KBRA Releases Research – Business Development Company (BDC) Ratings Compendium: Second-Quarter 2021

Kroll Bond Rating Agency (KBRA) releases its Business Development Company (BDC) Ratings Compendium, which analyzes results for the quarter ended June 30, 2021. In this edition of the Compendium, KBRA also examines the improvement in Net Asset Value (NAV) among the 14 largest BDCs since June 30, 2020.

Themes discussed in the Compendium include:

• The median NAV change for the period of Dec. 31, 2019 to June 30, 2021 for the top 14 publicly traded BDCs was (1%) compared with (9%) from the period of Dec. 31, 2019 and June 30, 2020.
• The private debt markets remain robust with competitive factors intensifying, which have resulted in the continuation of covenant-lite documents and tighter spreads of pre-pandemic levels; the BDCs under KBRA’s coverage remain cautious, abiding by strict underwriting guidelines.
• KBRA continues to believe that BDCs with strong underwriting practices, a high percentage of first lien senior secured loans in their investment portfolios, and a greater concentration of loans in the defensive noncyclical sectors should perform better over the long term.
• BDCs continue to take advantage of favorable market conditions, raising senior unsecured debt at record low interest rates, boosting balance sheet quality, which benefits unsecured noteholders through lower asset encumbrance and increasing financial flexibility.
• The sector’s consolidation continues unabated and is expected to benefit from larger scale, including the ability to underwrite larger commitments, obtain greater deal flow, increased portfolio and funding diversity, and operating efficiencies.
• While KBRA remains cautious, BDCs continue to improve as the economy strengthens. In addition, we believe that the shoring up of balance sheets during and prior to the pandemic and increased financial flexibility through greater issuance of senior unsecured funding replacing secured debt, in addition to prudent capital deployment in the uncertain environment, should help most BDCs absorb additional non-accruals and write-downs should the economy worsen.

Click here to view the report.

About KBRA

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.

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