KBRA releases its Q4 2025 Middle Market Borrower Surveillance Compendium, providing insights into credit quality across KBRA’s portfolio of rated direct lending transactions.

A review of the 3,649 middle market (MM) corporate credit assessments completed in 2025 shows mixed signals. Slowing growth is negatively impacting some companies’ credit quality, but overall, our portfolio remains stable. The growing divergence in performance is driven by challenged subsectors that we believe will contribute to the rising, yet contained, default rate in 2026 (see Private Credit: Q3 2025 Middle Market Borrower Surveillance Compendium: Defaults Will Rise).

In this quarterly report, we present key trends shaping the credit quality of the 2,416 unique, global MM-sponsored borrowers assessed in 2025, which account for over $1 trillion of private direct lending debt. We also provide data on the 465 surveillance assessments and 332 new assessments conducted in Q4 2025. Finally, we introduce several new figures to better portray key performance metrics over time, detailing how these long-term trends are likely to impact the financial strength of the direct lending market in the future.

Key Takeaways

• KBRA’s Middle Market Default Monitor (KMDM)—our forward-looking gauge of borrowers actively in payment default and those that likely would be without sponsor or lender intervention—increased modestly to 81 companies over the last 12-month period (17 payment defaults and 64 ccc- assessments). The KMDM rate by count edged down to 3.4% from 3.5% in Q3 and to 2.0% from 2.1% by value, largely reflecting the record number of new assessments completed in Q4 2025 rather than improving credit quality.
• While downgrades relative to total surveillance assessments have remained consistent at 17%, downgrades have outpaced upgrades for two full years, contributing to a growing population of relatively weak borrowers. We believe this cohort is vulnerable to even minor operational or macroeconomic headwinds and increasingly reliant on sponsor or lender support.
• The share of borrowers with a sub-1.0x interest coverage ratio (ICR) declined to 25%—the lowest since Q3 2024—while the median ICR remained steady at 1.5x. The share of companies with leverage above 10x or negative EBITDA fell for the first time since Q2 2025, both portfolio credit positive.
• Median revenue and EBITDA compound annual growth rates remained healthy at 12% and 28%, respectively. Still, growth has decelerated each quarter since its post-pandemic highs, and the share of borrowers reporting declining sales (19%) and EBITDA (22%) has risen for two consecutive years. However, growth appears to be stabilizing in the double digits for both sales and earnings.
• Multilevel downgrades increased by 2.9x quarter-over-quarter. KBRA attributes the uptick to sponsor and lender support becoming exhausted in several cases. This suggests that when liquidity backstops and support are withdrawn, credit deterioration can accelerate quickly.
• Maturities before year-end 2026 decreased overall, falling to 12% by count and 7% by notional debt outstanding, reflecting continued capital structure management. However, near-term maturities remain elevated in Consumer Retail, Media, and Chemicals, Containers, Metals, Material, where we believe refinancing risk is most pronounced.

Click here to view the report.

Recent Publications

• Private Credit: Lessons From 2025's At-Risk Cohort
• Private Credit: Framing AI and Software Risk
• Private Credit: 2026 Outlook
• Private Credit: Q3 2025 Middle Market Borrower Surveillance Compendium: Defaults Will Rise
• Private Credit: Recurring Revenue Loans Performance Update

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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