For much of 2026, private credit’s attention has rightly settled on default rates, redemption gates, and the reliability of net asset values in semi-liquid vehicles. I take none of these concerns lightly. Yet each speaks to how often loans will fail, not to what failure places in a lender’s hands. In healthcare, I believe the turn of the cycle will bring a subtler question to the fore, one the market has only begun to ask: When a loan fails, what, precisely, has the lender acquired? 

In my experience, the answer is frequently less than the lender supposed. On occasion, it is something the lender has no legal right to hold. 

That distinction is poised to become a defining variable in healthcare credit, and it is not yet consistently reflected in the recovery assumptions that inform portfolio valuations. The lenders who prevail, in my view, will not be distinguished by how conservatively they lent, but by how skillfully they can steward what distress obliges them to own. 

The Anatomy of a Comfortable Consensus 

Healthcare’s ascent to prominence in private credit rested on premises that bore every hallmark of prudence. Its demand is largely indifferent to the business cycle. Its reimbursement appeared to carry the quasi-sovereign dependability of Medicare and the nation’s largest commercial insurers. Its fragmented markets seemed to invite consolidation almost by design, and sponsors answered with a steady procession of add-on acquisitions. 

What emerged was concentration in the guise of defensiveness. By the first quarter of 2026, healthcare accounted for roughly 22% of US direct-lending issuance, the largest share of any sector. Through 2025, it alone among major industries was spared meaningful spread compression, clearing near 500 basis points over SOFR. The market reasonably took that steadiness as a verdict on quality. I would suggest it also reflected a risk not yet fully priced. 

That risk resides in the character of the collateral itself. When a software company falters, its creditors may foreclose on code, contracts, and a brand: inconvenient property, but property nonetheless. The value of a physician platform lies elsewhere. It rests in licenses vested in individual clinicians, in provider numbers conferred by federal and state authorities, in payer agreements that may lapse upon a change of control, and in the allegiance of professionals entirely free to practice elsewhere. Examined closely, the enterprise value against which the loan was extended is a constellation of permissions, granted by regulators, payers, and practitioners. Not one was ever granted to the lender. 

For a decade, the distinction remained largely academic, as abundant sponsor equity and a long era of near-zero rates meant that remedies were seldom exercised. That era has drawn to a close. 

The Keys Are Coming 

The backdrop is, by now, familiar. Fitch’s US private-credit default rate reached a record 6.0% in the second quarter, and healthcare’s rate rose in step. More than half of that quarter’s default events were maturity extensions: distress deferred rather than resolved. In September, the Federal Reserve raised rates when many had anticipated relief, and most of its members project tighter policy through the close of 2027. Floating-rate borrowers who counted on a reprieve are unlikely to receive one. 

The fourth, and to my mind the most consequential, is to secure experienced industry operators well before they are needed. Every hazard I have described is, at bottom, a question of stewardship, and none yields to financial engineering alone. Retaining clinicians through a change of control, preserving payer relationships, negotiating conditions with a state regulator, and remediating billing practices before they harden into liabilities are operating disciplines, cultivated over careers spent running healthcare businesses. Operators of that depth confer on a lender-owner credibility with regulators and clinicians that no balance sheet can supply, and they can distinguish a business worth rebuilding from one best sold. I have come to regard them as the single most effective answer to the burden of ownership. A lender that assumes control of a healthcare enterprise without such leadership in place has acquired a liability rather than an asset. The best-prepared managers will have assembled a bench of seasoned operators by subsector, ready to join a board or assume the chief executive’s chair the moment credit falters. 

A Question for Those Who Supply the Capital 

I would close with a word to the limited partners and wealth platforms that sustain this market. Ask your managers: For each healthcare borrower, how many days would it take to assume control, what must be filed to do so, and who would lead the enterprise thereafter? A manager able to answer with precision has underwritten the loan. One who cannot may, in effect, have underwritten the sponsor, the party most likely to depart when the credit turns. 

By the middle of 2027, the market will have learned what its healthcare loans were truly secured by. I am convinced that those who prosper will not be those who kept their distance, but those who recognized, before necessity compelled them, that in healthcare the collateral is a permission, and who secured both the right to exercise it and the operators capable of doing so while each could still be had on favorable terms.