News from Gate, March 19 — According to Fitch Ratings data, default rates in the private credit market are projected to rise to 9.2% in 2025, up from 8.1% last year and surpassing levels seen during the 2008 financial crisis. The private credit market currently stands at $1.8 trillion and is facing liquidity challenges. High interest rate environments are increasing borrowing costs for small businesses. Companies with EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) below $100 million are struggling under floating-rate debt (debt with interest rates that fluctuate with the market), with default rates among small borrowers reaching 15.8%. Despite the rising default rates, losses remain controlled as lenders prefer restructuring over bankruptcy, often recovering close to the original loan amount. However, the secondary market for this debt—where issued bonds are resold—is limited, estimated at only $100 billion, posing liquidity risks and causing some funds to face redemption pressures. As the private credit market expands, its liquidity mismatch and reliance on flexible financing are being scrutinized, potentially exposing vulnerabilities if economic conditions worsen.
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