Bond.az reports that according to a UBS report, private credit defaults could rise to as much as 10% over the coming quarters due to AI-driven disruption.
Currently at about 4.4%, the default rate for private credit is expected to increase to between 9% and 10%, with AI-related disruption adding 3% to 4% of default risk.
Software companies appear particularly vulnerable as advances in AI could slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations.
UBS forecasts private credit defaults of 9% to 10% by end of 2026, compared with 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds.
The bank compares current conditions to the 2014-2016 U.S. shale credit downturn, noting that tech-related leveraged loans are already showing signs of repricing.
Private and public credit markets are closely linked through overlapping investors and financing structures, increasing spillover risk if defaults accelerate.
UBS does not see systemic risk in its base case, but warns that a severe software-related downturn could tighten lending conditions.
Leverage in the private credit ecosystem is estimated at $1.5 trillion, supported by bank and non-bank channels.
Despite risks, credit markets can currently fund the AI investment boom, though rising defaults could constrain funding by 2027.
