Investing.com — Private credit defaults could rise to as much as 10% over the coming quarters as artificial intelligence-driven disruption puts pressure on borrowers, according to a report from UBS.
The bank said it expects private credit default rates to increase from about 4.4% currently to between 9% and 10%, with AI-related disruption potentially adding an additional 3% to 4% of default risk.
UBS said software companies appear particularly vulnerable as advances in AI could slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations over the next year. The bank expects those pressures to intensify toward the end of 2026 and into 2027.
The report noted that defaults are expected to vary significantly across credit markets. UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared with 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds.
The bank compared current conditions with the U.S. shale credit downturn of 2014-2016, when stress in one sector eventually spread to broader credit markets. UBS said technology-related leveraged loans are already showing signs of repricing and warned that further spread widening could extend to other sectors.
According to the report, private and public credit markets are closely linked through overlapping investors, shared issuers, and financing structures, increasing the potential for spillover effects if defaults accelerate.
UBS said private credit does not currently pose a systemic risk under its base-case scenario. Still, it warned that a severe downturn involving software-related losses could tighten lending conditions and affect broader corporate financing markets.
The report also highlighted growing leverage across the private credit ecosystem. UBS estimates that leverage tied to private credit and private equity markets now totals at least $1.5 trillion, supported by both bank and non-bank financing channels.
Despite the risks, UBS said credit markets currently remain capable of financing the ongoing AI investment boom, though rising defaults could become a larger constraint on funding conditions in 2027.