Summary
An analysis of regulatory filings from 44 U.S. business development companies (BDCs) shows portfolio fair values declined relative to reported cost in the first half of 2026, with signs of stabilisation in the second quarter. Despite most broad markdowns occurring in the first quarter, several large BDCs reported second-quarter losses that were concentrated in a narrow set of borrowers, particularly in software. At the same time, non-accrual investments rose at the BDCs for which comparable filings were reviewed.
Detailed findings
The 44 BDCs included in the review reported combined investments with a fair value of $92.88 billion as of June 30, compared with $95.19 billion of reported cost or amortized cost. By contrast, at the end of 2025 those BDCs showed fair value of $95.82 billion against a cost of $96.54 billion.
The aggregate fair-value-to-cost ratio fell to 97.77% in the first quarter from 99.25% at end-December and eased further to 97.57% in the second quarter. That represents a 168-basis-point decline over the first half of the year, a drop that one valuations professional described as materially larger than usually observed.
Drivers cited by market participants
Industry specialists pointed to a multi-faceted repricing in private-credit markets. Sitara Sundar, head of alternative investment strategy at J.P. Morgan Private Bank, said: "What we are seeing is largely a repricing," and highlighted weaker deal flow, redemption pressure at non-traded funds, softer sentiment, concerns over AI-driven software disruption and near-term debt maturities as contributing factors.
Chris Cessna, a managing director in portfolio valuation and fund advisory services at Houlihan Lokey, linked the larger-than-normal fall in marks to loans where borrower fundamentals have weakened, saying: "In stressed loans, weaker borrower fundamentals are contributing to lower marks."
Sector concentration - software loans
Data cited by the valuation firm showed BDCs had written down 81% of software loans this year, compared with 40% of loans outside the software sector. A relatively narrow set of investments accounted for a disproportionate share of unrealized losses at several major BDCs, according to a credit-rating professional.
Examples among named BDCs illustrate the concentration:
- Blue Owl Capital Corp. reported its second-quarter net asset value decline was driven primarily by one credit-specific markdown, while in the first quarter roughly three-quarters of the decline reflected broader spread widening.
- At Ares Capital Corp., two software companies accounted for just over a third of year-to-date net unrealized losses of $527 million; that share rises to more than half when adding a further five software companies.
- Golub Capital BDC reported losses were concentrated in a small number of junior debt and equity positions.
- FS KKR Capital Corp. said a handful of investments represented a substantial majority of its markdowns.
Non-accruals and borrower distress
Across 10 BDCs for which comparable filings were reviewed, non-accrual investments - defined as exposures where borrowers are significantly behind on payments or considered unlikely to pay - rose to about 3.4% of portfolio cost at the end of June, up from 2.5% at the end of 2025. This rise in non-accruals accompanies the observed markdowns and reflects pockets of borrower stress.
Clay Montgomery, a vice president in Moody’s Ratings’ financial institutions group, observed that a relatively narrow group of investments explained an outsized share of unrealized losses at several prominent BDCs.
What changed between quarters
While most of the broad-based markdown activity occurred in the first quarter, the second quarter showed a more concentrated pattern of losses concentrated in specific issuers. The overall fair-value-to-cost ratio edged down slightly from the first to second quarter, suggesting partial stabilization in aggregate values even as stress persisted among particular borrowers and sectors.
Conclusion
The filings analysis indicates private-credit portfolios broadly moved deeper below reported cost during the first half of 2026, but with differing patterns across BDCs. Market participants cited repricing dynamics, redemption pressures at non-traded funds, sectoral exposure to software and weakening borrower fundamentals as proximate factors. Several large BDCs attributed significant portions of their markdowns to a limited number of troubled credits rather than to uniform portfolio deterioration.