KBRA Releases Research – Private Credit: First-Quarter 2024 Middle Market Borrower Surveillance Compendium

7 May 2024   |   New York


KBRA releases a new quarterly Private Credit Middle Market Borrower Surveillance Compendium to report statistics related to its surveillance of private credit assessments. The full impact of higher base rate interest costs has arrived, and with it, credit migration. This inaugural quarterly compendium provides statistics related to KBRA’s surveillance of 462 middle market corporate credit assessments in Q4 2023 and 450 assessments in Q1 2024. We also provide data on the 127 new assessments in Q1 2024. KBRA monitors these credit assessments as part of our surveillance of hundreds of KBRA-rated private credit feeder note, collateralized loan obligations (CLO), and private credit NAV/leverage facility transactions.

These surveillance assessments provide a window into the building pressures for some MM borrowers as they navigate through the current period of higher rates, weaker equity valuations, and slower mergers and acquisitions (M&A) activity.

Key Takeaways

  • Defaults are rising but remain muted, with only eight payment defaults out of 462 reviewed assessments in Q4 2023, and eight payment defaults out of 450 reviews in Q1 2024.
  • Downward credit migration is occurring as some companies struggle with higher interest rates and other liquidity pressures. In Q1 2024, 21% of reviewed estimates migrated lower versus 13% in Q4 2023.
  • Acute pressures in some portions of the Health Care Services and Technology sector account for some of this downward migration with entities from this sector accounting for 23 out of 95 lowered assessments in Q1 2024.
  • The Software sector’s relative resilience is evidenced by its smaller relative percentage of downward assessment actions despite representing a slightly outsized proportion of the quarter’s surveillance portfolio.
  • There were more upgrades than downgrades of assessments that began as ccc+ scores in both quarters. This reflects the presence of many companies growing into their levered capital structures, particularly in the Software sector.

Report includes key data such as:

  • Q4 2023 and Q1 2024 Surveillance Portfolio Profile
  • Q1 2024 Surveillance Assessment Actions Distribution
  • Q4 2023 and Q1 2024 Surveillance Assessment Scores by Sector
  • Q4 2023 and Q1 2024 Surveillance Assessment Defaults
  • Q4 2023 and Q1 2024 Surveillance Assessment Transition Severity
  • Q4 2023 and Q1 2024 New Assessment Scores by Sector

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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