Bond.az analysis shows bond investors are assigning diverse risk premiums to U.S. private credit firms, with smaller lenders being priced at greater risk and wider spreads.
The split highlights growing selectivity in a market facing rising borrower stress after years of elevated interest rates.
Business development companies (BDCs), which lend mainly to middle-market companies and fund themselves in public bond markets, are judged increasingly on portfolio quality, scale and access to capital.
BCP Investment Corp had the highest weighted average option-adjusted spreads (OAS) at 680 basis points, followed by Prospect Capital Corp at 449 bps, Trinity Capital Inc at 403 bps and Fidus Investment Corp at 392 bps, according to LSEG data.
Larger names including Ares Capital Corp, Blackstone Secured Lending Fund, Blue Owl Capital Corp and Golub Capital BDC had spreads clustered between roughly 150 bps and 200 bps.
The divide in spreads has widened this year, with investors starting to differentiate BDCs more exposed to AI disruption in software-as-a-service (SaaS) companies.
"There’s dispersion in BDC equity, but it’s still limited in BDC bonds given strong demand for carry in this environment," said Aditya Aney, co-founder of Andromeda Capital Management in London. "However, we think this will change over the coming months."
The analysis reviewed 884 bonds issued by 41 BDCs. Trinity Capital's weighted average OAS widened 140 bps, Fidus by 92 bps, and Prospect Capital by 85 bps.
Fitch Ratings reported the default rate among U.S. private-credit borrowers hit 6% in the 12 months through April, the highest since tracking began in August 2024.
