For most companies that have borrowed from U.S. private credit funds, the real moment of reckoning – when their loans mature and they need to refinance cheap debt taken during the COVID-19 pandemic years – is a couple of years away.
A Reuters analysis of U.S. Securities and Exchange Commission filings from 74 private credit funds, also known as business development companies (BDCs), found only about $15 billion of a total $84 billion of their assets mature this year, with the bulk of loan maturities peaking in 2028 and 2029.
The data allays some fears in the private banking sector facing strains from higher interest rates, weaker earnings growth and pressure on profitability in the software sector.
Shares of BDCs, which are private investment funds that lend directly to many mid-sized borrowers, have been under pressure and faced redemptions due to these concerns.
Lotfi Karoui, multi-asset credit strategist at bond fund manager PIMCO, said in a note the amount of upcoming debt due for refinancing for software borrowers in the leveraged loan and direct lending markets also appeared modest.
“The good news is that relatively benign near-term refinancing needs for software companies limit the risk of an abrupt rise in financial distress,” he said in a recent note.
Credit quality in BDC loan portfolios is weakening, with non-accruals rising and payment-in-kind income increasing in parts of the sector, according to a Fitch Ratings report.
Companies with loans maturing this year could face refinancing pressure, forcing them to seek more amend-and-extend transactions, which push out repayment dates by changing loan terms, as well as repricings and other liability-management exercises.
Software and technology borrowers are among those drawing scrutiny from investors, given slower growth and concerns about AI disruption.
The risks could be amplified for loans overlapping BDC portfolios, since stress at any one borrower with multiple creditors could pressure loan valuations and net asset value (NAV) across the sector.
For BDCs whose shares are already trading at a discount to NAV, that could make it harder to raise equity without diluting shareholders’ interest and could increase their cost of capital.
(Reporting By Patturaja Murugaboopathy;Editing by Vidya Ranganathan and Emelia Sithole-Matarise)
