KBRA DLD Forecasts 2.75% Direct Lending Default Rate in 2024 for Private Equity-Backed Companies; Report Notes YTD Sponsored Rate Rises to 2.1% From 1.9%

NEW YORK--(BUSINESS WIRE)--KBRA DLD, a division of KBRA Analytics, recently released its latest Monthly Insights & Outlook and Default Reports on the U.S. direct lending market. Highlights from the report are below:

Defaults:

The year-to-date (YTD) direct lending default rate rose to 2.1% from 1.9% for borrowers backed by private equity firms, moving closer to our year-end forecast of 2.5%. The rates are based on number of defaults against more than 1,300 sponsored (PE-backed) companies in this segment of the KBRA DLD Direct Lending Index, which totals roughly 2,400 borrowers including non-sponsored companies. The YTD sponsored rate is based on 28 defaults, with bankruptcies accounting for 64%.

By comparison, the YTD issuer default rate for high yield stands at 4%, and at 5.6% for syndicated loans.

KBRA DLD believes the direct lending default rate remains benign and is forecasting a 2024 sponsored rate of 2.75%. The health care and consumer sectors are expected to produce the most defaults in 2024, with rates across those sectors anticipated at 4% and 7%, respectively.

Default Radar: In the current report, borrowers on our Default Radar rose to 146, reflecting a month-over-month net gain of two. KBRA’s Default Radar is a monthly tracker that identifies worrisome credits for potential defaults in the U.S. direct lending space. Credits are flagged Red or Orange depending on severity of the situation. The most troublesome are flagged Red. Issuers appearing on either list are not guaranteed to default.

U.S. Direct Lending Volume: Momentum continued through November and pushed volume in the KBRA DLD Private Data set to $22 billion, making it the third consecutive month of volume greater than $20 billion. At $127.1 billion through November, YTD volume still falls short of the $131.8 billion in the same period last year. Managers need to put another $17.7 billion on the board this month in order to match last year’s $144.8 billion full-year figure.

U.S. Yields: Unitranche yields shed 12 basis points in November to 11.99%, declining steadily month-over-month from a peak of 12.5% in July.

U.S. Leverage: Unitranche leverage held steady at 5.8x, on average, at the end of November and flat compared to the end of September and October. The average was 5.7x one year ago, having tightened from 6.1x.

Visit dld.kbraanalytics.com for more information on KBRA DLD and its offerings. Members of the media may contact Adam Tempkin, Director of Communications, for access to the report. Subscribers may log in to find the analysis on KBRA DLD’s Report page here.

About KBRA DLD

KBRA DLD was founded in 2019 and acquired by KBRA Analytics in 2022. The group focuses exclusively on the direct lending market, providing the private equity, lender, financial, and legal advisor communities with real-time news and a searchable database alongside proprietary data and analysis for the U.S. and European markets. KBRA DLD targets sponsored borrowers and specializes in cash flow-based structures including unitranche facilities across the lower middle market, traditional middle market and larger scale financings over $1 billion. In 2023, the group introduced the KBRA DLD Direct Lending Index, which serves as the foundation for our default rates and forecasts in the U.S. KBRA Analytics is a portfolio company of Parthenon Capital.