First Quarter Private Credit Rating Activity Shows Diverging Trends

Morningstar DBRS published a commentary on first quarter 2024 private credit rating actions, covering new issue and surveillance activity across its rated private credit portfolio.

Key Highlights:
-- The group of the weakest issuers, those rated CCC (high) or lower, now represent 6% of the portfolio.
-- Credit rating trend changes are indicating some improvement. Changes in the positive direction exceeded those in the negative direction in Q1 2024.
-- We are seeing solid growth in new lender requests for private credit ratings.

The report indicates that private credit rating actions in the first quarter of 2024 indicate an emerging bifurcation in middle market private credit rating activity. According to Michael Dimler, Senior Vice President, Private Credit Ratings, “Although we continued to observe erosion in credit quality among the weakest issuers and downgrades continued to outpace upgrades during the first quarter, we observed that trend changes in the positive direction exceeded those in the negative direction for the first time in more than a year.” He also added, “Meanwhile, demand from lenders for private credit underwriting appears healthy despite persistent high borrowing rates, marked by solid growth in new lender private rating requests, year-to-date.”