What did Lincoln's second-quarter index actually say?
That the current book is healthy. Lincoln International's Private Market Index, which tracks the enterprise value of roughly 1,800 privately held US companies each earning under 250 million dollars a year, rose 1.9 percent in the second quarter of 2026, recovering most of a 2.2 percent decline in the first. Lincoln attributes the move to operating performance rather than multiple expansion.
The operating numbers support that. Year-over-year revenue growth across the index rose to 6.9 percent from 6.5 percent in the first quarter, and EBITDA growth to 5.6 percent from 4.7 percent. The share of companies reporting revenue growth rose to 70.7 percent and the share reporting EBITDA growth to 64.0 percent. EBITDA adjustments fell to 23.2 percent of adjusted EBITDA from 24.3 percent, which Lincoln reads as an improvement in the quality of reported earnings.
Pricing stayed disciplined. The average enterprise value multiple for new buyouts was 12.0 times EBITDA in the first half of 2026, down from 12.8 times in the first half of 2025 and still above Lincoln's long-term average of 11.5 times. Public markets moved far more: Lincoln puts the rise in S&P 500 enterprise values at 14.8 percent for the quarter, and notes that private companies neither shared that rebound nor the drawdown that preceded it.
On the same page, the covenant default rate, weighted by size, fell to 2.7 percent from 3.1 percent, below the 3.9 percent six-year average. Read on its own, that is a book of loans in better shape than it was in March.
Why did the covenant gauge fall while foreclosures rose?
Because the two gauges measure different loans. The covenant default rate tests the book as it stands today, where earnings are growing. The foreclosure figure counts loans that finished a journey which began years ago. Lincoln reports lenders foreclosed on 22.3 billion dollars of pre-takeover principal in the first half of 2026, nearly matching the 24.2 billion dollars for all of 2025, and 70.0 percent of that principal came from 2021 and 2022 vintage buyouts.
Six months at that pace is about 92 percent of last year's full total. Lincoln's own description is that the quantum of debt being taken over by lenders is outpacing not just 2025 but all of recent memory, and that such foreclosures were nearly nonexistent all but a few years ago. The vintages tell you why: those were buyouts underwritten at higher entry multiples and higher leverage, and the debt has now been through the amendment, the extension and the rate cycle.
The reading in between the two gauges is payment in kind. Lincoln finds PIK interest present in 11.1 percent of loans and 11.3 percent of total interest income when second-lien and junior debt is counted, against 10.8 percent and 11.9 percent in the first quarter. Of the loans with PIK, 55.4 percent had none at close and acquired it later, which is 6.2 percent of all loans, up from 5.9 percent. Lincoln says that figure may also be viewed as a shadow default rate.
So the sequence runs: a clean covenant test, then a conversion of cash interest to PIK to keep it clean, then, for the vintages where that no longer works, the keys. The covenant gauge measures the first stage. The foreclosure figure measures the last. The bad-PIK share is the middle, and it is the one still rising.
| Gauge | Q2 2026 | Q1 2026 | Reference |
|---|---|---|---|
| Index enterprise value change | +1.9% | -2.2% | S&P 500 EV +14.8% in Q2 |
| Revenue growth, year over year | 6.9% | 6.5% | CPI 3.5% |
| EBITDA growth, year over year | 5.6% | 4.7% | |
| Covenant default rate, size-weighted | 2.7% | 3.1% | 3.9% six-year average |
| Loans with PIK interest | 11.1% | 10.8% | |
| Bad PIK, share of all loans | 6.2% | 5.9% | Lincoln: a shadow default rate |
| Principal foreclosed by lenders | $22.3bn H1 2026 | $24.2bn full-year 2025 | |
| Foreclosed principal from 2021 and 2022 vintages | 70.0% | ||
| New buyout multiple, EV to EBITDA | 12.0x H1 2026 | 12.8x H1 2025; 11.5x long term |
“A lender's headline default rate describes the loans it expects to keep. The loans it has decided to own show up in a different line, and in this market that line has moved faster than the headline.”
What does it mean for an owner with a 2021 or 2022 loan?
That the vintage is now the variable the lender looks at first. A business performing in line with Lincoln's index, revenue up about 7 percent and EBITDA up about 5 percent, can still be carrying a capital structure sized at a 2021 multiple, and the lender's decision on that structure is being made against a cohort in which the keys are changing hands at record pace. Performance buys time; it does not by itself reprice the loan.
The intermediate step is the one to watch in your own facility. A lender that agrees to convert cash interest to PIK is not extending grace; on Lincoln's reading it is recording the loan in the cohort it counts as shadow default. An owner should treat a PIK request from the lender's side, or a PIK toggle the company is about to use for the first time, as the moment to bring in a refinancing or a sale process while the choice is still the company's.
Leverage, not sector, is doing the sorting. Lincoln's software cut makes the point: loans with a loan-to-value below 35 percent were marked at 99.0 percent of par, loans between 35 and 50 percent at 97.8 percent, and loans above 50 percent at 87.1 percent, down 1.6 points on the quarter. Same sector, same quarter, and the mark moved only where the debt was heaviest relative to the value under it.
For a buyer of one of these businesses, the release gives two prices. The new-buyout market is paying 12.0 times, and the existing lender is marking the old structure on its own terms. A purchase that assumes the incumbent facility rolls is assuming the lender wants to stay in a cohort it is actively leaving, and the 22.3 billion says it does not.
What would change the reading?
The bad-PIK share. If the 6.2 percent falls back toward the first-quarter level while the covenant rate stays low, the pipeline into foreclosure is emptying and the second half should print below the first. If it keeps climbing, the 22.3 billion is the start of the number, not the peak.
The vintage mix inside the foreclosed principal. Seventy percent from 2021 and 2022 means the problem has a date on it. If 2023 and 2024 vintages begin to appear in that figure, the cause has moved from entry pricing to something in the current market, and the healthy reading of the rest of the index would need revisiting.
The lender's own tolerance. Lincoln's levered return analysis, on its stated assumptions of a five-year loan at a 1.5 percent original issue discount, pricing at 500 basis points over the base rate, fund debt at 200 over and 50 percent leverage, finds a portfolio absorbs 9 percent of cumulative principal loss before its return falls to zero, which could come from a 12 percent cumulative default rate at a 25 percent recovery. That is the arithmetic behind how much of this a lender can carry before it stops carrying it.
Lincoln also notes a meaningful rise in private loans trading before maturity since the first quarter, most of them above 95 percent of par, which it reads as liquidity and portfolio management rather than credit concern. That is consistent with the split: the loans being sold are the ones the lender is content to own and simply wants cash for. The loans being foreclosed are the other kind.
As of August 2026
Sources: Lincoln International, The Lincoln Private Market Index: Earnings Growth Drove a Q2 Rebound, While Private Markets Became More Selective, PR Newswire, 13 August 2026, figures as at 30 June 2026, for the 1.9 percent second-quarter increase and 2.2 percent first-quarter decline in the index; for S&P 500 enterprise values rising 14.8 percent in the quarter; for revenue growth of 6.9 percent against 6.5 percent and EBITDA growth of 5.6 percent against 4.7 percent; for 70.7 percent of companies reporting revenue growth and 64.0 percent reporting EBITDA growth; for the 3.5 percent CPI comparison; for EBITDA adjustments of 23.2 percent of adjusted EBITDA against 24.3 percent; for the 12.0 times new-buyout multiple in the first half of 2026 against 12.8 times a year earlier and an 11.5 times long-term average; for the size-weighted covenant default rate of 2.7 percent against 3.1 percent and a 3.9 percent six-year average; for PIK interest in 11.1 percent of loans and 11.3 percent of interest income against 10.8 and 11.9 percent; for bad PIK at 55.4 percent of PIK loans, or 6.2 percent of all loans, against 55.7 and 5.9 percent, and the phrase that it may also be viewed as a shadow default rate; for 22.3 billion dollars of pre-takeover principal foreclosed in the first half of 2026 against 24.2 billion dollars for all of 2025, 70.0 percent of it from 2021 and 2022 vintage buyouts; for software loan fair values of 99.0, 97.8 and 87.1 percent of par by loan-to-value band and the 1.6 point decline in the highest band; for the rise in private loans traded before maturity, most above 95 percent of par; and for the levered return analysis finding a 9 percent cumulative principal loss takes the return to zero, for example a 12 percent cumulative default rate at a 25 percent recovery, on the stated assumptions. Lincoln's descriptions of the foreclosure volume as outpacing recent memory and of such foreclosures as nearly nonexistent a few years ago are theirs. The 92 percent comparison and the reading of PIK conversion as the intermediate stage are ours. Companion articles on this site cover Lincoln's first-quarter foreclosure print and how an out-of-court change of control works, the second extension, PIK interest, and why lenders' marks fell before credit did.