June 20, 2024 - The BDC Quarterly Wrap is a new LSTA publication highlighting 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 150 funds; all other data captures BDCs reporting financials by May 15th, representing a universe of 139 funds.    

Market. In 1Q24, Business Development Companies (BDCs) AUM jumped 23% year-over-year and 8% consecutively to $343B, according to LSEC LPC. 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 1Q was largely attributable to perpetual-life funds, which experienced a 49% YoY increase in AUM to $130B. This figure represents 31 funds, or 21% of the universe.

Leverage. Fund-level leverage averaged 1.04x across all BDCs in 1Q24 and 1x for BDCs with more than $500M in total assets, according to LSEG’s BDC Collateral. Rated BDCs issued $4.5 billion of unsecured debt through March 22, 2024, compared to $3.5B issued in 2023, according to a March 26 Fitch Ratings report. At 4Q23, unsecured debt represented 50.9% of outstanding debt and secured debt averaged 23.7% of assets, the report noted.

Composition. The share of BDC portfolios comprising first-lien loans increased to 82.8% in 1Q24 from 80.8% in the previous quarter, while the share of second-lien loans share fell to 4.8% from 6.2%, based on LSEG LPC data. The share of equities slipped to 8.6%, from 9.1% in 4Q23.

Source: BofA Global Research, Pitchbook LCD

Credit Risk. Net realized losses increased from $163M in 4Q23 to $536M, which is in line with the level in 3Q23, BDC Collateral data shows. BDCs have reported net realized losses for the last seven quarters. Average non-accrual rates for public BDCs with more than $100M in total assets ticked up to 3.83% from 3.65% last quarter and 3.72% in the same period last year. Including private BDCs, the non-accrual rate was 1.36%, down from 1.53% in 4Q23. The share of payment-in-kind (PIK) interest in BDC portfolios, which can in part reflect stress, was 15.4% in 4Q23 (the most recent data available), down from 16.1% in 3Q23 but up from 13.8% a year earlier, according to BofA Research.

If you would like to suggest other data or information to include in this piece going forward, please reach out to Andrew Berlin at aberlin@lsta.org.

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