What the Numbers Miss is a weekly conversation from GEX Management, Inc., a strategy and operations firm based in Dallas, Texas. Each episode takes one number a business reports and asks what it leaves out.
Episode 4, Half the Checkbook, looks at credit from the deal side. In the second quarter of 2026, direct lenders cut their loans to private equity-backed companies from $44.6 billion to $19.4 billion, while the number of small private equity deals kept rising. The episode works through where the money for those deals is coming from, why smaller companies feel a lending pullback first, and what an owner should ask a buyer about the money behind an offer.
Ada is an AI. Not a person, and not pretending to be one. She brings the numbers and she argues with the host, and she is identified as an AI in the first thirty seconds of every episode.
Below is the full transcript as broadcast, followed by every figure spoken in the episode and the document it came from.
Where to listen
On this site: gexmanagement.com/podcast
Apple Podcasts: podcasts.apple.com/us/podcast/what-the-numbers-miss/id6811440700
Spotify: open.spotify.com/show/1TB1RXc4BdqaRbtyAl51vq
Every figure in this episode, and where it came from
Every figure in this episode is read by Ada from a published report, and she names each report on air. The host speaks no reported figure of his own; the numbers in his lines are arithmetic on hers.
Capstone Partners, Leveraged Finance Update, second quarter 2026, published September 10, 2026, citing PitchBook LCD data. Direct lending issuance fell from $74.1 billion in the first quarter of 2026 to $32.9 billion in the second, down 55.5 percent and the lowest quarter since the second quarter of 2023. Direct lending to private equity-backed companies fell from $44.6 billion to $19.4 billion, down 56.5 percent. Leveraged buyout value in the second quarter was $68 billion, the lowest since the second quarter of 2020. In PitchBook's second-quarter lender survey, 57 percent of lenders expected deal flow to increase over the next 90 days; in the first quarter, 53.3 percent had expected it to decline.
Federal Reserve Board, FEDS Notes, August 11, 2026, by Banegas, Castelo, Degerli, Dobridge and Kennedy. In 2025 the median leveraged loan borrower had $902 million of revenue, borrowed 3.2 times EBITDA at a spread of about 400 basis points, and covered its interest 3.7 times. The median private credit borrower had $223 million of revenue, borrowed 5.0 times EBITDA at about 500 basis points, and covered its interest 2.2 times. None of the private credit borrowers were estimated at BB or better; 85 percent were single B and 15 percent CCC or below. Among companies with more than $250 million of revenue, 41 percent have borrowed in both markets; among companies under $250 million, 57 percent have borrowed only in private credit, and about half of software borrowers have used private credit only. When the leveraged loan market tightened between 2022 and 2024, companies switching over made up about 25 percent of private credit issuance. In 2025, 32 percent of private credit issuance was for buyouts and acquisitions and 63 percent was general purpose or refinancing.
Fitch Ratings, U.S. private credit default rate for August 2026, as reported by Global Finance on September 16, 2026. The trailing twelve-month default rate reached a record 6.3 percent. Hard payment defaults were 8 percent of defaults; the rest were mostly maturity extensions, interest deferrals and payment in kind.
PitchBook, "Middle-market PE firms move down market in search of value," by Madeline Shi, September 14, 2026, drawn from PitchBook's Q2 2026 US PE Middle Market Report. There were 413 U.S. private equity deals valued between $25 million and $100 million in the second quarter of 2026, up 56.4 percent from the first quarter. The median price for those deals in the first quarter was 8.5 times EBITDA. Both figures were covered in Episode 3.
Calabasas Capital, 2Q 2026 Private Equity and M&A Market Update, citing PitchBook data. Add-on acquisitions were 75 percent of private equity transactions.
The arithmetic the host performs on those figures: $19.4 billion is about 43.5 percent of $44.6 billion, a little over $40 of every $100. 5.0 times EBITDA against 3.2 times is 1.8 turns, nearly two; 500 basis points against 400 is one percentage point. Interest covered 2.2 times takes about 45 percent of operating profit; covered 3.7 times, about 27 percent. 75 percent is three deals out of four. 25 percent is a quarter. 32 percent is about a third and 63 percent nearly two-thirds. 8 percent is fewer than one in ten.
Where the host says the money for small deals may be coming from, the buyer's existing loan, the buyer's own money or the seller, he labels it on air as his read, not a reported figure.
The episode's title rounds 43.5 percent up to half. Ada notes it on the tape at the end of the episode.
Full transcript
Sri: Ada, the lenders who fund private equity buyouts. Last quarter, how much less did they lend than the quarter before?
Ada: Ten percent. Maybe fifteen. Lenders are careful people.
Sri: More than half.
Ada: Careful people do not do anything by half.
Sri: They did this time. That's the episode.
Sri: Ada is an AI. Not a person, and not pretending to be one. She brings the numbers and she argues with me, and I will tell you when she is right.
Ada: I have asked him to put that in writing.
Sri: I'm Sri Vanamali, the CEO of GEX Management, a strategy and operations firm in Dallas. And this is What the Numbers Miss.
Today: credit. Not the kind on your phone bill. The money that buys companies. When it goes quiet, sellers feel it long before anybody explains why. So, what lenders did last quarter, who they lend to, and what to ask when a buyer calls.
Same rules. Published reports only, nothing about any stock. Ada, what are we working from?
Ada: Capstone Partners' second quarter leveraged finance update, citing PitchBook data. A Federal Reserve research note from August eleventh. And Fitch Ratings' private credit default report for August, as reported by Global Finance.
Sri: Start with the lenders. What happened?
Ada: Direct lending issuance fell from seventy-four point one billion dollars in the first quarter to thirty-two point nine billion in the second. Down fifty-five point five percent. The lowest quarter since the second quarter of twenty twenty-three.
Sri: Direct lending is what most people now call private credit. Funds, not banks, lending straight to companies. And the part that funds private equity buyers?
Ada: Loans to private equity backed companies fell from forty-four point six billion dollars to nineteen point four billion. Down fifty-six point five percent. And the value of leveraged buyouts in the quarter was sixty-eight billion dollars, the lowest since the second quarter of twenty twenty.
Sri: So for every hundred dollars they lent private equity buyers in the first quarter, they lent a little over forty in the second. The checkbook did not close. It lost more than half its pages.
Ada: So it did not stop.
Sri: No, it did not stop. I'm going to keep saying it stopped, and you're going to keep correcting me.
Ada: I have a list.
Sri: Now here's the part that does not fit. Last week, Ada, you told us small private equity deals went up.
Ada: PitchBook counted four hundred thirteen U.S. private equity deals valued between twenty-five and one hundred million dollars in the second quarter. Up fifty-six point four percent from the first.
Sri: More small deals. Less than half the lending. Same quarter. Both of those can't be the whole story.
Ada: They come from different reports.
Sri: They do. So this next part is a read, not a number. More deals and less new lending means the money is coming from somewhere that lending number does not count. I see three places. The first is the buyer's existing loan. Ada, how many deals are add-ons?
Ada: Calabasas Capital, citing PitchBook data, put add-on acquisitions at seventy-five percent of private equity transactions.
Sri: Three out of four. An add-on is often paid for out of a loan the platform already has, so it never shows up as new lending. The second place is the buyer's own money. The third is the seller's.
Ada: The seller's money?
Sri: Yes, a seller note. The seller lends the buyer part of the price and gets paid back later. When the lenders get quiet, the seller becomes the bank.
Ada: That is a strange way to get paid for your own company.
Sri: It is. These reports can't tell you which of the three it is. If you're selling this year, you'll find out in your own term sheet.
Why does this land hardest on smaller companies? That is the Fed's note. Two markets lend to these companies. Leveraged loans, which banks arrange and sell to big investors. And private credit. Ada, who borrows where?
Ada: The median leveraged loan borrower in twenty twenty-five had nine hundred two million dollars of revenue and borrowed three point two times EBITDA, at about four hundred basis points over the base rate. The median private credit borrower had two hundred twenty-three million dollars of revenue and borrowed five point zero times EBITDA, at about five hundred basis points.
Sri: Translation. EBITDA is still roughly a year of operating profit. The smaller company borrows five years of its profit. The bigger one borrows a little over three. Nearly two extra turns of debt, for about one more point of interest.
Ada: Is that a good deal?
Sri: For the borrower, today, it's a very good deal. The question is how much room it leaves. Ada?
Ada: The Fed's median interest coverage was three point seven times for leveraged loan borrowers and two point two times for private credit borrowers. None of the private credit borrowers were estimated at double B or better. Eighty-five percent were single B, and fifteen percent were triple C or below.
Sri: Two point two times coverage means the interest bill takes close to half of operating profit. For the bigger borrower, closer to a quarter. More debt, more cost, less cushion. That is not a criticism. That extra leverage is what makes last week's price work.
Ada: Eight point five times EBITDA, for the small deals.
Sri: That one. Last week was the price. This week is who lends against it.
Here is the part I think most sellers never hear. Ada, what happens when one of these markets gets tight?
Ada: Among companies with more than two hundred fifty million dollars of revenue, forty-one percent have borrowed in both markets. Among companies under two hundred fifty million, fifty-seven percent have borrowed only in private credit. About half of software borrowers have used private credit only.
Sri: So a big company has two doors. When one closes, it walks through the other. Did they?
Ada: When the leveraged loan market tightened between twenty twenty-two and twenty twenty-four, companies switching over made up about twenty-five percent of all private credit issuance.
Sri: A quarter of private credit went to companies coming over from the other door. Now flip it. When private credit is the one that tightens, like last quarter, the smaller company has nowhere to walk. It waits.
Ada: So for a small seller, the drop is not a lower price.
Sri: It's fewer buyers who can get the money. Big deals get repriced. Small deals go quiet, and the seller thinks it's about his company. Usually it is not. And when private credit does lend, Ada, how much of it buys a company?
Ada: In twenty twenty-five, thirty-two percent of private credit issuance was for buyouts and acquisitions. Sixty-three percent was general purpose or refinancing.
Sri: About a third buys companies. Nearly two-thirds is refinancing and topping up. Hold on to that one.
So here's where I think this goes. Lenders pulled back. It's temporary. The money comes back and the deals come back.
Ada: You sound like the lenders.
Sri: I probably do. What are they saying?
Ada: In PitchBook's second quarter lender survey, fifty-seven percent expected deal flow to increase over the next ninety days. In the first quarter, fifty-three point three percent had expected it to decline.
Sri: So now they're optimistic. And what are they doing with the loans they already have?
Ada: Fitch Ratings reported a record U.S. private credit default rate of six point three percent for the twelve months to August. Hard payment defaults were just eight percent. The rest were mostly maturity extensions, interest deferrals and payment in kind.
Sri: Payment in kind means paying interest with more debt instead of cash. So fewer than one in ten of those defaults is a company actually missing a payment. The rest is lenders giving borrowers more time, or letting interest pile up. That's not a wave of bankruptcies. That's lenders busy with what they already own. It fits the two-thirds from a minute ago.
Ada: So they are optimistic, busy, and lending less.
Sri: All three at once. And that's exactly what the phone call sounds like. A buyer calls an owner and says, we're very active right now.
Ada: Active doing what?
Sri: That's the question, Ada. That is the whole episode.
This last part is for owners. If a buyer is calling you, before you talk about price, ask three things about the money.
One. Who is your lender? By name. A buyer who has one can tell you in a sentence.
Two. Is the debt committed, or is it in process? In process can mean anything, including nothing.
Three. Does any of my price depend on money you will borrow later? A seller note, an earnout, a payment when you refinance. If it does, you're lending into the same market we just walked through. And you get paid last.
Ada: So the owner should read the lender, not just the buyer.
Sri: Exactly. The buyer tells you what he wants to pay. The lender tells you whether he can.
Sri: Ada. What's on the tape?
Ada: One item. The title. You called this half the checkbook. They lent less than half.
Sri: Well, half sounds better.
Ada: Last week it was four-turn. You have a pattern.
Sri: Leave it there.
Ada: Leaving it there. Less than half. And it did not stop.
Sri: That is what the numbers miss for this week. If it was useful, subscribe wherever you listen to podcasts and the next one will turn up on its own. The written version of every episode, with every source we cited, is on the Knowledge Center at gexmanagement.com, and you can find us on LinkedIn as GEX Management. I'm Sri Vanamali.
About this transcript
This is the transcript of the episode as broadcast, prepared from the recording rather than from the script, so it reflects what was said. Apple Podcasts generates its own automatic transcript; this one is the authoritative version, and it is the one to use when checking a figure. Nothing in this episode is a view on any company's stock.