Sponsors are racing to negotiate extensions, the Wall Street Journal reported. For now, defaults on private credit loans are low and fell in the third quarter, according to Proskauer's index.
The bill for the private-equity buyout boom has a date on it, and it is closer than it looks.
About $300 billion of debt owed by private-equity-backed companies begins coming due in 2028, the Wall Street Journal reported on Tuesday. Software companies account for about a third of the riskiest corporate loans maturing in 2028 and 2029, and buyout firms are racing to negotiate extensions with lenders, the Journal reported.
Why 2028 matters now
A year or two sounds like a long time. In credit markets, it is not. Companies often start refinancing well before their debt matures, and lenders judge them on today's earnings and today's interest rates. A company that borrowed when rates were lower and has to refinance at higher ones will have less cash left after interest.
The concentration in software stands out. If growth at those companies slows, or if new technology changes how customers buy software, refinancing could become harder or more expensive.
What the default data says today
The current numbers are calm. Proskauer's Private Credit Default Index, which tracks 746 loans totaling $205.7 billion, showed a default rate of 2.41% in the third quarter, down from 2.51% in the second.
A separate Moody's report published Tuesday said financing for artificial-intelligence projects is driving growth in private credit even as refinancing risks rise.
The connection to the rest of private credit
The pressure on the asset class is showing up in other places. On Tuesday, Ares Capital announced a deal to buy MidCap Financial Investment Corp., a listed private-credit fund, at a price below the fund's stated net asset value. That deal is about fund valuations, not maturities, but it may reflect a market that is pricing private-credit portfolios more skeptically.
Two readings
One reading is that this is manageable. Defaults are low and falling, sponsors are dealing with the maturities early, and two years gives borrowers and lenders time to extend, refinance or sell companies.
The other is that the wall is large and concentrated. Software is a big share of the riskiest debt, extensions often come at a higher cost, and an extension postpones a refinancing problem rather than solving it if earnings do not grow.
What to watch
Amend-and-extend activity on large sponsor-backed loans, Proskauer's fourth-quarter default index, private credit lenders' commentary in third-quarter results, and refinancing costs for software borrowers.