Key Takeaways
- • US-domiciled private credit vehicles owed banks $349 billion at the end of 2025, according to the Federal Reserve's new private credit accounts, with business development companies accounting for $181 billion, private debt funds $150 billion, and interval and tender-offer funds $18 billion.
- • Private credit funds can book payment-in-kind (PIK) interest as income without receiving cash, while their own bank lenders still expect cash payments, creating a timing mismatch that can strain fund liquidity.
- • Boston Fed researchers found about 10% of BDC loans were actively using PIK interest by early 2026, up from about 6% in 2022, with construction loans rising from under 5% to nearly 20%.
- • Five banks supplied roughly two-thirds of drawn bank lending to BDCs in the Fed's 2012–2023 sample, and BDCs rarely replaced those partners, limiting their ability to switch lenders if financing costs rise.
- • The UK Prudential Regulation Authority is reviewing an insider complaint about Barclays' treatment of private credit-linked total return swaps, which Barclays says complied with accounting and capital rules.
Summary
US-domiciled private credit vehicles owed banks $349 billion at the end of 2025, according to the Federal Reserve's accounts cited in the source article. Business development companies (BDCs) accounted for $181 billion of that total, private debt funds for $150 billion, and interval and tender-offer funds, which offer limited opportunities to sell shares back, for $18 billion. The Fed's October 16 account put total US-footprint private credit vehicle assets above $2.6 trillion, including foreign-based vehicles, with roughly $1.5 trillion consisting of private loans to US businesses. The Fed had previously classified some of these bank loans as owed to financial companies abroad, a classification that the revised accounts correct.
The central concern is that private credit funds can record interest as income even when borrowers have not paid cash, because some loan contracts allow businesses to add interest to principal. This gives the borrower more time to pay, but the fund's bank lenders generally still expect cash. Banks hold collateral and priority in distributions, protections that can keep a bad business loan from becoming a bank loss, but enforcing them may require a fund to produce cash before its borrowers can pay.
Boston Fed researchers examined filings from 168 BDCs, covering nearly 890,000 company-quarter loan observations. By early 2026, about 10% of BDC loans were actively using PIK interest, up from about 6% in 2022. The increase extended across nearly every industry in the sample, with construction showing one of the largest rises, from less than 5% of loans in 2022 to nearly 20% by early 2026. Floating-rate borrowers also faced higher debt costs as benchmark rates rose over the period.
Fed researchers also found that five banks supplied roughly two-thirds of drawn bank lending to BDCs in their 2012–2023 sample. Because BDCs rarely replaced their banking partners, a lender demanding more expensive financing is not necessarily facing a queue of alternative lenders. The Fed's financing study further found that banks charged BDCs a premium during monetary tightening compared with similarly rated borrowers at the same bank, despite BDC loans generally having seniority and collateral. Financing agreements may also restrict borrowing against eligible collateral, so falling loan valuations can trigger demands for additional collateral or repayment even when a fund's total assets exceed its debts.
On October 19, the Financial Times reported that the UK's Prudential Regulation Authority was examining an insider complaint about Barclays' allocation of private credit-linked total return swaps to its trading book. Barclays told Reuters that its treatment complied with accounting and regulatory capital requirements. Barclays reported £15 billion in total private credit exposure, mostly held in its banking book. The swaps referenced roughly £1.5 billion in underlying assets, with current mark-to-market exposure of about £300 million. The PRA had previously said in an April 2025 letter to bank finance chiefs that placing hard-to-sell assets into tradable form was not sufficient on its own to justify trading-book capital treatment.
The central concern is that private credit funds can record interest as income even when borrowers have not paid cash, because some loan contracts allow businesses to add interest to principal. This gives the borrower more time to pay, but the fund's bank lenders generally still expect cash. Banks hold collateral and priority in distributions, protections that can keep a bad business loan from becoming a bank loss, but enforcing them may require a fund to produce cash before its borrowers can pay.
Boston Fed researchers examined filings from 168 BDCs, covering nearly 890,000 company-quarter loan observations. By early 2026, about 10% of BDC loans were actively using PIK interest, up from about 6% in 2022. The increase extended across nearly every industry in the sample, with construction showing one of the largest rises, from less than 5% of loans in 2022 to nearly 20% by early 2026. Floating-rate borrowers also faced higher debt costs as benchmark rates rose over the period.
Fed researchers also found that five banks supplied roughly two-thirds of drawn bank lending to BDCs in their 2012–2023 sample. Because BDCs rarely replaced their banking partners, a lender demanding more expensive financing is not necessarily facing a queue of alternative lenders. The Fed's financing study further found that banks charged BDCs a premium during monetary tightening compared with similarly rated borrowers at the same bank, despite BDC loans generally having seniority and collateral. Financing agreements may also restrict borrowing against eligible collateral, so falling loan valuations can trigger demands for additional collateral or repayment even when a fund's total assets exceed its debts.
On October 19, the Financial Times reported that the UK's Prudential Regulation Authority was examining an insider complaint about Barclays' allocation of private credit-linked total return swaps to its trading book. Barclays told Reuters that its treatment complied with accounting and regulatory capital requirements. Barclays reported £15 billion in total private credit exposure, mostly held in its banking book. The swaps referenced roughly £1.5 billion in underlying assets, with current mark-to-market exposure of about £300 million. The PRA had previously said in an April 2025 letter to bank finance chiefs that placing hard-to-sell assets into tradable form was not sufficient on its own to justify trading-book capital treatment.
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