PIK usage and lender takeovers across US and European private credit
Recent private-credit research presents a mixed picture. Some borrowers are deferring cash interest or moving towards lender control, while other portfolios continue to show earnings growth and access to capital. Reading those developments together is more useful than looking for a single default rate to describe the market.
1. Default definitions are changing the picture
In research published on 14 October, Moody’s examined 607 credit-estimate issuers held across 47 middle-market collateralised loan obligations (CLOs). Reported defaults affected 4.0% of that population over the twelve months to June 2026. Including additional payment-in-kind (PIK) amendments and maturity extensions that it assessed as likely distressed exchanges increased the measure to 5.8%.
That is a result for a defined population, not a default rate for the entire US private-credit market. It nevertheless demonstrates how much the picture can change when the analysis includes relief granted to distressed borrowers. Read Moody’s research.
The distinction also matters economically: a loan amendment can preserve value without resolving the borrower’s underlying cash-flow problem. The outcome ultimately depends on whether the business recovers and what lenders collect.
2. PIK needs to be assessed alongside borrower performance
Payment-in-kind (PIK) interest allows interest to accrue rather than be paid in cash. Its presence alone does not establish distress, but increasing reliance on it deserves attention.
An August paper from Federal Reserve Bank of Boston researchers found that the share of business development company (BDC) loans using PIK rose from approximately 6% in early 2022 to roughly 10% by early 2026. The increase extended across most sectors, while lending spreads compressed. Read the Boston Fed analysis.
The practical questions are whether the borrower can return to cash payments, how quickly capitalised interest is increasing debt, and whether earnings growth can support that larger balance. PIK introduced through an amendment is a particularly useful flag, but an option agreed at origination should still be assessed against current liquidity and leverage.
3. Europe has its own evidence of pressure
Lincoln International’s Q2 European report recorded PIK usage of 16.7% and “bad PIK” of 8.1%, alongside a covenant default rate unchanged at 1.5%. Lincoln uses “bad PIK” to distinguish interest that was cash-pay at closing but subsequently became PIK. Read the European report.
Its US release reported PIK in 11.1% of loans, with “bad PIK” present in 6.2% of all loans. These observations should not become a simple regional league table: the samples and counting units differ, and covenant defaults are not the same measure as Moody’s broader distress calculation. Read Lincoln’s US findings.
The European evidence is sufficient to challenge the idea that deferred cash interest is exclusively an American issue.
4. Lender control is becoming a more visible outcome
Lincoln’s October analysis identified at least $22.3 billion of debt associated with recently closed and in-process lender-control restructurings through June 2026. Approximately 70% of debt associated with its 2025–26 lender-control transactions came from 2021 and 2022 loan vintages. Read the lender-control analysis.
Its European Q2 report separately identified €4.5 billion of debt foreclosures across eight issuers during 2026 to that point.
Those amounts describe debt associated with transactions, not realised losses. Taking control can preserve recovery prospects, but it changes the lender’s task: the investment may now depend on governance, additional capital and a later business sale.
5. Loan sales are adding information as well as liquidity
Secondary trading provides another way to observe how private-credit portfolios are changing.
Lincoln reports increased trading before maturity, while noting that most observed trades involved instruments valued above 95% of par, often close to par. Sales may reflect portfolio allocation or liquidity needs rather than borrower distress. Read its secondary-market analysis.
Transaction prices are useful evidence, but the context matters: the size of the position, the seller’s motivation, the process and the borrower’s performance. More trading improves visibility without making every trade representative of an entire facility.
6. Capital remains available through an expanding range of structures
The market is also developing new financing capacity.
In its 14 October update, covering issuance through August, KBRA reported that European middle-market CLO issuance had exceeded €1 billion for the first time. It also described credit conditions as broadly resilient, with stress concentrated at the margins. Read KBRA’s update.
Baird’s October European debt-market commentary highlights the expansion of asset-backed finance, where repayment may come from pools of contractual assets rather than a single company’s refinancing. That provides a useful counterpoint to the focus on stressed corporate cash-flow lending. Read Baird’s market update.
These developments can coexist with borrower-level deterioration. New issuance, fund liquidity and underlying loan performance answer different questions.
What to watch next
Our reading is that the next useful indicators will be transitions: borrowers returning from PIK to cash-pay, amendments followed by sustained deleveraging, and lender-control transactions producing recoveries.
The ECB’s May financial-stability analysis provides useful context. It found limited aggregate direct exposure among euro-area financial institutions, while highlighting opacity, concentrated exposures and potential spillovers. Read the ECB analysis.
For transaction participants, that makes the record of each loan increasingly important: what changed, which amounts were paid or capitalised, what consents were obtained and which conditions govern the next step. Those details help distinguish temporary liquidity support from a financing that needs a deeper restructuring.
The ALTRIUM Team