Historical Context: Default Rates in the Middle Market

Global Financial Crisis (2008–2009), 12–14% middle-market default rate

Middle-market default rates increased sharply into the 12–14% range, materially exceeding peak default rates in large-cap leveraged loans, which reached approximately 10%. Recovery rates were also significantly below historical averages, reflecting constrained liquidity and limited lender capacity to support stressed borrowers.

COVID-19 Shock (2020), 6–8% middle-market default rate

Default rates in middle-market loans rose to approximately 6–8%, with outcomes varying by sector exposure. Unprecedented fiscal and monetary stimulus, combined with rapid fundraising by BDCs and private credit funds, helped contain losses. Many distressed borrowers benefited from amend-and-extend transactions and sponsor equity infusions.

Long-Term Averages, 3–4% middle-market default rate

Over a full cycle, middle-market loan defaults have historically averaged approximately 3–4% annually. However, outcomes are highly cyclical and closely linked to the availability of follow-on capital from lenders and sponsors.

This history highlights that liquidity and fundraising capacity are critical mitigants of default risk. When capital markets are disrupted or fundraising slows, middle-market borrowers tend to experience disproportionate stress relative to large-cap issuers with broader and more flexible financing options.