Rigor, Not Ritual: What the SECs Latest Fair Value Statement Means for Private Credit

The SEC staff has issued a new statement, Fair Value Measurement and Disclosure Considerations for Private Assets. It comes from the Office of the Chief Accountant and the Division of Investment Management. The statement doesn't create new rules. It reminds preparers, boards, valuation designees and auditors of what FASB ASC 820, U.S. GAAP, and, in some cases, the Investment Company Act of 1940 already require. Its focus is telling. ¹Private credit held in registered fund portfolios grew from $170 billion in December 2020 to $270 billion in December 2025, an increase of nearly 60%. Much of that exposure now sits in vehicles open to a broader investor base, and the staff is signaling that valuation discipline has to keep pace.

^{1)  Source: U.S. Securities and Exchange Commission, “Investment Management Data, Registered Fund Statistics Supporting Data (XLSX)”, 2026}

Why is Private Credit in the Spotlight?

Private credit loans are individually negotiated, illiquid and rarely traded, so they lack quoted prices. Their fair value depends on significant unobservable inputs and often lands in Level 3. The statement stresses the judgment involved: choosing techniques, identifying inputs and weighting assumptions. That judgment needs to be governed by documented policies and communicated clearly to investors.

The statement also isn't limited to BDCs and 1940 Act funds. SEC staff say its reminders apply to any registrant with private credit exposure.

1. Calibration Is Ongoing, Not a Day-One Exercise

The statement pays close attention to calibration. Under ASC 820-10-35-24C, when the transaction price represents fair value and later measurements will rely on unobservable inputs, the valuation technique must be calibrated so that it returns the transaction price at initial recognition. The implied spread at origination then becomes the anchor. After that, changes in fair value should come from changes in market-participant assumptions, such as movements in comparable spreads or credit developments at the borrower. In S&P Global Market Intelligence’s Private Market Valuations practice, we employ our Credit Assessment Scorecards to ensure robust monitoring of credit health and default risk for private credit instruments.

SEC staff note that robust practices include periodically reassessing whether model outputs still line up with available market evidence: comparable transactions, public market equivalents, secondary indications and relevant credit indices. S&P Global is a world leader in public market equivalents and credit indices, with over 1.4 million securitized products, 1.2 million GSAC and municipal bonds, 6,700 leveraged loans, and 2.5 million fixed income yield curves priced daily.

Two points follow for practitioners:

• Calibration and build-up approaches each have a role. Calibration works well for performing credits where the original pricing is still a relevant benchmark. We strongly recommend anchoring your valuation to the most recent purchase price paid, assuming that transaction is arm’s length and still relevant.
• For distressed or significantly changed credits, where the transaction price is no longer representative, a build-up of the discount rate can often be more defensible. That means a risk-free rate plus a comparable spread plus explicit premiums for credit, liquidity or asset-class differences. In combination with the mentioned strategy, it is also prudent to layer in an impairment test as part of the valuation, assessing the extent to which the credit is recoverable.
• "Accretion to par" is not a fair value methodology. Mechanically pulling a loan toward par assumes full repayment and ignores changes in spreads, liquidity and credit quality. This statement makes it even harder to defend as a standalone technique.

2. Missing Information Doesn't Remove the Obligation

Borrower reporting varies widely from deal to deal. It depends on the covenants and reporting terms negotiated in each credit agreement, so the quantity, quality and timing of financials can differ sharply across a portfolio.

The staff is direct: a lack of timely information does not relieve management of its responsibility to estimate fair value. Management should also consider, ideally when the deal is underwritten, whether the reporting terms are good enough to support ongoing monitoring and financial reporting. A quarterly compliance certificate may satisfy a credit officer and still leave a valuation team short. Stale financials should mean more scrutiny, not a mark carried forward.

3. Price It Like a Buyer Would, Not Like the Lender

ASC 820 is an exit-price framework. Lenders naturally start from what their direct relationship shows them: payment history, covenant compliance and borrower operating metrics. That information matters, but it isn't enough on its own. When an entity's own data differs from information a market participant would reasonably use, the standard requires it to be supplemented or adjusted.

In practice, that means bringing in prevailing credit spreads, liquidity conditions and the compensation a buyer would demand for the risk. A loan that is performing perfectly can still lose value if market spreads for similar risk widen. A process that marks the loan only when the borrower's fundamentals change isn't producing fair value.

4. Disclosure: Move Beyond Boilerplate

For material recurring Level 3 measurements, registrants must disclose three things: the valuation techniques used, the significant unobservable inputs (discount rates, spreads, comparable transaction data), and how changes in those inputs could produce a significantly different fair value.

The staff specifically calls out disclosures that are boilerplate, poorly tailored or overly aggregated. A single row labeled "First lien senior secured – Discounted cash flow – Discount rate 8%–22%" covering billions of dollars of loans tells an investor very little. Better disclosure breaks the portfolio out by meaningful risk groupings. It presents weighted averages that actually carry information and explains which inputs drive value and how sensitive the portfolio is to them.

5. PIK, Non-Accruals and Modifications: How Good Is the Income?

This may be the most consequential section for the private credit market. Regulation S-X and U.S. GAAP already require disclosure of interest rates, maturities, income-producing status and PIK status. The staff now points to best practices beyond those minimums:

• Modifications, restructurings, extensions, and non-accruals. These may not be visible in high-level portfolio statistics, but they change the risk profile. Amend-and-extend activity in particular can hide credit deterioration.
• Non-accrual policies. Disclose the criteria for placing a loan on non-accrual, when interest accrual stops, and how previously accrued but uncollected interest is handled.
• PIK interest. Disclose how and when PIK is recognized, whether it is a growing share of income, and what it may signal about borrower health.

The underlying point is simple. Investors should be able to tell a fund earning cash income from one where a meaningful share of reported income is capitalized interest. Capitalized interest increases exposure to the borrower instead of returning cash to the fund. For valuation teams, a rise in PIK, especially a switch from cash pay to PIK after origination, should prompt a closer look at the mark, not only at the disclosure.

What this SEC Statement Means for Auditors and Valuation Committees

The staff also reminds auditors that under PCAOB AS 2501 they must exercise professional skepticism, test significant assumptions and data, and weigh evidence that contradicts management's assertions as well as evidence that supports them. In a market disruption, auditors should ask whether assumptions carried over from prior periods still reflect market-participant views. Valuation committees should expect that scrutiny and prepare for it.

Practical Next Steps

• Review credit agreement reporting terms against what your valuation process actually needs.
• Confirm that spread and liquidity inputs are refreshed from market data every period, not only when the borrower's performance changes.
• Formalize ongoing calibration checks and document when and why you use calibration versus build-up.
• Break out Level 3 disclosures into meaningful risk groupings and add narrative sensitivity.
• Add clear disclosure on PIK trends, non-accrual policies and loan modifications.
• For fund-of-funds and secondaries exposure, document how secondary market evidence was considered before relying on NAV.

The Bottom Line

None of this is new accounting. The statement is still a clear signal that SEC staff expect Level 3 private credit valuations to reflect current market conditions, with disclosures specific to each portfolio. Firms that treat valuation as an evidence-based, well-documented and independently challenged process will be well placed. Those that rely on stale inputs and boilerplate disclosure should expect more questions.