US private credit portfolios show signs of stabilisation in second quarter

US private-credit portfolio values showed signs of stabilising in the second quarter, after broad deterioration earlier in 2026, although lenders continued to mark down some software loans and reported an increase in debt that had stopped generating income, Reuters reported.

Private credit has faced greater scrutiny this year as investors raised concerns over opaque valuations, redemption pressure at some non-traded funds, heavy exposure to software and weakening borrower performance.

A Reuters analysis of regulatory filings from 44 U.S. business development companies (BDCs), which primarily lend to small- and medium-sized businesses, showed portfolio values moved further below reported cost during the first half of 2026 as market spreads widened and stress emerged among some borrowers, particularly in the software sector.


Read more: US Market: Tech stocks challenge Wall Street’s traditional bear market definition

Most broad-based markdowns occurred in the first quarter, while second-quarter losses at several major BDCs were concentrated among a relatively small number of borrowers.

The 44 BDCs held investments with a combined fair value of $92.88 billion as of June 30, compared with reported cost or amortized cost of $95.19 billion. At the end of 2025, fair value stood at $95.82 billion against a cost of $96.54 billion, according to the Reuters analysis.

The analysis covers total reported investment portfolios, including debt and equity.

The aggregate fair-value-to-cost ratio fell to 97.77% in the first quarter from 99.25% at the end of December and eased further to 97.57% in the second quarter. Reuters reported that the 168-basis-point decline over the first half was materially larger than typically observed.

Software Loans Face Larger Markdowns

Software loans have been among the areas facing the most pressure. Data cited in the Reuters analysis showed BDCs had written down 81% of software loans this year, compared with 40% of loans outside the sector.

About 4% of all borrowers had loans marked below 80% of par value, up from roughly 1% annually between 2023 and 2025, the analysis showed.

The weakness reflects concerns around borrower fundamentals, tighter financing conditions, near-term debt maturities and uncertainty over the potential impact of artificial intelligence on some software businesses.

Reuters reported that a relatively narrow group of investments accounted for an outsized share of unrealised losses at several prominent BDCs.

Blue Owl Capital Corp. said its second-quarter decline in net asset value was primarily driven by a credit-specific markdown, compared with the first quarter, when about three-quarters of the decline was attributed to broader spread widening.

At Ares Capital Corp., two software companies accounted for just over a third of year-to-date net unrealised losses of $527 million, according to a company filing. Including five additional software companies pushed the share above half.

At Golub Capital BDC, losses were concentrated in a small number of junior debt and equity positions, while FS KKR Capital Corp. also reported that a handful of investments accounted for most of its markdowns.

Non-Accrual Loans Rise

Signs of stress were also visible in loans that had stopped generating income.

Across 10 BDCs for which Reuters reviewed comparable filings, non-accrual investments — loans where borrowers are significantly behind on payments or are considered unlikely to pay — rose to about 3.4% of portfolio cost at the end of June, from 2.5% at the end of 2025.

The increase highlights growing pressure in parts of the private-credit market even as aggregate portfolio valuations appeared to stabilise during the second quarter.

The developments suggest that while private-credit stress has not been evenly distributed across portfolios, lenders are facing increasing challenges from weaker borrowers, software-sector uncertainty and a more demanding financing environment.