Key Takeaways
- • KBRA's KMDM indicator showed 3.6% of private loan borrowers failing to pay principal and interest or facing imminent bankruptcy as of September 2026, below the 3.9% peak in Q1 2025, according to KBRA Asia-Pacific Strategy head Brett Hemsley.
- • KBRA's analysis of 495 software and technology companies found 41 at high risk of AI disruption, with the median share of these loans per evaluated fund below 2.5%, limiting the expected AI shock to the private loan market.
- • Borrower fundamentals are softening: sales and EBITDA growth for small and mid-sized company borrowers slowed to 12% and 23% over the 12 months to September, and bankruptcies could rise modestly in 2027-2028.
- • Roughly $1 trillion of global private loans are due to mature from 2028 to 2031, with 2029 the peak year, making manager refinancing capability a key diligence point.
- • Hemsley advises institutions such as pension funds to prioritize GP selection based on credit analysis capability, as average returns are expected to decline while dispersion between managers widens.
Summary
KBRA Asia-Pacific Strategy head Brett Hemsley told Maeil Economics in a written interview that, although borrowers face growing repayment and credit risk in the private loan market, the market as a whole is not in crisis. Hemsley, who will present on "Credit Trends in the Private Loan Market" at the Global Alternative Investment Conference (GAII) 2026 in Seoul on the 19th of next month, said private loans are not a homogeneous asset class and that opportunities remain, particularly in asset-based finance (ABF) and infrastructure lending.
According to KBRA's proprietary KMDM indicator, the share of borrowers that have defaulted on principal or interest or are near bankruptcy stood at 3.6% as of September, below the 3.9% high recorded in the first quarter of last year. However, Hemsley acknowledged that borrower fundamentals are weakening. Over the 12 months to September, sales and EBITDA growth for small and mid-sized company borrowers were 12% and 23%, respectively; growth continues but has slowed significantly. Bankruptcies could rise slightly from 2027 to 2028, particularly among vulnerable borrowers.
Hemsley argued that weaker borrower performance does not translate into systemic collapse. Per KBRA's data, 15 structured credit transactions it rated were upgraded and only one was downgraded among 86 rated through September. He said outcomes depend on the individual borrower, the management company and the timing of the loan rather than a market-wide deterioration. On artificial intelligence, KBRA's review of 495 software and technology companies identified 41 with high AI disruption risk, and the median exposure of each evaluated fund to these loans was under 2.5%. Analysts cited in the interview expect AI to widen return dispersion among funds rather than destabilize the market.
Hemsley pointed to asset-based finance, infrastructure loans such as power plants and roads, and private loans to highly rated companies as areas of opportunity, emphasizing careful loan screening, investor protections and risk-appropriate pricing. He advised domestic institutions, including pension funds and mutual aid associations, to look beyond headline GP returns and examine portfolio-level indicators such as interest payment timeliness and realized losses, as well as whether managers are straying beyond their core competencies.
Hemsley also flagged refinancing risk. According to KBRA's September review, about $1 trillion in global private loans are expected to mature between 2028 and 2031, with 2029 the heaviest year. He expects average returns to decline as competition intensifies, while performance gaps between managers widen. KBRA, founded in 2010 and headquartered in New York, is registered as an NRSRO with the U.S. SEC and in the EU and U.K., and opened a Tokyo office in 2025. Last month it became the fourth global rating agency after S&P, Moody's and Fitch to register with Japan's Financial Services Agency as a credit rating agency, the first new CRA registration in Japan since 2012.
According to KBRA's proprietary KMDM indicator, the share of borrowers that have defaulted on principal or interest or are near bankruptcy stood at 3.6% as of September, below the 3.9% high recorded in the first quarter of last year. However, Hemsley acknowledged that borrower fundamentals are weakening. Over the 12 months to September, sales and EBITDA growth for small and mid-sized company borrowers were 12% and 23%, respectively; growth continues but has slowed significantly. Bankruptcies could rise slightly from 2027 to 2028, particularly among vulnerable borrowers.
Hemsley argued that weaker borrower performance does not translate into systemic collapse. Per KBRA's data, 15 structured credit transactions it rated were upgraded and only one was downgraded among 86 rated through September. He said outcomes depend on the individual borrower, the management company and the timing of the loan rather than a market-wide deterioration. On artificial intelligence, KBRA's review of 495 software and technology companies identified 41 with high AI disruption risk, and the median exposure of each evaluated fund to these loans was under 2.5%. Analysts cited in the interview expect AI to widen return dispersion among funds rather than destabilize the market.
Hemsley pointed to asset-based finance, infrastructure loans such as power plants and roads, and private loans to highly rated companies as areas of opportunity, emphasizing careful loan screening, investor protections and risk-appropriate pricing. He advised domestic institutions, including pension funds and mutual aid associations, to look beyond headline GP returns and examine portfolio-level indicators such as interest payment timeliness and realized losses, as well as whether managers are straying beyond their core competencies.
Hemsley also flagged refinancing risk. According to KBRA's September review, about $1 trillion in global private loans are expected to mature between 2028 and 2031, with 2029 the heaviest year. He expects average returns to decline as competition intensifies, while performance gaps between managers widen. KBRA, founded in 2010 and headquartered in New York, is registered as an NRSRO with the U.S. SEC and in the EU and U.K., and opened a Tokyo office in 2025. Last month it became the fourth global rating agency after S&P, Moody's and Fitch to register with Japan's Financial Services Agency as a credit rating agency, the first new CRA registration in Japan since 2012.
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