Key Takeaways
- • Blue Owl limited investor withdrawals in a non-traded private credit fund aimed at individuals, shifting to occasional payouts funded by repayments and asset sales rather than quarterly redemption offerings, according to U.S. Bank's analysis.
- • Fitch reported average redemptions for non-traded, perpetual BDCs rose to 4.5% of net asset value in 4Q25 from 1.6% in 3Q25, and redemption requests averaged 9%-10% of NAV in 1Q26, well above the 5% limits set by many vehicles.
- • Moody's put the trailing 12-month default rate for below investment grade loans at 5.5% as of January 31, 2026, versus 3.4% for high yield corporate bonds, which U.S. Bank describes as somewhat above long-term averages but within normal ranges.
- • Stress is concentrated in software loans: about 21% of Software & Services loans in the Morningstar LSTA U.S. Leveraged Loan Index traded below 80 cents on the dollar, and PitchBook noted a record $25 billion of speculative-rated software loans below 80 cents as of January 31.
- • U.S. Bank's Kaush Amin identifies the core problem as a mismatch between loan terms, typically three to seven years, and quarterly investor redemption features.
Summary
U.S. Bank's private market investments team examines liquidity and redemption risk in private credit following recent headlines. Private credit has expanded beyond institutions into individual portfolios, often through fund structures designed for individuals. Many private loans trade infrequently, making quick sales difficult during volatility. Blue Owl, a business development company, limited withdrawals in a non-traded private credit fund aimed at individuals. Kaush Amin, Head of Private Market Investments for U.S. Bank Asset Management Group, said "the primary issue is a mismatch in terms between the underlying loans and the redemption features of many of these funds." Loan terms are most often three to seven years, while investors can often seek redemptions quarterly.
Public loan markets began 2026 under pressure. According to Bloomberg, a passive fund tracking the Morningstar LSTA U.S. Leveraged Loan Index fell over 2% in February and holds 26% of capital in software loans. Fitch reported that redemptions for non-traded, perpetual BDCs it tracks averaged 4.5% of NAV in 4Q25, up from 1.6% in 3Q25. Redemption requests in 1Q26 averaged 9%-10% of NAV, far exceeding the 5% limits set by many of these vehicles.
The collapse of Market Financial Solutions Ltd. in the U.K. has intensified focus on collateral quality. The company entered administration, a formal insolvency process, after a banking-related issue restricted access to everyday banking facilities. Reuters reported that court documents raised concerns about "double pledging," where the same assets served as collateral on multiple loans, and warned of a possible collateral shortfall. U.S. Bank notes this echoes the prior-year collapses of First Brands Group and Tricolor Holdings.
Moody's data shows a 5.5% trailing 12-month default rate for below investment grade loans as of January 31, 2026, compared with 3.4% for high yield corporate bonds. U.S. Bank characterizes loan defaults as somewhat above long-term averages but within normal ranges. Software and services loans account for about 16% of the Morningstar LSTA index, with more than half rated in the highly speculative category (Fitch B-minus or below). PitchBook reported a record $25 billion of speculative-rated software loans trading below 80 cents as of January 31. U.S. Bank frames private credit as a constructive long-term allocation for qualified investors, with due attention to manager selection, liquidity design and loan seniority.
Public loan markets began 2026 under pressure. According to Bloomberg, a passive fund tracking the Morningstar LSTA U.S. Leveraged Loan Index fell over 2% in February and holds 26% of capital in software loans. Fitch reported that redemptions for non-traded, perpetual BDCs it tracks averaged 4.5% of NAV in 4Q25, up from 1.6% in 3Q25. Redemption requests in 1Q26 averaged 9%-10% of NAV, far exceeding the 5% limits set by many of these vehicles.
The collapse of Market Financial Solutions Ltd. in the U.K. has intensified focus on collateral quality. The company entered administration, a formal insolvency process, after a banking-related issue restricted access to everyday banking facilities. Reuters reported that court documents raised concerns about "double pledging," where the same assets served as collateral on multiple loans, and warned of a possible collateral shortfall. U.S. Bank notes this echoes the prior-year collapses of First Brands Group and Tricolor Holdings.
Moody's data shows a 5.5% trailing 12-month default rate for below investment grade loans as of January 31, 2026, compared with 3.4% for high yield corporate bonds. U.S. Bank characterizes loan defaults as somewhat above long-term averages but within normal ranges. Software and services loans account for about 16% of the Morningstar LSTA index, with more than half rated in the highly speculative category (Fitch B-minus or below). PitchBook reported a record $25 billion of speculative-rated software loans trading below 80 cents as of January 31. U.S. Bank frames private credit as a constructive long-term allocation for qualified investors, with due attention to manager selection, liquidity design and loan seniority.
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