alt Hacker NewsUS private credit defaults hit record 9.2% in 2025, Fitch says
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Luckily debt will be solved by the power of AGI, right? Just one more data centre! One more GPU! It can nearly write a basic three tier application with only 10 critical security vulnerabilities all by itself!
Definitely think we’re in for a rough year financial prospects wise, and doesn’t even feel like we recovered from the 2008 crash properly.
Reason this number caught my eye: last year the Fed's stress tests found "loss rates from [non-bank financial institution] exposures (i.e., the percentage of loans that are uncollectible) were estimated at 7%, under a severe recession in scenario one" [1].
That's the scenario in which unemployment goes to 10%, home prices crash by 33%, the stock market halves and Treasuries trade at zero percent yield [2].
[1] https://www.mfaalts.org/industry-research/2025-fed-stress-te...
[2] https://www.federalreserve.gov/publications/2025-june-dodd-f...
Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.
tick-tock, tick-tock, tick-tock...
I've never heard the term private credit so I googled it.
> Private credit refers to loans provided to businesses by non-bank institutions—such as private equity firms, hedge funds, and alternative asset managers—rather than traditional banks .
Is that correct?
So if these companies go under does anyone care? If they go under are they a systemic risk to the economy like the banks in 2008 that got a taxpayer bailout?
"Most of the private credit loans were floating rate and tied to the federal funds rate, which has persisted at a high level over the past three years. Fitch pointed to this as a catalyst for last year's defaults."
I guess it is fair to say the federal funds rate has persisted at a high level over the past three years now isn't it?
https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
Also interesting to note, "Fitch recorded NO defaults in the software sector last year. The rating agency noted it categorizes software issuers into their main target market sectors when applicable."
Since a lot of people here aren't familiar with the private credit situation, here's my understanding, which comes almost entirely from reading Money Stuff, a daily column by Matt Levine. If you are a tech person who wants to learn about finance, I recommend it! It's a lot more entertaining than most finance industry reporting.
"Private credit" is an idea that has been hot in finance for the last several years, originating from the great financial crisis (GFC). After the GFC, regulations made it very hard for banks to make business loans with any kind of risk anymore. So instead, new non-bank institutions stepped in to make loans to businesses. These "private credit" institutions raise money from investors, and lend it to businesses.
The investors are usually institutions who are OK with locking up their money long-term, like insurance companies and pension funds. This all seems a lot safer than having banks making loans: banks get their funding from depositors, who are allowed to withdraw their deposit any time they want. So a bank really needs to hold liquid assets so they are prepared for a run on the bank, and corporate borrowing is not very liquid. Insurance companies and pension funds have much more predictability as to when they actually will need their money back, so can safely put it in private credit with long horizons.
It's not quite so clean, though.
It's actually common for banks to lend money directly to private credit lenders, who then lend it out to companies. But when this happens, typically the bank is only lending a fraction of the total and arranges that they get paid back first, so it's significantly less risky than if they were loaning directly to the companies. Of course, the non-bank investors get higher returns on their riskier investment.
And the returns have been pretty good. Or were. With the banks suddenly retreating from this space, there was a lot of money to be made filling the gap, and so private credit got a reputation for paying back really good returns while being more predictable than the stock market.
But this meant it got hot. Really hot.
It got so hot that there were more people wanting to lend money than there were qualified borrowers. When that happens, naturally standards start to degrade.
And then interest rates went up, after having been near-zero for a very long time.
And now a lot of borrowers are struggling to pay back their loans on time. And the lenders need to pay back investors, so sometimes they are compromising by getting new investors to pay back the old ones, and stuff. It's getting precarious.
Meanwhile a lot of private credit institutions are hoping to start accepting retail investors. Not because retail investors have a lot of money and are gullible, no no no. 401(k) plans are by definition locked up for many years, so obviously should be perfect for making private credit investments! Also those 401(k)s today are all being dumped into index funds which have almost zero fees, whereas private credit funds have high fees. Wait, that's not the reason though!
But just as they are getting to the point of finding ways to accept retail investors, it's looking like the returns might not be so great anymore. Could be a crisis brewing. Even if the banks are pretty safe, it's not great if pensions and insurance companies lose a lot of money...
I'm not surprised. Weren't we getting signals like 3 or 4 months ago that used car repossessions were ticking up? That's a breaking point for folks. The economic boulder keeps rolling and I'm not wearing any shoes. Spiking the price of oil is definitely going to help. This too shall pass?
Important to note that this is about "U.S. corporate borrowers of private credit", so companies and not individuals.
Skip the blogspam and read the original article: https://www.reuters.com/business/us-private-credit-defaults-...
I have been following this development for a couple weeks, and now it's on HN. How long until the elevator guy tells me about it?
https://web.archive.org/web/20260312130613/https://www.marke...
^ Encase the link also responds with this for you:
Access Denied
You don't have permission to access "http://www.marketscreener.com/news/us-private-credit-defaults-hit-record-9-2-in-2025-fitch-says-ce7e5fd8df8fff2d" on this server.Private credit is cracking and lending standards are tightening behind the scenes. If you’re not building cash reserves right now you’re going to wish you had. The distressed opportunities ahead go to whoever kept dry powder while everyone else was chasing growth.
If your business is light on free cash flow (ie everyone in AI at the moment) buckle up as there are storm clouds ahead. If you’re running a business that relies on external cash (VCs, loans/bonds, etc) to keep things going things will get very ugly.
People have cried wolf or been wrong about incoming crashes and bubble pops so many times that this signal -- whether it's a good signal or not -- simply won't change anything I do.
I'm sure someone somewhere could make a trade off of this article and this signal is definitely for them.
What the hell ?! Nearly 10% ?! How can it be?! World wide, it seems to be around 4% since 2004.
Page 22 (French but it's just numbers, you can read it). <https://www.eib.org/files/publications/thematic/gems_default...>
Go figure. Employers don't want to pay living wages or hire.
The US Ponzi scheme coming to an end. It works great while everything is going up.
2008 Financial Crisis was triggered by Oil prices. There were lots of problematic structural elements that were fine if nobody looked close. Oil was just the sideway hit on the building to knock it over.
Just takes a nudge to collapse. And here we go again.
Go figure. Employers don't want to pay living wages or hire anyone these days.
Pretty sure the solution that US politicians will find will be to create new dollars out of thin air, so instead of increasing taxes they increase the money supply.
Of course this is going to increase prices, but then they can blame China / Russia / Iran whoever is the scapegoat at that time.
Stop paying rent. Stop going to work. Pirate everything. No constitution. No copyright. Starve the beast.
Don't let anyone who bought into this way of life get away with robbing the rest of us.
And don't let anyone who brought children into this cruelty hear the end of it: what they did was evil.
Misleading title*
> The default rate among U.S. corporate borrowers of private credit rose to a record 9.2% in 2025
Emphasis added. Headline makes it sound like retail credit, not corporate specifically.
*Edit: Not misleading, just an unfamiliar term/usage from my perspective. I'm not a finance guy so didn't know the difference and assumed others wouldn't either. Mea culpa.