1Q24 BDC Roundup: Originations Heat Up at Some BDCs Despite Increased Competition from the Broadly Syndicated Loan Market

This commentary reviews the 1Q24 earnings, operating performance and outlook for business development companies (BDCs).

Key highlights include:

-- Despite competition returning from the BSL market and a slow start to the sponsor-driven M&A market, select BDCs have been able to originate significant deal volume in 1Q24, a normally quiet quarter.

-- Earnings on both NII and net income across our coverage universe were positive as realized and unrealized losses did not constrain the high yielding investment portfolios during 1Q24.

-- PIK income continues to slowly rise, while non-accruals have outperformed and defied market expectations of a potential economic contraction scenario.

-- Conservative leverage levels at 1Q24 will enable BDCs to quickly pivot to offense should the sponsor-driven M&A market return and robust, quality deal flow reappears.

-- Both the equity and debt capital markets remain open for BDCs, with multiple IPOs, strong net inflows to non-traded BDCs, and over $10 billion of debt issuance since the beginning of the year.

“While the first quarter of the calendar year is typically a slow origination period for direct lenders, a few business development companies (BDCs) in our coverage universe generated significant originations,” said Watson Tanlamai, CFA, Vice President, NA Financial Institutions Ratings.