Fitch: smaller borrowers are the stress point, regardless of which index you use.
For context, the Morningstar LSTA U.S. Leveraged Loan Index posted a payment default rate of 1.23% in 2025, up from 0.91% in 2024. If you accept Proskauer's 2.46% as your private credit benchmark, you are looking at a rate roughly double the broadly syndicated loan market. If you accept Fitch's 9.2%, you are looking at a rate more than seven times higher. The methodology choice is not academic. It changes your entire risk assessment.
Cliffwater CDLI's 1.01%: The Long View
The Cliffwater Direct Lending Index currently tracks approximately 21,000 loans totaling $549 billion in assets. The 1.01% figure is not a single-year rate. It is the 20-year average annual credit loss rate from 2004 through 2024, a time series that includes the 2008 financial crisis.
CDLI uses a loss-rate methodology, not a default-count methodology. It measures realized and unrealized credit losses as a percentage of assets. A loan that defaults but recovers at 90 cents on the dollar contributes only 10 cents of loss to the CDLI calculation. Fitch counts that same loan as a full default event. Cliffwater CEO Steve Nesbitt stated in the March 2026 press release: “There was significant noise regarding the safety of private credit toward the end of 2025, but our data suggests those concerns are unfounded.”
The CDLI-S index, which isolates senior direct loans, posts an annualized loss rate of just 0.29% from September 2010 through September 2025. High-yield bonds averaged 1.49% in annual losses over the same period. The CDLI returned 9.3% in 2025, averaged 9.5% over 20 years, and has had only one negative year.
The limitation is obvious. The 1.01% figure blends the best managers with the worst. The average obscures the distribution, and in private credit, the distribution is everything.
The Methodology War: What the Numbers Actually Mean
| Index | Methodology | 2025 Rate | What It Measures |
|---|---|---|---|
| Fitch PMR | Default event count divided by total rated companies. Includes PIK conversions, maturity extensions, bankruptcy. | 9.2% (full year) | 302 rated private companies, skewed toward smaller, higher-risk borrowers with EBITDA often below $25M |
| Proskauer PCDI | Default event count divided by total tracked loans. Proskauer client base only. | 2.46% (Q4 2025) | 691 loans, $144.5B original principal. Client base skews toward established direct lenders and larger middle market. |
| Cliffwater CDLI | Realized plus unrealized credit losses as a percentage of total assets. 20-year average. | 1.01% (20-yr avg through 2024) | ~21,000 loans, $549B AUM across BDC portfolios. Loss-rate method nets out recoveries. |
No single number captures private credit default risk. Fitch's 9.2% tells you something real about the distressed lower-middle-market. Proskauer's 2.46% tells you something real about mid-to-upper middle market lending at established shops. Cliffwater's 1.01% tells you something real about what the broad BDC universe has actually lost over two decades. You need all three in front of you, or you are flying blind.
BDC Dispersion: 520 Basis Points Between Best and Worst
The manager-selection problem becomes concrete when you look at BDC non-accrual rates. A non-accrual loan is one where the borrower stopped paying interest and the lender stopped recognizing it as income. It is the most direct public proxy for credit stress at a fund level.
Golub Capital BDC (GBDC) reported a non-accrual rate of 0.3% of total investments at fair value for its fiscal year ending September 30, 2025. Nearly 90% of the GBDC portfolio was rated in the highest two internal categories. Golub has consistently run one of the tightest credit shops in the BDC universe by focusing on upper-middle-market, sponsor-backed borrowers with strong financial reporting.
FS KKR Capital Corp (FSK) sat at 5.5% non-accrual at amortized cost as of December 31, 2025. That is 3.4% at fair value, but amortized cost is the number that tells you what was lent versus what is now impaired. FSK's board cut the quarterly dividend from $0.70 to $0.48 per share. Moody's downgraded FSK from investment-grade Baa3 to Ba1 junk. A securities class action lawsuit was filed alleging that management made optimistic forward-looking statements about credit quality improvement for five quarters while non-accruals were building in names like Production Resource Group, 48forty, Kellermeyer Bergensons Services, Worldwise, Medallia, and Cubic Corp.
Ares Capital (ARCC), the largest BDC with a $26.7 billion portfolio, reported non-accruals of 1.7% at amortized cost for 2024, up modestly from 1.3% the prior year. That is approximately 180 basis points below the BDC industry average. Blue Owl Capital Corp (OBDC) reported a non-accrual rate near 1.8% at fair value in Q1 2024, with its OBDC II vehicle posting a since-inception realized loss rate of just 23 basis points.
The spread between Golub at 0.3% and FS KKR at 5.5% is 520 basis points. That is not market risk. That is manager-selection risk. Two funds, same asset class, same rate environment, credit outcomes that differ by more than five percentage points.
Red Lobster, Pluralsight, and What Defaults Actually Look Like
Abstract statistics become real when you name the deals. TCW Group converted its Red Lobster loans to equity through the 2024 bankruptcy restructuring, then wrote down that equity stake for five consecutive quarters. The final mark was $761,628 against an original value of approximately $31 million. A 98% loss, arriving slowly, quarter by quarter, the way private credit losses typically manifest.
Pluralsight, the enterprise software training platform backed by Vista Equity Partners, went through one of the most closely watched private credit restructurings of the cycle. Seven major lenders, including Ares Management, Blue Owl Capital, Golub Capital, Oaktree Capital, Benefit Street Partners, Goldman Sachs, and BlackRock, first attempted a $50 million liability management exercise. That approach failed. Vista walked away. The lenders took 100% ownership through a debt-for-equity exchange. No cash recovery. Equity ownership in a distressed tech company instead.
Envision Healthcare, a PE-owned physician staffing company, filed Chapter 11 after the No Surprises Act of 2022 banned surprise medical billing. High debt loads plus a regulatory regime change produced a default no coverage ratio at origination would have flagged. All three names share a common thread: the losses did not show up in aggregate index data until well after the damage was done.
What the Rate Cycle Did to Borrower Coverage
The rate cycle from 2022 to 2024 is the central variable in this story, and it cuts both ways. Private credit lenders earned record yields as SOFR rose from near zero to a peak of 5.34% in December 2023. BDC earnings surged. The asset class looked brilliant.
What was happening on the borrower side is a different story. Lincoln International data tracked the average fixed-charge coverage ratio for private credit borrowers falling from 1.40x in Q1 2022 to just 1.04x on a forward-projected basis in Q1 2023, at 5%+ SOFR. Interest costs rose more than 50% for floating-rate borrowers. At 1.04x, any earnings miss or cost shock pushes that ratio below 1.0x. The loans defaulting in 2025 and 2026 are largely the loans originated in 2019 through 2022 at debt loads calibrated to near-zero rates. The Fed's 100-basis-point cutting cycle in late 2024 took some pressure off but did not clear the overhang for borrowers already on the margin.
How to Evaluate a Private Credit Fund Before You Invest
The data above points toward a specific due diligence checklist. I would not allocate to a private credit fund without answers to all of the following.
Non-accrual rate at amortized cost, not just fair value. FSK's spread between 3.4% at fair value and 5.5% at amortized cost represents loans carried well below par. Fair value non-accruals show you the number after marks have already absorbed some of the pain.
EBITDA distribution of the portfolio. Fitch's data is unambiguous: sub-$25M EBITDA companies defaulted at 15.8% in 2025 while upper-middle-market companies above $100M EBITDA defaulted at 4.0%. If your fund is concentrated in smaller companies, the Cliffwater 1.01% loss rate is the wrong benchmark.
PIK income as a percentage of total income. Cliffwater reports PIK at 7.3% of total CDLI income. A fund running PIK materially above that level may be deferring cash interest from stressed borrowers while still booking positive accrual income. PIK conversions counted for 60% of Fitch's 2025 defaults.
Realized loss history since inception. Blue Owl's OBDC II has a since-inception realized loss rate of 23 basis points. That number is audited and tells you what actually happened to principal. Current non-accruals are a point-in-time snapshot. Realized losses are permanent.
Which market segment your manager actually operates in. Preqin data shows the top 8 funds captured more than 50% of all direct lending capital raised in 2024. Smaller funds outside the top 50 captured only 5.3%, down from 18.5% the prior year. The 520-basis-point spread between Golub and FS KKR is not an aberration. It is the normal range of outcomes in this asset class.
Private credit at 9.3% annual return with 1.01% average annual losses sounds like a compelling story. It is, for the right managers. For the wrong ones, you are taking the same illiquidity premium and structural subordination risk with materially worse underwriting. Three indices, three very different numbers. Your job is to figure out which population of loans your manager actually operates in.
Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.
Part of Guide
Looking for investors?
Browse our directory of 750+ angel investor groups, VCs, and accelerators across the United States.
About the Author
Jeff Barnes, MBA