KBRA released its Business Development Company Ratings Compendium, which looks at results for the quarter ended June 30, 2026.
In this quarter’s Compendium, KBRA examines the Q2/26 and H1/26 performance of its rated business development companies (BDC) with a focus on credit quality, net asset value (NAV) volatility, and resulting leverage.
During Q2/26, KBRA added two BDCs to its rated universe: Fortress Private Lending Fund and one unpublished BDC. H1/26 marked a meaningful shift for the sector, as headwinds that emerged in 2025 became increasingly evident in operating performance.
This analysis encompasses KBRA’s universe of 35 rated BDCs, including both published and unpublished ratings. While broader valuation pressures and heightened concerns surrounding credit quality deterioration and artificial intelligence (AI)-related disruption moderated during Q2/26, selective credit issues became more prevalent across the sector, contributing to another sequential increase in non-accrual investments. However, across non-perpetual-life BDCs, the data remains more consistent with a normalization of credit conditions following an extended period of historically benign credit performance, accompanied by increasing differentiation among borrowers and managers, rather than broad-based credit deterioration.
Key Takeaways
- Credit stress became more visible in Q2/26, particularly among non-perpetual-life BDCs, where median non-accrual investments increased to 2.75% of total investments at cost from 1.81% in 1Q26. However, deterioration remains concentrated among a relatively limited number of borrowers and managers.
- Valuation pressure moderated significantly following the Q1/26 repricing of mostly software sector loans. Non-perpetual-life BDC unrealized losses declined sharply in Q2/26, while valuation changes became increasingly borrower-specific rather than reflecting broad market repricing.
- NII remains under pressure from comparatively lower base rates of 2025, tighter spreads, and subdued mergers and acquisitions (M&A) and refinancing activity, which have reduced year-over-year portfolio yields and transaction-related fee income. NII and dividend coverage are consequently resetting lower at some issuers, although the pressure remains primarily market-driven rather than a sign of worsening credit performance.
- Leverage trends diverged by structure. Non-perpetual-life leverage remained broadly stable with some exceptions driven by asset quality deterioration, while perpetual-life leverage increased modestly as capital deployment and, for certain issuers, shareholder redemptions, outpaced debt repayment.
