Over the past year, the U.S. private credit industry has been experiencing a correction of sorts. After rapid expansion during the low-interest-rate environment that extended well past the Covid pandemic, the industry is now increasingly characterized by surging redemption requests, strategic fund closures, and a notable uptick in corporate bankruptcies. For an asset class estimated at more than $2.1 trillion, and so firmly entrenched that, for many, it is the primary funding source – sidestepping the lengthy application and approval processes of traditional institutional lenders – it appears the private credit business may now be facing its most challenging environment since the global financial crisis, as high interest rates and shifting market sentiment expose structural vulnerabilities.
Recent redemptions and fund closures
The structure of funds has also been evolving, allowing for more individual investor access. This has increased the need for more frequent valuation cycles and liquidity in private credit funds, and is likely also a significant contributing factor to the current state of affairs. A primary issue in early 2026 is the “liquidity mirage,” in which semi-liquid funds – designed to offer limited quarterly withdrawals – have been overwhelmed by investor exit requests and have responded by renewing emphasis on their agreements with investors on redemption caps.
A sampling of recent events of public statements to investors in the first quarter of 2026 includes:
BlackRock– enforcing 5% redemption cap despite Q1 requests for 9.3%
Cliffwater – enforcing 7% redemption cap despite Q1 requests for 14%
Morgan Stanley– enforcing 5% redemption cap despite Q1 requests for 10.9%
Stone Ridge Asset Management– enforcing 11% redemption cap despite Q1 requests for an undisclosed larger amount
In at least one instance, a fund has completely frozen redemptions:
Blue Owl Capital – Permanently froze redemptions on its main fund in February 2026, proceeding with full liquidation and return of capital over time
Recent corporate bankruptcies
Interest rates increased in the post-pandemic era to help combat inflation. However, the “higher-for-longer” rate environment has also contributed to corporate debt-servicing pressure, with private credit default rates hitting a record 9.2% in 2025.¹
There have been a slew of high-profile Chapter 7 and Chapter 11 bankruptcies in the recent past specifically related to vulnerability to interest rates and the resulting increased strain on capital structure debt loads, such as:
Fat Brands / Twin Hospitality (Chapter 11, January 2026) — Operator of fast food and casual dining restaurant chains
First Brands Group (Chapter 11, September 2025) — Aftermarket automotive industry parts supplier
Saks Global (Chapter 11, January 2026) — Parent of luxury retailers Saks Fifth Ave, Neiman Marcus brands
Sunnova Energy (Chapter 11, June 2025) — Solar energy supplier
Tricolor Holdings (Chapter 7, September 2025) — Used auto sales and subprime lender
Wolfspeed (Chapter 11, June 2025) — Semiconductor manufacturer for use in several industries
Further, given the customized nature of the private credit industry, in which participants rely on relationships, borrowers in general are afforded more flexibility than seen in traditional lending channels. As the pressures of higher interest rates continue to strain debt repayment capacity, payment-in-kind (PIK) arrangements – through which borrowers in essence defer payments and extend their loans – have grown in popularity over the past year, more than doubling from 5% to 11% of the market by late 2025. These "PIK conversions” may have been obscuring the borrowers’ underlying credit deterioration.
Valuation considerations
As these developments continue to unfold in the private credit industry, valuation practitioners must remember that the fundamental principles still apply. Repayment schedules mapped out from term sheets and loan agreements are only a first step. Expected cash flows must be carefully analyzed and assessed for recoverability. Factors influencing not only debt-servicing capacity but also the willingness of the borrower, constraints and covenants, and other company-specific risks, as well as exogenous developments concerning customers, competitors, suppliers, and related economic forces, are important aspects in valuing debt instruments in the private credit space. And if the trends we are currently witnessing with capped redemptions, fund liquidations, and corporate bankruptcies continue, perhaps even more so now than before.
Dive deeper into some of our private credit and alternative investment valuation resources:
"The Valuation of Financial Instruments in a Post-LIBOR World" FVS webcast archive
"Current Trends in Private Credit Markets" The FVS Valuation Podcast, Nov. 6, 2025.