Key Takeaways
- • Lincoln International's Lincoln Private Market Index (LPMI) rose 2.8% in Q3 2026, driven by earnings growth while enterprise value multiples remained flat, per Lincoln's release.
- • Covenant default rate fell to 2.5% in Q3 from 2.7% in Q2, well below the six-year average of 3.8%, but Bad PIK was present in 6% of total loans and loan-to-value on those investments rose from about 45% at close to about 75%.
- • 9% of first lien and unitranche debt was valued below 90% of par, with software and healthcare subsectors showing the most pronounced stress, and stress present in more sectors than any year since the pandemic.
- • Fixed charge coverage ratios would require SOFR of 6.2% or EBITDA declines of 16.5% to reach 1.10x, versus a forward SOFR curve peaking at 4.9%, per Lincoln's analysis.
Summary
Lincoln International reported that the Lincoln Private Market Index, which tracks enterprise value changes for approximately 1,800 U.S. privately held companies primarily owned by private equity firms, increased 2.8% in Q3 2026. The gain was driven by earnings growth, with enterprise value multiples flat. By comparison, S&P 500 enterprise values rose 3.8% in the quarter, while S&P 500 values excluding the Magnificent 7 fell 2.8%.
Operating performance remained steady. Data from Lincoln Lens indicates 72% of companies grew revenue and 64% grew EBITDA year-over-year, with revenue growth of 7% and EBITDA growth of 5%, broadly consistent with Q2. The average enterprise value multiple for new buyouts was 12.1x EBITDA year-to-date through Q3, compared with 12.0x in the first half of 2026 and 12.7x in the comparable 2025 period, above the 11.5x long-term average. Steve Kaplan of the University of Chicago Booth School of Business, who advises Lincoln on the index, cautioned that sustaining earnings growth will matter more as higher borrowing costs weigh on cash flow.
Private credit performance was described as resilient overall. The size-weighted covenant default rate declined to 2.5%, but Lincoln cautioned that covenant compliance does not capture strain in borrowers' cash flows or refinancing prospects. PIK usage fell to 10% of loans from 11%, while Bad PIK, defined as PIK introduced after close, represented 6% of total loans. Ron Kahn, Managing Director and Co-Head of Lincoln's Valuations & Opinions Group, said the Bad PIK figure may better indicate underlying credit stress, particularly given rising loan-to-value on those investments.
Stress is shifting across sectors. Nine percent of first lien and unitranche debt was valued below 90% of par, near the post-2020 average. Lincoln identified elevated stress in certain software subsectors, including marketing technology and human capital management, and in healthcare subsectors including staffing and behavioral health. Kahn attributed software concentration to long-term viability concerns.
Higher rates add forward-looking pressure. The Federal Reserve raised its benchmark rate by 25 basis points in September, with a possible additional hike in Q4 2026, and projected SOFR increased relative to Q2. Lincoln's analysis, based on Q2 2026 valuation data, indicates SOFR would need to reach 6.2% and 7.8% for fixed charge coverage to fall to 1.10x and 1.00x, versus a forward curve peaking at 4.9%. Alternatively, EBITDA would need to decline 16.5% and 24.2%, while average EBITDA grew about 5%. For private equity sponsors, higher financing costs may reduce acquisition leverage, requiring larger equity checks or lower purchase multiples.
Operating performance remained steady. Data from Lincoln Lens indicates 72% of companies grew revenue and 64% grew EBITDA year-over-year, with revenue growth of 7% and EBITDA growth of 5%, broadly consistent with Q2. The average enterprise value multiple for new buyouts was 12.1x EBITDA year-to-date through Q3, compared with 12.0x in the first half of 2026 and 12.7x in the comparable 2025 period, above the 11.5x long-term average. Steve Kaplan of the University of Chicago Booth School of Business, who advises Lincoln on the index, cautioned that sustaining earnings growth will matter more as higher borrowing costs weigh on cash flow.
Private credit performance was described as resilient overall. The size-weighted covenant default rate declined to 2.5%, but Lincoln cautioned that covenant compliance does not capture strain in borrowers' cash flows or refinancing prospects. PIK usage fell to 10% of loans from 11%, while Bad PIK, defined as PIK introduced after close, represented 6% of total loans. Ron Kahn, Managing Director and Co-Head of Lincoln's Valuations & Opinions Group, said the Bad PIK figure may better indicate underlying credit stress, particularly given rising loan-to-value on those investments.
Stress is shifting across sectors. Nine percent of first lien and unitranche debt was valued below 90% of par, near the post-2020 average. Lincoln identified elevated stress in certain software subsectors, including marketing technology and human capital management, and in healthcare subsectors including staffing and behavioral health. Kahn attributed software concentration to long-term viability concerns.
Higher rates add forward-looking pressure. The Federal Reserve raised its benchmark rate by 25 basis points in September, with a possible additional hike in Q4 2026, and projected SOFR increased relative to Q2. Lincoln's analysis, based on Q2 2026 valuation data, indicates SOFR would need to reach 6.2% and 7.8% for fixed charge coverage to fall to 1.10x and 1.00x, versus a forward curve peaking at 4.9%. Alternatively, EBITDA would need to decline 16.5% and 24.2%, while average EBITDA grew about 5%. For private equity sponsors, higher financing costs may reduce acquisition leverage, requiring larger equity checks or lower purchase multiples.
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