The $1.5 trillion private credit market in the US is beginning to crack, with defaults on the rise.

The latest one to go belly-up is Infinite Commerce Holdings, an online aggregator of ecommerce sellers, which just months back was credit-worthy and now BlackRock, the world’s biggest asset manager, has marked down the value of a $25 million loan to zero. The write-down was revealed by Blackrock TCP Capital Corp in its fourth quarter filing of its $1.7 billion private credit fund. What’s pertinent to note is that three months back, the debt was marked as performing credit.

This is second instance after BlackRock wrote down 100% of its debt exposure of $150 million to Renovo Home Partners, a home improvement player. In fact, in the case of Infinite Commerce, the write-off comes on the back of BlackRock merging another struggling e-com aggregator Razor, into Infinite in August 2025 but ended up writing down the value of Razor’s debt exposure to zero, incurring a loss of $72.6 million in the September quarter.  SellerX, Europe's leading aggregator of third-party e-commerce businesses founded by Harvard Business School graduates, too, has seen a partial write-down in its value by Blackrock.

How bad is the private credit problem?

The default is just a continuum of deteriorating private credit statistics that has been showing up over the past couple of years. According to credit rating agency ‌Fitch Ratings, the default rate among U.S. corporate borrowers of private credit hit a record 9.2% in 2025, beating its previous high of 8.1% seen in 2024. Of the 302 companies with outstanding private credit debt, Fitch recorded 38 defaults among 28 different borrowers.

What’s compounding the increasingly bearish narrative around private credit is the fact that Blackstone, yet another Wall Street giant, has seen a spike in redemptions in its flagship private credit fund, BCRED. With $82 billion of assets, the fund redeemed 7% of the fund, more than the 5% typically available for repurchase.

Private credit boomed in the era of zero interest rates, but with interest rates rising from 2022 from zero to over 5%, companies with negative cash flows have struggled to service the debt payments. Most private credit loans carry floating interest rates linked to the federal funds rate, which stayed elevated for the past three years, a key factor identified by Fitch as the reason behind the defaults.

In fact, well-known voices have been talking of the growing stress in the private credit market with JPMorgan Chase CEO Jamie Dimon alluding to the bankruptcies of Tricolor (sub-prime auto lender) and First Brands (automotive aftermarket spares player) said “when you see one cockroach, there are probably more…”, while noted bond investor Jeffrey Gunlach had warned that private credit market was engaged in “garbage lending.”

What was driving the boom?

According to research and brokerage firm, Bernstein, aggressive competition among private credit funds, particularly for larger, more liquid investments, saw credit spreads tighten [the difference between the rate offered and government treasury yield] and lender protections such as covenants erode. “In 2010, less than 10% of leveraged lending new issuance was deemed “covenant lite.” A decade later, that figure skyrocketed to over 80%,” stated a commentary from Bernstein. In simple terms, covenants, which are a set of risk-mitigation clauses to avoid defaults, were diluted because funds just wanted to show business and grow their AUM.

But the concoction of post pandemic blues punctuated by the Russia-UK conflict, tariff wars, rising interest rates amid inflationary pressures have come to haunt mid-sized companies that looked good in a zero-interest rate era but are now walking zombies. According to Fitch, though there is no sectoral concentration, smaller issuers with $25 million or less in earnings made ⁠up for majority of the defaults.

In the case of Blackstone TCP, which has deployed over $48 billion to mid-market firms, valuation cuts in the portfolio were tied to deals struck in 2021 or earlier that got hit by higher interest rates.

Are LTVs good indicators?

As things have turned topsy-turvy, financial engineering by private credit funds has come to fore.

The measures, according to Bernstein, include drop‑down financings (moving valuable assets into separate subsidiaries to raise new debt), up-tiering transactions (reshuffling debt so some lenders are pushed higher in priority, displacing others), and distressed exchanges (swapping old debt for new instruments with less favorable terms, effectively a quiet restructuring), which tend to produce losses for some creditors. “Put simply, value isn’t created with these maneuvers; it’s simply reshuffled, with some lenders profiting and others bearing the cost,” mentions Bernstein.

While the average loan-to-value in BlackRock’s BCRED is 42%, implying that enterprise values would have to fall by more than half before the principal is impaired, the fact that debt can go from par to zero in months means LTV is a reassuring metric in theory but far less comforting in a crisis.

In private credit, the problem is not how deep valuations can slide, but how quickly the safety net disappears.