Private credit is entering a more challenging phase as non-accruals and other signs of borrower distress rise. The industry has enjoyed years of strong growth, supported by expanding assets under management, robust investment activity and attractive returns for investors. But the credit cycle is turning.
The latest LCD data suggest that rising borrower distress is becoming a more meaningful feature of the market. In this report, LCD examines non-accrual exposure (see Footnote 1) across the BDC market, beginning with a quick update on Q2 figures from the ten largest publicly traded BDCs, followed by a comprehensive analysis of non-accrual exposure across all registered US-based BDCs over the past three years, covering 213 distinct BDCs managed by 109 managers, representing an aggregate debt portfolio of $516 billion as of Q1 2026. Reported non-accrual debt rose to 1.9% of total debt at cost in Q1, up 52 bps from the prior quarter.
Non-accrual borrowers rose to 4.69% of all borrowers in Q1, up from 4.26% in the year-ago equivalent period. Adjusted non-accrual exposure, counting all debt owed by borrowers with at least one non-accrual tranche, rose to 3.3% of total debt at cost in Q1, up 116 bps from the prior quarter. Across the ten largest public BDCs, reported non-accrual debt rose to 3.95% of total debt at cost in Q2, up 20 bps from the prior quarter, while adjusted exposure for the period rose 54 bps to 5.95% on the same basis.
Non-accrual levels increase at the top ten public BDCs in Q2While not all BDCs have reported Q2 results, the ten largest publicly traded BDCs (Footnote 2) have, providing a useful proxy for the broader market. Analysis of the results confirmed that credit risk continued to build during the latest quarter, with non-accrual exposure increasing across every measure. Debt tranches in non-accrual status at the top ten BDCs rose to 3.95% of total debt at cost in Q2, up 20 bps from the prior quarter.
The balance increased slightly, by $89 million, to $3.3 billion in the latest quarter, despite a 2.3% contraction in the overall debt portfolio, which brought total debt at cost down to $83.6 billion. Counting all debt tranches, performing and non-accrual, owed by borrowers with at least one non-accrual tranche, exposure at cost reached $5.0 billion, or 5.95% of total debt in Q2, an increase of 54 bps from the prior quarter. The story is also similar by borrower count: The number of distinct borrowers (Footnote 3) with at least one tranche in non-accrual status rose by 11 over the quarter, to 101.
BDC universe — Q1 2023 through Q1 2026Turning to the wider BDC universe, more borrowers have fallen into non-accrual status. The number of borrowers with at least one debt instrument in non-accrual status reached 356 in Q1 2026, representing 4.69% of all borrowers, up from 4.26% a year earlier. This share has risen steadily over the past three years, increasing from 3.69% in Q1 2023.
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