In this quarterly sector update, we examine how revenue and profitability growth are continuing to help an increasing population of borrowers strengthen their financial position, despite higher interest costs. From the early read of the data, we aim to examine how private credit borrowers might be positioned as interest rates decline in coming months.
In KBRA’s view, while there are exceptions, we conclude that most of our portfolio of sponsored middle market (MM) borrowers have emerged through the peak of rates and are strengthening their financial footing. We found that 75% of assessed obligors have interest coverage ratios (ICR) above 1.0x, and with each passing quarter, that percentage has grown. With the Fed set to continue lowering rates, we postulate that many of the metrics used to gauge the overall health of the private credit direct lending industry will continue to trend upward from here.
In this issue of the compendium, we draw insights from the financial metrics of 1,384…