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KBRA Releases Research – Private Credit: Business Development Company (BDC) Ratings Compendium: Fourth-Quarter 2024

via Business Wire

KBRA releases its Business Development Company Ratings Compendium, which looks at results for the quarter and year ended December 31, 2024. This quarter, KBRA observed that business development companies (BDC) maintained a strategic focus on liability management amid a challenging market landscape marked by tighter spreads, heightened competition, and an oversupply of capital relative to deal flow. Despite modest increases in non-accruals and several restructurings and exits—notably involving Pluralsight, Khoros LLC (Lithium), and Thrasio LLC—credit performance among KBRA-rated BDCs remained broadly stable.

As interest rates remain elevated and economic uncertainty persists, KBRA continues to monitor portfolio stress within BDCs. KBRA expects that problem loans will likely increase but remain at manageable levels in the context of current ratings. Our Outlook remains Stable for the rated BDC universe, underpinned by strong liquidity, moderate leverage, and a high allocation to senior secured first lien loan investments in generally economically resilient industries. Exposure to international markets remains limited, mitigating the direct impact of global trade uncertainties.

Key Takeaways

  • Liability Management Remains Central: BDCs are actively optimizing their capital structures, managing funding costs, and renegotiating credit facilities to enhance flexibility.
  • Solid Liquidity Conditions: Funding needs remain supported by increased availability of credit facilities, middle market collateralized loan obligation (CLO) issuance at favorable spreads, and access to unsecured debt markets.
  • Capital Deployment Lags Supply: The private credit market remains capital rich, while mergers and acquisitions (M&A) and leveraged buyout (LBO) transaction volumes remain subdued. The deployment outlook remains uncertain.
  • Dividend Coverage Remains Adequate for Most KBRA-Rated BDCs: Despite adequate dividend coverage, KBRA believes there are cuts on the horizon owing to persistent competition, projected Federal Reserve rate cuts by year-end, and possible asset quality deterioration.
  • Strong Balance Sheets: KBRA-rated BDCs continue to maintain robust balance sheets with a focus on generally less cyclical sectors and manageable non-accrual levels.

Click here to view the report.

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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