"The number of private credit deals that are changed after the initial deal is signed to include more risky terms for the lender is on the rise, according to Lincoln International, an investment bank advisory service that monitors that market. That's a sign that there are potential "cracks" in the $3 trillion private credit market, according to Brian Garfield, Lincoln's managing director and head of U.S. portfolio valuations."
"A PIK typically involves allowing a borrower to forgo paying the usual interest payments on their debt in favor of adding that interest to the principal balance of the debt, which becomes due when the debt matures. PIKs usually use a higher interest rate to compensate the lender, who is taking the extra risk. Companies that take PIKs often do so because they are trying to conserve cash in the short-term."
"The number of private credit deals featuring PIKs of any kind rose from 7% of deals in Q4 of 2021 to 10.6% in Q3 2025, Lincoln's data shows. The company looked at 25,000 company valuations this year, using data from over 225 asset managers globally, including investors in venture capital, corporate debt, and private credit. Most of the deals included in the data are private equity-backed, Garfield said."
The number of private credit deals amended after signing to include riskier lender terms is increasing. The use of payments-in-kind (PIK) provisions, which convert unpaid interest into added principal due at maturity, has risen. PIKs often carry higher interest rates to compensate lenders and are typically used by borrowers seeking short-term cash conservation; PIKs are less common among firms with strong balance sheets. The share of deals with PIKs rose from 7% in Q4 2021 to 10.6% in Q3 2025. Data covering roughly 25,000 valuations and over 225 asset managers shows most affected deals are private equity-backed, and the percentage of PIKs classified as problematic is also increasing, signaling emerging stress points in the private credit market.
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