Private Credit 2024 Outlook: Negative Rating Actions Likely to Continue to Outpace Positive Actions

DBRS Morningstar published its 2024 private credit rating outlook, covering recent rating actions and operating performance for the private credit sector, and offering its forecast for credit ratings and trends in credit quality for the year ahead.

Key Highlights:
-- Credit metrics remain under pressure, but within private credit, industrial companies show more margin stability than services companies.
-- DBRS Morningstar expects negative rating actions and trends to continue to outpace positive actions and trends over the next year.
-- Lenders and borrowers have been proactively extending loan maturities, reducing near-term refinancing risk.

According to Michael Dimler, Senior Vice President, Private Credit: “For private credit, we expect rating downgrades to continue to outpace upgrades, as companies confront ongoing cost inflation, resulting in further margin compression and deterioration in operating cash flow and interest coverage.” Mr. Dimler also adds: “Over the next year, we still view labor costs as an ongoing source of pressure for both industrial and services margins, but we observe that private borrowers in the industrial products segment appear better positioned to absorb additional inflation in these costs relative to borrowers in the services sector.”