Private Credit: Q3 2026 Middle Market Compendium: Direct Lending’s Smallest Borrowers and Largest Sectors Showing Signs of Stress

KBRA’s middle market (MM) assessment population has surpassed 3,000 unique sponsored global obligors for the first time during the last 12 months (LTM). Although median portfolio fundamentals remain relatively stable, credit performance is increasingly diverging. For example, lower MM (LMM) borrowers’—who appear increasingly vulnerable to operating, liquidity, and leverage pressures—KBRA Middle Market Default Monitor¹ (KMDM) rates by count and debt both reached 5.8%, compared to the entire portfolio’s rates of 3.6% and 2.4%, respectively (see Figure 4).

Further, growing credit stress is particularly evident in two of the largest sectors in direct lending—Commercial and Professional Services and Health Care Services and Technology—where KMDM rates by count have risen to over 4%. Broader operating trends reinforce these signs of strain. Approximately 20% of borrowers reported declining sales, median EBITDA growth continued to slow, and gross…