Direct Lending Default Rate Expected to Rise to 3% in 2025

Direct lending default rates are expected to rise in 2025, spurred by the consumer sector, according to a report from Kroll Bond Rating Agency. The firm reported its expectation that the KBRA DLD Direct Lending Index will increase to 3% this year, up from an estimated 1.9% in 2024.

The projection for 2025 came as demand for direct lending and other private credit strategies continues to grow and Wall Street banks have reorganized in anticipation that the growth will continue.

The KBRA index includes approximately 2,400 borrowers financed in the U.S. direct lending market. KBRA defines defaults as bankruptcies, missed payments, distressed debt exchanges and restructurings.

The 3% forecast would translate to 72 defaults, with consumer-related borrowers expected to contribute 20% of those. As of the end of 2024, the estimated 1.9% rate equaled approximately 46 defaults; however, according to KBRA, the 2024 figures will not be finalized until business development companies report their 2024 fourth quarter holdings, beginning in February. The firm added that there were 17 borrowers in the index that had the potential to restructure in the fourth quarter, which would boost the final 2024 default rate to approximately 2.75%.

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As for sponsored-only deals, which are backed or owned by a sponsor, KBRA forecasts a default rate of 2.75%, amounting to 53 defaults in 2025.

“Here, the consumer sector has the potential to jump to 6.5%, from a preliminary 2024 rate of 3.1%,” the report stated. “Software should remain low, at 1.5%, benefitting from the heavy 23% concentration in the Index.”

According to KBRA, its forecast for 2025 is associated with the growing number of issuers on KBRA’s Default Radar, which identifies U.S. direct lending loans for potential default. Credits are designated as red or orange, based on the severity of their credit situations, with red considered the most likely to default. The firm’s radar has 188 borrowers with default potential, a 12-month high and up from 144 one year ago. Those borrowers include 113 issuers designated as red (KBRA’s second highest amount in 12 months) and 75 as orange.

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Tags: consumer sector, defaults, direct lending, direct lending rate, KBRA, KBRA DLD Index, Private Debt

The combined firm would become the world’s largest insurance manager, with more than half of managed assets coming from pension and insurance clients.

France’s Groupe BPCE and Italy’s Assicurazioni Generali S.p.A. announced Tuesday that the two asset management firms had signed a nonbinding memorandum of understanding to form a joint venture between their respective asset management operations: Natixis Investment Management and Generali Investments Holding. The deal is expected to close by early 2026, subject to regulatory approval.

Both Natixis IM, the asset management group of BPCE, and Italy-based Generali IH would own a 50% stake of the combined business. Combined, the duo would manage 1.9 trillion euros ($1.98 trillion) in assets under management.

Generali IH managed 632 billion euros in assets, as of September 30, 2024, while Natixis IM had $1.279 trillion euros in AUM through the same date, the two firms have reported.

The joint venture, which the two institutions would co-control, would become the ninth-largest asset manager in the world and the second-largest asset manager based in Europe, behind Amundi with 2.2 trillion euros in AUM.

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Approximately 61% of the combined companies’ firmwide assets under management are based in Europe, 34% are in North America, and 5% are in Asia and other geographies. Fixed income will make up 65% of the assets, while equities and private markets will account for 21% and 14% of the assets, respectively.

The combined firm would also become the world’s largest insurance asset manager; approximately 61% of its assets are managed for pension and insurance clients. Generali IH bought U.S.-based asset manager Conning Holdings, which has specialized for years in managing insurance assets, in 2023.

Woody Bradford, CEO of Generali Investments Holding and the CEO of Conning before it was acquired, is expected to be named as CEO of the joint venture, with Phillip Setbon, currently the CEO of Natixis IM, to be named as deputy CEO.

“The creation of a joint venture with BPCE would present a unique opportunity to establish a European leader and a top 10 global asset manager building on strong roots in Italy, France and the U.S. to serve the constantly evolving needs of our customers,” said Phillipe Donnet, CEO of Assicurazioni Generali, in a statement. “Our home country Italy and all other countries in which we serve our customers would benefit from an even stronger asset management platform with greater investment capabilities that deliver real benefits to the economy.”

In addition to this tie-up, Generali announced last week that it would acquire a majority stake in $6 billion AUM private credit manager MGG Investment Group through its insurance asset management subsidiary Conning, which will take a 77% stake.