Key Takeaways
- • Kroll's analysis argues private credit has moved from a niche strategy to a core component of global capital markets, with growth now no longer the defining measure of success.
- • The UK and European private credit market is described as fundamentally healthy but entering its first meaningful stress test as a mature asset class.
- • Reported default rates remain relatively manageable, though some investors question whether stress is being obscured by liability management exercises, amend-and-extend deals, payment-in-kind structures and covenant resets.
- • Kroll identifies structuring for protection as the defining theme of the next phase, built on control, early intervention and optionality, with enforceability a critical and often overlooked element.
- • Debt raised between 2020 and 2022, when acquisitions were completed at elevated valuations and higher leverage, faces the most pressure as facilities mature into a higher-cost refinancing environment.
Summary
Private credit has evolved from a niche alternative strategy into a core component of global capital markets, according to Kroll. As banks have retreated from certain lending activities, institutional investors have stepped in, reshaping how businesses access capital and how risk is distributed across the financial system. The market now spans infrastructure, asset-based finance and investment-grade credit, which Kroll characterizes as a structural rather than cyclical shift. Kroll argues that as the market matures, growth alone is no longer the defining measure of success; the key question is whether managers have developed the discipline needed for a more challenging environment.
Kroll describes the UK and European private credit market as fundamentally healthy but entering its first meaningful stress test. Rising credit pressures are providing a real-world assessment of underwriting quality, portfolio management and restructuring capabilities. Analysts differ on the outlook: some expect increased restructuring as higher rates and economic uncertainty weigh on borrowers, while others argue that available capital, refinancing activity and secondary transactions will absorb much of the strain. Fundraising across UK and European private credit remains strong, but loans originated over the past five to 10 years face higher borrowing costs, slower growth and tighter refinancing conditions, shifting attention toward credit selection, portfolio resilience and workout capabilities.
The migration of lending from banks to institutional investors has also shifted responsibility, Kroll notes. Banks traditionally provided due diligence, monitoring, governance and enforcement infrastructure, which private credit managers must now build. Kroll points to liability management exercises, amend-and-extend transactions, payment-in-kind structures and covenant resets as tools that offer flexibility but may delay recognition of underlying credit deterioration. Cyber threats are also described as a material credit risk, since operational disruption and data breaches can affect liquidity, enterprise value and stakeholder confidence.
Kroll's central thesis is that structuring for protection is the defining theme of the next phase. It identifies three principles: control, through governance rights, reporting requirements and covenant protections; early intervention, through active engagement to stabilize businesses before problems become critical; and optionality, through flexible structures that preserve value via refinancing, restructuring or enforcement. Enforceability underpins all three, and Kroll warns that enforcement planning is often overlooked at origination, even as cross-border transactions multiply and legal complexity can delay recovery. The article also notes that valuation transparency has become a major regulatory and investor focus given limited borrower disclosure and the absence of public market pricing signals. In the UK, the Bank of England's System-Wide Exploratory Scenario exercise is cited as an example of efforts to assess how the expanding sector may behave under stress.
Kroll concludes that private credit has proven it can grow, and the next challenge is remaining resilient as conditions tighten. Asset-based finance has emerged as a significant source of opportunity alongside sponsor-backed direct lending. Kroll maintains that the long-term outlook remains strong and that managers best positioned for success will combine underwriting discipline, active portfolio management and restructuring expertise with robust governance and valuation practices.
Kroll describes the UK and European private credit market as fundamentally healthy but entering its first meaningful stress test. Rising credit pressures are providing a real-world assessment of underwriting quality, portfolio management and restructuring capabilities. Analysts differ on the outlook: some expect increased restructuring as higher rates and economic uncertainty weigh on borrowers, while others argue that available capital, refinancing activity and secondary transactions will absorb much of the strain. Fundraising across UK and European private credit remains strong, but loans originated over the past five to 10 years face higher borrowing costs, slower growth and tighter refinancing conditions, shifting attention toward credit selection, portfolio resilience and workout capabilities.
The migration of lending from banks to institutional investors has also shifted responsibility, Kroll notes. Banks traditionally provided due diligence, monitoring, governance and enforcement infrastructure, which private credit managers must now build. Kroll points to liability management exercises, amend-and-extend transactions, payment-in-kind structures and covenant resets as tools that offer flexibility but may delay recognition of underlying credit deterioration. Cyber threats are also described as a material credit risk, since operational disruption and data breaches can affect liquidity, enterprise value and stakeholder confidence.
Kroll's central thesis is that structuring for protection is the defining theme of the next phase. It identifies three principles: control, through governance rights, reporting requirements and covenant protections; early intervention, through active engagement to stabilize businesses before problems become critical; and optionality, through flexible structures that preserve value via refinancing, restructuring or enforcement. Enforceability underpins all three, and Kroll warns that enforcement planning is often overlooked at origination, even as cross-border transactions multiply and legal complexity can delay recovery. The article also notes that valuation transparency has become a major regulatory and investor focus given limited borrower disclosure and the absence of public market pricing signals. In the UK, the Bank of England's System-Wide Exploratory Scenario exercise is cited as an example of efforts to assess how the expanding sector may behave under stress.
Kroll concludes that private credit has proven it can grow, and the next challenge is remaining resilient as conditions tighten. Asset-based finance has emerged as a significant source of opportunity alongside sponsor-backed direct lending. Kroll maintains that the long-term outlook remains strong and that managers best positioned for success will combine underwriting discipline, active portfolio management and restructuring expertise with robust governance and valuation practices.
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