US private credit market faces challenges as borrowers seek cheaper financing in Europe

The $1 trillion US private credit market is watching its borrowers do something that would have been unthinkable a few years ago: shop for better deals in Europe. The US default problem The US private credit default rate hit 5.8% as of January 2026. Projections suggest the rate could climb to 8%, driven in part by disruptions that artificial intelligence is causing in the software and SaaS sectors. A PwC survey found that 93% of credit managers in the US expect flat or declining returns in 2026. Europe’s quiet ascendance Europe raised a record $65 billion in private credit funding through the first nine months of 2025, a 14% increase over the same period in 2024. Non-bank lending in Europe and the UK accounts for just 12% of total lending. In the US, that figure is 75%. European direct lending transactions are typically priced 25 to 50 basis points higher than their US equivalents. What’s driving the divergence The AI disruption angle deserves more attention than it’s getting. Private credit portfolios in the US are heavily weighted toward technology and software companies. These businesses were considered near-perfect borrowers: recurring revenue, high margins, low capital expendi...