Distressed Restructurings May Have "Deferred" Private Credit Stress

A new report from Moody's Analytics Asset Management Research warns that the composition of recent private credit defaults means underlying stress has been "deferred" rather than resolved. While headline default rates are falling, the high proportion of distressed exchanges rather than hard defaults conceals unresolved credit problems.

Key Data Points

• Approximately 65% of all corporate defaults in 2025 were distressed restructurings (workouts, indenture modifications, debt-for-equity swaps, and other "soft" credit events).
• The proxy default rate for private credit ranges from 1.6% (excluding distressed exchanges) to 4.7% (including them).
• More than one in three distressed restructurings ultimately ends in either a hard default or a repeat credit event.
• Over 70% of eventual hard defaults following a distressed exchange occur within the first two years.

The Maturity Wall Problem

Borrowers that restructured in 2023 and 2024 are now entering their most vulnerable window. Post-pandemic, many distressed exchanges were able to "stick" due to a narrow but open refinancing window and lender forbearance buoyed by rate-cut expectations. Several of those conditions are now "less certain."

Rate Sensitivity

• Markets have sharply scaled back expectations for Federal Reserve rate cuts in 2026.
• Moody's baseline GDP growth forecast of ~1.5% sits just above historical "stall speed," below which credit events tend to accelerate.
• Renewed inflation concerns disproportionately pressure floating-rate borrowers heavily represented in private credit portfolios.

Bottom Line

"Falling default rates are real and welcome," the report states, "but the composition of those defaults, which are heavily weighted toward soft credit events that often defer rather than resolve underlying stress, means the improvement in headline numbers may be slower and more fragile than it appears."