KBRA DLD Report: Direct Lending Defaults Low; Sponsored at 1.5%, Non-Sponsored at 3.5%

Loss Given Default Rate at 1% versus 2.9% for BSL, 2.3% for HY

NEW YORK--(BUSINESS WIRE)--KBRA DLD, a division of KBRA Analytics, recently released its latest Direct Lending Default Report on the U.S. direct lending market. Highlights from the report are below:

Defaults: The overall default rate by issuer count in the KBRA DLD Direct Lending Index stands at 2% for the trailing 12 months (TTM) through March 20, with the sponsored rate at 1.5%, and the non-sponsored rate at 3.5%. The number of defaults totals 48, with sponsored borrowers accounting for 25, and non-sponsored at 23. The Index comprises about 1,700 sponsored borrowers and about 600 non-sponsored companies.

By comparison, the default rate is 6.5% for syndicated loans by issuer count, and 4% for high yield (HY).

KBRA DLD forecasts an overall 2024 direct lending default rate by issuer count of roughly 2.75% on 69 defaults, up from 2.3% in 2023. Syndicated loans by count are expected to remain flat over 2023 at 5.75%, while HY defaults are projected to decline to 3.75% from 4% last year.

Loss Given Default (LGD) Rate: The LGD rate for direct lending loans in the KBRA DLD Index is 1%. By comparison, the LGD rate is 2.9% by issuer count for syndicated loans and 2.3% for HY. The LGD rate indicates overall losses on a portfolio by accounting for default and recovery rates (see slide 36 in the report).

Recovery Rates: The TTM average value is 48% by issuer count on a small sample of 17 issuers within the KBRA DLD Index, three of which are second-lien issuers. Excluding second liens, the recovery rate rises to 54%, close to the 57% average for first-lien broadly syndicated loans (BSL), and above the 49% average for senior secured HY bonds and 39% for unsecured HY bonds (see slide 35 in the report).

Default Radar: Borrowers on the Default Radar increased by one on a net basis (including additions and exits), lifting the total to 152 from 151, and split between 96 Red and 56 Orange issuers. 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 as Red or Orange depending on the severity of the situation, with Red being the most severe. Issuers appearing on either list are not guaranteed to default.

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 Research 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.