Fitch Ratings has revised its outlook on Goldman Sachs BDC, the bank's private credit fund, to negative, the agency said on Friday.
In its post-market announcement, Fitch maintained the current lower-investment grade rating but warned of a possible downgrade if the fund fails to increase its asset cushion.
"Fitch believes the asset coverage cushion is low given GSBD's elevated risk profile as evidenced by recent credit deterioration in the portfolio," Fitch analysts wrote.
Investors are closely watching Goldman Sachs BDC and other business development companies (BDCs) as AI advances threaten software companies in their portfolios.
Goldman Sachs BDC's non-accrual rate rose to 4.7% in Q1 from 2.8% in the prior quarter, the fund reported on May 8.
About 10% of its Q1 interest and dividend income came from payment-in-kind, increasing default risk, Fitch noted.
Goldman Sachs highlighted that GS BDC represents just over 1.5% of its total private credit AUM. The fund's 58% of loans originated since March 2022, while 42% are older positions with higher credit volatility.
Fitch noted increased leverage in Q1 due to unrealized write-downs.
