This brief reads a rating agency’s data from the borrower’s side of the table. Figures are as KBRA published them in July and September 2026 and describe sponsor-backed companies in direct lending portfolios. Check the date before relying on any number here.
Most credit data describes the whole economy. KBRA’s middle market work covers the exact slice of the market that decides what your next loan costs: private credit funds lending to companies in the middle market. KBRA rates and monitors those borrowers for the funds that hold the loans, which gives it a view most lenders only get from their own book.
Its newest monthly update, the August 2026 Middle Market Monthly Pulse, came out on September 23. The direction is clear, and it matters to you even if you have never borrowed from a private credit fund.
What the numbers say
Defaults are climbing again. KBRA’s Middle Market Default Monitor counts borrowers that are in payment default, or likely would be without help from their sponsor or lender. In August it rose to 104 borrowers over the last twelve months, a rate of 3.5% by count. That is below the nearly 4% peak of early 2025, but the rate has been rising since May 2026.
For context, KBRA’s Q2 2026 compendium, published July 28, put the monitor at 92 borrowers and 3.3% by count, and described those 92 borrowers as a record high. That compendium covered 2,785 borrowers carrying more than $1.2 trillion in direct lending debt.
Earnings growth is slowing. In the Q2 compendium, median EBITDA growth fell to 24% from 27% the quarter before, which KBRA called the largest quarter-over-quarter decline on record. The August pulse shows it still sliding, with the rolling three-month median down to 18.8% from 21.4%. Revenue growth was flat at 11.5%.
Leverage is creeping up. The August pulse shows median total leverage rising to 6.5x from 6.2x the month before.
Downgrades are outpacing upgrades. The rolling three-month downgrade rate rose to 13.9% in August from 12.2% in July, and upgrades still trail downgrades at a ratio of 0.6x.
One more number from the Q2 compendium belongs next to all of these: median interest coverage was 1.6x. The typical company in these portfolios earns enough to pay its interest about one and a half times over. That cushion is not wide, and it narrows quickly when EBITDA growth slows while debt holds steady.
Why this reaches you
You may never take a loan from a direct lending fund. You are still priced by the same people. Private credit is now the marginal lender for middle market companies, and when its own portfolio shows stress, the response spreads through the market in predictable ways:
- Coverage gets tested harder. A lender watching its borrowers’ interest coverage thin out underwrites new deals more conservatively. Expect your EBITDA to be normalized, your addbacks questioned, and your fixed charges counted in full. Our guide to DSCR and FCCR walks through the calculation a credit team will actually run.
- Addbacks get cut first. When reported EBITDA is growing more slowly, lenders look harder at the adjustments that inflate it. Know which of yours will hold up in diligence before you are asked; see addbacks that survive vs. addbacks that don’t.
- Covenants come back. Rising downgrades are the signal credit committees respond to. Term sheets written this fall are more likely to carry real maintenance covenants, with less headroom, than those written during the easier stretch of 2024 and 2025.
- Leverage appetite stalls. When the median borrower already sits at 6.5x, a lender is slow to stretch for a new one. A request sized to aggressive leverage is the one most likely to come back smaller.
What to do with this
None of this means credit is closed. The default rate is still below its early 2025 peak, and most borrowers in KBRA’s data are performing. What it does mean is that the benefit of the doubt is getting thinner, and a borrower who arrives prepared stands out more than they did a year ago.
- Calculate your own coverage the conservative way before a lender does, using defensible EBITDA rather than your best case.
- Rank your addbacks by how well you can document them, and be ready to drop the weakest.
- Size the request to what your coverage supports today, not what it supported at your peak year.
- If a maturity or refinancing is coming in the next twelve months, start the conversation now, while the market is tightening gradually rather than all at once.
We will return to KBRA’s monthly data as it is released, because it is one of the few public windows into how private lenders’ own books are performing.
Check your own numbers
Want to see your coverage the way a credit team will calculate it? Run the assessment or send us your financials.
Educational only. Nothing here is an offer of credit, a commitment to lend, or advice on any specific transaction. KBRA data is cited from its public releases and report previews; Fundamently is not affiliated with KBRA.