Competition to Pressure BDCs’ Deal Terms, Credit Performance in 2025
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The competitive underwriting environment for business development companies (BDCs) will continue in 2025, with spread pressure, interest rate cuts and the potential for rising non-accruals driving weaker earnings and dividend coverage metrics across the sector. However, rated BDCs are expected to originate selectively in 2025, with many sponsors predicting a stronger M&A environment.
Fitch Ratings expects the deteriorating sector outlook to persist for BDCs in 2025. Credit spreads are nearly as tight as prior to the GFC amid the Fed lowering rates. Unsecured debt maturities through 2025 are nearly all pre-funded given strong sector issuance in 2024, but maturities will increase in 2026, which will require additional access to capital for BDCs to maintain funding flexibility.
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Top 50 BDCs Accounted for 75% of Nonaccrual Loan Cost in Q2’26
The 50 largest BDCs, on the basis of total debt investments as of the second quarter of 2026, accounted for 75% of the total aggregate reported value of nonaccrual debt at cost and fair value.
US private debt AUM ($B) by channel
In 2025 and the early part of 2026, the retail channel added AUM to the asset class at a much faster rate than institutional investors in both regions, with growth rates of 43.7% globally, 41.4% in the US, and 73. 1% in Europe through the beginning of 2026 compared with year-end 2024 figures.
