KBRA DLD Forecasts 1.25% Default Rate in 2025 for European Direct Lending Market

KBRA DLD, a division of KBRA Analytics, is forecasting a 2025 default rate of 1.25% by volume, as well as 2.25% by count, among the 290 borrowers in the KBRA DLD Europe Index, which comprises direct lending loans mainly to sponsored borrowers.

The index provides insights into early-stage stress and potential defaults in an opaque market where no other data source quantifies stress.

“As direct lending continues to evolve into a major force in the European credit landscape, transparency and proactive surveillance are essential,” said Rachel McGovern, a managing director at KBRA DLD. “This forecast reflects growing credit bifurcation and sector-level vulnerabilities that deserve close monitoring.”

The forecast levels are up from 0.4% by volume and 1% by count in 2024 due to a growing contingent of issuers on the Default Radar, as well as declining fair values. KBRA DLD expects the consumer sector to drive default activity in the index.

In the U.S., the default forecast by dollar volume is the same, at 1.25%, but the rate is higher by count, at 3%, based on approximately 2,500 companies in the U.S. index.

Implied Recoveries: Low

KBRA DLD also forecasts an average implied recovery rate of roughly 40%, in line with the three defaults recorded in the Europe index last year. By comparison, implied recoveries in the U.S. averaged 53%.

Visit dld.kbraanalytics.com for more information on KBRA DLD and its offerings. Members of the media may contact Adam Tempkin, Senior Director of Communications, for access to the report. Subscribers may log in to find the analysis on KBRA DLD’s research page here.

About KBRA Analytics

KBRA Analytics, LLC (KBRA Analytics) is our premier product platform for high-quality data and advanced analytics. Our seasoned teams of industry specialists across each product provide unparalleled insight creating a foundation of deeper analysis and rapid discovery for users. KBRA Analytics is an affiliate of Kroll Bond Rating Agency, LLC (KBRA). KBRA is a full-service credit rating agency registered in the U.S., designated to provide structured finance ratings in Canada, and with credit rating affiliates registered in the EU and UK. KBRA Analytics is a portfolio company of Parthenon Capital.

About KBRA DLD

KBRA DLD was founded in 2019 and acquired by KBRA Analytics in 2022. The group focuses exclusively on the direct lending market, providing the private equity, lender, financial, and legal advisor communities with real-time news and a searchable database alongside proprietary data and analysis for the U.S. and European markets. KBRA DLD targets sponsored borrowers and specializes in cash flow-based structures including unitranche facilities across the lower middle market, traditional middle market, and larger scale financings over $1 billion. In 2023, the group introduced the KBRA DLD Direct Lending Index, which serves as the foundation for our default rates and forecasts in the U.S. and Europe.

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