Despite elevated inflation levels and slowing economic activity, leveraged loan fundamentals remain generally supportive, in our view, due in part to the strong financial condition in which most borrowers entered this downturn.

Interest coverage remains ample at the index level, but we’re starting to see differentiation across industries and among individual borrowers as evinced through rising distress ratios

While loan issuance and demand have both fallen sharply, a large volume of undeployed capital in private credit vehicles has supported the direct lending market and helped keep prices stable.