The share of new private credit loans with PIK provisions fell to 13.5% in Q2 from 25% at end-2025 as lenders tighten terms and regulators launch a pilot survey, Lincoln International said.
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The share of new private credit loans carrying a payment-in-kind provision fell to 13.5% in the second quarter, down from 25% at the end of 2025, according to investment-banking adviser Lincoln International. Lenders now hold more bargaining power, pushing back on terms that add deferred interest to the principal balance and increase a borrower's debt load, Brian Garfield, managing director at Lincoln International, told The Wall Street Journal.
"This is an evolution we are seeing unfolding now," Garfield said. "The pendulum is shifting."
PIK provisions had become a widely used sweetener for borrowers, letting them defer cash interest payments. The WSJ reported that some private-credit executives and attorneys increasingly see the clause as a warning sign that a loan could sour. In more extreme cases, when a borrower requests interest deferral after the loan's origination, some industry participants label the move a "shadow default."
The pullback is part of a broader tightening in private credit underwriting. Companies are extending less debt to buyout targets, particularly software firms and others susceptible to AI disruption, and closing loopholes that permitted financing against borrower assets, the report said.
Regulators are paying closer attention. Last week, the Federal Reserve Banks of Dallas and New York announced a pilot survey of the U.S. private credit market, saying the sector has grown to an estimated $1.3 trillion, comparable in size to both the high-yield bond and broadly syndicated loan markets. "Unlike public credit markets, in which conditions can be tracked through public market data, visibility into new private credit lending activity is more limited," the two banks said in a statement.
The Federal Reserve has noted that loan sizes in the space have increased, often exceeding $80 million, with many borrowers coming from sectors where tangible collateral is scarce. "That combination raises questions about how risk is priced and how losses would be absorbed in a downturn," PYMNTS wrote earlier this year.
The Dallas and New York Fed survey is voluntary and intended for market intelligence, not supervision. The first data collection is expected in the coming months.
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