A warning sign is building in the private credit market, where real losses may be much higher than banks are admitting.

• Banks claim only 1-3% of private credit deals are being written off, framing recent blowups as isolated cases.
• But a growing number of companies are paying their lenders with equity instead of cash because they're out of money and heading toward bankruptcy.
• These "payment in kind" deals are rising fast and aren't fully counted in the official default numbers, hiding the true scale of trouble.
• The private credit market is worth about $1.3 trillion, so even a modest understatement of risk could mean serious losses are building unnoticed.

Outlook: Expect more scrutiny of private credit lenders as hidden distress keeps surfacing, which could shake confidence in the sector if losses prove bigger than reported.