KBRA Releases Research – Private Credit: Q1 2025 Middle Market Borrower Surveillance Compendium—the Calm Before the Storm

In this quarterly update, we review the more than 2,200 KBRA assessments completed for 1,972 unique middle market (MM)-sponsored borrowers over the last 12 months (LTM) ending March 31, 2025. These companies collectively account for $983 billion in debt, offering a clear view of the overall direct lending market. We examine key trends shaping credit quality by company size and sector and describe the sectors where revenue growth is expected to slow the most amid broad market, tariff, and economic uncertainties. We also provide new data on the 425 surveillance assessments and 211 new assessments conducted in the first-quarter (Q1) 2025.

While the credit environment described in this KBRA report may appear benign, it is important to note that the data is based on the financial results available as of the assessment date, which are often subject to a reporting lag of approximately 45 to 90 days. As such, the metrics in this LTM period precede recent market developments. New macroeconomic headwinds—including the effects from proposed tariffs—may reverse recent positive credit trends (see Private Credit: Tariffs and Market Volatility Impact on Private Credit Corporates), with certain sectors and business models far more vulnerable than others. Given the slowing growth forecasts driven by these macroeconomic factors, we believe the financial conditions presented may represent the calm before the storm.

Key Takeaways

• Revenue and EBITDA growth has continued for this portfolio of obligors, who hold almost $1 trillion in debt. Revenue increased at a 14% compound annual growth rate (CAGR) during the period; however, this marks the third consecutive quarter of slowing growth. EBITDA growth also continued at a 30% CAGR over the period but slowed for the first time in the last two quarters.
• KBRA believes most companies in this portfolio have enough momentum in the near term to continue growing, especially in sectors where private credit lenders invest the most (Commercial & Professional Services, Software, and Health Care Services & Technology), which account for 60% of our assessment portfolio. In industries where lenders tread more lightly—such as Chemicals, Containers, Metals & Material, Consumer Retail, and Beverage, Food & Tobacco—KBRA believes growth may be more challenging amid shifting sentiment and rising input costs.
• KBRA recorded five payment defaults for the Q1 2025 surveillance cycle, which represents 1.2% of the Q1 surveillance portfolio, roughly in line with prior quarters. However, given the percentage of companies with a ccc+ and lower assessment continues to expand and historical defaults have been largely concentrated among companies we previously assessed at that score, KBRA believes the default rate may rise.
• While it remains too early to draw firm conclusions, the data suggests a potential stabilization in coverage metrics, supported by continued EBITDA growth and lower base rates. This quarter’s LTM results show an equal percentage of obligors with improving and weakening interest coverage ratios (ICR). This stands in contrast to the same metrics disclosed in prior compendiums, in which a higher proportion of the population had worsening ICRs.
• The percentage of notional debt that matures by year-end 2026 decreased to 18% (or $174 billion) in the LTM period, down from 21% in the previous compendium. However, 40% and 64% of companies with ccc and ccc- assessment scores have debt maturities before the end of 2026, respectively. Companies with these assessment scores will likely face higher refinancing risk, given their lower credit quality.

Click here to view the report.

Recent Publications

• Private Credit: Tariffs and Market Volatility Impact on Private Credit Corporates
• Private Credit: Minority Interests and JV Structures—Through the Looking Glass
• Recurring Revenue Loan Metrics Dashboard: Q4 2024
• Private Credit: Q4 2024 Middle Market Borrower Surveillance Compendium—5% at Risk
• Private Credit: 2025 Outlook

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1009183

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