Q1 2026 Private Debt and Growth Forecasts

The private credit market entered the first quarter of 2026 characterized by a competitive environment between private credit and broadly syndicated loan markets, following a period of accelerated dealmaking in M&A, private equity, and credit markets at the end of 2025.

Market conditions in early 2026 are being shaped by a combination of Federal Reserve uncertainty, the implementation of tariffs, and evolving regulations. According to analysis from McDermott, the start of the year has been marked by record loan repricings and a renewal of initial public offering exits.

Private Credit Portfolio Performance

Data from the Q1 2026 State of Private Credit Benchmark Report, which analyzes 71 private credit funds managed by firms with more than $1 trillion in aggregate assets under management, indicates that loan quality remains stable. The report utilizes median quarterly fund-level data derived from SEC filings and manager reporting as of the end of September 2025.

Key performance metrics as of the end of the third quarter of 2025 include:

• Loan-to-value (LTV) ratios are approximately 40%.
• Approximately 90% of loan assets are first lien loans.
• Non-accruals ended the third quarter of 2025 at 0.9%, with the highest rates found in Lower Middle Market funds.
• Payment-in-kind (PIK) interest was marginally lower in the third quarter of 2025 compared to the first and second quarters of 2025.

The benchmark report notes that non-accrual trends are not considered concerning when compared to the historical realized loss rate for the asset class, which has been approximately 1% annually over the last two decades.

Impact of Interest Rates on Leverage

Corporate borrower metrics have shown marginal improvement in leverage ratios (debt/EBITDA) and interest coverage ratios (EBITDA/interest). This trend is attributed in part to interest rates continuing to decrease over several quarters leading up to 2026.

In the broader fixed income landscape, PGIM describes the current environment as the fourth year of a yield is destiny bond bull market. While spreads generally widened during 2025, they remain tighter than average, with flat credit curves affecting valuations on high-quality assets.

Asset Class Forecasts

Long-term forecasts released by State Street on January 23, 2026, provide specific projections for private debt. The forecasts for Burgiss Private Senior Debt include figures of 6.40%, 4.60%, and 7.80%.

The intersection of these trends suggests a volatile but opportunity-rich landscape for 2026, as private credit continues to compete with public markets for corporate borrowing.