DoubleLine Capital · Sep 28, 2026
With Jeffrey Gundlach, CEO and CIO of DoubleLine Capital
More than 10% of private credit is now in payment-in-kind mode, where a borrower that cannot pay its interest adds it to the loan instead, and Jeffrey Gundlach said the share is heading to 15% fairly quickly.
Private credit's reported default rate counts none of those loans. Gundlach said lenders instead record them as performing, and some mark them up.
"This is criminal."
Jeffrey Gundlach, CEO and CIO of DoubleLine Capital, spoke at DoubleLine's September client event at the Plaza Hotel in New York, where he and the firm's deputy CIO discussed the private credit market.
The full segment is covered here so you can skip it.
Here are the 3 calls that matter.
Key Takeaways
The reported private credit default rate leaves out loans that pay interest in kind
A lender can book a 10% gain on a loan that is heading for default
Gundlach said such a loan is worth at best 60 cents on the dollar
More than 10% of private credit is paying in kind, and he said it is heading to 15%
Defaults including those loans could reach 22.5% a year from now, in Gundlach's estimate
1. Defaults Leave Out PIK
The discussion opened with the point that high-yield bonds are a cleaner asset class today. During the last cycle, much high-yield financing moved to the bank loan market, where rates floated, and the riskier borrowers were taken up by private credit. That set up the question of private credit's own default cycle.
The headline default rate is 6.3%, and it is understated
"The private credit default rate for the last 12 months is reported to be 6.3%." — Jeffrey Gundlach
He said the rate has been rising slowly month by month, but the real picture is much worse because the 6.3% does not include payment-in-kind loans, known as PIK, and there are a lot of them.
Paying in kind, explained
"Paying in kind is the most insidious thing you could possibly imagine." — Jeffrey Gundlach
His example: a lender lends a company $100 at 10%, paid once a year. At the end of the first year the company does not have the $10. Instead of collecting cash, the lender raises the loan's principal to $110.
"And this is now reported as a performing loan." — Jeffrey Gundlach
He said it is a loan on its way to default. A company that could not pay $10 of interest on $100 would need something very good to happen to pay $11 on $110.
"And that just keeps compounding as you go on." — Jeffrey Gundlach
