Private credit default rate hits a record as Washington starts asking questions

Fitch Ratings said the US private credit default rate reached a record high in August^2,3. The trailing 12-month rate across 1,300 borrowers rose to 6.3 percent at the end of the month, surpassing the previous high of 6.1 percent¹. Fitch’s own leveraged finance note carried the same figure, putting the US private credit default rate at 6.3 percent in August⁴.

The data landed alongside a set of disclosure fights. Senator John Fetterman wrote to the SEC and the CFTC urging greater private credit market transparency, saying he is “deeply concerned about the mounting risks in private credit markets” and pointing at Form PF, the disclosure form used by private funds⁶. Separately, Senator Elizabeth Warren opened a probe into private equity’s bet on life insurers, with her office arguing that “Congress needs to understand the current regulatory gaps federal policymakers must address” to mitigate the risks private credit poses⁷.

Why it matters to investors

Defaults are the visible number; the disputed one is valuation. A Morningstar analysis warns that stale, inconsistently revalued private credit funds continue to mask real risk during market stress⁸. Listed vehicles are where that gap shows up first: investors are pricing more risk into listed private credit trusts, structured as listed investment trusts, with some trading at wider discounts⁹.

There is also leverage that sits above the loan book rather than inside it. The Wall Street Journal reported that regulators grappling with private credit risk may be overlooking fund-level debt, which lenders use to manage cash flows⁵. That is borrowing at the fund, not the borrower, and it does not appear in a default rate at all.

Read together, the three strands describe the same problem from different angles: rising realised losses¹, marks that may lag those losses⁸, and borrowing the supervisors are not fully seeing⁵.

What to watch

Whether the default rate keeps climbing. The August print broke a prior record rather than bumping against it, and the margin over the old high was narrow¹, so the next monthly reading decides whether this is a trend or a peak.

Whether the Form PF request turns into a rule rather than a letter⁶, and whether the Warren inquiry into life insurers pulls insurance regulators into the same conversation as securities regulators⁷. And whether listed trust discounts widen further, since the public market is currently the only place private credit gets marked daily^8,9.