It’s time for private credit’s spring cleaning
Business development companies face the perils of trying to set valuation marks amid market turmoil
Does hope spring eternal? For those who think that the private credit meltdown may have gone too far, April presents an interesting moment. The publicly traded version of these lenders, known as business development companies, will soon be releasing their updated “marks” — or the value that they ascribe to their loan books — as of March 31.
Investors have little faith in the old ones. A recent analysis from Moody’s shows that 16 out of 20 BDCs trade at discounts to their net asset value as of the end of 2025. It may be just a timing issue, in which case NAVs will soon be marked down sharply. Alternatively, the sell-off could be overdone, allowing investors to buy in cheaply and capitalise on the overcorrection.
NAV discounts are a serious problem for listed BDCs as they in effect prevent them from selling new shares. No one would buy fresh equity at the value on the books when they could simply acquire shares in the market at a discount.
That’s one reason why asset managers have turned to the private BDC structure. Investors in vehicles such as Blackstone’s $70bn BCRED fund both buy in and sell at NAV, with the sponsor funding those sale transactions.
Moody’s calculates that 60 per cent of total private credit assets are tied up in private vehicles, which come with considerable advantages for the managers themselves. New inflows can be used to meet redemptions and make more loans. And there is no quirky disconnect between trading values and NAV as seen in public BDCs.
But the trouble, there, is that redemptions are limited to 5 per cent per quarter, typically. And investors appear no more confident on private vehicle marks than they are on those of publicly listed ones, as redemption requests of more than $20bn in the most recent quarter suggest. Only a fraction of those were honoured.
Efforts to offer investors in private BDCs liquidity have involved asking them to take a haircut on the mooted asset value. That was what sunk Blue Owl’s attempt to merge a private BDC with its public counterpart. Most recently, hedge fund manager Boaz Weinstein offered to purchase shares in the private Blue Owl BDCs that had restricted redemptions at discounts of 20 to 35 per cent. The choice, for holders, was to wait for their requests to be met by Blue Owl itself at par at a future date, or settle for a lesser amount today.
Jitters in the sector are understandable. Software companies are facing high leverage and AI obsolescence. Deals from a low interest rate era may not survive a stricter environment. Public and private BDCs each will face the perils of trying to set valuation marks amid this turmoil. Grabbing a bird in hand may be tempting when it’s hard to say what is waiting in the bush, a dilemma confronting shareholders in each type of BDC.