Lafayette Square USA credit ratings confirmed at BBB (low) with stable trend

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Lafayette Square BBB rating stable

Highlights

Lafayette Square USA's BBB (low) credit rating and Stable trend confirmed by Morningstar DBRS, reflecting an $822.1 million middle-market investment portfolio and expanding franchise.
SBIC statutory leverage caps raised to $250 million per fund and $475 million per affiliated funds, increasing Lafayette Square USA's potential access to SBA debt.
Morningstar DBRS expects Lafayette Square USA to maintain a gross debt-to-equity ratio of 1.00x–1.25x, supporting rating stability despite macroeconomic headwinds.

Rating drivers and portfolio performance

As reported by Morningstar DBRS, the rating agency confirms the Long-Term Issuer Rating and Long-Term Senior Debt credit rating of Lafayette Square USA, Inc. at BBB (low) with a Stable trend. The company's Intrinsic Assessment remains BBB (low), while its Support Assessment is SA3, indicating no assumption of timely systemic support and leaving the final rating aligned with the intrinsic assessment.

Morningstar DBRS says the confirmation reflects Lafayette Square USA's expanding franchise, supported by an $822.1 million investment portfolio focused on lending to middle-market businesses through a mission-based strategy. The agency says earnings improve in 2025 on portfolio growth and solid yields, although net income declines in the first quarter of 2026 because of higher unrealized losses.

The agency also views the company's risk profile as acceptable, citing solid credit performance despite elevated vintage and single-company concentrations compared with other business development companies. First lien investments account for 86.5% of the investment portfolio, while the funding profile improves through an inaugural unsecured debt issuance, a revolving credit facility and low-cost, long-term SBA debt.

Leverage capacity and credit outlook

The recently passed Investing in All of America Act raises SBIC statutory leverage caps to $250 million per fund from $175 million and to $475 million for affiliated funds from $350 million. It also excludes certain qualifying investments from leverage limits, a change that may improve Lafayette Square USA's access to additional SBA debt.

Even with that added flexibility, Morningstar DBRS expects the company to stay within its stated gross debt-to-equity target range of 1.00x to 1.25x, which it says supports the current rating level. The Stable trend reflects the agency's expectation that the company continues generating solid operating results as the portfolio grows while maintaining sound risk management.

Morningstar DBRS adds that macroeconomic headwinds, including slower economic growth that could weaken portfolio company performance, remain a key downside risk. It notes that Lafayette Square USA provides managerial assistance to portfolio companies, including through Worker Solutions®, which focuses on workforce support and employee benefit programs and may help offset some of those risks.

Our earlier article on Mercury General’s $525 million senior unsecured notes explained how the insurer used the new 6.25% issue maturing in 2036 to refinance nearer-term obligations. We noted that the move was aimed at extending the debt maturity profile and supporting liability management while keeping financial leverage within rating guidelines and maintaining a stable outlook.

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