April 7, 2025 - The BDC Quarterly Wrap highlights select data points to provide a readout on BDC growth, structure, financing and asset quality. For context, growth data includes the entire BDC universe, which consists of 161 funds; all other data captures BDCs reporting financials by March 20th, representing a universe of 128 funds (representing 96% of assets).
Market. In 4Q24, Business Development Companies’ (BDCs) assets under management (AUM) jumped 38% year-over-year and 7% sequentially to $438B, according to LSEG LPC’s BDC Collateral. The data is segmented into three cohorts: publicly traded BDCs, non-traded and private BDCs, and perpetual-life BDCs (i.e., non-traded BDCs with indefinite durations that offer shares continuously by recycling periodic share redemptions). The growth in 4Q was largely attributable to perpetual BDCs, which experienced a 77% YoY increase in AUM to $203.4B. This figure represents 38 funds, or 24% of the universe. By comparison, excluding perpetuals, non-traded and private BDCs increased 28% YoY to $78.0B and publicly traded BDCs grew 10% to $156.9B.
Leverage. Fund-level leverage inched up to 0.94x across all BDCs in 4Q24 from 0.91x in 3Q24 and from 0.90x in 4Q23, according to BDC Collateral. For BDCs with more than $500M in total assets, leverage in 4Q24 was flat sequentially at 1.01x on average compared to 0.99x in 4Q23. Forty-seven percent of all BDCs were levered above 1x in 4Q24 (up from 44% in 3Q24 and 40% in 4Q23). BDCs issued $4.65B in unsecured debt in 4Q24, up 50.5% year-over year and $9.2B in 1Q25, up 20.3% from 1Q24, according to Truist Securities. The strong issuance is attributable to (i) tight credit spreads that have made borrowers agnostic to other funding sources, (ii) refinancings, and (iii) BDC managers issuing to maintain minimum leverage levels (generally around 1x). However, this trend is likely to ebb in the near-to-immediate term given recent spread widening. In its 4Q24 BDC Ratings Compendium, KBRA highlights that BDCs’ funding needs remain supported by diversified sources – increased availability of credit facilities, PCLO issuance at favorable spreads, and access to unsecured debt markets.
Composition. The share of BDC portfolios comprising first-lien loans increased to 85.9% in 4Q24 from 85.1% in 3Q24 from 80.8% in 4Q23, while the share of second-lien loans fell to 3.1% from 3.6% and 6.2%, respectively, based on BDC Collateral data. The share of equities decreased to 7.5%, from 7.7% in 3Q24 and 9.1% in 4Q23.
Credit Risk. Net realized losses decreased to $555.6M in 4Q24 from $869.5M in 3Q24 but are up from $163.5M in 4Q23, BDC Collateral data shows. BDCs have reported net realized losses for the last 10 quarters. The weighted average non-accrual rate for public and non-traded/private BDCs combined fell to 1.34% in 4Q24 from 1.40% in 3Q24 and 1.53% in 4Q23. Loans to borrowers in healthcare, services, and textiles and apparel experienced the most non-accruals.
Weighted average payment-in-kind (PIK) interest as a percentage of BDC total investment income (for BDCs that reported PIK income) was 6.22% in 4Q24 compared to 6.66% in 3Q24, according to BDC Collateral. (This data was not available for 4Q23.) The share of BDCs with PIK interest as a percentage of total investment income above 10% increased to 19.2% in 4Q24, up from 15.9% in 3Q24 and 13.1% in 4Q23, the BDC Collateral data shows.
We include PIK interest as part of credit risk analysis because it captures loans that may be experiencing stress (i.e., converted from cash interest to PIK interest via amendment). To that point, while the impact of tariffs and the potential economic drag is seemingly a driver of increased PIK utilization, J.P. Morgan noted in its BDC Quarterly Earnings Review on March 20th that sectors exposed to tariffs or consumer-focused companies remain a relatively small portion of BDC portfolios.
Moreover, as we’ve pointed out before, the headline PIK numbers aren’t unequivocally negative – they include PIK interest on loans to performing companies with PIK optionality or partial PIK pay at origination. (The LSTA recently explored this topic in “PIK in Practice,” the debut episode of its podcast series The Lending Continuum. Click here to listen.) In 4Q24, PIK featured in 10.33% of new investments in BDCs, up from 6.15% in 3Q24 and 6.46% in the same period a year ago, according to SOLVE.
