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Subjects: Survey, Economic News/Analysis, Bond/Stock Rating

KBRA Releases Private Credit Research: Middle Market Rate Stress?Another 50 Basis Points?

KBRA releases research that examines the impact of terminal reference rates at 6%, 6.5%, and 7% on its private credit assessment portfolio. In a report published in October 2022, we concluded that up to 16% of companies in a portfolio of roughly 2,000 middle market companies, all else being equal, would transition to being unable to meet interest payments from current cash flow if the terminal reference rate rises to 5.5%. The two questions we receive most frequently since the report was published are: (i) What if terminal rates rise even further, and (ii) Has stress started to materialize on the landscape of middle market borrowers, their private equity sponsors, and their private credit lenders?

In this report, we apply the higher interest rate stresses to most of the middle market private companies in our portfolio of over 2,400+ credit assessments, which are evaluations of the creditworthiness of an unrated issuer that are unpublished and confidential. In addition, we present observations from our ongoing dialogue with market participants as they grapple with the early days of a period of rising defaults and restructurings caused by higher rates, a slowing economy, and the ongoing readjustment of middle market company valuations.

Key Takeaways

Click here to view the report.

Related Publications

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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