With private credit concerns brewing, ratings agencies turn negative on these little-known companies

Concerns over the health of the private credit sector are leading ratings agencies to take a look at a somewhat obscure part of capital markets: business development companies. Troubles in the legacy software sector due to the ascent of AI, along with pressure from a higher-for-longer interest rate outlook, are causing writedowns of loans, and rating agencies are concerned about the overall leverage levels of BDCs. "We're monitoring leverage trends across BDCs, as several were at the high-end of their targeted ranges as of year-end 2025," Chelsea Richardson, senior director at Fitch Ratings, said Monday. "We believe these BDCs sought to reduce leverage with portfolio repayments amid slower origination activity, but expect writedowns of software investments to negatively affect net asset values." Cuts to BDC dividends could be the result of the leverage pressures, Richardson noted, seeing stress in net investment income and "potential for higher non-accruals, as we've already seen in some preliminary results." Moody's downgraded its outlook for BDCs to negative from stable on April 7, citing high leverage as well as "increased redemption pressures" as investors looked to pull money from funds. "Publicly traded BDCs have maximized leverage, leaving limited room for error," senior credit officer Clay Montgomery wrote for Moody's. Software loans were also their concern, which they described as "developing asset risk" due to AI – though one that will take years to play out. …