Private credit firms have bet heavily on businesses in rapidly growing services sectors that are now trading at “stretched” valuations. These wagers could leave them vulnerable to losses if a market correction hits, according to a report published Wednesday by Fitch Ratings.
Since 2021, car-wash chains, veterinary practices and HVAC services providers have drawn substantial interest from private credit firms.
The pace of investment has only accelerated. Within a credit portfolio that Fitch monitors, largely comprising middle-market direct lending loans,16 private credit loans this year were made to car-wash operators, up from the eight loans recorded in 2021.
Private lending to the HVAC space surged by from just two loans in 2021 to reach 20 this year. Similarly, loans to veterinary care companies climbed from 6 to 18 over the same period.
Leveraged buyouts in these sectors were often priced at lofty multiples, even as public market valuations have moderated, Fitch noted.
The median EV/EBITDA multiple for LBOs in the car-wash space stood at 16.4x in 2024, compared with 10.3x in 2017. Mister Car Wash, the only publicly traded comparable, has seen its multiple decline from roughly 30x at the time of its listing to 8x this year, after a steep drop in its share price dragged down its valuation, according to Fitch.
The ratings agent warned that if the market cycle turns, some of these overpriced companies could be valued much lower, which would erode the equity cushion that protects lenders from loss in the event that a business needs to be restructured.
In such downturns, PE backers may also choose to abandon these portfolio companies outright, rather than injecting more capital and supporting them through a period of financial stress.
There have already been instances of PE sponsors backing away. One recent example is Zips Car Wash, which filed for bankruptcy protection in February 2025. When the company emerged from bankruptcy earlier this year, it was valued at just 7.34x its EBITDA, making its lenders take a 25% haircut, according to bankruptcy filings.
Learn about our editorial standards.
