Q1 leveraged loan issuers’ profit growth reached 9%, the fastest pace since 2022

Q1 leveraged loan issuers’ earnings grew 9%, the fastest pace since 2022

According to the latest data from PitchBook’s LCD, the overall operating performance of leveraged loan issuers that publicly reported earnings in the first quarter continued to improve. EBITDA for the sample companies rose 9% year over year, the fastest increase since the third quarter of 2022; revenue rose 8% over the same period, also the highest since the fourth quarter of 2022.

Issuers’ profitability and revenue continue to expand

Based on the sample tracked by LCD, leveraged loan issuers have maintained a positive growth trend over the past several years. Since 2021, the group’s profitability and revenue have generally continued to rise, but from 2023 to 2025, profit growth has typically remained in the 2% to 5% range. Entering the current quarter, growth momentum has clearly strengthened, indicating that corporate operations remain resilient amid high interest rates and external volatility.

LCD’s statistical sample includes 160 issuers that are in the Morningstar LSTA US Leveraged Loan Index and have publicly disclosed results. These issuers correspond to about $184 billion of loan principal, accounting for 14% of the number of issuers in the index and 12% of the amount.

Credit metrics improve in tandem

In addition to earnings growth, credit metrics also improved somewhat. The sample issuers’ average leverage ratio fell to 5.01x, below 5.04x in the prior six months. Although the decline was limited, this level remains below the 2020 peak of 6.41x and is broadly close to the quarterly average of about 5.05x since 2021.

Interest coverage rose to 4.90x, up from 4.67x in the previous quarter and the highest since the first quarter of 2023. Even so, the metric is still down from nearly 6x in 2022.

After accounting for capital expenditures, issuers’ cash flow coverage of interest expense rose to 3.47x, up from 3.36x in the prior quarter, but below 3.65x in the fourth quarter of 2024. LCD noted that as companies increase capital spending to adapt to rapidly changing technology environments and global supply chain adjustments, additional cash flow coverage remains critical for borrowers.

Risk signals are also increasing

Despite the overall improvement in data, LCD also pointed out that credit pressure on some issuers has increased. The share of issuers defined as “outer edge” in the sample rose in the latest quarter, with the proportion of issuers with leverage above 7x climbing to 17% and the proportion with cash flow coverage below 1.5x rising to 22%. Both figures were up 1 percentage point from the fourth quarter of 2024.

However, these levels remain well below readings from the 2020 crisis period, when 35% of sample issuers were in the high-leverage range and 29% had extremely limited cash flow coverage.

Market segmentation remains clear

LCD believes that the first-quarter performance of leveraged loan issuers reflects the resilience of the asset class, but also that internal differentiation is widening.LCD believes that first-quarter leveraged loan issuers’ performance reflects the resilience of the asset class, but internal divergence is also widening. Some companies benefited from stable demand and operational improvement, driving overall earnings growth; others faced higher capital expenditures, financing costs, and cash flow pressure, with credit metrics continuing to come under strain.

This trend also echoes the earnings performance of investment-grade companies. Recent data from BofA Global Research showed that median earnings for investment-grade companies rose 8.1% year over year in the first quarter, reaching their highest level since 2021. However, the firm also noted a fairly pronounced seasonal decline in corporate cash balances, while capital expenditure growth also exceeded 5%, indicating that corporate capital allocation is still being adjusted.

About LCD and the Sample Scope

LCD’s statistics are based on issuers that publicly disclosed results in the Morningstar LSTA U.S. Leveraged Loan Index, covering sample companies in the U.S. leveraged loan market with comparable financial data. The related data are mainly used to track changes in core credit metrics such as earnings, revenue, leverage, interest coverage, and cash flow coverage.

Industry Background

The leveraged loan market is typically closely tied to corporate M&A financing, refinancing, and capital structure adjustments. For investors and lenders, EBITDA, revenue growth, leverage ratios, and interest coverage ratios are important references for assessing borrowers’ credit quality. First-quarter data show that, amid continued macro uncertainty, some borrowers continue to demonstrate operational resilience, but the stratification within the market also merits ongoing attention.