KBRA released research that considers the themes that matter for private credit in 2026.
KBRA believes 2026 will be a pivotal year for the broader private credit landscape. The firm expects strong growth across a wide range of rated private credit entities and transactions, offering global investors an increasing set of fixed income pathways into private markets. These pathways provide not only predictable income, but also the ability to tailor risk exposure relative to the underlying private strategy.
Alongside this growth, KBRA expects rising complexity that will reshape the contours of credit risk across many rated private credit vehicles. For example, the increased presence of asset-based finance collateral, retail investors, new geographies and longer-duration funds can introduce new risk profiles, which some managers are better positioned to manage than others.
Meanwhile, KBRA also expects increasing signs of stress among some private credit platforms as they contend with the burdens of growth and the difficulties in deploying capital into traditional investment opportunities, given deal volumes have not kept pace with capital raised in recent years. In addition, KBRA anticipates manageable, but rising, default rates among middle market (MM) borrowers in 2026.
The firm believes these combined factors will increase performance differentials across managers and funds. This outlook explores each of these topics.
Key Takeaways
- Broadly speaking, KBRA expects widespread ratings stability across its landscape of rated private credit entities and transactions. This includes more than 400 fund finance transactions, nearly 300 feeder notes and collateralized fund obligations (CFO), over 275 transactions with asset-based collateral, thousands of MM borrower credit assessments, and dozens of asset managers and their business development companies (BDC).
- However, KBRA notes that the contours of risk are changing. Some alternative asset managers are struggling to deploy capital amid increased competition and slower exits while all are contending with lower spreads and fee compression. In response, a small number have expanded their risk appetite and/or increased portfolio concentration, resulting in a limited number of downgrades or negative Outlook revisions in 2025. These conditions are worth watching in 2026.
- KBRA expects retail wealth channels to be a key contributor to deployment pressure. For example, BDCs’ principal value under management has increased 126% over the past three years to $550 billion in Q3 2025. Continued expansion into the various wealth channels, along with the potential entry into the 401(k) market, is likely to intensify these pressures. Consistent with this trend, KBRA has already started to observe some BDCs broadening their investment mandate beyond traditional MM lending.
- In direct lending, KBRA expects defaults to rise, projecting a 2% default rate by volume in 2026, compared to 1.5% in 2025. The firm’s experts have noticed a convergence of declining growth, rising leverage, liquidity shortfalls, and upcoming maturities in certain MM segments. As a result, assessment downgrades have outpaced upgrades for eight consecutive quarters, contributing to a record count of obligors assigned KBRA’s highest risk score. Despite these trends, KBRA believes a higher default rate remains manageable, given the structural protections included in KBRA-rated transactions and the workout capabilities of most private lenders.
- Rated note feeders and CFOs had a breakout year in 2025, achieving record annual issuance. The firm expects both vehicles to continue their rapid growth in 2026, supported by strong ratings stability, structural refinements, and the ability to offer diversified yet tailored exposure.
- KBRA expects continued evolution in investment structures and further growth in private lending to global, predominantly large-cap investment-grade corporate entities in 2026. Through 2025, KBRA has rated more than $64 billion of related transactions, reflecting private lenders’ expanding role in addressing these issuers’ changing capital needs.
