KBRA addresses one of the more frequently mentioned macro risks for the industry: a so-called maturity wall.
The private credit industry is amid its first “cycle” while in its relatively new capacity as a major component and driving force of global credit markets. In this first of a series of research articles regarding the outlook for private credit in 2024, KBRA addresses one of the more frequently mentioned macro risks for the industry: a so-called maturity wall.
Based on KBRA’s examination of four distinct views of data, including maturity schedules in KBRA’s portfolio of recent credit estimates of more than 1,800 middle market private credit borrowers representing over $750 billion of debt, we conclude there is no pending maturity wall. We estimate that only 10%-15% of the total loans in the market are scheduled to mature over the next two years. This is similar to approximately 16% for more traditional corporate issuers.
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While some outside observers, such as certain legacy rating agencies, believe there is systemic risk because of conflicts of interest in private markets, KBRA’s surveillance of transactions sponsored by numerous direct lenders concludes the opposite. Medium to large direct lenders remain uncompromising in their strong lending position and have the resources needed to extract value from their investments. In fact, 2024 may see the migration of value to private credit lenders from private equity sponsors, as equity cushions get consumed by lenders in defaults, or as sponsors need to inject additional equity into their investments to protect their positions.
KBRA continues to believe that the greatest risks in the private credit market remain idiosyncratic. Therefore, we are focused on those companies where higher interest costs and slower growth are placing outsized pressure on their liquidity, valuation, or both. The universe of smaller and newer companies sponsored by inexperienced owners that lack the resources necessary to restructure their overleveraged investments are particularly vulnerable.
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