-

KBRA Releases Research – Private Credit: Business Development Company (BDC) Ratings Compendium: Third-Quarter 2025 and 2026 Outlook

NEW YORK--(BUSINESS WIRE)--KBRA releases its Business Development Company Ratings Compendium, which looks at results for the quarter ended September 30, 2025, and 2026 Outlook.

In this quarter’s Compendium, KBRA reviews the financial performance of our rated business development companies (BDCs) in a landscape characterized by ongoing competitive pressures, declining but still high base interest rates, and distribution yield preservation. Credit performance across KBRA’s rated BDC universe remained generally solid in 3Q25, although signs of late-cycle softening have begun to emerge. While most BDCs continued to report stable credit metrics, dispersion widened across platforms—reflecting idiosyncratic pressures and selective borrower underperformance. During the quarter, we had no changes in ratings or Outlooks for the KBRA-rated BDC universe. Looking forward into 2026, KBRA’s rating outlooks are generally stable for our rated BDCs.

The broader operating environment during the quarter was marked by tight spreads, renewed mergers and acquisitions (M&A) activity, and continued capital formation within the perpetual-life BDC channel. Favorable market conditions supported robust unsecured debt issuance, expansion of bank credit facilities, and increased middle market collateralized loan obligation (CLO) formation, which bolstered BDC liquidity and funding profiles. 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 heading into 2026. KBRA believes that its 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

Dividend Coverage Remains a Concern for Equity Investors

Competitive pressures, tightening spreads, and the potential for additional rate cuts have many KBRA-rated BDCs adjusting their dividend strategies to allow for more flexibility while providing a more stable base rate over the medium term. Perpetual-life BDCs continued to rely on fee waivers. Some non-perpetual life BDCs reduced or eliminated their supplemental and/or special distributions in line with declines in net investment income (NII). Several BDCs reduced their base dividends to align with base rate expectations. From a credit standpoint, interest expense coverage for rated debt is expected to remain quite solid.

Stable but Softening Asset Quality

Investments on non-accrual status remain low but increased year-over-year (YoY) to a median of 2.5% of total investments at cost (1.3% at fair value (FV)) for non-perpetual life BDCs. The vast majority of internal risk ratings remain in categories reflecting performance at or above expectations (93.7%), supported by strong portfolio diversification and a high mix of first lien senior secured loans in generally less cyclical sectors. KBRA-rated BDCs have low direct exposure to tariffs, given a focus on portfolio company, service-based businesses in the U.S.

Outlooks Remain Stable but Cautious

KBRA maintains Stable Outlooks for most of its rated universe of BDCs going into 2026, supported by solid liquidity, manageable leverage, and strong access to senior unsecured debt and bank credit facilities. However, elevated base rates, mixed macroeconomic signals, and geopolitical risk warrant caution. BDCs continue to focus on proactive risk management, measured leverage, and active engagement with portfolio companies.

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.

Doc ID: 1012573

Contacts

Teri Seelig, Managing Director
+1 646-731-2386
teri.seelig@kbra.com

Kevin Kent, Director
+1 301-960-7045
kevin.kent@kbra.com

Josh Mandelbaum, Director
+1 301-969-3186
josh.mandelbaum@kbra.com

Bain Rumohr, Managing Director
+1 312-680-4166
bain.rumohr@kbra.com

Jack Chadwick, Analyst
+1 301-960-7049
jack.chadwick@kbra.com

Joe Scott, Senior Managing Director
+1 646-731-2438
joe.scott@kbra.com

Business Development Contact

Constantine Schidlovsky, Senior Director
+1 646-731-1338
constantine.schidlovsky@kbra.com

Kroll Bond Rating Agency, LLC

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Teri Seelig, Managing Director
+1 646-731-2386
teri.seelig@kbra.com

Kevin Kent, Director
+1 301-960-7045
kevin.kent@kbra.com

Josh Mandelbaum, Director
+1 301-969-3186
josh.mandelbaum@kbra.com

Bain Rumohr, Managing Director
+1 312-680-4166
bain.rumohr@kbra.com

Jack Chadwick, Analyst
+1 301-960-7049
jack.chadwick@kbra.com

Joe Scott, Senior Managing Director
+1 646-731-2438
joe.scott@kbra.com

Business Development Contact

Constantine Schidlovsky, Senior Director
+1 646-731-1338
constantine.schidlovsky@kbra.com

Social Media Profiles
More News From Kroll Bond Rating Agency, LLC

KBRA Releases Research – Private Credit: Deep Dive on AI and Software

NEW YORK--(BUSINESS WIRE)--KBRA releases research examining the impact of artificial intelligence (AI) on software and private credit portfolios. In KBRA’s view, AI poses diffuse and manageable credit risks to software companies held by direct lenders. While some sponsor-backed borrowers with near-term maturities and structural exposure to AI disruption may face significant pressure—contributing to a modest increase in overall default rates—we find that most software-adjacent borrowers have bus...

KBRA Assigns AAA Rating to Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue Bonds, Refunding Series 2026A (Green Bonds); Affirms Rating for Parity Bonds

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AAA to the Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue Bonds, Refunding Series 2026A (Green Bonds). KBRA additionally affirms the long-term rating of AAA for outstanding Sales Tax Revenue Bonds. The rating Outlook is Stable. Key Credit Considerations The rating action reflects the following key credit considerations: Credit Positives Pledged revenues provide ample coverage of Sales Tax Revenue Bond maximum annual d...

KBRA Assigns Preliminary Ratings to PMT Loan Trust 2026-INV4 (PMTLT 2026-INV4)

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 72 classes of mortgage-backed notes from PMT Loan Trust 2026-INV4 (PMTLT 2026-INV4), a prime RMBS transaction sponsored by PennyMac Corp. (PennyMac), an indirect, wholly-owned subsidiary of PennyMac Mortgage Investment Trust (PMT). PMTLT 2026-INV4 comprises 1,093 fixed-rate mortgages (FRMs) with an aggregate principal balance of $412.3 million as of the April 1, 2026 cut-off date. The underlying pool consists of agency-eligible loan...
Back to Newsroom