At a glance
- The ratings firm expects asset quality pressure at US BDCs to run into 2027.
- For fund selectors weighing listed BDCs against the interval and tender-offer credit funds that sit on the same shelf, dividend coverage is the first line that moves.
- Fitch said credit performance varied across the sector, with non-accrual rates ranging from zero to 9.4% at cost.
Non-accrual investments averaged 2.7% of debt investments at cost at the eight US business development companies in Fitch Ratings' latest review, against 2.5% across all Fitch-rated BDCs in the second quarter of 2026, Alternative Credit Investor reported.
The ratings firm expects asset quality pressure at US BDCs to run into 2027. Higher interest rates could push more loans onto non-accrual as borrowers face growing debt-servicing costs, and Fitch said the lending environment remains competitive.
For fund selectors weighing listed BDCs against the interval and tender-offer credit funds that sit on the same shelf, dividend coverage is the first line that moves. Net investment income covered an average of 103.5% of base dividends in the first half, down from 105.9% in 2025, leaving roughly 3.5 percentage points of income above the base payout.
Dispersion was wide. Fitch said credit performance varied across the sector, with non-accrual rates ranging from zero to 9.4% at cost. Net investment income fell to an annualised 4.8% of average portfolios at cost in the first half from 5.4% in 2025, reflecting lower investment yields and rising non-accruals.
Fitch flagged artificial intelligence disruption at software companies, which it said represent a significant proportion of many BDC portfolios. The agency does not expect AI disruption to materially affect asset quality in the near term, but warned that some borrowers could face performance pressures and potential losses in future years.
Competition for lending is expected to stay elevated, reflecting subdued merger and acquisition activity, geopolitical uncertainty and concerns over AI disruption. Fitch identified one offset: high redemption requests and slower fundraising at non-traded BDCs could constrain lending activity at some firms, potentially easing competition for those still deploying capital.
Strong unsecured debt issuance has helped reduce refinancing risks, Fitch said. Rated BDCs raised $18.3 billion so far in 2026, following $20.8 billion in all of 2025, which puts this year's total at roughly 88% of last year's.
Reported by the Private Credit & BDCs desk from Alternative Credit Investor. Published . Updated Oct 24, 2026 · 3:14 p.m. ET. Corrections