Every CEO who has raised debt in the last three years has noticed the same thing: the terms got easier. Fewer covenants. Looser reporting requirements. A single relationship manager who could close a $200 million facility in weeks instead of the months a syndicate of banks would need. Private credit funds, sitting on more than a trillion dollars of dry powder, made borrowing feel less like an interrogation and more like a negotiation between equals.
What most borrowers have not fully priced in is what they gave up in exchange: a lender whose own balance sheet can seize up exactly when a company needs it to stay calm.
That is not a hypothetical. In February 2026, Blue Owl Capital, a $295 billion alternative asset manager, restructured the redemption terms on Blue Owl Capital Corporation II, one of its non-traded business development companies, after a wave of investors tried to pull money out faster than the fund’s underlying loans could be sold or repaid. Rather than honour on-demand quarterly tenders, Blue Owl moved to structured “return of capital” distributions, and to raise cash it offloaded roughly a third of OBDC II’s commitments, part of a combined $1.4 billion in loan sales across three of its funds. Nobody defaulted. No headline bank run occurred. The fund simply told its investors: not right now.
For a company that had borrowed from that same complex of funds, the practical question suddenly changes from “what is my interest rate” to “will my lender still be solvent enough, in cash terms, to fund the next drawdown or agree to an amendment when I need one.” That is a question corporate treasurers almost never had to ask about a bank syndicate, because banks are required to hold liquidity against exactly this scenario. Private credit funds, by design, are not.
The system moved, the scrutiny didn’t
The scale of what has shifted is easy to understate. The Financial Stability Board estimated the global private credit market at $1.5 to $2 trillion by the end of 2024, with the United States accounting for roughly $1 trillion of it, a pool now comparable in size to the leveraged loan and high-yield bond markets combined. Borrowers in these deals typically carry five to six times debt-to-EBITDA, and the FSB has flagged that aggressive add-back adjustments to earnings can push true leverage closer to seven times. Payment-in-kind structures, where interest accrues rather than gets paid in cash, have become more common since 2022 and now appear in roughly one in eight loans, a pattern regulators associate with borrowers already straining to service debt in cash.
The point is not that private credit is reckless. It is that the activity looks increasingly like traditional bank lending, minus the apparatus that made bank lending’s risks visible. Loans are valued quarterly, largely at the discretion of the manager holding them, often validated by smaller ratings shops that public bond investors have never heard of, rather than marked against a liquid trading market. The FSB’s own conclusion, in its May 2026 report on the sector, was blunt: private credit “remains untested to a prolonged economic downturn.” Roughly one in twenty loans is now in default or selective default, up from near zero a few years ago, according to the same review, and defaults are concentrating precisely in the technology, healthcare and business services sectors that have absorbed the most lending.
Warnings that were easy to dismiss until they weren’t
Jeffrey Gundlach of DoubleLine Capital drew the subprime comparison as early as the summer of 2025, arguing that the underwriting discipline in parts of the private credit market echoed the pre-2008 mortgage market more than anyone in the industry wanted to admit. Jamie Dimon, whose own bank has been expanding into direct lending even as he criticises the sector’s opacity, told JPMorgan shareholders that private credit stress ranked among the top risks facing the financial system in 2026, alongside geopolitical conflict, and separately warned publicly of the conditions for “some kind of bond crisis” building in global debt markets. These are not fringe voices talking their book against a competitor. They are the closest thing the industry has to insiders describing a structure whose failure mode nobody has actually observed at scale.
That failure mode matters more than it used to because of who now owns the risk. Life insurers hold roughly a tenth of their portfolios in private credit, and private-equity-affiliated insurers, the Apollo-Athene and KKR-Global Atlantic model that has proliferated since 2021, now control close to $900 billion of insurance liabilities backed substantially by these same illiquid, manager-marked assets. The same sponsors that originate the loans increasingly also own the insurers that hold them, and the FSB describes the result plainly as “difficult-to-detect pockets of risk.” A pension policyholder in Ohio or a retiree in Pune whose annuity sits inside one of these structures has no practical way to know how correlated their retirement income is with the leverage decisions of a mid-market software company they have never heard of.
For a CEO, the implication is not abstract. Roughly a third of private credit deals originated in 2025 were tied to AI-related infrastructure and companies, meaning a meaningful share of the sector’s future performance is now leveraged to the durability of a single technology cycle. A board approving a private credit facility today is not just underwriting its own company’s leverage. It is underwriting its exposure to a lender whose fortunes are increasingly tied to a sector-wide bet the board did not make.
India is building the same market, on different foundations
India’s private credit market offers a useful contrast precisely because it looks similar on the surface and different underneath. Deal volume held at roughly $3.5 billion in tracked transactions above $10 million in the first half of 2026, across 102 deals, up from 87 in the second half of 2025, according to EY’s tracking of the market. But the composition tells the real story: mid-market transactions between $10 million and $60 million made up 87% of deal count, while the largest deals above $120 million shrank from 27% to 18% of total value. Real estate, healthcare and, notably, food and beverage, which jumped from roughly 1% to 12% of deal value in a single half-year, are absorbing the capital, financing real operating businesses and project completion rather than funding financial engineering or AI infrastructure speculation.
Crucially, domestic funds account for about three-quarters of both deal value and deal count, a structural difference from the US market’s dependence on global retail-facing evergreen vehicles of the kind that gated at Blue Owl. India’s private credit growth is also being underwritten by a genuine institutional upgrade: the 2026 amendment to the Insolvency and Bankruptcy Code strengthened creditor protections and shortened the path to recovery, giving lenders more confidence that a bad loan can actually be resolved rather than litigated indefinitely. That is the opposite sequencing from the US and European markets, where product proliferation has outpaced the infrastructure to handle defaults at scale.
None of this makes Indian private credit immune. As global funds increase allocations into India and domestic asset managers launch their own evergreen and interval structures to capture retail money, the same liquidity mismatch that caught Blue Owl’s investors off guard could eventually show up here too. But for now, Indian CEOs negotiating private credit are dealing with a market that is smaller, more concentrated in real assets, and more exposed to a lender’s balance-sheet discipline than to a lender’s own investor redemption pressure.
What boards should actually be underwriting
The mistake many companies have made is treating the choice between bank debt and private credit as a pricing decision, when it is really a decision about where information about their own company’s risk will live, and who else’s stress can now spill into their financing. A covenant-lite facility from a fund with a redemption-driven balance sheet is not automatically worse than a covenant-heavy bank loan; it may well be the right call for a business that values speed and flexibility over cheap capital. But it should be priced and negotiated with the fund’s own liquidity structure, its redemption terms, its concentration in a single sector, and its ownership ties to insurers or other lenders explicitly on the table, the same way a company would assess a bank’s credit rating before signing a term sheet.
The private credit industry likes to describe itself as having disintermediated the bank. What it has actually done is move the same lending activity outside the perimeter that forces disclosure, stress testing, and liquidity buffers, while keeping all of the leverage. Regulators have noticed. Boards, largely, have not yet.
