Via pinebridge.com
US private credit market faces challenges as borrowers seek cheaper financing in Europe
Rising default rates and commoditized lending are pushing US borrowers and allocators across the Atlantic, where private credit is booming
The $1 trillion US private credit market is watching its borrowers do something that would have been unthinkable a few years ago: shop for better deals in Europe.
The US default problem
The US private credit default rate hit 5.8% as of January 2026. Projections suggest the rate could climb to 8%, driven in part by disruptions that artificial intelligence is causing in the software and SaaS sectors.
A PwC survey found that 93% of credit managers in the US expect flat or declining returns in 2026.
Europe’s quiet ascendance
Europe raised a record $65 billion in private credit funding through the first nine months of 2025, a 14% increase over the same period in 2024.
Non-bank lending in Europe and the UK accounts for just 12% of total lending. In the US, that figure is 75%.
European direct lending transactions are typically priced 25 to 50 basis points higher than their US equivalents.
What’s driving the divergence
The AI disruption angle deserves more attention than it’s getting. Private credit portfolios in the US are heavily weighted toward technology and software companies. These businesses were considered near-perfect borrowers: recurring revenue, high margins, low capital expenditure. But generative AI is reshaping competitive dynamics in software faster than most credit models can account for.
What this means for investors
The shift has real implications for portfolio construction. Investors with heavy allocations to US private credit should be stress-testing their exposure to technology and software borrowers specifically. The jump from 5.8% to a potential 8% default rate would represent a meaningful deterioration in portfolio returns.
European private credit offers a genuine diversification benefit, but it comes with its own considerations. Currency risk, different legal frameworks for creditor protections, and less standardized documentation all add complexity. The 25 to 50 basis point pricing premium partially compensates for these frictions. The 12% non-bank lending penetration in Europe suggests the market has years of structural growth ahead.