Private credit continues to lurk in the background of financial markets, with the default rate hitting an all-time high in April, according to Fitch Ratings.

The war in Iran has dominated Wall Street’s attention for the past 12 weeks, but earlier in the year, strains in the private credit industry caused consternation throughout the markets. New data suggest those issues have not eased, and the sector continues to face persistent pressures.

Fitch Ratings reported that its Private Credit Default Rate (PCDR)—the firm’s flagship metric for monitoring defaults—jumped to a record high of 6 percent in April since its series inception in August 2024. This is up from 5.7 percent in March.

Last month, Fitch, which tracks approximately 1,500 U.S. private credit issuers, recorded 10 broad-based private credit defaults.

Industrial and manufacturing borrowers accounted for four of the defaults, while business services contributed two. Consumer products, transportation and distribution, pharmaceuticals, and cable each had one default event.

Additionally, it logged four serial defaulters—issuers that have defaulted multiple times

While exposure to artificial intelligence (AI) has been a leading cause for turmoil in private credit, inflation fueled by Middle East tensions is adding further stress to some sectors, Fitch says.

The consumer products sector continues to post the highest default rate among the major PCDR categories, coming in slightly above 11 percent, little changed from the previous month but nearly double April 2025 levels.

“Fitch highlights that while North American corporates are mostly insulated from the direct impact of the Iran conflict, as it persists, consumer-oriented sectors are among the most vulnerable. Inflationary pressures continue to squeeze household budgets and reduce demand across consumer sectors,” the report stated.

This comes one month after Moody’s downgraded its outlook on private lenders—also known as business development companies—to negative.

Still, at the heart of private credit turbulence is AI.

AI and Private Credit

Scores of private investment firms—Apollo, Blackstone, Blue Owl, and others—remain in trouble, as investors fear AI will upend software firms’ business models.

The so-called software scare—also known as the SaaSpocalypse—had generated consternation across financial markets due to developments such as Anthropic’s Claude agent.

“Private credit happens to have a lot of exposure to software,” Leyla Kunimoto, investor and founder of the newsletter Accredited Investor Insights, said in an interview with Siyamak Khorrami, host of EpochTV’s “Markets Insider.”

“Twenty-five percent … of all loans in those vehicles are to software companies,” she said. “There’s been a lot of concern about how those borrowers, if AI becomes a massive disruptor—as we expect it to be—how are those borrowers going to be able to repay the loan?”

At the same time, private credit has contributed to the AI boom, something that could backfire for the industry, says one global financial watchdog.

The Swiss-based Financial Stability Board warned in a May 6 report that a sharp reversal in asset valuations could exacerbate credit losses for private credit investors.

“This could be triggered by any significant shortfall in the supply of electricity, a critical factor in the construction and operation of datacentres, which could lead to delays or cancellations of projects,” the group stated.

Contained Stress

Market watchers have debated whether systemic risks are building or if the stress is constrained.

Similarities have been shared with the early days of the global financial crisis 20 years ago. But the consensus view is that the $2 trillion market will not emulate what happened in 2008.

“Over the past five years or so, [private credit] has grown rapidly, but it’s nowhere near where it’s a systemic risk, in my opinion,” Kunimoto said.

With the U.S. economy entrenched in a low-rate environment over the last two decades—almost zero in the aftermath of the pandemic—retail investors have been hungry for yield. This has supported the industry’s aggressive expansion.

At the same time, this does not mean private credit will avoid change, said Christan Hoffmann, head of fixed income at Thornburg Investment Management.

“Productivity gains are broadly good for business, but AI will reshape winners and losers, particularly in areas like private credit,” Hoffmann told The Epoch Times in an emailed note.

“The risk is a potential hangover if the rate of investment slows.”

The good news is that these investment firms could be moving on from market jitters.

Blue Owl Capital, which had been at the center of private credit turbulence, reported massive gains from its SpaceX investment.

“We made about 10 times our money on that investment,” an executive said on the firm’s first-quarter earnings call last month. “We have sold about half of it at a $1.25 trillion valuation, still holding about half of it.”

This windfall, the company says, “is going to change the fundamental flight path.”

But the New York-based alternative asset management firm also beat Wall Street estimates for first-quarter profit. It also raised $11 billion in new capital commitments and bolstered assets under management.