The rating agency’s global research found that default intensity has increased since October 2025, reflecting ongoing pressure among the weakest 10 per cent of rated borrowers. The trailing 12-month borrower default rate rose to four per cent, up from 2.8 per cent in the first quarter of 2025.
Morningstar DBRS said it downgraded 17 borrowers to either D or SD over the past 12 months, compared with nine in 2024. The weakest 10 per cent of rated borrowers remain heavily reliant on external capital support, including payment-in-kind deferrals, the ratings agency added.
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Alongside this, the pattern of downgrade activity for private credit seen throughout 2025 has continued into the first six weeks of 2026, with downgrades continuing to outpace upgrades. The downgrade ratio rose to 3.3 times in the first quarter, compared with 2.6 times in the same period last year.
“Our outlook for 2026 remains negative as we continue to see ongoing deterioration in private borrower margin and cash flow profiles, along with rising debt levels,” said Michael Dimler, senior vice president of private corporate credit at Morningstar DBRS.
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Morningstar DBRS said most downgrades were into the B or weaker categories, while the proportion moving into the CCC through C categories was unchanged.
Growth in newly assigned credit ratings remained positive year on year, although net growth in active ratings continued to be constrained by a high volume of discontinued ratings, Morningstar DBRS said.
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