Non-Accrual Loan Ratio Hits 10-Year High! Delinquency Rates in Private Credit Reach 5-Year Peak, Software and Healthcare Lead Defaults

Recent data shows that private credit is undergoing its most severe stress test in nearly a decade. The non-accrual ratios of major listed private credit funds such as Ares, Blackstone, Blue Owl, and Golub Capital have climbed to near ten-year highs. For business development companies (BDCs) and other private credit vehicles, this level hasn't been seen since 2015 during the oil price crash when energy borrowers were collectively pressured. Some funds have already initiated portfolio write-downs and explicitly stated in letters to investors that "problematic loans are increasing."

According to the Financial Times, this wave of bad debt accumulation exhibits a clear pattern of "delayed repayment distress." During the zero-interest-rate, high-valuation era of 2020–2021, private equity firms used high leverage to acquire mid-market enterprises. Software, healthcare, and oil-price-sensitive, highly leveraged borrowers were the primary lending targets. Today, with the Fed's policy rate remaining elevated, the software industry is further disrupted by AI-driven restructuring of SaaS business models, causing cash flow to rapidly weaken relative to interest obligations. Some companies are already unable to make regular interest payments.

Blue Owl's flagship direct lending fund saw its Q2 non-accrual rate rise to 2.8%, a five-year high. Ares, Blackstone's listed BDCs, and Golub-related vehicles have also reached at least five-year highs. Dental healthcare service providers and plastic film manufacturer Loparex have become typical examples of bad debt, while software exposures (accounting for over 20% in most funds) are being flagged by analysts as the next ticking time bomb.

In response to these pressures, fund managers are taking two paths. One involves tightening underwriting and proactively selling off software-related loans to limit losses, avoiding negative attention that could disrupt their larger goal of packaging private credit for sale to insurers, pension funds, and sovereign wealth funds via securitization. The other path involves senior executives stepping in to reassure investors, stating that most loans remain in good standing and accusing the media of "manufacturing panic."

David Golub, Co-CEO of Golub Capital, offered the most neutral assessment: "We're clearly in a credit cycle—not particularly dire, but there will be winners and losers."

Regulators and markets currently do not classify this as a systemic financial risk. The issue is concentrated on loans from the 2020–2021 cycle reaching their refinancing window, rather than immediate contagion. However, semi-liquid products (interval funds, non-traded BDCs) are already seeing double-digit redemption request rates, with some funds activating redemption gates.

In the short term, non-accrual ratios, write-down magnitudes, and redemption pressures will continue to suppress BDC valuations. In the medium to long term, the ability of managers to handle distressed assets and negotiate loan extensions will be tested. If the U.S. economy slows or high interest rates persist longer, pressure will escalate further. Conversely, if software fundamentals recover through AI-driven cost reduction and efficiency gains, some troubled loans may gradually heal. The current signal is clear: private credit has officially entered its default confirmation phase from being a "10% return hot asset."