Morningstar

Private Credit Stress Grows as Software Names Add Pressure

Of the roughly 5,000 companies held by BDCs at the end of March, 10.6% showed signs of credit pressure.

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Private credit is grinding through a rough patch in the cycle, seeing lower base rates, an approaching maturity wall, and heavy reliance on payment-in-kind income where borrowers defer payments on their debt. The mood has darkened to match. For a second straight quarter, survey respondents identified a negative perception of the asset class as its top challenge, ahead of credit stress.

Second-quarter filings from business development companies (investment funds that lend to small and medium-sized borrowers) are expected to show more quiet restructurings and exits of troubled positions. The latest PitchBook LCD data backs up the unease. Stress is climbing both in borrower count and dollar exposure, with software names accounting for more than a quarter of companies under pressure. Of the roughly 5,000 companies held by BDCs at the end of March, 538 (10.6%) showed signs of some degree of credit pressure, according to LCD’s analysis of more than 170 BDCs.

More companies held by BDCs have been seeing strain over the past year. At the end of December 2025, 9.9% of all borrowers held by BDCs showed signs of credit pressure, while in December 2024, 8.9% did.

Key Findings

  • The number of companies held by BDCs that showed some degree of credit pressure rose by 15% in the first quarter to 538.
  • Volume of first-lien TL and unitranche investments under pressure rose by 44% in the first quarter to USD 35.4 billion.
  • The software industry accounts for the largest share of borrowers under pressure, representing 26% of investments at fair value as of the first quarter of 2026, up from 19% at the end of 2025.
  • Most stressed borrowers are still paying cash. Of the 538 companies on the watchlist at the end of March, half did not use payments in kind in the last 12 months.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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