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Middle Market Borrower Surveillance Compendium Q2 2025: Private Credit's "Waiting for Godot" Moment

Strategic Insights

— 2 min read

As private credit navigates market uncertainties, signs of improving credit quality emerge among some borrowers, while others face maturities without expected growth. A review of nearly 2,400 KBRA assessments completed for 2,115 unique global middle market borrowers over the last 12 months reveals key trends shaping credit quality by company size and sector. The companies assessed in the period held over $1 trillion in cumulative borrowings, with over 200 companies with direct loans over $1 billion and nearly 200 companies with loans under $50 million.

Key Takeaways:

  • Revenue and EBITDA performance for the portfolio of obligors, holding over $1 trillion in debt, showed a shift in trend, with revenue-compounded annual growth rate (CAGR) standing firm at 14% and EBITDA CAGR accelerating 100 basis points to 31% compared to Q1.
  • Three sectors with significant exposure – Commercial and Professional Services, Software, and Health Care Services and Technology – continue to drive the performance of the overall portfolio due to their growth rates, accounting for the largest share by count of the portfolio.
  • A performance divide appears to emerge between services-oriented businesses and goods-producing companies, with the former showing stronger results at the median, and sectors focused on manufacturing, retail, and distribution expected to face greater distress in the second half of the year.
  • The upgrade-to-downgrade ratio for the 371 companies assessed in Q2 showed notable improvement, coinciding with a shift in the composition of surveillance and new assessment scores toward the b- and higher categories rather than ccc+ and lower.
  • Median leverage for MM borrowers in the higher interest rate environment appears to have reached a floor at 6.1x, with direct lenders fueling some growth with additional debt for add-on acquisitions and initiatives.

Statistics:

  • The portfolio of 2,115 borrowers held over $1 trillion in cumulative borrowings.
  • Over 200 companies with direct loans over $1 billion were assessed, representing a significant portion of the private loans in the upper Middle Market.
  • Nearly 200 companies with loans under $50 million were also assessed, demonstrating the breadth of the coverage universe.
  • The upgrade-to-downgrade ratio for the 371 companies assessed in Q2 showed improvement compared to the prior three quarters.
  • The share of companies with an interest coverage ratio (ICR) below 1.0x remained relatively flat at approximately one-quarter of the portfolio over the past few periods.
  • Median leverage for MM borrowers in the higher interest rate environment reached a floor at 6.1x.

Sources:

  • KBRA releases its Q2 2025 Middle Market Borrower Surveillance Compendium
  • Private Credit: A Source of Systemic Strength

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