KBRA Releases Research – Private Credit: Illness Spreads in Health Care Practice Roll-Ups

NEW YORK--(BUSINESS WIRE)--KBRA releases research noting that, without a solution to some of the industrywide setbacks, health care practice roll-ups—with their $45 billion in total debt—could be an outsized contributor to the higher direct lending default rate we anticipated this year (see Private Credit: 2025 Outlook). Health care roll-up platforms have long attracted investors eager to capitalize on the noncyclical nature of health care and the aging population in the U.S.; however, a combination of factors has recently exposed the fragility of the model.

In this KBRA report, we unpack the challenges faced by the subsector and assess whether these headwinds could continue the trend of lower recoveries observed in the bankruptcy processes for health care roll-ups in 2024.

Key Takeaways

• In our assessment portfolio, health care roll-ups’ credit quality ranked among the worst at the median. This subsector had the second-highest leverage, most constrained liquidity—as gauged by the lowest interest coverage ratio of 1.1x—and the highest percentage of companies with negative cash flow from operations compared to any other sector. With lingering industrywide staffing and reimbursement headwinds, KBRA expects many of the over-levered roll-ups may be challenged without continued sponsor support.
• Approximately 36% of the 111 health care roll-ups have a maturity date before year-end 2026, nearly double the share of the remaining 2,000 other borrowers assessed over the last 12 months (18%). The majority of those health care roll-ups also carry an assessment score of ccc+ or lower. The inability of these companies to already have extended maturities or refinance is not just a result of their performance, but also investor appetite.
• During 2024, the health care roll-ups in our assessment portfolio had a 7% payment default rate by count, higher than any other sector. For health care roll-ups outside our assessment portfolio that defaulted and publicly filed for bankruptcy in 2024, the initial recovery value that senior lenders received was below the average first lien implied recovery rate in both the direct lending and syndicated loan market.
• Despite believing most health care roll-ups will not default, KBRA is closely monitoring the 39 that have already received some form of lender or sponsor support, as we have observed sponsorship being withdrawn for health care roll-ups that have not demonstrated performance improvements. Key mitigating factors include the subsector’s strong credit agreement protections, the concentration of risk mostly being in a handful of specialty types, and the diversification of exposure across more than 40 managers.
• The health care roll-up default experience has been more contained during 1H 2025, and performance appears to be improving slightly in some specialty areas. That said, the subsector has the highest percentage of companies we have assessed at ccc or ccc- in the Health Care Services and Technology sector—the assessment scores denoting the highest probability of default.

Click here to view the report.

Recent Publications

• Private Credit: Q2 2025 Middle Market Borrower Surveillance Compendium—Waiting for Godot
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• Private Credit: A Source of Systemic Strength
• Private Credit: Recurring Revenue Loans Performance Update
• Private Credit: A Breakout Year for Rated Note Feeders and CFOs

About KBRA

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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