KBRA releases its Q2 2026 Middle Market Borrower Surveillance Compendium, providing insights into credit quality across KBRA’s portfolio of rated direct lending transactions.

Record assessment activity covering nearly 1,000 companies in Q2 2026 provides KBRA’s broadest view yet of the direct lending middle market (MM). This quarter’s data show that median fundamentals remain stable, but the pace of credit quality improvement has slowed.

KBRA primarily attributes this trend to slowing EBITDA growth, with Q2 2026 recording the largest quarter-over-quarter (QoQ) decline on record. Alongside accumulating macroeconomic headwinds (see Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness), we believe EBITDA growth is becoming less effective in supporting credit quality for borrowers at the margins (see Private Credit: Q2 2024 Middle Market Borrower Surveillance Compendium–EBITDA to the Rescue).

In this report, we examine key trends shaping 2,785 unique global MM borrowers representing more than $1.2 trillion of direct lending debt assessed over the last 12 months (LTM) ended June 30, 2026. The report also reviews the KBRA Middle Market Default Monitor (KMDM)—our forward-looking gauge of borrowers in payment default, for whom default is imminent, or those where significant sponsor or lender intervention prevented a payment default. Finally, we draw insights from a record 660 surveillance assessments and a record 335 new assessments conducted in Q2 2026.

Key Takeaways

• The KMDM reached record highs of 92 borrowers and more than $30 billion in debt during the LTM period. As a result, the KMDM rate by count increased for the first time in a year to 3.3%, while the KMDM rate by debt reached a new peak of 2.4%.
• Median revenue and EBITDA compound annual growth rates (CAGR) declined to 12% and 24%, respectively, from 13% and 27% in Q1. The median interest coverage ratio (ICR) held at 1.6x, but the share of borrowers with improving ICRs plateaued after more than two years of gains. Median gross leverage also remained steady at 6.1x, although the share of borrowers with leverage above 10x or negative EBITDA—defined as having elevated leverage—edged up again.
• Conversely, surveillance actions among the 660 companies reviewed in Q2 improved as the downgrade-to-total surveillance ratio fell to a series low of 11%. However, the share of upgrades also declined to a series low of 7%. These results point to slower credit quality deterioration but also a lack of broad-based improvement.
• Near-term maturity pressure continued to ease, with maturities through 2026 declining to 6% of borrowers by count and approximately 2% of debt, from 8% and 5%, respectively, in Q1. KBRA views the decline as evidence that direct lenders, MM borrowers, and sponsors continue to collaborate on maturity solutions.
• For the first time this report previews a comparison between the U.S. and the region, which now accounts for 17% of the LTM assessment portfolio, reflecting KBRA’s increasing rating activity for European Union (EU)- and UK-based direct lending vehicles. The EU/UK cohort has a stronger credit quality mix and thinner stressed tail, with 82% assessed at b-¹ or better compared to 70% in the U.S.

¹ KBRA uses lower case to denote credit assessments scores.

Click here to view the report.

Recent Publications

• Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness
• Private Credit: In Middle Market Direct Lending, Cash Is King
• Private Credit: NAV Loans Evolve as Product Goes Mainstream
• Private Credit: Business Development Company (BDC) Ratings Compendium: First-Quarter 2026
• Private Credit: Much Ado About Nothing—Perspectives on Columbia Business School Paper About Private Ratings

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.

Doc ID: 1016157

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