Solid BDC Performance Continued Through 4Q21, But Market Volatility and Geopolitical Instability Increases Potential Risks

This commentary reviews the 4Q21 results for business development companies (BDCs).

Key highlights include:
• BDCs in DBRS Morningstar's coverage universe saw continuing solid performance in 4Q21, as originations remained strong and visible investment pipelines continue to be robust entering 2022.
• Net asset values (NAVs) remained stable quarter-over-quarter for 4Q21 with an average increase of 0.5% in our public peer group. However, increased market volatility from geopolitical concerns may put some negative pressure on portfolio valuations in 1Q22.

• While our ratings universe appears to have no major direct investment exposures to the Russia - Ukraine conflict, secondary exposure through European investments or price inputs (i.e., oil) of portfolio companies may appear as 2022 progresses.

“Our ratings are all in the BBB-range, and have Stable trends. While there are some increased potential risks from market volatility, geopolitical instability, and the macroeconomic environment, we believe the ample dry powder in private equity and a robust M&A market will continue to push demand for private credit as financial sponsors seek certainty of execution.” said Watson Tanlamai, CFA, Vice President - Global FIG.