Blog Post
As Investors to Private Credit Funds Limit Funding, Lenders Choose Between Making New Investments vs Saving Existing Investments
Private credit’s business development company (BDC) sector is facing hard choices about how to deploy capital.
For the first time since we began tracking the sector, equity outflows exceeded inflows. BDCs shed a net $1.3 billion of equity capital in the second quarter as redemptions outpaced gross equity raised, and new debt and cash filled the gap. Lenders also moved cautiously on portfolio activity weighing where they would invest their next dollar, as cash from principal repayments and maturities exceeded new investments in the quarter.
The slowdown has at least steadied pricing. Several BDCs reported new loan yields roughly 50 basis points wider than 2025 tights.
But pressure is building in existing portfolios. Alongside lower capital inflows and softer deal activity, defaults are rising, though still muted. We use nonaccrual activity as a proxy: adjusted nonaccruals represented 3.74% of BDC assets at cost at the end of the second quarter. In the first half of 2026, a growing share came from the upper middle market, while core and lower middle market categories held steady.
Medallia, Affordable Care, Dental Care Alliance and Curia Global drove the first half increase, and each needed fresh capital from lenders to restructure: $150 million for Medallia, $75 million for Affordable Care and $95 million for Dental Care Alliance. Whether other large borrowers follow is an open question. If they do, lenders face a simple but unwelcome choice: rescue an existing asset or fund a new one.
BDCs do have other levers if redemptions keep outrunning new equity, but each carries a cost. Debt funding rose slightly in the second quarter, lifting industry leverage to 0.91x. Octus has also reported increased secondary trading of individual loans, though many trades have cleared in performing loans near par, which risks concentrating weaker credits in what’s left behind. BlackRock TCP’s sale to Pantheon covered a significant portion of its portfolio; the assets remaining afterward ranked more junior than before.
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