Credit pressure increases on BDC debt investments, led by software

Private credit market stress is escalating, with the software sector accounting for the largest share of debt under pressure, according to LCD's analysis of over 180 BDCs. Approximately 5,000 companies held by BDCs showed signs of credit pressure by June 2026, a 25% increase from the end of 2025. The number of BDC-held companies experiencing credit pressure rose to 583 as of June 30, up 8% from March.

Dollar exposure, primarily due to larger, more significant names, is growing faster than the borrower count. Since the end of 2025, investments in first-lien term loans and unitranche instruments under pressure have surged by 92% to $47 billion. The software industry constitutes the largest sectoral share of borrowers under pressure, representing 36% of investments at fair value as of Q2, significantly higher than its 22% weight in the overall BDC universe.

Most stressed borrowers are still settling their debts in cash, with roughly half of the 583 companies on the watchlist not utilizing payment-in-kind (PIK) interest in the past year. The comprehensive analysis, encompassing methodology, detailed findings, and an Excel data pack, is accessible to PitchBook subscribers. For further information, contact support@pitchbook.com.