Valuation pressure mounts in private credit: One in ten loan positions in US BDC portfolios marked below 90% of face value
New Private Credit Radar developed by Professor Sascha Steffen reveals increasing markdowns, rising non-accrual loans and more frequent switches to payment-in-kind interest
Valuation pressure is mounting in the US private credit market: As at 30 June 2026, US business development companies (BDCs) marked 10.3% of their loan positions below 90% of face value, up from 7.7% a year earlier. This represents an increase of around one-third in just twelve months. The findings come from the new Private Credit Radar, published today for the first time by Sascha Steffen, Professor of Finance at Frankfurt School of Finance & Management and Director of the Centre for European Transformation. The analysis covers 36,443 loan positions across 7,063 borrowers as at mid-2026.
Other indicators also point to mounting stress in the private credit market. The share of loan positions marked below 80% of face value rose from 4.3% in June 2025 to 5.9% in June 2026. Loans on non-accrual reached 1.83% of cost, up from 1.29% a year earlier. In the second quarter of 2026, 1.45% of loans switched from cash interest to payment-in-kind (PIK), whereby interest is added to the outstanding loan balance rather than paid immediately in cash. The corresponding figure in the same quarter of the previous year was 1.15%.
The trend is evident across different market segments. Listed BDCs marked 12.8% of their loan positions below 90% of face value in mid-2026, compared with 9.3% for non-traded BDCs. Both figures were almost three percentage points higher than a year earlier. Among BDCs that have reported consistently every quarter since 2023, the share also rose significantly, from 8.2% to 11.4% over the same period. The increase in valuation pressure therefore cannot be attributed to newly added funds.
"Default rates often reveal only at a late stage that a loan has come under pressure. Our data show how risks build up well before that point: loans are marked down, interest is capitalised and loan terms are amended. The Private Credit Radar tracks these developments at the level of individual loan positions and shows where stress emerges before a borrower stops making payments," says Sascha Steffen.
Identifying credit risks before payment defaults occur
The Private Credit Radar was developed at Frankfurt School's Centre for European Transformation. It systematically analyses the schedules of investments filed with the US Securities and Exchange Commission (SEC) by 160 BDCs and tracks individual loan positions from quarter to quarter since March 2023. This makes it possible to monitor changes in valuations and other signs of deteriorating credit quality over time.
The radar reports six indicators in the order in which stress becomes visible: the share of positions marked below 90% and below 80% of face value, markdown breadth, the gap between valuations assigned by different managers to the same borrower, switches to PIK, distress amendments and non-accrual. Readings are published for all funds covered, for a constant panel of funds, and separately for listed and non-traded BDCs.
Relevant for European financial institutions
The European private credit market is considerably less transparent than the publicly reporting US BDC segment. Comparable, systematically compiled and publicly accessible loan-level data are not available in Europe. US data therefore also provide valuable insights for European banks, insurers and pension funds seeking to assess developments in credit risk across the private credit market.
"Until now, systematically analysing the extensive BDC filings and tracking changes in individual loans over several quarters has been a time-consuming process. With the Private Credit Radar, we make this information publicly available in a standardised analysis, providing greater transparency on how credit risks are evolving," says Steffen.
As at 30 June 2026, the US BDCs covered held loans to 686 European companies. The Private Credit Radar will be updated quarterly. The next edition, due on 14 December 2026, will extend the analysis to 30 September 2026 and, for the first time, report European borrowers in US BDC portfolios separately. An analysis of undrawn credit commitments to borrowers already under stress will follow in January 2027.
Further information
The Private Credit Radar findings, together with a description of the underlying data and methodology, are freely accessible at:
The indicator time series are available to download as CSV files following registration.
Sascha Steffen will also present the findings in the webinar "Reading the Radar" on 10 November 2026 at 17:00 CET. Registration: https://applyexec.frankfurt-school.de/e/6ae22ccff398a6b42b9ec7f7