Key facts
- U.S. private-credit portfolio values showed signs of stabilizing in the second quarter.
- Lenders continued to mark down select software loans and reported a rise in debt that has stopped generating income.
- A Reuters analysis of 44 U.S. business development companies showed portfolio values moved further below reported cost in the first half of the year.
- The aggregate fair-value-to-cost ratio for these BDCs fell to 97.57% in the second quarter.
- BDCs had written down 81% of software loans this year, compared with 40% outside the sector.
U.S. private-credit portfolio values showed signs of stabilizing in the second quarter, though lenders continued to mark down select software loans and reported a rise in debt that has stopped generating income. This scrutiny comes as investors question opaque valuations and redemption pressures emerge at some non-traded funds.
A Reuters analysis of regulatory filings from 44 U.S. business development companies (BDCs) revealed that portfolio values moved further below reported cost in the first half of the year. While most broad markdowns occurred in the first quarter, second-quarter losses at several prominent BDCs were concentrated in a relatively small number of borrowers, particularly in the software sector.
Sitara Sundar, J.P. Morgan Private Bank's head of alternative investment strategy, described the situation as largely a repricing, citing weaker deal flow, redemption pressure, softer sentiment, concerns over AI-driven software disruption, and near-term debt maturities.
The 44 BDCs had investments with a combined fair value of $92.88 billion on June 30, compared to $95.19 billion of reported cost. The aggregate fair-value-to-cost ratio fell to 97.57% in the second quarter, a material fall over the first half of the year, according to Chris Cessna, a managing director at Houlihan Lokey.
Data cited by Cessna indicated that BDCs had written down 81% of software loans this year, compared with 40% outside of the sector. Approximately 4% of all borrowers had loans marked below 80% of par, an increase from around 1% in previous years. Clay Montgomery of Moody's Ratings noted that a narrow group of investments accounted for an outsized share of unrealized losses at several prominent BDCs.
Specific firms reported concentrated losses. Blue Owl Capital Corp. stated its second-quarter net asset value decline was driven primarily by one credit-specific markdown. Ares Capital Corp. reported that two software companies accounted for over a third of its year-to-date net unrealized losses. Golub Capital BDC saw losses concentrated in junior debt and equity positions, while FS KKR Capital Corp. also noted a substantial majority of its markdowns came from a handful of investments.
Across 10 BDCs reviewed by Reuters, non-accrual investments—where borrowers are significantly behind on payments or unlikely to pay—rose to about 3.4% of portfolio cost at the end of June, up from 2.5% at the end of 2025.