Private credit defaults have surged to 9.2% in 2025, surpassing the 8.1% rate from the previous year and exceeding levels seen during the 2008 financial crisis, according to Fitch Ratings. The private credit market, now valued at $1.8 trillion, is facing liquidity challenges as higher interest rates increase borrowing costs for smaller companies. These firms, often with EBITDA under $100 million, are struggling with floating-rate debt, leading to a 15.8% default rate among smaller borrowers. Despite rising defaults, losses remain contained as lenders opt for restructuring over bankruptcy, achieving near-par recoveries in most cases. However, the market's limited secondary trading capacity, estimated at $100 billion, poses a liquidity risk, with some funds facing redemption pressures. As private credit expands, the sector's liquidity mismatch and reliance on flexible financing are under scrutiny, highlighting potential vulnerabilities if economic conditions worsen.