The default rate for private credit in the United States rose to 6.3%, a new record high, while the default rate for the software industry fell to 0.6%.

According to the latest data from Fitch, default pressure continues to accumulate in the US private credit market, with the default rate rising to its highest level on record. Uncertainty surrounding interest rates and inflation is putting pressure on the market.

Fitch Ratings released a report on Monday stating that the default rate for U.S. private credit over the past 12 months, which tracks 1,300 borrowers, rose to 6.3% at the end of August, surpassing the previous record high of 6.1% in July and setting a record for the highest number of defaults in a single month over the past year.

Lyle Margolis, head of private lending at Fitch North America, said that uncertainty about interest rates and inflation prospects has dampened transaction liquidity, making it difficult for lenders to sell distressed portfolio companies before loans mature, thus driving default rates higher.

For investors, the record high default rate signifies a further expansion of credit risk exposure for private lending assets. Deferred transactions, classified as default events by Fitch, have dominated recent default data, a trend that has held the top position among all types of default events for three consecutive months.

Delayed maturity and interest deferral dominate the default structure

Looking at the specific data for August, a total of 14 default events were recorded, of which 11 involved first-time defaulters and 3 involved repeat defaulters.

Of the 89 defaults in the past year, arrangements for deferred interest payments and payment in kind (PIK) in lieu of cash interest accounted for 47% in total; stress-driven maturity extensions accounted for 45% of the total defaults in August, making it the largest single type of default and maintaining this position for three consecutive months.

Fitch believes that the above structural characteristics reflect that, against the backdrop of blocked refinancing channels, borrowers and lenders are relying more on debt restructuring arrangements to avoid immediate defaults, but such operations are still counted as defaults under Fitch's rating framework.

The medical and industrial sectors have the highest default rates among all industries.

In terms of industry distribution , the healthcare, industrial, and manufacturing sectors saw the most concentrated default activity, with all three sectors reaching a default rate of 9.9% in August, a further increase from 9.5% in July , ranking among the top sectors tracked by Fitch.

In contrast, the technology and software sector has significantly outperformed the overall market. Despite concerns about the disruptive potential of artificial intelligence technology weighing on the software industry this year, its default rate has fallen to 0.6% from 1.2% last month, maintaining the lowest default rate among Fitch-rated sectors.

This data suggests that while AI-related investor sentiment has put pressure on valuations, it has not yet substantially translated into improved credit quality in the industry.

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