🚨 PRIVATE CREDIT MAY BE THE TRIGGER FOR THE NEXT FINANCIAL CRISIS.

Private credit defaults just hit their highest level ever recorded. Fitch's U.S. Private Credit Default Rate hit 6.0% through April 2026.

That's the highest since this data started being tracked in 2024.

Just three months earlier, in January, it was 5.8%, which was already a record at the time. For all of 2025, defaults came in at 9.2%, beating the old record of 8.1% set in 2024.

And the real number is worse than what's reported.

Some borrowers are avoiding an official default by paying their interest with more debt instead of cash. This is called a PIK loan.

The lender still counts it as income, even though no actual cash came in. This practice has more than doubled since 2022, from 5% to 11% of all private credit loans.

Companies using this method have pushed their debt up to 76% of their total assets, up from 40% three years ago. It's a way of delaying a default, not avoiding one.

Two of the biggest lenders, Ares Capital and Blue Owl, both said around 15% of their income last year came from these non-cash payments. The clearest real example of the risk is Medallia.

Thoma Bravo bought the software company for $6.4 billion in 2021. Its revenue later stalled because of AI competition, and lenders had to take control of the company. $5.1 billion in shareholder value was wiped out, and the loans were marked down to 60 cents on the dollar.

Blackstone, Apollo, and FS KKR all took losses on this deal.

Software companies are a big part of the risk here, making up somewhere between 19% and 35% of private credit loans, depending on the estimate. Morgan Stanley expects 11% of these loans to come due by the end of 2027, with another 20% due the year after.

That's when companies will need to refinance old debt, and many may not be able to on the same terms.

At the same time, investors are trying to pull their money out of these funds. In the first quarter of 2026, they requested $13.9 to $20 billion in withdrawals. Only about $7.4 billion, roughly half, was actually paid out.

Some investors selling their positions on the secondary market are accepting 30% to 65% less than the fund's stated value, just to get their cash back sooner.

The part that gets the least attention is who actually holds this risk. U.S. life insurance companies hold $849 billion in private credit. If defaults keep rising, insurers are the ones who absorb it, not banks.

That risk moves quietly through retirement and insurance policies, long before it shows up as a major headline.

Warren Buffett has said the risk is more serious than that, pointing to how connected banks already are to this market. Either way, the default rate is already at a record, and the loans most at risk from AI disruption haven't come due yet.