The pace of private credit middle market defaults increased sharply in May, according to a report by Morningstar DBRS. The volume of downgrades of private credit borrowers included in the agency’s dataset has risen by 50% in the past year, and 42% of 2026 downgrades entailed borrowers flowing out of single B into the CCC and lower category, according to the May 28 report.
The agency has recorded 11 middle market defaults this year through May 20, compared with 17 in all of 2025.
“Our team saw a sharp increase in the pace of rated private middle market borrower defaults during May,” said Michael Dimler, senior vice president of private corporate credit at Morningstar DBRS. “Many of these involved loan amendments allowing a material deferral of interest to aid weakened borrowers that have been facing persistent operating pressure. Distressed borrowers (ratings of CCC (high) through C) still represent 17% of our actively rated borrowers and are likely to remain a challenge for the sector in the near term.” Borrowers downgraded to D accounted for 22% of downgrades, up from 16% a year ago.
“Given the persistence of broader fundamental weakness, we expect the most vulnerable middle market borrowers to remain pressured by lagging top-line performance, shrinking margins, and erosion of already-constrained liquid resources,” Morningstar DBRS said.
The proportion of borrowers rated B or higher fell to 63.3% from 66.0% a year ago, while borrowers rated B have declined to 15.3% of active credit ratings from 18.9% a year ago. Active borrowers rated D or SD account for 4.4% of all actively rated borrowers, up from 2.5% a year ago.
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