Strategic View: Q1 2025 data reveals 87% of private equity-backed companies successfully negotiated covenant relief from private credit lenders, preventing the anticipated default wave. This “amend and extend” culture preserves near-term stability but creates a maturity wall pushing refinancing challenges into 2026-2027 .
Full story: The dog that didn’t bark in Q1 2025 was the much-anticipated wave of private equity portfolio company defaults. Industry observers expected rising interest rates and weakening operating performance to trigger widespread covenant breaches and distressed restructurings. Instead, data shows 87% of general partners successfully negotiated covenant relief, modifications, or waivers from their private credit lenders, effectively kicking problems down the road .
This “amend and extend” culture defines the 2025 private credit market and represents rational behavior from all parties. For lenders, forcing portfolio companies into default and bankruptcy would require writing down loans, crystallizing losses, and potentially triggering fund redemptions or valuation write-downs. Far better to grant covenant relief, charge amendment fees, potentially increase interest rates, and extend maturity dates—keeping the patient alive while collecting higher yields .
For general partners, covenant relief prevents the career-ending disaster of portfolio company failures and preserves optionality for eventual value recovery. While painful to accept higher interest costs and stricter terms, these concessions beat the alternative of losing equity value entirely. The modifications typically include: covenant resets to current performance levels, 12-24 month maturity extensions, 50-100 basis point interest rate increases, and sometimes small equity contributions from GPs to demonstrate commitment .
However, this widespread forbearance creates systemic questions. Is the private credit market preserving valuable businesses through temporary challenges, or merely keeping “zombie” portfolio companies artificially alive? The optimistic view holds that covenant relief provides bridge financing until operating improvements materialize or exit markets recover. The pessimistic view suggests widespread denial is delaying inevitable restructurings, with the maturity wall simply shifting from 2025 to 2026-2027 when refinancing becomes unavoidable. The true test comes when these modified loans mature and borrowers must refinance at prevailing market terms .
Summary: Widespread covenant relief granted by private credit lenders to 87% of borrowers prevents near-term default wave but raises questions about “extend and pretend” dynamics. While providing breathing room for genuine turnarounds, the strategy pushes a maturity wall into 2026-2027 when refinancing at market terms becomes unavoidable, potentially merely delaying rather than solving underlying stress .
Source: Investec PE Trends 2025
