Private credit lenders post steepest paper losses since 2022

Deepening paper losses are putting a crack in private credit’s pitch as a steadier, safer corner of finance. First-quarter filings from 51 business development companies showed aggregate unrealized losses equal to 2.35% of net asset value, the sharpest quarterly hit since the second quarter of 2022, a warning sign for a market that has sold itself to lenders, pensions and insurers as a durable alternative to bank lending.

The damage is showing up in valuations rather than in outright cash defaults, but that distinction has not calmed investors. A review of 14 major BDCs found the aggregate fair value-to-cost ratio fell 103 basis points to 98.55% at the end of March, leaving investments marked about $1.2 billion below amortized cost. Investors have been watching valuations, non-accruals and redemption requests at non-traded vehicles more closely as private credit lenders also collect more payment-in-kind income, meaning more of the return is being paid with added debt rather than cash.

The pressure is broad enough to reach some of the sector’s biggest names. Ares Capital Corporation reported first-quarter net investment income of $398 million, up from $365 million a year earlier, but net unrealized losses widened sharply to $412 million from $63 million. Its net asset value per share slipped to $19.59 on March 31 from $19.94 at the end of 2025, even as the company held its second-quarter dividend at $0.48 a share, payable June 30 to stockholders of record on June 15.

The latest markdowns arrive as regulators and central bankers are paying closer attention to the scale and links of the industry. The Financial Stability Board estimated the global private credit market at between $1.5 trillion and $2 trillion and said its connections with banks, insurers and private equity firms are deepening. The European Central Bank said euro area financial institutions have limited direct exposure, but warned that insurers and pension funds could face more substantial second-round losses in a severe shock. That matters far beyond Wall Street: as private credit becomes more embedded in retirement savings and insurance portfolios, a slide in valuations could raise borrowing costs, make fundraising harder and expose how much of the boom rests on assets that are still lightly tested.