KBRA has released its quarterly update reviewing more than 2,200 assessments completed for 1,972 unique middle market-sponsored borrowers over the last 12 months ending March 31, 2025. These companies collectively account for $983 billion in debt, providing comprehensive insight into the direct lending market.
While current metrics show continued revenue growth (14% CAGR) and EBITDA growth (30% CAGR), KBRA cautions that these positive trends may represent “the calm before the storm” as new macroeconomic headwinds—including proposed tariffs—could reverse recent credit improvements. The report notes this is the third consecutive quarter of slowing revenue growth, and EBITDA growth has slowed for the first time in two quarters.
The research highlights that companies in Commercial & Professional Services, Software, and Health Care Services & Technology (accounting for 60% of the assessment portfolio) likely have enough momentum to continue growing. However, sectors where lenders have less exposure—such as Chemicals, Containers, Metals & Material, Consumer Retail, and Beverage, Food & Tobacco—may face more significant challenges amid shifting sentiment and rising input costs.
The report also notes that while payment defaults remain in line with prior quarters (1.2% of the Q1 surveillance portfolio), the percentage of companies with ccc+ and lower assessments continues to expand, suggesting default rates may rise. Additionally, 18% of the notional debt (or $174 billion) matures by year-end 2026, with higher concentrations among lower-rated borrowers.
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