Blog Post
Cash-burning BDCs trigger concerns over climbing default rates as BlackRock TCP Capital writes down equity value
Mark Fischer, Head of Financial Research, Americas
As private credit lending grows and more vehicles are created to finance growing demand for the asset class, the economics will have to adapt. According to an analysis of approximately 160 business development companies, or BDCs–one of the biggest growth engines in private credit–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.
BDCs, which own about a quarter of all sponsor-backed direct loans, paid out dividends to equity holders at a rate of approximately 9%. But with yields coming down and cheap Covid-era debt refinancing at higher rates, many BDCs are having trouble covering those promised payouts. While PIK rates held steady in our analysis, 11% of reported income is non-cash. Adding to those concerns, nonaccrual rates ticked higher in the third quarter, suggesting that default rates could continue to climb…
Potentially signalling growing stress in private credit, BlackRock TCP Capital Corp last week reported writing down the value of their equity by 19% sequentially due to an average drop of 81% of reported fair value in six investments. As a sign of continued mistrust in the fair value marks, BlackRock TCP’s public equity trades at just 75% of adjusted book value.
To bridge this shortfall, cash burning BDCs will either cut their dividends, limiting a significant source of capital to make new loans, sell investments, or raise new capital to try and grow into their dividends.
Surprisingly, a number of BDCs during third quarter calls suggested the latter.
BDCs have increased their debt-to-equity leverage to 0.86x since the beginning of 2025, which remains comfortably within regulatory guidelines. Funds are expected to continue this trend, building upon the net $60 billion in additional debt raised last year, a strategy driven by the need to both expand investment portfolios and satisfy investor expectations.
This publication has been prepared by Octus Intelligence, Inc. or one of its affiliates (collectively, "Octus") and is being provided to the recipient in connection with a subscription to one or more Octus products. Recipient’s use of the Octus platform is subject to Octus Terms of Use or the user agreement pursuant to which the recipient has access to the platform (the “Applicable Terms”). The recipient of this publication may not redistribute or republish any portion of the information contained herein other than with Octus express written consent or in accordance with the Applicable Terms. The information in this publication is for general informational purposes only and should not be construed as legal, investment, accounting or other professional advice on any subject matter or as a substitute for such advice. The recipient of this publication must comply with all applicable laws, including laws regarding the purchase and sale of securities. Octus obtains information from a wide variety of sources, which it believes to be reliable, but Octus does not make any representation, warranty, or certification as to the materiality or public availability of the information in this publication or that such information is accurate, complete, comprehensive or fit for a particular purpose. Recipients must make their own decisions about investment strategies or securities mentioned in this publication. Octus and its officers, directors, partners and employees expressly disclaim all liability relating to or arising from actions taken or not taken based on any or all of the information contained in this publication. © 2026 Octus. All rights reserved. Octus(TM) and the Octus logo are trademarks of Octus Intelligence, Inc.