Private credit defaults vary significantly by reporting source, creating a transparency problem for investors

Depending on who you ask, private credit is either performing just fine or showing real cracks. Manager-reported default rates hover around 1-2%. Fitch Ratings puts the number at 6.3%. That’s not a rounding error. It’s a canyon-sized gap in one of the most important metrics investors use to gauge risk in a multi-trillion-dollar asset class.

The discrepancy boils down to something deceptively simple: different institutions define “default” differently. And in a market that lacks the standardized public reporting found in high-yield bonds or syndicated loans, those definitional choices matter enormously.

The numbers, and why they don’t agree

Fitch’s trailing twelve-month default rate for US private credit hit 6.3% through August 2026, ticking up from 6.1% in July. In August alone, Fitch counted 14 default events involving 11 unique borrowers and 3 repeat offenders.

Two sectors are bearing the brunt. Healthcare providers and industrial/manufacturing companies each reported default rates near 9.9%, roughly one in ten borrowers in those categories.

But walk across the street to Proskauer’s Private Credit Default Index and you get a very different picture. Their Q2 2026 reading came in at 2.51%, actually down from 2.73% in Q1, across a portfolio of 716 loans with $195.6 billion in original principal.

KBRA, another rating agency, has published its own elevated readings, though its methodology diverges from both Fitch and Proskauer. Meanwhile, Houlihan Lokey’s Q2 2026 data shows defaults affecting 2.5% of borrowers by count.

Small borrowers, big problems

The real stress is concentrated among smaller companies, specifically those with less than $20-25 million in EBITDA. According to Houlihan Lokey’s latest data, roughly 12% of these smaller borrowers were trading below 90 cents on the dollar in Q2 2026.

Some of the stress factors Fitch flagged are particularly revealing. Extended maturities, where lenders push out repayment deadlines rather than force a reckoning, and PIK conversions, where cash interest payments get swapped for additional debt, are both mechanisms that can obscure deterioration. A loan that gets restructured this way might not show up as a default in one manager’s book while triggering a default classification under a rating agency’s stricter criteria.

Why standardization remains elusive

Public credit markets solved this problem decades ago. If a company misses a bond payment, everyone agrees that’s a default. The terms are standardized, the data is public, and rating agencies can independently verify what happened. Private credit operates under fundamentally different conditions.

Loan agreements are negotiated bilaterally. Amendments happen behind closed doors. A manager might classify a PIK toggle as a negotiated modification rather than a distress event. Another might count it differently. Neither is necessarily wrong. They’re just measuring different things and calling them by the same name.

For investors allocating capital to private credit funds, this creates an obvious due diligence challenge. Comparing Fund A’s reported default rate against Fund B’s is close to meaningless without understanding the underlying methodology. A manager reporting 1% defaults could, in theory, be sitting on the same portfolio quality as one reporting 5%, depending on how aggressively they classify credit events.

What this means for the market

If the “real” rate is closer to Fitch’s 6.3% than to the 1-2% managers report, then the risk-return profile of the asset class looks meaningfully different than what many allocators signed up for.

The sectoral concentration adds another dimension. Healthcare and industrials at nearly 10% default rates suggest that portfolio construction, not just credit selection, drives outcomes.

With 12% of smaller credits trading below 90 cents on the dollar, there’s a meaningful tail risk that current default metrics haven’t fully captured yet.

For institutional investors already committed to the asset class, the practical takeaway is straightforward: ask your managers how they define defaults, compare that definition against rating agency methodologies, and assume the truth lives somewhere between the rosiest and grimmest numbers.