What is the private credit default rate? It depends on how you measure it (and more importantly, who you ask).

In the US, Fitch Ratings recorded a default rate of 6.0% in June for the trailing 12 months (TTM) while Proskauer put the number at 2.51% for the second quarter. 

Fitch put the European TTM default rate at 2.0%, but raised its forecast to 4.0-4.5% for 2026 because of "greater credit quality differentiation among investors rather than a broad deterioration across the market" 

Managers therefore need to watch their portfolios closely. The first signs of distress tend to surface in a borrower's reporting and cash behaviour well before a payment is missed, according to David Yahalomi, co-founder and chief operating officer of loan management software company Hypercore.

"Some funds have developed a knack for identifying these things quite early," Yahalomi says." People have intuition about weird language, weird communication, a delay in financial reporting, a slightly different style, things being omitted."

Other financial signs include delays to scheduled drawdowns and slippage against covenants. European direct lending funds still rely heavily on covenants: 89% of their deals in the first quarter had at least one, according to KBRA Direct Lending Deals.

"It's rarely just a default right away," Yahalomi explains. "There's a decline, and you want to identify it as quickly as possible, because there are a lot of ways to relieve financial stress within these companies and get them back on track."

Spotting the early signs is harder than it sounds, Yahalomi argues, because of scale and data. Loan data is often kept differently by each manager, with amortisation schedules amended several times. 

"It's intuition that's built into the more experienced fund managers and portfolio managers, and these signals require a lot of attention," he says. "If someone manages a bunch of different positions, those signs might be a bit elusive."

Hypercore's platform holds communications, amendments and loan agreements alongside live loan data. The company has also opened its platform to clients' own AI agents through the Model Context Protocol, an open standard for connecting AI tools to other software.

Hypercore raised a $13.5m Series A led by Insight Partners in February and launched its AI Admin Agent in May.

Founded in 2020 and based in Tel Aviv, the company offers loan management software for private credit funds. It says its platform manages more than $30bn across more than 10,000 loans.

By Will Bennett-Lynch.

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