Private credit funds mark investment values lower, filings show

By Patturaja Murugaboopathy

May 12 (Reuters) - Some private credit ‌funds marked the ​values ​of their investments significantly lower in the first quarter, their filings show, highlighting the pressure they face as artificial intelligence upends business models and projections for small ‌businesses.

A Reuters review of filings by 14 major business development companies (BDCs), which mainly ⁠finance private loans to mid-sized companies, showed the aggregate fair value-to-cost ratio fell 103 basis points to 98.55% at ‌the end of March.

The investments were ‌marked at about $1.2 billion below amortized cost in total, BDC filings reviewed by Reuters showed, compared with a much narrower discount at the end of December.

Some BDC managers said during ​quarterly earnings calls that much of the decline reflected market-wide spread-widening rather than borrower-specific stress.

CION Investment Corp's fair value-to-cost ratio fell 176 basis points to 91.59% from 93.35%, while Ares ⁠Capital Corp's declined 131 basis points to 99.50%.

Ratios at Blackstone Secured Lending Fund dropped 122 basis points to 97.52%, and Goldman Sachs ​BDC Inc fell 119 basis points to 94.88%.

The lower marks also coincided with declines in net asset values. BlackRock TCP Capital Corp's NAV fell ​4.95% to $6.72 from $7.07, CION's dropped 4.72% to $13.11, and Sixth ‌Street Specialty Lending Inc's declined 4.36% to $16.24.

Goldman Sachs BDC fell 3.72% to $12.17, while Blue Owl Capital Corp dropped 2.70% to $14.41.

The markdowns come as private credit ⁠faces its sharpest scrutiny in years, with analysts and rating agencies warning that weaker borrowers, rising non-accruals and redemption pressure are testing a market that expanded rapidly.

Moody's recently cut its outlook for the BDC sector to ⁠negative, while Fitch said redemptions at perpetually non-traded BDCs climbed to 3.8% of prior-quarter NAV in the first ​quarter.

At FS KKR Capital Corp, its adviser KKR plans a $300 million support package after mounting losses, a sharp NAV decline and higher non-accruals.

Meanwhile, Ares Capital said on its earnings call that most of its marks were market-driven, ‌while Goldman Sachs BDC attributed part of its NAV decline to broader spread widening and said newer loans were performing well.

MSCI said in a ‌report on Tuesday that private-credit funds have marked down more than 10% of their loans by at ⁠least half, as corporate borrowers in the $3.5 ‌trillion market struggle with higher ​debt burdens.

MSCI said loans valued at less than 50% are typically associated with deep distress or restructuring risk.

(Reporting by Patturaja Murugaboopathy; Editing by Vidya Ranganathan and ‌Alexander Smith)

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