Private Credit Defaults May Rise to 10% Amid AI Disruption
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 4 hours ago
0mins
Source: Yahoo Finance
- Default Rate Forecast: UBS anticipates private credit default rates will rise from the current 4.4% to between 9% and 10%, with AI-related disruptions potentially adding an additional 3% to 4% default risk, indicating increased pressure on borrowers.
- Industry Vulnerability: Software companies are deemed particularly vulnerable as advancements in AI may slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations, with these pressures expected to intensify toward the end of 2026 and into 2027.
- Market Impact Comparison: UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared to 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds, highlighting significant variations in default rates across different credit markets.
- Leverage Risk Warning: UBS notes that leverage in private credit and private equity markets totals at least $1.5 trillion, and while credit markets currently support the ongoing AI investment boom, rising defaults could impose greater constraints on funding conditions by 2027.
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Analyst Views on FSK
Wall Street analysts forecast FSK stock price to rise
6 Analyst Rating
0 Buy
6 Hold
0 Sell
Hold
Current: 10.800
Low
15.50
Averages
17.25
High
18.50
Current: 10.800
Low
15.50
Averages
17.25
High
18.50
About FSK
FS KKR Capital Corp. is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company. The Company is focused on providing customized credit solutions to private middle market United States companies. Its investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. Its portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle market United States companies and, to a lesser extent, subordinated loans and certain asset-based financing loans of private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from its target companies as primary market or directly originated investments. The Company is managed by FS/KKR Advisor, LLC.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Private Credit Defaults May Rise to 10% Amid AI Disruption
- Default Rate Forecast: UBS anticipates private credit default rates will rise from the current 4.4% to between 9% and 10%, with AI-related disruptions potentially adding an additional 3% to 4% default risk, indicating increased pressure on borrowers.
- Industry Vulnerability: Software companies are deemed particularly vulnerable as advancements in AI may slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations, with these pressures expected to intensify toward the end of 2026 and into 2027.
- Market Impact Comparison: UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared to 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds, highlighting significant variations in default rates across different credit markets.
- Leverage Risk Warning: UBS notes that leverage in private credit and private equity markets totals at least $1.5 trillion, and while credit markets currently support the ongoing AI investment boom, rising defaults could impose greater constraints on funding conditions by 2027.
See More
FS KKR Capital Corp. Class Action Lawsuit Filed
- Lawsuit Background: The class action lawsuit filed by Robbins Geller Rudman & Dowd LLP against FS KKR and its executives alleges violations of the Securities Exchange Act of 1934, concerning significant losses suffered by investors during the second and fourth quarters of 2025.
- Financial Losses: In Q2 2025, FS KKR's net asset value dropped to $21.93 per share, down $1.44 or 6.2% from the previous quarter, while the total fair value of investments fell by $474 million, indicating a deteriorating financial condition for the company.
- Stock Price Volatility: Following the Q2 earnings report, FS KKR's stock price fell over 8%, and after the Q4 report in February 2026, it dropped more than 15%, reflecting strong market reactions to the company's ongoing losses and dividend cuts.
- Investor Action: Under the Private Securities Litigation Reform Act of 1995, any investor who purchased FS KKR securities during the class period can apply to be the lead plaintiff, emphasizing the importance of investor participation in this case.
See More
FS KKR Capital Faces Class Action Lawsuit for Misleading Statements
- Lawsuit Background: Bragar Eagel & Squire, P.C. has announced a class action lawsuit against FS KKR Capital concerning securities purchased between May 8, 2024, and February 25, 2026, with investors required to apply by July 6, 2026, highlighting the urgency of legal action.
- False Statement Allegations: The lawsuit alleges that FS KKR Capital made false and misleading statements regarding its portfolio restructuring and valuation processes, leading investors to misunderstand the company's business prospects, which could result in significant financial losses and damage to the company's reputation.
- Investor Losses: As the true details emerged, investors faced losses, and the lawsuit aims to provide legal remedies for affected shareholders, emphasizing the company's shortcomings in transparency and compliance.
- Law Firm's Role: Bragar Eagel & Squire, P.C. is a nationally recognized law firm specializing in shareholder rights and securities litigation, indicating its proactive role in protecting investor interests, which may attract more investors to its legal services.
See More
Class Action Lawsuit Reminder Against FS KKR Capital Corp.
- Class Action Notice: The Schall Law Firm reminds investors of a class action lawsuit against FS KKR Capital Corp. (NYSE:FSK) for violations of securities laws during the period from May 8, 2024, to February 25, 2026, with a deadline to contact the firm by July 3, 2026.
- False Statements Allegations: The complaint alleges that FSK misled investors regarding the effectiveness of its portfolio restructuring activities, overstating portfolio valuations and misleading the market, which resulted in investor losses once the truth was revealed.
- Dividend Program Misrepresentation: The company is accused of making false and misleading statements about the strength of its quarterly dividend program, exacerbating investor losses and undermining market confidence in its financial health.
- Legal Representation Information: The Schall Law Firm specializes in securities class action lawsuits, and investors are encouraged to reach out via phone or website to discuss their rights and participate in the lawsuit for potential recovery of losses.
See More
U.S. Private Credit Lenders Face Deepening Losses
- Deepening Unrealized Losses: In Q1 2026, U.S. private credit lenders reported unrealized losses of 2.35% of net asset value, marking the worst quarterly performance since Q2 2022, indicating increased strain on middle-market companies due to higher borrowing costs.
- Pressure on Cash Income: Payment-in-kind (PIK) interest income remained elevated at approximately $477 million, a 2% increase from the previous quarter but below the early 2025 peak of $633 million, highlighting investor concerns over non-cash income.
- Liquidity Risk Warning: Fitch has cautioned that rising exposure to loans with deferrable interest could pressure BDC liquidity if cash earnings are insufficient to cover dividend payments, increasing market uncertainty.
- Market Cycle Shift: Howard Mason from Renaissance Macro Research noted that private credit is entering its first real credit cycle since the Global Financial Crisis, with rising borrowing costs and AI-related pressures on software valuations particularly impacting highly leveraged deals from 2021.
See More
FS KKR Capital Corp Class Action Notice
- Class Action Notice: Rosen Law Firm reminds investors who purchased FS KKR Capital securities between May 8, 2024, and February 25, 2026, to apply as lead plaintiffs by July 6, 2026, to participate in the class action and seek compensation.
- Lawsuit Background: The lawsuit alleges that FS KKR Capital made false statements regarding its portfolio restructuring and valuation processes, resulting in investor losses when the truth emerged, undermining confidence in the company's future prospects.
- Law Firm's Strength: Rosen Law Firm specializes in securities class actions, having recovered over $438 million for investors in 2019 alone, and was ranked first in 2017 for the number of securities class action settlements, showcasing its significant expertise in this field.
- Participation Method: Investors can visit Rosen Law Firm's website or call the toll-free number for more information, ensuring they select qualified legal counsel to protect their rights and avoid inexperienced intermediaries.
See More
Private Credit Defaults May Rise to 10% Amid AI Disruption
- Default Rate Forecast: UBS anticipates private credit default rates will rise from the current 4.4% to between 9% and 10%, with AI-related disruptions potentially adding an additional 3% to 4% default risk, indicating increased pressure on borrowers.
- Industry Vulnerability: Software companies are deemed particularly vulnerable as advancements in AI may slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations, with these pressures expected to intensify toward the end of 2026 and into 2027.
- Market Impact Comparison: UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared to 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds, highlighting significant variations in default rates across different credit markets.
- Leverage Risk Warning: UBS notes that leverage in private credit and private equity markets totals at least $1.5 trillion, and while credit markets currently support the ongoing AI investment boom, rising defaults could impose greater constraints on funding conditions by 2027.
See More
FS KKR Capital Corp. Class Action Lawsuit Filed
- Lawsuit Background: The class action lawsuit filed by Robbins Geller Rudman & Dowd LLP against FS KKR and its executives alleges violations of the Securities Exchange Act of 1934, concerning significant losses suffered by investors during the second and fourth quarters of 2025.
- Financial Losses: In Q2 2025, FS KKR's net asset value dropped to $21.93 per share, down $1.44 or 6.2% from the previous quarter, while the total fair value of investments fell by $474 million, indicating a deteriorating financial condition for the company.
- Stock Price Volatility: Following the Q2 earnings report, FS KKR's stock price fell over 8%, and after the Q4 report in February 2026, it dropped more than 15%, reflecting strong market reactions to the company's ongoing losses and dividend cuts.
- Investor Action: Under the Private Securities Litigation Reform Act of 1995, any investor who purchased FS KKR securities during the class period can apply to be the lead plaintiff, emphasizing the importance of investor participation in this case.
See More
FS KKR Capital Faces Class Action Lawsuit for Misleading Statements
- Lawsuit Background: Bragar Eagel & Squire, P.C. has announced a class action lawsuit against FS KKR Capital concerning securities purchased between May 8, 2024, and February 25, 2026, with investors required to apply by July 6, 2026, highlighting the urgency of legal action.
- False Statement Allegations: The lawsuit alleges that FS KKR Capital made false and misleading statements regarding its portfolio restructuring and valuation processes, leading investors to misunderstand the company's business prospects, which could result in significant financial losses and damage to the company's reputation.
- Investor Losses: As the true details emerged, investors faced losses, and the lawsuit aims to provide legal remedies for affected shareholders, emphasizing the company's shortcomings in transparency and compliance.
- Law Firm's Role: Bragar Eagel & Squire, P.C. is a nationally recognized law firm specializing in shareholder rights and securities litigation, indicating its proactive role in protecting investor interests, which may attract more investors to its legal services.
See More
Class Action Lawsuit Reminder Against FS KKR Capital Corp.
- Class Action Notice: The Schall Law Firm reminds investors of a class action lawsuit against FS KKR Capital Corp. (NYSE:FSK) for violations of securities laws during the period from May 8, 2024, to February 25, 2026, with a deadline to contact the firm by July 3, 2026.
- False Statements Allegations: The complaint alleges that FSK misled investors regarding the effectiveness of its portfolio restructuring activities, overstating portfolio valuations and misleading the market, which resulted in investor losses once the truth was revealed.
- Dividend Program Misrepresentation: The company is accused of making false and misleading statements about the strength of its quarterly dividend program, exacerbating investor losses and undermining market confidence in its financial health.
- Legal Representation Information: The Schall Law Firm specializes in securities class action lawsuits, and investors are encouraged to reach out via phone or website to discuss their rights and participate in the lawsuit for potential recovery of losses.
See More
U.S. Private Credit Lenders Face Deepening Losses
- Deepening Unrealized Losses: In Q1 2026, U.S. private credit lenders reported unrealized losses of 2.35% of net asset value, marking the worst quarterly performance since Q2 2022, indicating increased strain on middle-market companies due to higher borrowing costs.
- Pressure on Cash Income: Payment-in-kind (PIK) interest income remained elevated at approximately $477 million, a 2% increase from the previous quarter but below the early 2025 peak of $633 million, highlighting investor concerns over non-cash income.
- Liquidity Risk Warning: Fitch has cautioned that rising exposure to loans with deferrable interest could pressure BDC liquidity if cash earnings are insufficient to cover dividend payments, increasing market uncertainty.
- Market Cycle Shift: Howard Mason from Renaissance Macro Research noted that private credit is entering its first real credit cycle since the Global Financial Crisis, with rising borrowing costs and AI-related pressures on software valuations particularly impacting highly leveraged deals from 2021.
See More
FS KKR Capital Corp Class Action Notice
- Class Action Notice: Rosen Law Firm reminds investors who purchased FS KKR Capital securities between May 8, 2024, and February 25, 2026, to apply as lead plaintiffs by July 6, 2026, to participate in the class action and seek compensation.
- Lawsuit Background: The lawsuit alleges that FS KKR Capital made false statements regarding its portfolio restructuring and valuation processes, resulting in investor losses when the truth emerged, undermining confidence in the company's future prospects.
- Law Firm's Strength: Rosen Law Firm specializes in securities class actions, having recovered over $438 million for investors in 2019 alone, and was ranked first in 2017 for the number of securities class action settlements, showcasing its significant expertise in this field.
- Participation Method: Investors can visit Rosen Law Firm's website or call the toll-free number for more information, ensuring they select qualified legal counsel to protect their rights and avoid inexperienced intermediaries.
See More
