Ongoing Stress and Distress in the U.S. Middle Market

This technical report updates the analysis of financial stress in the U.S. middle market, building on the previous white paper titled 'Riptide: The New Era of Acute Financial and Operating Stress in the U.S. Middle Market.' The report utilizes full-year 2023 data from RapidRatings, focusing on over 1,200 non-financial private middle market companies. It highlights a significant decline in financial performance, with average EBITDA dropping by 39% from 2019 to 2023, while public companies experienced a growth of 16% in the same period. The report details the deteriorating solvency of middle market firms, noting that rising liabilities have surged by 45%, leading to unsustainable leverage ratios. It also discusses the impact of high interest rates on debt servicing capabilities, revealing that the average interest coverage ratio has fallen to alarming levels, indicating a growing risk of insolvency. The findings suggest that the ongoing financial distress in the middle market could have broader implications for the U.S. economy.