Distressed Loans Near $131B as Private Credit Lenders Face Growing Borrower Risk

The U.S. leveraged loan market is showing signs of deeper credit stress, with $131 billion of loans trading at distressed levels as weaker borrowers face a growing wall of maturities and fewer refinancing options.

The amount of distressed loans has nearly doubled since the end of 2025, reaching its highest level in more than six years, according to a report from PitchBook. The deterioration is raising concerns about a potential increase in defaults and putting private credit lenders in a difficult position as struggling companies seek alternative financing.

As of Oct. 23, loans trading below 80 cents on the dollar accounted for 8.3% of outstanding leveraged loans, compared with 4.3% at the end of last year. The last comparable period came in May 2020, when distressed loan volume reached $134 billion following the pandemic-driven market sell-off.

But the current wave of distress is unfolding under different circumstances. Rather than a broad market sell-off pulling otherwise healthy companies into trouble, the latest pressure is concentrated among borrowers already struggling financially.

Refinancing Options Narrow

Companies with the weakest credit ratings are increasingly finding it difficult to refinance their obligations through traditional lending markets.

About 62% of distressed borrowers carry ratings of CCC-plus or lower, compared with just 25% during the March 2020 sell-off. The amount of loans trading below 80 cents with CCC-plus ratings has reached a record $53.7 billion, surpassing levels recorded during both the pandemic and the Global Financial Crisis.

The refinancing challenge is particularly pressing for companies approaching debt maturities. Roughly $69.3 billion of distressed loans must be repaid or refinanced by the end of 2029, representing 53% of the current distressed loan pool.

That creates a difficult situation for borrowers that may struggle to access new financing at affordable rates. PitchBook noted that none of the leveraged loans issued to refinance existing debt through Sept. 30 carried a CCC rating.

Private Credit Faces Borrower Risk

Private credit lenders have become an alternative for companies unable to refinance through broadly syndicated loan markets, but the latest figures suggest they are not stepping in to support every struggling borrower.

Of the 17 broadly syndicated loan borrowers that refinanced into private credit this year, only four carried CCC ratings before repayment. Another six were rated B-minus, according to LCD data cited by PitchBook.

Some companies have also negotiated amend-and-extend agreements with existing lenders to push back repayment deadlines rather than seek entirely new financing. However, only 3% of borrowers completing these transactions carried CCC ratings from at least one ratings agency.

The growing concentration of distressed loans among weaker borrowers could make the next phase of the credit cycle more challenging for lenders.

PitchBook warned that the current distressed loan market points to a rising risk of defaults, while low average trading prices suggest lenders could face weaker recoveries when borrowers eventually default or restructure.

With more than half of distressed loans facing maturities within three years, borrowers and lenders have less time to find solutions before refinancing pressures intensify.

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