Private-equity firms are confronting a significant challenge as they work to secure extensions on nearly $300 billion in debt scheduled to mature in 2028 and 2029. The rush to refinance this substantial “maturity wall” has intensified amid rising interest rates, which have made borrowing costs higher and refinancing more difficult, particularly for companies in the technology sector.

Much of the debt is tied to companies within private-equity portfolios that were acquired during the pandemic boom. These acquisitions were often financed through seven-year loans, reflecting buyout fund managers’ typical timeline for selling their investments. However, the rapid increase in interest rates since 2022 has complicated refinancing efforts and reduced the likelihood of profitable exits. If firms fail to secure loan extensions, the companies they own risk being taken over by creditors, potentially wiping out equity investments.

Data shows that roughly $140 billion of this debt will mature in 2028 and another $160 billion in 2029. This compares to an average of about $60 billion maturing every two years from 2023 to 2025. The rise is partly attributed to private equity’s heavy investment in software companies, which now represent about one-third of the loans due, reflecting the sector’s popularity for buyouts over the past decade. However, many of these software firms face increased competition from emerging artificial intelligence companies, adding to the risk profile.

The broader credit market is also under pressure, with approximately 25% of loans due in 2028 and 2029 carrying junk ratings of CCC-plus or lower, indicating a high risk of default. Industry experts warn that the higher-interest-rate environment, which differs from the historically low rates seen over the last 15 years, is unlikely to improve in the near term.

One notable example is Solera, a vehicle maintenance software maker owned by Vista Equity Partners since 2016. Solera faces about $8 billion in debt maturing in the 2028–2029 window. The company planned an initial public offering in 2024 to reduce this debt, but the IPO was delayed. Its loans were downgraded to CCC-plus due to weak earnings and heavy leverage. The debt is held by a mix of investors, including private-credit firms such as Apollo Global Management and Ares Management, as well as mutual funds like Fidelity Investments and Pimco. Trading prices for Solera’s loans remain discounted, reflecting uncertainty about repayment.

Market analysts expect default rates on below-investment-grade corporate loans to roughly double next year to about 4%, with recovery rates on bad loans declining. This outlook raises concerns over private-equity fund performance, which has already been declining, with average returns falling from around 15% in the low-rate environment to below 10% more recently. Greater-than-expected defaults could further erode returns for investors, including pension funds, insurers, and high net-worth individuals.

Some private-equity firms are attempting to mitigate risk by injecting additional capital into struggling portfolio companies to incentivize lenders to extend loan maturities. For example, Clearlake Ltd. provided $175 million in preferred shares to healthcare software company symplr, which it acquired in 2018, to facilitate the refinancing of $2.2 billion in loans due in late 2027 and 2028. This move, negotiated with lenders such as Ares Management and Sixth Street Partners, resulted in extended loan maturities to 2030 and 2031, additional funding, and interest payment deferrals, helping Clearlake maintain control of the company while improving lenders’ loan valuations.

Industry leaders emphasize that private-equity firms will likely need to make difficult decisions regarding their portfolio companies’ capital structures in the coming years as they navigate this unprecedented refinancing challenge.