Business Development Companies Outlook 2025

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What to Watch

• The impact of heightened competition on middle-market deal terms and structures.
• Potential for outsized realized losses for BDCs with elevated non-accrual levels.
• Dividend coverage metrics as NII is pressured by lower investment yields and cash NII is further weakened by elevated payment-in-kind (PIK) income.
• Ability to maintain economic access to the unsecured debt markets as near-term maturities rise.
• Management of leverage and asset coverage cushion if origination activity increases.

Additional Key Sector Issues

• Spread compression could lead to an expansion in BDCs’ risk appetite.
• BDCs’ ability to collect accrued PIK income in cash will be tested as 2021 vintage investments approach maturities.
• Potential risk of redemptions for perpetual non-traded BDCs, which could negatively affect leverage, liquidity and future fundraising.