While tariffs and other policy factors will have a limited direct impact on direct lending portfolios, second-order effects could weigh more heavily on middle-market borrower performance, according to "Scenario Analysis: Private Credit Is Insulated But Not Immune From Tariff Risk", published on RatingsDirect. Second-order effects could include sustained inflation, weakened consumer spending, reduced corporate investment, recessionary pressures, and overall market unpredictability.

S&P Global Ratings notes that a more broad-based impact would accelerate credit estimate (CE) downgrades and elevate general and selective defaults for some struggling entities, likely reversing recent trends of improving credit quality. In a moderate stress scenario, roughly 14% of current 'b-' scores could face potential downgrades—translating to a 'ccc' distribution that might rival levels experienced at the peak of the COVID-19 pandemic.

"At least 10% of our credit estimates portfolio may be vulnerable to direct tariff-specific ramifications, irrespective of current CE score," said S&P Global Ratings Analyst Denis Rudnev. "Risk remains primarily credit-specific, as each company will vary in its ability to mitigate and endure different stress factors."