Private credit managers are experiencing funding pressure due to higher borrowing costs, tighter bank lending conditions, and rising investor risk premiums, according to a report by the Financial Times that cites data from JPMorgan. The report shows that the premium investors demand to lend to private credit vehicles has increased by 0.34 percentage points since the start of the year and by 0.83 percentage points since early 2025, reflecting concerns over portfolio credit quality.
Rising Premiums and Financing Costs
The premium increase is occurring alongside banks becoming more cautious in extending leverage to the sector and bond investors seeking higher yields, which together are raising overall financing costs in the roughly $2 trillion private credit market, as per the report. At the same time, issuance from business development companies (BDCs) has slowed, with BDCs selling about $6.8 billion of bonds in Q1 2026, down around 22% year-on-year and roughly 36% versus 2024 levels, according to JPMorgan figures. Market participants note that leverage costs have climbed, as exemplified by Goldman Sachs’ private credit arm issuing $750 million of debt priced at a floating rate of 2.55 percentage points above US Treasuries.
Shifts in Funding Strategies
As conditions tighten, some funds have moved away from broad syndicated issuance toward alternative funding structures and shorter-dated deals to manage interest costs. For instance, a Blue Owl private credit vehicle placed $400 million of two-year investment-grade bonds in a bilateral transaction with Pimco, rather than pursuing a wider marketing process. Additionally, some managers have turned to structured credit markets such as collateralized loan obligations (CLOs), where demand from insurers and other institutional investors has kept financing costs comparatively lower.
Tightening in Traditional Channels
Banks that provide credit facilities to private credit funds are tightening terms and increasing pricing, reducing a key source of leverage that many firms rely on, according to the report from the Financial Times. This shift coincides with investors reassessing exposure to private credit portfolios, particularly loans linked to private equity-backed technology companies, where concerns around earnings resilience and AI-driven disruption have grown. According to Private Equity Wire, these developments highlight ongoing challenges in the sector’s financing model.
