Three Indices, One Asset Class: Why Private Credit's Default Rate Disagreement Is the Real Stress Signal

John Grey — Private credit & macro desk

Three institutions publish a private credit default index. Proskauer, the law firm whose private credit practice handles the documentation for a substantial share of the direct lending market, reported its Q1 2026 number on April 27: 2.73%, up from 2.46% in the fourth quarter and 1.84% in the third. Fitch Ratings, the same week, told subscribers its trailing-twelve-month private credit default rate had reached 6.0% through April — the highest figure the agency has tracked since launching the index in 2024, with 5.8% in January having already set the prior record. KBRA, the third major tracker, reported 3.1% in its most recent monitor, down from a 2025 peak of 3.9% and the first decline the agency has recorded since 2024. The Proskauer number says the cycle is turning up modestly. The Fitch number says the cycle is in record-territory stress. The KBRA number says the worst is already behind us. All three institutions are credible. All three numbers are real. They are not measuring the same thing.

The conversation about private credit is asking the wrong question. Markets are debating which default rate to believe, weighing it against the 41% redemption notice Blue Owl received from a $6 billion fund in April, against the 19% drop in BlackRock TCP's net asset value per share in January that is now under Justice Department review, against the 24% quarterly NAV decline at Blackstone Secured Lending Fund, against the surge in the 10-year Treasury through 4.68% and the 30-year through 5.19%. The right question is not whether private credit's default rate is 2.7%, 3.1%, or 6.0%. It is why an asset class that has reached an estimated $2 trillion in assets under management — up from roughly $150 billion two decades ago, by Howard Marks's count — has produced not a single shared definition of distress, and what that absence implies about every BDC NAV report being filed this quarter.

The methodology question buried under the headline

The Proskauer index is built from loan documents the firm's private credit practice touches directly. Its Q1 2026 cohort covers 697 loans representing $189.2 billion in original principal, captured through the law firm's day-to-day lender-side work. It records a default the moment a covenant trips, a missed payment occurs, or a loan is restructured — but only across the borrowers Proskauer's practice sees. Stephen A. Boyko, the partner who co-founded the firm's private credit group, framed the Q1 reading in carefully bounded language.

"The first quarter reflects a continuation of the modest upward trend in defaults that began in mid-2025. While there are signs of pressure in certain segments, overall levels remain relatively contained and continue to track below those in the broadly syndicated loan market. Despite concerns about the performance of loans in the software and technology sector, default rates in that industry have remained relatively stable."

Fitch's number, by contrast, weights the universe differently. The agency tracks default events across a private credit dataset that includes a wider band of unitranche, second-lien, and PIK-heavy structures, and it counts maturity extensions executed under stress as defaults whenever the modification meets its distressed-exchange criteria. The agency recorded ten private credit defaults in April alone, and seven of those involved maturity extensions pushed one or two years past their original dates. That is a definitional difference, not a measurement error. A loan that Proskauer's practice records as a successful amendment-and-extend exercise, Fitch records as a default. KBRA's index applies a third lens, weighted more heavily toward larger sponsor-backed borrowers and treating amend-and-extend transactions more conservatively. KBRA's reading is now declining because its tracked cohort has resolved several of the late-2025 stress points through securitization and term-loan extension structures — what William Cox, KBRA's chief ratings officer, told CNBC are the financial-engineering steps "mitigating potential impacts within the sector."

None of this is hidden. The methodology documents are public, the index inclusion criteria are disclosed, the differences are explainable to any senior credit analyst on a desk. What is striking is that, three years into a sector that now manages more capital than the entire US high-yield bond market, the headline default rate can vary by a factor of two depending on whose definition you accept — and that fact alone is the most informative number any of these indices have produced.

What the divergence reveals about NAV marks

The default index disagreement is a downstream symptom of a more structural problem: private credit loans do not trade. They have no observable price. Their valuations are determined by fund managers, marked quarterly, audited externally only once a year, and disclosed to investors in the form of a single net asset value per share. The whole edifice of BDC reporting, retail unit pricing, and redemption mechanics rests on the assumption that those marks are accurate enough to absorb the level of selling pressure the system is now generating. Howard Marks, writing in his April 2026 Oaktree memo, framed the conceptual problem more directly than any index can.

"Direct loans embody no less credit risk than liquid credit instruments such as high yield bonds and broadly syndicated loans. It just isn't reflected as readily in prices."

That sentence is the contrarian case in eighteen words. Volatility is not risk. Lack of mark-to-market price disclosure does not lower the underlying credit risk of an asset; it only delays its expression. When the same asset class produces three default rates that differ by 330 basis points, the most honest read is that the marks themselves carry that range of discretion. Investors who exited a non-traded BDC at a stated NAV in February did so at a price determined by a manager's judgement about loans for which no secondary market exists. Investors who stay are now relying on the same judgement, applied quarterly, against a backdrop in which Blue Owl Capital received notices in April to withdraw 41% of one $6 billion fund and 22% of a $36 billion fund — figures the NYT confirmed and the company itself disclosed.

The realized-loss case for calm

The pushback to all of the above is not theoretical. Amanda Lynam, BlackRock's head of macro credit research, made it on the Goldman Sachs Exchanges podcast on May 11.

"A lot of the focus on the headlines are actually occurring against a backdrop where the fundamentals of private credit have actually been pretty resilient. When you look at realized losses, what you find is that through year-end 2025, realized losses are below the historical average and are tracking generally in line with the public credit markets, high yield, and leveraged loans."

The realized-loss data is real, and it is genuinely below historical averages. BDC payment-in-kind income has held in a 7-8% range over recent quarters, non-accrual rates are not outsized, and BDC leverage is materially lower than the regulatory 2:1 debt-to-equity ceiling. Vishwas Patkar, Morgan Stanley's credit strategist, framed the same point for CNBC clients on May 21, noting that while private credit was experiencing higher defaults, "the risks do not appear to be systemic." Both arguments are defensible. The Marks counter is also defensible. The reason the two views can coexist with so little reconciliation is precisely the absence of a single benchmark to litigate them against.

What this means for the litigation pipeline

The legal community has already moved on the question that markets are still debating. The first quarter of 2026 saw a wave of securities class actions filed against publicly traded BDCs under Section 10(b) and Rule 10b-5, alleging misstated net asset values, delayed loss recognition, and inadequate valuation processes. Quinn Emanuel's late-April client alert on emerging litigation risks in private credit identified the BDC valuation question as the single most likely flashpoint for fiduciary disputes over the next eighteen months. The Financial Stability Board's May 6 report on private credit vulnerabilities reached the same conclusion through a regulatory lens: "valuation practices and limited data transparency pose challenges. Valuations are often conducted less frequently and may involve significant discretion, which can amplify uncertainty during times of stress." The FSB does not write language that strong without expecting member regulators to act on it.

Our view

Three default indices producing three different headline numbers is not a measurement problem. It is the asset class telling investors something true about its own structure. The reason private credit's reported default rate is 2.7% in one index and 6.0% in another is the same reason a non-traded BDC can hold a redemption request for years before honoring it: the marks are discretionary, the methodologies are private, and the underlying loans cannot be repriced by anything other than a manager's judgement. The realized-loss data is genuinely benign. The methodological divergence is genuinely a stress signal. Both are true. We would position around three things over the next two quarters. First, expect a regulatory push — likely SEC-led on the BDC side, FSB-coordinated on the international side — toward more frequent and more standardized private credit valuations. That push raises the cost of capital for managers whose marks have been most discretionary and will compress reported NAVs across the industry as the new methodology takes hold. Second, expect continued bifurcation between the publicly traded BDC universe (which can be sold at a discount and increasingly is) and the non-traded universe (which can only be redeemed at stated NAV, subject to gates). The discount-to-NAV gap in the public space is the cleanest real-time read on what the market actually thinks the loans are worth. Watch it widen into the regulatory response. Third, on the credit itself: we are constructive on the larger, sponsor-backed direct lending borrowers whose stress has been resolved through amend-and-extend structures that KBRA's index now captures as cured. We are more cautious on the sub-$25 million EBITDA cohort, where Proskauer's data shows the cleanest upward default trend (1.7% to 2.3% in one quarter) and where Fitch's higher reading is most concentrated. The headline rate disagreement is not noise. It is the asset class disclosing how its own marks are built. Position accordingly.

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security or asset. Solomon Grey Capital and its affiliates may have positions in the entities discussed. Quotations attributed to named individuals are sourced from publicly available statements as cited in the article.