News & media Not all private credit is equal: why the stress headlines miss the point
When market commentary warns of mounting stress in private credit, it is worth asking: which private credit, exactly?
Much of the current anxiety around private credit rests on a category error. The segment generating the headlines, the US corporate private credit market, and the segment many investors operate in are not the same. They have different origination dynamics, different structural protections, and very different exposure to the pressures currently making investors nervous.
Yet too often, private credit is discussed as if it were a single, uniform asset class, despite fundamentally different underwriting models, asset protections and risk dynamics sitting underneath the label.
The stress currently surfacing in private credit is real. But it is concentrated in US corporate direct lending, and the market is making a category error when it reads stress in US corporate direct lending as a signal for infrastructure credit broadly.
Where the stress is actually emerging
The private credit market now stands at roughly $3.5tn in global AUM, with the US accounting for around 65% of the market. 17 of the 20 largest private credit managers globally are US-based, and if you narrow the lens to the segment currently under most stress, that concentration rises further still. Corporate direct lending has overwhelmingly been a US phenomenon, originating through a competitive auction process and underwritten primarily on projected corporate cash flow rather than underlying asset security.
Many of these loans originated in volume between 2020 and 2022, often through a highly competitive process with limited time for due diligence and increasingly loose documentation. As capital flooded the market, spreads in US corporate direct lending compressed by more than 100 basis points from their 2023 peak, with lenders increasingly competing on speed and pricing to win mandates. But now, they are being tested by a rate environment few originally underwrote for. So yes, that stress is real and deserves attention. But treating it as representative of private credit as a whole is precisely where the market’s category error begins.
Headline default rates in US private credit have remained nominally below 2%, an acceptable rate, but once PIK structures and liability management exercises are included, Fitch estimates that the true stress rate is closer to 6%. PIK usage among publicly traded BDCs now accounts for around 8% of investment income, a sign that increasing numbers of borrowers are preserving liquidity by rolling interest into principal rather than paying cash.
These are not insignificant pressures. But they are pressures concentrated in corporate direct lending done through competitive, sponsor-driven processes. The result is a large body of loans that are tightly priced, lightly covenanted and operationally dependent on borrower performance, precisely the profile most vulnerable to rate stress and earnings pressure.
Infrastructure credit is a different animal
Infrastructure credit operates very differently, and grouping it into the same risk narrative as US corporate direct lending creates more confusion than clarity.
At its core, infrastructure lending is asset-backed. The debt is secured against physical assets, networks, and essential services infrastructure, not against the projected earnings of a leveraged corporate borrower.
The origination process matters here too. Unlike US corporate direct lending, which has been driven by highly competitive sponsor-led processes with limited time for due diligence, infrastructure credit, particularly in the UK and Europe, has historically been more bilateral and relationship driven. Transactions tend to involve deeper diligence, greater lender engagement and structures negotiated between known counterparties rather than won through compressed auction timelines. This distinction produces materially different risk dynamics.
Why the origination question matters too
The difference in underwriting approach has direct implications for risk.
A Goldman Sachs analysis of European private credit stress events since 2017 found deterioration concentrated overwhelmingly in cyclical corporate sectors such as consumer, retail and industrials. Infrastructure featured minimally. European infrastructure debt has, broadly, continued to demonstrate stable credit quality through 2025, supported by contracted revenues, essential-use assets and stronger structural protections. The illiquidity premium in European infrastructure debt also held at around 100 basis points above comparable public market equivalents through 2025, reflecting stable pricing dynamics rather than the same competitive pressures driving spread compression in US corporate lending.
This is not to suggest infrastructure credit is immune from pressure. Refinancing risk, permitting delays, power availability constraints and assets originated at peak valuations all require careful underwriting discipline.
But the broader market narrative increasingly risks conflating two fundamentally different forms of lending. That conflation matters because it encourages investors to read stress in one corner of private credit as though it were systemic across the entire asset class.
Reading the risk correctly
US corporate direct lending and European infrastructure credit differ materially in how deals are originated, how risk is assessed, what underpins cash flow resilience and how lenders engage with borrowers over time.
The market is increasingly making a category, where it is treating stress in US corporate direct lending as though it were representative of private credit as a whole. It is not.
For investors, that matters, because in periods of market dislocation, opportunities are often created when structurally different assets become grouped together under the same risk narrative. Those who understand that distinction and who distinguish between structurally different forms of lending, rather than treating private credit as a single uniform market, are better placed to navigate what comes next.