BDC Q3’25 Quarterly: More Than Half of BDC Dividends Exceed Cash Flow; Aggregate PIK Income Ticks Lower, but Majority Increase Exposure; BDCs Could Tap Debt Markets for New Investments as Funds Push Leverage to Target Ranges, Regulatory Limits

Credit Research: Michael Soricillo, Mark Fischer Relevant Items: Link to BDC Financial Model Octus BDC Database Key Takeaways Dividend coverage deteriorated across average business development companies, or BDCs, despite sector growth. More than half of all BDCs spent more on dividend payments than cash generated from portfolio assets and operating costs in the 12 months ended Sept. 30, 2025. Overall industry cash flow metrics improved, including lower PIK and higher cash conversion, driven by a handful of large BDCs improving metrics. However, average industry metrics worsened compared with 2024. Octus observed that a larger number of funds burned cash and increased PIK exposure. Industry operates below leverage capacity, but debt is growing. Average BDC net debt to net asset value increased to 0.86x. BDCs near or above 1x appear comfortable adding debt; those materially below 1x are staying conservative. Traded BDCs run higher leverage than private/nontraded peers but are tapping debt markets less frequently. Summary This article is a bottoms-up analysis of the business development company, or BDC, sector, covering more than 150 BDCs, which, combined, have almost $500 billion of mostly sponsor-backed private credit investments. BDCs analyzed include funds that have both private and public equities. Octus’ analysis focuses[...]