Soaring oil prices are creating a new strain on private credit borrowers as U.S. inflation remains above the Federal Reserve’s 2% target and rate hike expectations intensify. The U.S. private credit default rate hit a record 6.1% over the twelve months ending in July, according to Fitch Ratings. Floating-rate private credit loans indexed to SOFR see their costs rise with any Fed rate increase, which markets now price at nearly 70% probability for September. The most exposed borrowers are those entering this higher-rate environment with heavy debt loads and little cushion to cover interest costs, a risk amplified by rising bond yields that make refinancing more difficult.
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