Private companies continued to demonstrate growth, while higher rates and persistent pockets of stress underscored increasing differentiation across private markets.

CHICAGO, Nov. 3, 2026 /PRNewswire/ — Lincoln International, a global investment banking advisory firm, announced today that the Lincoln Private Market Index (LPMI), an index that tracks changes in the enterprise value of U.S. privately held companies, increased by 2.8% in Q3 2026. The gain was driven by earnings growth as enterprise value multiples remained flat. By comparison, S&P 500 enterprise values increased 3.8% during Q3, while S&P 500 enterprise values excluding the Magnificent 7 decreased 2.8%.

“Q3 continued the LPMI’s historical pattern of enterprise value growth being driven primarily by company fundamentals rather than changes in multiples,” noted Steve Kaplan, Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, who assists and advises Lincoln on the LPMI. “While private companies have continued to demonstrate earnings growth, the ability to sustain that performance will become increasingly important as higher borrowing costs place additional demands on cash flow.”

Private Company Fundamentals Hold Steady as Buyers Remain Selective

Private company operating performance was resilient in Q3. Data from Lincoln Lens, Lincoln’s comprehensive client portal and private market intelligence platform, from which the LPMI is derived, indicates that 72% of companies grew revenue and 64% grew EBITDA year-over-year, with revenue growth of 7% and EBITDA growth of 5%. These results were largely consistent with Q2, indicating steady earnings expansion. EBITDA adjustments also remained nearly 25% of adjusted EBITDA, suggesting limited quarter-over-quarter change in this measure of reported earnings quality.

Software fundamentals were also largely unchanged following the Q1 multiple-driven repricing, with year-over-year revenue growth near 7% and EBITDA growth near 5% in Q3. At the same time, broad sector stability does not imply that all software assets are one in the same nor that the possible disruptions from AI have dissipated, but rather that companies are still distinguished by exposure to AI-driven change, operating durability, leverage and loan-to-value.

Similarly, new buyout valuations were steady in Q3. The average enterprise value multiple for new buyouts was 12.1x EBITDA year-to-date through Q3 2026, compared with 12.0x for the first half of 2026 and 12.7x for the comparable 2025 period, and remained above the long-term average of 11.5x.

Private Credit Remains Resilient Despite Concentrated Pockets of Stress

On the whole, private credit performance was resilient. The size-weighted covenant default rate decreased to 2.5% from 2.7% in Q2 and was well below the six-year average of 3.8%, primarily driven by improved private company performance and more active portfolio management among lenders. Nevertheless, covenant compliance provides one indicator of credit performance but does not on its own capture potential strain that may be building in borrowers’ cash flows or refinancing prospects.

PIK usage provides another indicator of credit risk and PIK usage decreased in Q3 to 10% of loans from 11% in Q2. Among loans with PIK, 54% had Bad PIK, defined as PIK interest introduced after the deal closed without PIK interest, which was stable from Q2. Therefore, Bad PIK was present in 6% of the total population of loans. Given the liquidity pressures implied by the need to switch from cash-pay interest to PIK interest, this use of PIK interest (i.e., bad PIK) suggests there would have otherwise been more defaults that were avoided by agreeing to PIK interest.

“While the 2.5% covenant default rate is encouraging, it tells only part of the story,” noted Ron Kahn, Managing Director and Co-Head of Lincoln International’s Valuations & Opinions Group. “The 6% of loans with Bad PIK may provide a better indication of underlying credit stress, particularly when considering that loan-to-value among these investments have increased from approximately 45% at deal close to approximately 75% today. While lenders have been proactive in managing challenged borrowers, the combination of deferred cash interest and deteriorating equity cushions suggests that credit stress may be more pronounced than the 2.5% covenant default rate indicates.”

The Changing Landscape of Credit Stress Across Private Markets

As of Q3 2026, 9% of first lien and unitranche debt was valued below 90% of par. Although this share remains relatively limited overall, refinancing risk is more pronounced among certain borrowers with approaching maturities, reinforcing the importance of evaluating underlying credit quality rather than the aggregate amount of debt coming due. Lincoln’s recent article, “The U.S. Private Credit’s Maturity Wall: Why Credit Quality Matters as Much as Debt Coming Due,” examines how the composition of upcoming maturities is changing, why credit quality matters for refinancing outcomes and the role of lender-control transactions and other capital structure and liquidity solutions.

The share of loans valued below 90% of par remains near its historical average of 9% since 2020, although the industries experiencing valuation pressure have shifted. Following COVID-19, stress was concentrated in lifestyle, leisure and consumer services. As those pressures eased, food and beverage and aerospace and defense became stressed by late 2024. Most recently, Lincoln’s analysis identified elevated stress in certain software subsectors, including marketing technology and human capital management, and healthcare subsectors, including staffing and behavioral health. While software and healthcare subsectors stood out, the fair value of loans indicated stress was present in more sectors today than in any year since the pandemic.

“The industries under pressure change with market conditions,” noted Kahn. “Coming out of the pandemic, it was a question of when, not if, gyms and similar businesses would reopen, despite lifestyle and leisure demonstrating the highest degree of stress. Today, however, the fundamental concerns about the long-term viability of software and software-adjacent businesses are causing significant concentration of stress in software and related subsectors, demonstrated by the increased percentage of loans being marked below 90% of par.”

Higher Rates Put Borrower Cash Flow and Leverage Capacity in Focus

Against this backdrop of resilient fundamentals and shifting pockets of stress, higher interest rates introduce an additional forward-looking consideration. The Federal Reserve increased its benchmark interest rate by 25 basis points in September, with potential for an additional rate hike in Q4 2026. As a result, projected SOFR rates increased relative to Q2. Importantly, most direct lending loans are floating rate and higher base rates therefore increase lenders’ contractual interest income and thus returns, which could attract capital to the asset class; however, higher rates also raise borrowers’ debt service burden and reduce cash available for reinvestment and deleveraging. Relatively tight credit spreads in the current market environment have partly moderated the all-in financing cost; however, should spreads widen and compound the higher base rates, it could further constrain refinancing economics, particularly for weaker credits.

Additionally, while the impact of increased base rates has not yet shown up in historical results, increased rates have brought fixed charge coverage and interest coverage ratios further into focus as lenders continuously assess the health of their portfolios. However, these are not complete measures of financial flexibility, as borrowers can remain current on interest while still facing reduced capacity to invest, pay down principal or address its maturity. The critical question is therefore not simply how much additional rate pressure borrowers can withstand but what cash flow remains after debt service.

Based on Lincoln’s findings, higher rates would place some pressure on fixed charge coverage ratios; however, a more pronounced increase in SOFR or a meaningful decline in EBITDA would be required before such ratios become stressed. More specifically, based on valuation data through Q2 2026, SOFR would need to increase to 6.2% and 7.8% for fixed charge coverage ratios to decline to 1.10x and 1.00x, respectively; however, the current forward curve peaks at just 4.9%. Alternatively, EBITDA would need to decline by 16.5% and 24.2% for fixed charge coverage ratios to decline to 1.10x and 1.00x, respectively, whereas average EBITDA grew approximately 5% year-over-year. Additionally, new credits underwritten in Q3 2026 have been increasingly underwritten to lower leverage levels, suggesting an even larger combination of rising rates and / or performance declines would be needed to create such pressure on newer deals.

While the fixed charge and interest charge coverage cushions are encouraging, it does not mean higher rates have no economic impact before a covenant or fixed charge coverage threshold is breached. Even borrowers capable of paying interest may have less cash available to fund expansion, invest in operations or pursue growth initiatives.

For private equity sponsors, higher financing costs can reduce available acquisition leverage and therefore alter transaction economics. Depending on business quality and the competitiveness of an auction process, sponsors may need to write larger equity checks, negotiate lower purchase multiples or accept lower expected returns. Dry powder may support premium assets, but older vintage investments with limited earnings growth may face greater pressure to pursue liquidity at more modest returns or through liquidity-driven transactions, including continuation vehicles and other secondary transactions.

“What is particularly interesting about today’s market is that two very different dynamics are occurring simultaneously,” noted Kahn. “Private companies continue to generate earnings growth, and lenders are underwriting new investments with more conservative capital structures. At the same time, the market is working through older investments originated under very different conditions. The distinction between these populations is increasingly important when evaluating the overall health of private credit.”

About the Lincoln Private Market Index

The LPMI tracks changes in the enterprise value of U.S. privately held companies – primarily those owned by private equity (PE) firms. With the LPMI, PE firms and other investors can benchmark private companies’ performance against their peers and the public markets.

The LPMI seeks to measure the variation in private companies’ enterprise values by analyzing the aggregate change in company earnings as well as the prevailing market multiples for approximately 1,800 private companies, each generating less than $250 million in annual earnings. The index is calculated using anonymized data on an aggregated basis by Lincoln’s Valuations & Opinions Group.

The methodology was determined by Lincoln in collaboration with Professors Steven Kaplan and Michael Minnis of the University of Chicago Booth School of Business. While other indices track changes to a company’s revenue or earnings, the LPMI tracks the total value of these companies. Significantly, the large number of private companies used to create the LPMI helps ensure that the confidentiality of all company-specific information used in the index is maintained.

Important Disclosure

The Lincoln Private Market Index is an informational indicator only and does not constitute investment advice or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln Private Market Index. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln Private Market Index, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln Private Market Index has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.

About Lincoln International

We are trusted investment banking advisors to business owners and senior executives of leading private equity firms and their portfolio companies and to public and privately held companies around the world. Our services include mergers and acquisitions advisory, private funds and capital markets advisory, and valuations and fairness opinions. As one tightly integrated team of more than 1,400 professionals in more than 30 offices in more than 14 countries, we offer an unobstructed perspective on the global private capital markets, backed by superb execution and a deep commitment to client success. With extensive industry knowledge and relationships, timely market intelligence and strategic insights, we forge deep, productive client relationships that endure for decades. Connect with us to learn more at www.lincolninternational.com.

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