Recovery rates will define the next private credit cycle, not defaults.
That’s according to KKR & Co‘s (NYSE:KKR) Flash Macro Update Report, published on April 6. “We’ve heard lots of comments that defaults have only recently spiked. Our team has a slightly different view,” the private equity giant wrote.
Kris Novell and the macro team at KKR have been tracking Fitch’s broader definition of default, which goes beyond missing a payment, the report explained.
This expanded measure captures early signs of financial stress, including actions companies take to avoid an outright default. Two examples are payment-in-kind (PIK) interest and amend-and-extend transactions, both of which can signal underlying liquidity challenges.
PIK Vs. Amend And Extend
PIK interest allows a borrower to conserve cash by adding interest payments to the loan balance instead of paying them immediately. While this can provide short-term relief, it often increases overall debt levels and may weaken the company’s financial position over time. As a result, it can …
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