Private equity firms are confronting mounting pressure as a significant volume of debt, estimated at around $420 billion, is set to mature beginning in 2028. Fund managers are urgently seeking loan extensions to avoid defaults that could lead to creditors taking control of the companies in their portfolios. This refinancing challenge is exacerbated by rising interest rates, which have pushed borrowing costs higher and reduced the profitability of selling these companies.
The debt in question is largely tied to private equity-owned companies that tend to refinance their obligations 18 to 24 months before maturity to manage risk. However, these firms face unusually large "maturity walls" due to difficulties arranging refinancing commitments well in advance. Approximately $140 billion of risky corporate loans are projected to mature in 2028, followed by $160 billion in 2029. By comparison, the average loan maturities due over two-year spans from 2023 to 2025 were close to $60 billion.
A significant portion—around one-third—of this upcoming debt is concentrated in software companies, reflective of private equity's heavy investment in technology buyouts over the past decade. Many of these deals were financed with seven-year loans during the pandemic-era low-interest environment, exemplified by high-profile transactions like the $11.8 billion acquisition of cybersecurity firm McAfee in 2022.
The shift in monetary policy since 2022, with the Federal Reserve raising interest rates and Treasury yields surging, has complicated refinancing. Higher interest rates increase borrowing costs and reduce the window for profitable exits by private equity investors. Loans due in 2028 and 2029 include roughly 25 percent that carry junk credit ratings of CCC-plus or lower, highlighting the elevated risk.
One example is Solera, a vehicle maintenance software provider that owes about $8 billion in debts maturing across 2028 and 2029. Purchased by Vista Equity Partners in 2016, Solera planned an initial public offering in 2024 to address its debt burden, but the IPO did not materialize. S&P Global Ratings downgraded Solera’s loans to CCC-plus last year, citing weak earnings and heavy leverage. Should Solera default, losses would extend beyond Vista, affecting a diverse set of creditors including Apollo Global Management, Ares Management, Fidelity Investments, and Pimco.
Bank of America recently reported that the size of maturity walls has surged to levels not seen since 2013. The bank predicts that default rates on below-investment-grade corporate loans could double in 2027, reaching approximately 4 percent.
Private equity firms generally anticipate some level of default and underperformance. Nevertheless, a wave of higher-than-expected defaults would further depress returns just as private equity yields have declined from roughly 15 percent in the low-interest-rate era to under 10 percent today. This trend could adversely impact the payouts distributed to investors such as pension funds, insurers, and high-net-worth individuals.
Experts note that private equity managers will likely need to take decisive actions to restructure company balance sheets and make difficult strategic decisions to navigate this challenging debt environment.