Morgan Stanley Sees Private Credit Default Rates Reaching 8% (2)

Default rates in direct lending will climb to 8% as advances in artificial intelligence continually disrupt the software industry, according to Morgan Stanley.

While AI disruption has yet to impact private credit fundamentals in a “material way,” elevated leverage and looming maturity walls within the software sector may push default rates near peak levels unseen since the pandemic, a team of analysts including Joyce Jiang said in a Monday note.

“Credit fundamentals of software loans are challenged with the highest leverage and the lowest coverage ratios across major sectors,” the strategists wrote. While defaults have moderated across public and ...