Connor Teskey of Brookfield highlights tightening conditions in the private credit market, with loan spreads widening and leverage levels rising, signaling caution for corporate borrowers. The shift reflects broader financial market stress, particularly in leveraged finance.
- Private credit loan spreads widened to 650 bps over SOFR in early 2026, up from 520 bps at the start of the year.
- Median leverage ratios in private credit deals reached 6.8x EBITDA, exceeding sustainable thresholds.
- Private credit delinquency rates rose 22% year-over-year, indicating deteriorating credit quality.
- The ^VIX averaged 28.4 in 2026, reflecting elevated market volatility.
- LQD declined 3.1% since January, signaling credit market stress.
- Brookfield has paused new real estate credit commitments due to rising risk exposure.
Connor Teskey, senior executive at Brookfield, has issued a warning on the current state of the private credit market, citing increasing risk premiums and deteriorating lending standards. As of early 2026, average loan spreads in private credit have expanded to 650 basis points over SOFR, up from 520 bps at the start of the year, reflecting heightened risk aversion among lenders. This widening indicates growing concerns over credit quality, particularly in highly leveraged corporate deals. The shift is especially pronounced in real estate and mid-market corporate lending, where borrower leverage ratios have climbed to median levels of 6.8x EBITDA—above the 5.5x threshold considered sustainable by many underwriters. Teskey noted that covenants are being relaxed in new deals, reducing lender protection and increasing default risk. These trends coincide with a 22% year-over-year rise in private credit delinquencies, according to internal Brookfield monitoring. Market indicators reflect broader stress: the CBOE Volatility Index (^VIX) has averaged 28.4 since January, the highest in 18 months, while the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has seen a 3.1% pullback. Meanwhile, crude oil futures (CL=F) have declined 11% since December, adding pressure on energy-sector borrowers reliant on private credit. These factors collectively signal a tightening in credit availability, particularly for riskier issuers. The implications are significant for financial institutions and corporations alike. Private credit, which now accounts for over $1.6 trillion in global assets under management, is becoming harder to access for non-investment-grade firms. Lenders are increasingly focusing on cash flow stability and collateral strength, reducing deal flow in speculative sectors. Brookfield’s own investment committee has paused new commitments in several high-leverage real estate portfolios.