NEW YORK--(BUSINESS WIRE)--KBRA releases its Business Development Company Ratings Compendium, which looks at results for the quarter ended September 30, 2022, as well as the sector Outlook for 2023. KBRA believes that despite recent headwinds, including a potential recession and asset quality uncertainty, the BDCs in its coverage universe will continue to exhibit solid credit fundamentals.
Themes discussed in the Compendium include:
- Rising interest rates have presented competing tailwinds and headwinds for BDCs and portfolio companies. While BDCs benefit from higher NII from rising rates, higher interest rates pressure portfolio companies’ credit metrics.
- While credit quality remains stable at historical lows from years of benign credit conditions, several of KBRA rated BDCs added one or two loans to non-accruals in 3Q22. However, we do not anticipate materially elevated non-accruals in the near term.
- KBRA believes many BDCs in its rated portfolio are well positioned, from a loss standpoint and have capacity to absorb increases in non-accruals with potential credit losses. From an interest coverage perspective, KBRA-rated BDCs could absorb a high level of defaults.
- 3Q22 leverage remains conservative thereby limiting portfolio growth and lessening the need for unsecured debt issuance. KBRA’s rated BDC median leverage was 1.09x as of September 30, 2022.
- While 2022 has seen robust capital formation from perpetual non-traded BDCs, capital raises declined in 3Q22 as investors shifted their focus from variable rate investments to a “wait-and-see” approach toward asset quality.
- KBRA’s Outlook for the sector remains Stable.
Click here to view the report.
KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.