DBRS: BDCs Take Measured Approach to New Leverage Limits

DBRS, Inc. (DBRS) published a commentary titled “DBRS: BDCs Take Measured Approach to New Leverage Limits.”

So far, business development companies (BDCs) have been measured in taking advantage of the higher leverage limit enacted in March 2018. The effective limit was raised from one times (1x) capital to 2x, an increase that DBRS considers as modestly negative for the BDCs’ credit profile. Higher leverage adds risk, but also permits BDCs to enhance their risk profiles by investing in lower risk credits, increasing earnings and enhancing diversification. DBRS will continue to track how BDCs’ leverage and their risk profiles evolve under the new legislation.