Private Debt’s Smallest Borrowers Most at Risk as Economy Slows

The smallest issuers in the $1.2 trillion private-credit market are most vulnerable to default as rates rise and the US economy slows. Lenders are hoping that stronger documentation will minimize their losses.

“Higher underlying portfolio company Ebitda should support better credit outcomes,” said Chelsea Richardson, a senior director at Fitch Ratings who monitors business development companies, referring to earnings before interest, tax, depreciation and amortization.

Defaults by companies with less than $25 million of Ebitda rose to 1.9% in the first quarter, from 1.6% in the last three months of 2021, according to law firm Proskauer Rose.

Those ...