JV and FinCo Exposure Can Increase Risk for BDCs

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Elevated off-balance sheet leverage tied to joint ventures (JVs) and finance companies (FinCos) can alter the risk profile of business development companies (BDCs), according to a new Fitch Ratings report. The risk is greater when exposure to these entities represents an outsized proportion of the balance sheet.

Fitch assesses BDCs’ overall leverage by considering the effect of consolidating JVs onto the balance sheet, adding the BDC’s proportionate share of JV debt and equity and removing the fair value of the investment from equity. On that basis, average rated BDC leverage rises to 1.5x at 1Q26 from 1.1x before consolidation. The effect may still be understated because several JVs are new, recently upsized or lack full disclosure. Even so, consolidation raises leverage above typical 1.25x target caps for some BDCs.

Contact Chris Becker
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