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Bailey McCann, Opalesque New York:

A new report from Morningstar DBRS suggests that private credit might be under pressure. Default activity among middle market issuers is increasing with the data pointing to an overall deterioration in credit quality over the next 12 months.

According to the report, private credit defaults are now occurring at the highest rate since Morningstar DBRS started keeping records of private credit actions in 2019. Analysts say that a wide range of borrowers are dealing with slower earnings growth and a persistently high cost of capital both of which are creating challenges.

Not surprisingly, the sharpest increase in the pace of defaults has come from the CCC through C rating categories. Issuers with ratings in this range of categories, reflecting the highest credit risk, exhibited an annualized default rate of 26.4% through mid-year 2025 based on YE2023 Issuer Ratings, the report says. For comparison, annualized default frequency in this category was 16.4% for the three-year period ending YE2024 based on active ratings as of YE2021. Defaults are also trending moderately higher in the B and B (low) rated issuers (based on the effective ratings at the start of each measurement period) relative to the long-term average.

The highest default intensity has come from 2019 and 2020 vintages which have default percentages of 7.4 and 7.7%, respectively. Default rates in 2021 and 2022 vintages are more moderate so far. Analysts suggest that 2......................

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