KBRA Releases Research – Private Credit: In Middle Market Direct Lending, Cash Is King

KBRA releases research examining cash flow metrics, including cash flow from operations (CFO), CFO-to-EBITDA, CFO-to-Interest, and CFO-to-Capital Expenditures, for its portfolio of more than 2,400 unique global middle market sponsor-backed borrowers assessed for the last 12 months (LTM) ended March 31, 2026. These metrics, although nonstandard, provide a deeper view of the portfolio and reveal a story that differs from the industry-standard metrics analyzed in the quarterly published surveillance compendium.

The portfolio data points to three related conclusions. First, earnings growth is no longer translating into proportional liquidity for many companies. Second, after meeting interest obligations, many borrowers have limited internally generated cash available for capex, deleveraging, or liquidity rebuilding, even where EBITDA-based metrics still appear adequate. Third, weak cash generation is heavily represented in stressed and defaulting cohorts, indicating that cash shortfalls are becoming a more useful early-warning signal than reported earnings alone.

Click here to view the report.