Credit default rate on private loans experiences a decrease for the second quarter in a row.
Private Credit Market Shows Resilience: Q2 2025 Default Rate Drops
The private credit market has demonstrated its resilience in the face of evolving macroeconomic conditions, as the default rate dropped from 2.42% in Q1 2025 to 1.76% in Q2 2025, marking the second consecutive quarterly decline.
The decline in the default rate is primarily due to disciplined lending, strong risk management, ongoing capital support, and stable macro and credit market conditions.
Effective risk management by lenders has helped keep default rates down despite some localized increases among smaller companies. Continued capital inflows and disciplined lending practices have allowed the market to navigate changing macroeconomic conditions effectively.
Private credit borrowers tend to have weaker fundamentals compared to public markets, but careful manager selection with strong due diligence supports better performance and risk control. The market environment in Q2 2025 also demonstrated strong credit underwriting and stable delinquency levels in related credit sectors, indicating no systemic credit stress that might spill over into private credit defaults.
Despite some signs of spread compression and a more crowded market, private credit performance remains resilient. Positive deal activity in middle market buyouts and venture sectors sustains credit quality and opportunities, supporting the sector's resilience.
The Proskauer's Private Credit Default Index, which encompassed 739 loans representing $143.6bn in original principal amount, reported the drop in default rates. The decrease in default rate from Q1 2025 to Q2 2025 is consistent with the trend in the broadly syndicated market.
However, there was a slight uptick in defaults among smaller companies in the current quarter, but the overall trend is downward. Stephen A Boyko, co-founder of Proskauer's private credit group, did not provide information about the reasons for this slight uptick.
It is worth noting that Boyko did not provide information about the reasons for the drop in default rates, the expectations for default rates in future quarters, or the impact of the private credit market's resilience on Blackstone's profits or AUM.
Nonetheless, the downward trend in default rates signals effective risk management and stability across the private credit sector. The private credit market is demonstrating its ability to navigate evolving macro conditions.
Businesses in the private credit market have benefited from effective risk management and disciplined lending practices, leading to a drop in default rates. Stable macro and credit market conditions have also contributed to the resilience shown by the private finance sector.
