Bond.az – Fitch Ratings has revised its ratings outlook for Goldman Sachs BDC Inc (NYSE:GSBD) to negative from stable, citing an elevated risk profile and a shrinking asset coverage cushion.
While the credit ratings agency affirmed the BDC's current lower-investment-grade rating, it warned of a potential downgrade if the fund fails to bolster its balance sheet buffers.
The outlook revision follows the fund’s first-quarter earnings report on May 8, which disclosed a sharp uptick in credit stress. The BDC's non-accrual rate surged to 4.7% at amortized cost, up from 2.8% in the preceding quarter.
Fitch analysts highlighted that 10% of the fund’s first-quarter interest and dividend income came from payment-in-kind (PIK) structures, which allow stressed borrowers to defer cash payments by adding interest to the principal loan balance.
"Fitch believes the asset coverage cushion is low given GSBD’s elevated risk profile," the agency noted, adding that “this elevated exposure could increase the risk of realized losses if portfolio companies ultimately default.”
The agency also attributed an increase in the fund’s leverage ratio during the quarter to unrealized write-downs across its middle-market loan portfolio.
Broadly, the sector has faced tightening scrutiny as rapid advancements in AI disrupt traditional software business models. Goldman Sachs minimized systemic impact, noting that the vehicle accounts for just over 1.5% of GSAM's total private credit AUM.
Management emphasized that 58% of current loans were originated under the modern management team that took over in March 2022. Vivek Bantwal, global co-head of private credit, said the remaining 42% represent “older positions that reflect the majority of current credit volatility,” accounting for over 99.5% of total non-accruals at cost. Internal workout teams are deeply engaged to maximize recovery.
