New data from Kroll LLC and StepStone reveals that contractual spreads on newly originated private credit loans have fallen to historic lows, even as borrower leverage remains elevated. The benchmarking kit tracks nearly 3,000 loans worth over $1 trillion, capturing about 40% of the private credit universe. This compares to roughly half that amount in public and private business development company holdings.

Despite rising interest rate volatility elsewhere, private credit markets show remarkable stability. The data shows median interest coverage ratios near decade-lows while spreads compress further, particularly in the US market. Technology sector loans illustrate this trend clearly - investors accept tighter spreads in the illiquid private market compared to publicly traded high-yield bonds, even though loan returns have underperformed this year.

This compression occurs as insurance companies and other institutional investors pour capital into private credit, potentially pricing out historically high risk premiums. While managers use new issuance data to mark portfolios higher, questions remain about whether this trend can continue given current leverage levels and compressed spreads. The data suggests a market that may be growing complacent about credit risk.