Click here to learn more.
Elevated off-balance sheet leverage tied to joint ventures (JVs) and finance companies (FinCos) can alter the risk profile of business development companies (BDCs), according to a new Fitch Ratings report. The risk is greater when exposure to these entities represents an outsized proportion of the balance sheet.
Fitch assesses BDCs’ overall leverage by considering the effect of consolidating JVs onto the balance sheet, adding the BDC’s proportionate share of JV debt and equity and removing the fair value of the investment from equity. On that basis, average rated BDC leverage rises to 1.5x at 1Q26 from 1.1x before consolidation. The effect may still be understated because several JVs are new, recently upsized or lack full disclosure. Even so, consolidation raises leverage above typical 1.25x target caps for some BDCs.
Latest news
US Leveraged Loan Launch Activity Moderates in July
The US leveraged loan market has recorded $14.01b of new launches through Wednesday, July 22, following $20.91b of issuance the…
US Direct Lending Spread Per Turn of Leverage Widens
Wider spreads and slightly lower leverage provided lenders with better risk-adjusted pricing across all deal sizes in the second quarter.
Concentrated Effort
Tech deals favored upper end of market, especially in 2021 when software valuations peaked. Source: KBRA DLD Research