Little bumps
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Credit conditions in private debt weakened in early 2025, with rating downgrades outpacing upgrades, according to data from Morningstar DBRS Inc.

The ratio of credit rating downgrades to upgrades is rising in private mid-market credit — borrowers based in North America and Europe that generally have high leverage and operating earnings of less than US$50 million — the rating agency reported on Tuesday

For the trailing 12-month period to Feb. 21, downgrades outnumbered upgrades in this segment by 2.61 times, up from a ratio of 2.4:1 for the full year 2024, the report said.

Downgrade activity was “heavily concentrated” among issuers in the “vulnerable” rating categories, DBRS said, “reflecting ongoing fundamental challenges among a subgroup of weaker issuers.”

Conversely, most upgrade activity came among higher-rated issuers, it noted.

And, while downgrades have been outpacing upgrades in the sector, DBRS said it continues to “see a more benign picture forming among [rating] trend changes.”

The share of rating trend changes that are negative dropped to 38% of total changes from a recent peak of 71% in the third quarter, DBRS said, while positive trend changes rose to 23% from 14% over the same period.

“We believe this reveals a more balanced mix of positive and negative trend changes, following a much higher negative bias during the interest rate increase cycle from mid-2022 through 2023,” the report said.