UBS forecasts private credit default rates rising from the current ~4.4% to between 9% and 10% by the end of 2026.
AI‑driven disruption could contribute an additional 3%‑4% of default risk, with software companies identified as especially vulnerable due to slower revenue growth, weakened pricing power, margin compression, and potential contract cancellations.
The bank projects leveraged‑loan defaults of 3.5%‑4% and high‑yield‑bond defaults of 1.75%‑2% for the same period, highlighting a disparity between private credit and other credit segments.
UBS draws a parallel to the U.S. shale‑credit downturn of 2014‑2016, noting that stress in a single sector can spread to broader credit markets; technology‑related leveraged loans are already showing signs of repricing.
Private and public credit markets are closely linked through overlapping investors, shared issuers, and similar financing structures, raising the possibility of spillover effects if private‑credit defaults accelerate.
While UBS does not view private credit as a systemic risk under its base‑case scenario, it warns that a severe downturn centered on software‑related losses could tighten lending conditions and affect broader corporate financing markets into 2027.
Leverage tied to private credit and private‑equity markets is estimated at a minimum of $1.5 trillion, supported by both bank and non‑bank financing channels.
Despite the heightened default risk, UBS believes credit markets remain capable of financing the ongoing AI investment boom, though rising defaults may become a larger constraint on funding conditions in 2027.
