The Problem
The private credit market has a structural problem.
The $3 trillion private credit market was built on a decade of cheap money, covenant-lite lending, and concentrated exposure to sectors now under existential pressure.
In 2025, U.S. private credit defaults hit a record 9.2%. Software, the industry's single largest sector exposure, has seen $46.9 billion in debt fall to distressed levels. Funds that marketed themselves as conservative are now gating redemptions, marking down portfolios, and cutting distributions.
The problem isn't cyclical. It's structural. Unitranche loans underwritten at 25-30x EBITDA against revenue models that AI is actively dismantling. Covenant-lite documentation that provides no early warning. Evergreen fund structures that promise quarterly liquidity against fundamentally illiquid assets.
The collateral underpinning most private credit portfolios does not withstand the stress it was marketed to absorb.
9.2%
Record default rate (2025)
$46.9B
Tech debt at distressed levels
25-30x
Typical EBITDA multiples
$3T
Private credit market size
Implications for Capital Allocators
Private credit allocations carry concentration risk that most portfolios have not adequately stress-tested. When fund managers cite "diversification," they typically mean diversification across borrowers, not across collateral types, industries, or structural risk profiles.
The covenant-lite era produced a generation of credit funds with no early-warning mechanisms. By the time a borrower is in distress, the recovery window has closed. Lenders with full covenant packages have months of lead time. Those without discover the problem on the day of default.
Balmoral Credit was built to avoid these structural flaws as a foundational requirement for institutional-grade lending, not as a positioning exercise.