KBRA Releases Research – Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness

By: Kroll Bond Rating Agency, LLC via Business Wire

April 30, 2026 at 15:15 PM EDT

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KBRA releases its Q1 2026 Middle Market Borrower Surveillance Compendium, providing insights into credit quality across KBRA’s portfolio of rated direct lending transactions.

Fundamentals have held firm over the last 12 months (LTM) ending March 31, 2026, with several credit quality metrics showing signs of improvement in Q1 2026. That said, March brought another macroeconomic shock, adding to a growing list of disruptions over the past six years, including the global pandemic, monetary tightening, supply chain disruptions, two wars, a regional banking crisis, tariff and artificial intelligence-related uncertainty, and several energy price shocks. Across these periods, KBRA has observed direct lenders navigate uncertainty with limited defaults—a trend we expect to continue—while noting that some already weak companies are likely to face additional stress.

In this quarterly report, we present key trends shaping the credit quality of the 2,481 unique global middle market (MM)-sponsored borrowers assessed on an LTM basis through Q1, representing more than $1 trillion of private direct lending debt. We also break out data on the 514 surveillance assessments and 248 new assessments conducted in Q1 2026. Finally, we provide an update to our KBRA Middle Market Default Monitor (KMDM)—our forward-looking gauge of borrowers actively in payment default, as well as those that would likely be in default without significant sponsor or lender intervention—from the lower MM to the upper MM.

Key Takeaways

KBRA’s KMDM by company count declined for the first time since Q3 2024, resulting in a KMDM rate by count of 3.1%, down 80 basis points (bps) from the recent peak in Q1 2025 at 3.9%. Some of the crosscurrents discussed in this report, such as stabilizing growth, increasing interest coverage ratios (ICR), and effective portfolio and maturity management, should continue to support a decline in the number of defaults.
In this report, we introduce a breakout of our KMDM by lower MM, core MM, and upper MM (UMM). The KMDM default rate by dollar value has increased to 2.2%, driven by a rising count of UMM companies that defaulted over the LTM. Median revenue compound annual growth rates (CAGR) increased for the first time this year to 13% while median EBITDA CAGR continued to decelerate but remained robust at 27%. EBITDA growth has helped boost the median ICR to 1.6x in Q1 2026. KBRA views these marginal increases as a clear sign of improving credit fundamentals at the portfolio level.
The upgrade-to-downgrade ratio among the 514 companies surveilled in Q1—a KBRA record by count—improved to 0.6x while the downgrade-to-total assessment ratio declined to 14% (compared to 0.5x and 17%, respectively), representing the strongest quarterly results for both metrics since Q2 2024. Affirmations at 77%—the highest since KBRA began tracking the metric—underscore the resilience of underlying fundamentals. However, the upgrade-to-downgrade ratio has remained below 1x for the ninth consecutive quarter, indicating that negative credit migration persists for some borrowers even as credit quality is improving at the median.
In Q1 2026, a record count and percentage of companies received a downgrade of two or more levels into the KMDM range. These multilevel downgrades were largely driven by a convergence of macro shocks and structural pressures that quickly eroded liquidity and led sponsors to withdraw support, particularly among relatively highly-levered issuers. These findings align with KBRA’s view that stress remains concentrated and may be increasing among already fragile companies.
The percentage of companies and the amount of debt with a 2026 maturity declined into the single digits in LTM Q1 2026, totaling 8% and 5% by count and debt, respectively, down from 12% and 7% quarter-over-quarter. Notably, Consumer Retail continues to have the highest concentration of near-term maturities.

Click here to view the report.

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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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