Slowing growth and looming macroeconomic pressures could challenge the resilience of middle market borrowers, according to KBRA’s latest quarterly surveillance report.
In its Q1 2025 Middle Market Borrower Surveillance Compendium, KBRA analyzed more than 2,200 credit assessments across nearly 2,000 sponsor-backed middle market companies, which collectively represent $983 billion in debt. The firm identified steady revenue and EBITDA growth but cautioned that these results may not reflect recent economic developments due to reporting lags.
“While the credit environment appears benign, the data precedes key macro events,” KBRA noted, citing newly proposed tariffs and slowing economic momentum as emerging threats to credit quality.
Revenue rose at a 14% compound annual growth rate over the last 12 months, though this marked the third consecutive quarter of deceleration. EBITDA continued to grow at a 30% CAGR, but also slowed for the second straight quarter.
The report highlights sector disparities. Commercial and professional services, software, and health care services—areas where private credit lenders are most active—continue to show resilience. In contrast, industries like chemicals, metals, and consumer retail face greater challenges from rising costs and softer demand.
KBRA recorded five payment defaults in the quarter, amounting to 1.2% of its surveillance portfolio—consistent with prior trends. However, the agency warns that defaults could increase, as a growing number of companies are rated ccc+ or lower, the category most associated with prior defaults.
The outlook for debt refinancing also varies by credit quality. Only 18% of notional debt matures by the end of 2026, down from 21% in the previous quarter. Yet, refinancing risk is pronounced for lower-rated firms—40% of companies rated ccc and 64% of those rated ccc- face near-term maturities.
