Houlihan Lokey flags widening default stress in smaller private debt
Resolved · credit · Occurred · Assessed · 1 sources
This assessment is dated 2026-09-12. Check what remains unresolved below before relying on it.
What changed relative to expectations?
Rising debt-service burdens on unhedged floating-rate facilities reduce cash coverage in sub-$20M EBITDA borrowers, widening secondary loan discounts below 90% of par.
| Question | What the evidence establishes |
|---|---|
| What was reported? | Reported factHoulihan Lokey reported default rates of 3% by loan value among borrowers with under $100 million in EBITDA. |
| What else was confirmed? | Reported factIn the $10 million to $20 million EBITDA cohort, 12% of loans trade below 90% of par compared to 1% in 2023. |
| Does the valuation support acting? | UnknownNo stored valuation assumptions for HLI yet — this is the next research task. |
| What would change the assessment? | UnknownBDC non-accrual rate reporting — Watch for quarterly non-accrual disclosures across private debt asset managers. |
What would this event cost your holdings?
Apply your own hypothetical returns to current holding values. The calculator does not infer security effects from this event.
Test this event against my holdingsReported facts
- · Houlihan Lokey reported default rates of 3% by loan value among borrowers with under $100 million in EBITDA.
- · In the $10 million to $20 million EBITDA cohort, 12% of loans trade below 90% of par compared to 1% in 2023.
- · Larger borrowers remain relatively insulated compared to lower-middle market issuers.
Public research record
Research framework · page evidenceCompleted event assessment
financial restructuring advisory mandate volume growth
| Type | Claim | Scope |
|---|---|---|
| Assumption | Houlihan Lokey reported default rates of 3% by loan value among borrowers with under $100 million in EBITDA. | 2026-09-12 |
| Interpretation | financial restructuring advisory mandate volume growth | HLI |
Countercase, invalidators, and sources
Base rate cuts alleviate interest burden for lower-middle market firms, stabilizing par valuations.
- · BDC non-accrual rate reporting — Watch for quarterly non-accrual disclosures across private debt asset managers.
- HLI Flags Rising Stress Among Smaller Private-Credit Borrowers · 2026-09-11
What remains unresolved
- Base path
- Distress remains isolated to sub-$20M EBITDA issuers while upper-tier private debt maintains low loss rates.
- Adverse path
- Default contagion spreads into core $50M-$100M EBITDA private debt books, forcing write-downs across BDCs.
- Supportive path
- Base rate cuts alleviate interest burden for lower-middle market firms, stabilizing par valuations.
- · BDC non-accrual rate reporting — Watch for quarterly non-accrual disclosures across private debt asset managers.this week
Evidence
- HLI Flags Rising Stress Among Smaller Private-Credit Borrowers2026-09-11
“Houlihan Lokey reports rising private credit stress concentrated among smaller borrowers, with sub-$100M EBITDA companies posting 3% default rates by loan value. The $10M-$20M EBITDA segment shows the most weakness, with 12% of loans trading below 90% of par versus 1% in 2023.”
Supports: Sub-$100M EBITDA default rate at 3%; 12% of $10M-$20M EBITDA loans trade below 90% of par.