Morningstar DBRS reports record high in February rating downgrades; private credit quality continues to deteriorate

Morningstar February 24 | Rating agency Morningstar DBRS pointed out that the proportion of downgrades in February reached a new high, indicating that the quality of private credit continues to deteriorate this year. The number of downgrades this month is 3.3 times the number of upgrades, higher than 2.4 times the same period last year. Morningstar Private Credit Ratings Senior Vice President Michael Dimler said in an interview on Monday that, given the squeezed profit margins across different industries and rising debt levels, the rating outlook remains somewhat negative through 2026. Morningstar DBRS provides private credit rating services for about 450 mid-market borrowers in North America and Europe, with an average annual revenue of $250 million. Morningstar DBRS is monitoring the disruptive risks that artificial intelligence (AI) poses to software companies, but Dimler noted that the impact of AI on these companies’ ratings is not yet apparent. He compared the current changes to the period a decade ago when software shifted from physical issuance to cloud and subscription models. “Software developers’ performance was indeed affected for a few years, but those who invested ultimately completed their transformation and improved profitability afterward,” he said.