Bifurcation Between Higher- and Lower-Risk Private Credit Issuers

There is a growing bifurcation between higher- and lower-risk private credit issuers, Morningstar DBRS research has found. The ratings agency published a commentary on second quarter 2024 private credit rating actions, covering new issue and surveillance activity across its rated private credit portfolio.

Among the private credit issuers Morningstar rates, the highest-risk group – rated at CCC or lower – increased during the second quarter of 2024 to represent 7.6% of the portfolio, up from 6% at the end of 2023.

Meanwhile, negative rating actions once again exceeded upgrades in the second quarter of 2024, though the ratio remained level with the first quarter. Demand for new credit ratings remains robust and Morningstar is seeing an increase in credit quality for new issuers relative to the existing portfolio.

According to Anna Mosiyan, AVP, private credit ratings, “As we noted in our first quarter commentary, we continue to observe a growing bifurcation between the highest-risk credits and a subgroup of issuers where operating pressure has begun to recede.”