Proskauer: sub-$25m EBITDA defaults rise to 2.2%

Sub-$25 million EBITDA borrowers in Proskauer's private credit default index defaulted at 2.2%, up from 1.9%, while the largest loans in the same pool fell to 1.7%.

The index covers 746 US senior-secured and unitranche loans, and its overall default rate fell to 2.41%. The two segment readings moved in different directions: sub-$25m EBITDA borrowers rose 30 basis points from 1.9% to 2.2%, and the largest loans fell to 1.7%.

For allocators comparing direct-lending funds, the relevant question is what share of a manager's book sits below $25 million of EBITDA, the segment defaulting at 2.2% against 1.7% for the largest loans. That 50-basis-point spread is wider than a single index reading usually makes visible, and it lands on the part of the market where a small number of impaired credits can move a fund's loss rate.

Both segment readings sit below the index-wide 2.41%, which suggests loans outside the two reported cuts default at a higher rate than either. Weighted averages do not leave room for another explanation: if the whole pool runs at 2.41% and the two named slices run at 2.2% and 1.7%, the remainder has to be losing more than the average.

Of the three readings, only the sub-$25m EBITDA bucket rose. The largest loans and the index overall both fell, which puts the deterioration at the small end of the borrower base rather than across it.