Fitch Ratings says US BDC sector outlook 'deteriorating'

By Matt Tracy

WASHINGTON, April 22 (Reuters) - U.S. private credit lenders known as business development companies, or BDCs, face a "deteriorating" outlook at the same time as elevated investor redemptions and above-average troubled loans could constrain liquidity of some BDCs, credit rating agency Fitch Ratings said in a report on Wednesday.

* Perpetually non-traded BDCs will likely underwrite fewer deals due to lower cash inflows and elevated investor redemptions, after driving origination activity in 2025, it said.

* All Fitch-rated BDCs would meet asset coverage requirements if their software investments were written down by 25%, according to the report. Just 31 BDCs would do so in the event of a 50% markdown in software loans.

* Elevated investor redemptions will increase leverage for perpetually non-traded BDCs this year, but BDCs have asset coverage cushions to absorb quarterly redemptions up to 5% of net asset values, the report noted. (Reporting by Matt Tracy in Washington; Editing by Will Dunham)