By Patturaja Murugaboopathy
May 12 (Reuters) - Some private credit funds marked the values of their investments significantly lower in the first quarter, their filings show, highlighting the pressure they face as artificial intelligence upends business models and projections for small businesses.
A Reuters review of filings by 14 major business development companies (BDCs), which mainly finance private loans to mid-sized companies, showed the aggregate fair value-to-cost ratio fell 103 basis points
to 98.55% at the end of March.
The investments were marked at about $1.2 billion below amortized cost in total, BDC filings reviewed by Reuters showed, compared with a much narrower discount at the end of December.
Some BDC managers said during quarterly earnings calls that much of the decline reflected market-wide spread-widening rather than borrower-specific stress.
CION Investment Corp's fair value-to-cost ratio fell 176 basis points to 91.59% from 93.35%, while Ares Capital Corp's declined 131 basis points to 99.50%.
Ratios at Blackstone Secured Lending Fund dropped 122 basis points to 97.52%, and Goldman Sachs BDC Inc fell 119 basis points to 94.88%.
The lower marks also coincided with declines in net asset values. BlackRock TCP Capital Corp's NAV fell 4.95% to $6.72 from $7.07, CION's dropped 4.72% to $13.11, and Sixth Street Specialty Lending Inc's declined 4.36% to $16.24.
Goldman Sachs BDC fell 3.72% to $12.17, while Blue Owl Capital Corp dropped 2.70% to $14.41.
The markdowns come as private credit faces its sharpest scrutiny in years, with analysts and rating agencies warning that weaker borrowers, rising non-accruals and redemption pressure are testing a market that expanded rapidly.
Moody's recently cut its outlook for the BDC sector to negative, while Fitch said redemptions at perpetually non-traded BDCs climbed to 3.8% of prior-quarter NAV in the first quarter.
At FS KKR Capital Corp, its adviser KKR plans a $300 million support package after mounting losses, a sharp NAV decline and higher non-accruals.
Meanwhile, Ares Capital said on its earnings call that most of its marks were market-driven, while Goldman Sachs BDC attributed part of its NAV decline to broader spread widening and said newer loans were performing well.
MSCI said in a report on Tuesday that private-credit funds have marked down more than 10% of their loans by at least half, as corporate borrowers in the $3.5 trillion market struggle with higher debt burdens.
MSCI said loans valued at less than 50% are typically associated with deep distress or restructuring risk.
(Reporting by Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Alexander Smith)
