KBRA Releases Research – Private Credit: Business Development Company (BDC) Ratings Compendium: Fourth-Quarter 2025

NEW YORK--(BUSINESS WIRE)--KBRA releases its Business Development Company Ratings Compendium, which looks at results for the quarter ended December 31, 2025.

In this quarter’s Compendium, KBRA examines the key credit and structural risks of rated perpetual-life BDCs, with a particular focus on whether these BDCs can maintain sound leverage and liquidity profiles during periods of elevated redemption activity. In addition, we will examine the financial performance of our rated business development companies (BDCs) in a landscape characterized by ongoing competitive pressures in a less benign credit environment with high base rates, inflation, and increasing geopolitical risk. During 1Q26, KBRA made selective changes to the ratings and Outlooks. The issuer and senior unsecured debt ratings of BlackRock TCP Capital Corp. were downgraded to BB+ from BBB-, and the Outlook was revised to Negative from Stable. The issuer and senior unsecured debt ratings of FS KKR Capital Corp. were downgraded to BBB- from BBB, and the Outlook remains Stable. The issuer and senior unsecured debt ratings of MidCap Financial Investment Corporation were affirmed at BBB-, and the Outlook was revised to Stable from Positive. The issuer and senior unsecured debt ratings of New Mountain Finance Corporation were affirmed at BBB-, and the Outlook was revised to Negative from Stable. KBRA maintains Stable Outlooks for the vast majority of rated BDCs but continues to monitor the sector carefully.

Credit performance across KBRA’s rated BDC universe remained generally stable in 4Q25, with non-accrual investments to total investments at cost and fair value (FV) for non-perpetual-life BDCs at 2.3% and 1.1%, respectively. While most BDCs continued to report stable credit metrics, dispersion widened across platforms—reflecting idiosyncratic pressures and selective borrower underperformance. KBRA recognizes that credit spread widening, especially in the software sector in 1Q26, will add pressure to earnings when reported. In addition, non-accruing loans are expected to increase in 1Q26 but remain at manageable levels in the context of current ratings. KBRA-rated BDCs are aided by strong access to bank credit facilities, reflecting considerable overall relationship depth between major banks and large BDC managers. These funding advantages enabled BDCs to proactively refinance near-term maturities, extend liability maturities, and maintain solid liquidity profiles. We believe that our rated BDCs can navigate an uncertain environment effectively, driven by relatively low leverage and highly diversified investment portfolios, with a high percentage of first lien senior secured loans to middle market companies generally within less cyclical industries.

Key Takeaways

• A key structural feature of perpetual-life BDCs is that prudent management of redemption risk is governed by product design.
• Recently, investor sentiment has shifted more quickly than the underlying credit performance of these BDCs.
• KBRA reviewed the resilience of the perpetual-life BDC structure in an environment where redemptions were met at 5% per quarter over a one-year period. All of KBRA’s rated universe of perpetual-life BDCs maintained leverage below the regulatory limits of 2:1 under this scenario.
• Non-accrual investments remain muted, but KBRA remains cautious, with growing concern for disruption in the software sector as artificial intelligence (AI) gains traction, although we also note that there are many software companies that will benefit from AI and others that have time, resources, and business models that can adapt effectively. In the short run, we remain more concerned about the impact that energy prices, inflation, and other macroeconomic pressures may have on middle market borrowers (see Private Credit: Deep Dive on AI and Software).
• Funding sources remain solid and diversified, with a mix of revolving credit lines, asset-based facilities, collateralized loan obligations (CLO), and senior unsecured debt.

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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