Private Credit Market Braces for Turbulence: Lenders Tighten Terms Amid Rising Distress Signals
NEW YORK – Private credit lenders are increasingly embedding stricter terms into loan agreements, signaling a growing anxiety about potential future economic headwinds, according to data analyzed by Noetica. The shift reflects a quite preparation for possible borrower distress, experts say, as subtle cracks begin to appear in the once-booming private debt market.
Noetica CEO Dan wertman told Fortune that the data clearly indicates lenders are bolstering protections within new credit deals. “What the data supports is that lenders are quietly preparing for some distress on the horizon, and we see that in the data with the increasing structural protections existing in new credit deals,” he said. “Personally, I would interpret that as lenders are anxious about the future of these credit markets, and that’s being reflected in the terms.”
One key change is the proliferation of what’s being called “anti-Petsmart” language.This stems from a 2018 incident where Petsmart, after acquiring chewy for $3 billion, moved a portion of its Chewy stake to a subsidiary outside the reach of its lenders – a move that angered creditors. Noetica data shows the inclusion of this protective clause has jumped dramatically: from just 4% of private credit deals in 2023 to 28% in Q3 2025.
Further tightening is evident in lien subordination protection, which prevents companies from taking on new debt or prioritizing newer creditors over existing ones without unanimous consent. This protection now appears in 84% of deals, a significant increase from 42% last year.
Leverage ratios – the amount of debt lenders provide relative to a company’s earnings (EBITDA) – are also declining, indicating a more cautious lending approach.
However, the trend isn’t entirely restrictive. Lenders are concurrently offering borrowers more adaptability in areas like investments, dividend payments, and EBITDA calculations, according to Noetica’s analysis of thousands of private credit contracts.
wertman emphasized that these changes are intentional. ”Terms never move by accident,” he stated. “These are refined parties with highly sophisticated data sets and thought processes behind these deals. So I wouldn’t think about it as an accident. I would think about it as this is reflecting what lenders and borrowers are currently thinking of the market.”
These developments come as early warning signs emerge within the private credit landscape. Fortune previously reported a rise in covenant defaults – technical breaches of loan terms – from 2.2% in 2024 to 3.5% currently, based on data from Lincoln International.Payment-in-kind (PIK) deals, where companies defer interest payments, have also increased, climbing from 6.5% of deals in Q4 2021 to 11% today.
Kroll Bond Rating Agency estimates that private debt defaults will peak at 5%, based on its analysis of $1 trillion in debt across 2,400 companies.
While the overall outlook remains uncertain, the tightening of terms suggests lenders are proactively positioning themselves for a perhaps more challenging surroundings in the private credit market.
