KBRA releases research examining the expansion of direct lending in the European Union (EU) and United Kingdom (UK) middle market (MM) and how the market compares to its more established U.S. counterpart.
KBRA’s assessment portfolio of EU- and UK-based MM companies has grown more than fivefold since 2022. The cohort reached 465 unique obligors across more than 50 managers and 60 KBRA-rated transactions during the last 12 months ended June 30, 2026, providing sufficient scale for a regional comparison with U.S. borrowers. On a point-in-time basis, our primary takeaway is that the EU/UK cohort has stronger credit quality.
This KBRA report, while not intended to be a like-for-like test of underwriting between regions, examines the similarities and differences visible today and the primary drivers of credit quality variations, including loan vintage, operating performance, and other credit performance metrics. We also compare loan spreads across the two regions. As KBRA’s portfolio continues to expand, we expect to update this analysis to further explore regional nuances.
Key Takeaways
- Growth in KBRA’s EU/UK assessment population of unique MM-sponsored borrowers reflects the expansion of regional direct lending, broader use of rated debt, and the need for assessments across MM collateralized loan obligation and rated note feeder (RNF) portfolios.
- Median operating and credit metrics are broadly similar across portfolios, but the U.S. has a weaker credit quality mix, with 70% assessed at b- or better compared with 82% in the EU/UK. KBRA believes older loan vintages are the primary contributor. The U.S. portfolio also has a larger U.S. shares of companies with elevated leverage, sub-1.0x interest coverage ratios, and near-term maturities. To test that conclusion, KBRA recalculated the assessment distribution after excluding recurring revenue loans (RRL) and U.S. borrowers in opportunistic RNFs. Both had little effect on the assessment distribution, reinforcing our view that vintage is the primary driver.
- The credit quality gap is also evident in the KBRA Middle Market Default Monitor (KMDM)— our forward-looking gauge of borrowers in payment default, for whom default is imminent, or those where significant sponsor or lender intervention prevented a payment default. The EU/UK KMDM is 0.3% by assessed debt versus 2.8% in the U.S.
- EU/UK loan spreads are about 50 basis points wider across percentiles and at different assessment scores among b- assessed credits, despite stronger current credit quality. KBRA attributes the difference partly to lower competitive pressure from banks, retail capital, and other direct lenders in the region, which supports greater lender pricing discipline, alongside the added complexity premium associated with different jurisdictions and bankruptcy regimes.
Click here to view the report.
Recent Publications
- Private Credit: Q2 2026 Middle Market Compendium: EBITDA’s Fading Tailwinds
- Private Credit: In Middle Market Direct Lending, Cash Is King
- Private Credit: Business Development Company (BDC) Ratings Compendium: Second-Quarter 2026
- Private Credit: Recurring Revenue Loan Metrics Dashboard, Q1 2026
- Private Credit: Asset Managers 2Q26 Performance Recap—Relatively Resilient but Dispersion in Performance Pronounced
About KBRA
KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1016945
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