Credit stress remains concentrated rather than market-wide, according to this year’s second quarterly market update released by the Alternative Credit Council (ACC).

The ACC represents 250 asset management firms in the private credit and direct lending space, that manage over $2tn (£1.5tn) of private credit assets. The London-based ACC is an affiliate of the Alternative Investment Management Association, which serves over 2,000 members in 60 different countries.

The ACC’s latest health check of the private credit industry shows that 85 per cent of loans are valued above 97 per cent of par, while the share of loans valued below 90 per cent of par remains concentrated in identifiable sectors – particularly software – and among smaller borrowers.

“For investors and policymakers, the priority is to distinguish those pockets of stress from broader portfolio performance,” said Jiří Król, global head of the ACC.

He added: “Q2 data shows private credit portfolio valuations are supported by continued borrower earnings growth and robust debt serviceability.”

The ACC’s first quarterly update of this year came to similar conclusions.

Meanwhile, borrower earnings continued to improve, with median revenues rising 6.5 per cent year-on-year, while median EBITDA increased 7.4 per cent, extending the period of margin expansion observed since September 2023 by another quarter.

The ACC also said borrowers remain well placed to meet their interest payments, despite the share of borrowers with interest coverage below 1.00x increasing to 14.1 per cent – an indicator that warrants continued attention, the ACC emphasized.

Looking at the state of Business Development Companies (BDCs), the ACC said declines in BDC net asset values moderated, with fundamentals resilient despite a challenging market sentiment.

Drawing on data from investment bank Houlihan Lokey, covering more than 80,000 loans, the ACC quarterly updates examine valuations, borrower earnings, debt servicing and portfolio performance. Data is collected at monthly, quarterly, and annual intervals over most of an investment’s holding period to provide a comprehensive time-series view of portfolio company performance, credit quality, market benchmarking, and valuation outcomes throughout a loan’s lifecycle.