I have noticed several articles lately about business development companies starting to show stress from bad debt. I have had concerns about this since the 1st interest rate hike from the Fed. It only makes sense that BDCs would start to show stress—they already lend at very high interest rates which is to a large degree floating rate debt meaning that the smaller companies that they lend to have generally seen rising debt service costs.
Recently there was a Seeking Alpha article on some Moodys credit rating moves (or at least potential moves) placing some BDCs on negative credit outlook–not downgrading yet, but seeing signs of higher loan losses, etc.
I am interested because I hold baby bonds issued by 4 different business development companies which can be seen in my laundry list.
Here is an article in chief investment officer magazine. Here is another in Seeking Alpha. Here is one more in Private Debt Investor.
The question of course is will this worsen? Almost without a doubt. Am I concerned? Yes, I am a bit concerned, but not at a point where ‘action’ is necessary–BUT I will need to keep a close eye on information being released from the companies.