Second Quarter 2026 in Credit: Update

“Risk comes from not knowing what you’re doing.”  

— Warren Buffett  

Private credit default rates are climbing. Private equity’s liquidity problem, which we’ve been watching for months, is starting to show up in places that matter to our clients directly. And forward-looking managers are already finding ways to turn this environment into an opportunity.  

We want to walk through all of it.  

A Broader Shift: Private Credit Defaults Are Climbing  

A year ago, we flagged rising stress in middle-market credit. Those signals are now showing up in the data.  

Fitch recently reported that the U.S. private credit default rate reached 9.2% in 2025, up from 8.1% the prior year, with the highest incidence of default among smaller issuers, specifically companies with EBITDA of roughly $25 million or less.  

At the same time, private equity fundraising has hit a 10-year low. Global PE firms raised $408 billion last year, the lowest annual total since 2016. The industry is sitting on an estimated $3.8 trillion in unsold assets, and distributions to investors hit their second-lowest level since the 2008 financial crisis.  

These two stories are connected. When sponsors are cash-constrained, their portfolio companies often become more conservative about working capital: longer payment terms, slower approvals, smaller order sizes, more friction around disputes. It doesn’t always signal a company in crisis. But it does change behavior in ways that are easy to miss if you’re not watching closely.  

First-lien lenders have, in many resolved cases, recovered at or near par, so rising defaults don’t automatically mean catastrophic losses. But the margin for error is narrowing. Floating-rate structures, limited secondary liquidity, and hold-to-maturity dynamics all mean that when a credit goes wrong, outcomes depend heavily on the quality of original underwriting and the speed of workout.  

On Our Desks: Non-Payment Insurance as a Differentiator 

Next, a thought for private credit fund managers who are watching the default data and wondering what to do about it.  

Private credit has matured. Yield alone is no longer enough. Institutional investors are asking harder questions: What breaks this portfolio? How fast do I get capital back in a downside? What happens if recoveries disappoint?  

One structural tool that remains underutilized is non-payment insurance. Used selectively, it protects insured principal and interest against borrower default, converts credit risk into insured counterparty risk, and accelerates loss recovery timelines.  

Non-payment insurance is not a substitute for good underwriting. It assumes sound credit selection is already in place. What it adds is loss-recovery certainty, counterparty credibility, and a cleaner answer to LP due diligence questions. Instead of “we expect recoveries over time,” you can point to contractual claim mechanics, rated insurer balance sheets, and defined settlement timelines.  

Behind the Scenes: How We’re Thinking About Risk Right Now  

At its core, risk management is about evaluating an evolving opportunity set. Conditions are not static. Periods arise, sometimes gradually and sometimes suddenly, where the risk landscape shifts in ways that require a fresh look at existing exposures.  

When that happens, the guiding question is always the same: does your current coverage match the risks you’re actually carrying?  

This can mean different things for different clients. For some, it means reassessing limits on PE-backed buyers whose payment behavior has changed. For others, it means adding political risk coverage on exposures they previously considered low-risk. In some cases, it simply means a review to confirm that what’s in place still fits.  

If it’s been more than 12 months since you’ve reviewed your credit or political risk coverage, this environment is a good reason to do it now. We’re here to help with that.  

Closing Thoughts  

It’s a complicated environment. Rising defaults and PE liquidity pressure are not going away quickly. But each of them is manageable with the right information and the right coverage in place.  

Our job is to help you stay ahead of it.  

Disclaimer 

This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies.  It is not meant to supersede any policy requirements.  Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation. 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop trade credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.