BDC Q2’26 Review: Redemptions Exceed Gross Equity Capital Raised; Funds Increased Borrowings Slightly and Relied on Cash Stockpiles; Net Lending Activity Declined; Public BDCs Reduced Net Leverage

Credit Research: Mark Fischer Relevant Documents: Octus’ BDC Database Link to Financial Summary by BDC for Q2’26   Key Takeaways   Business development companies experienced a $1.3 billion outflow of capital in the second quarter as redemptions exceeded gross equity raised. Redemptions across all BDCs increased to $8.6 billion in the second quarter, exceeding gross equity raised, which totaled $5.2 billion, down by more than 50% sequentially. Redemptions were greatest among funds managing more than $5 billion of assets, funds focused on the upper middle market as measured by borrower EBITDA, and funds with higher than average software exposure.   Funds relied on debt, which increased slightly, and cash stockpiles lifting leverage to 0.91x, up from 0.89x across all BDCs. Publicly traded BDCs’ net leverage declined to 1.09x from 1.13x. A number of BDCs discussed keeping leverage below targeted ranges and funds paid down debt during the second quarter.   Following cuts to dividends announced in the first quarter, BDCs improved cash flow during the second quarter. More than half of BDCs generated cash from existing portfolio investments that exceeded dividends paid for the first time since Octus began tracking.   This article is a bottoms-up analysis of the business[...]