Business development companies (BDCs) saw a slight increase in payment-in-kind (PIK) paying loans in the fourth quarter of 2024, reversing a decline in the third quarter of the year.
Meanwhile, BDCs’ investments in collateralised loan obligations (CLOs) are also increasing, a new report from S&P Global Ratings shows.
Read more: BDCs represent ‘ideal vehicle’ for private credit exposure
The total value of loans within BDC portfolios making PIK payments rose to $44.63bn (£33.2bn) in the fourth quarter of 2024 from $33.81bn in the last quarter of 2023, the report said.
“While the aggregate fair value rose considerably during the year, this reflected the overall growth of BDC assets. As a per cent of loan assets, PIK-paying loans remain below the fourth-quarter 2023 level of 11.43 per cent,” it added.
“With economic growth expected to slow, uncertainty regarding trade, and the potential for more volatility in capital markets, we expect the prevalence to PIK payments to continue to rise over the next few quarters.”
Read more: Private credit default rate falls for second consecutive quarter
It added that the growth in BDCs in recent years has “coincided with record issuance volumes for middle-market CLOs in 2023 and 2024”, with the vehicles “increasingly intertwined”.
“CLO holdings within the portfolios of BDCs have trended upwards over the last few years and now make up 1.6 per cent of assets, representing just under $8bn in fair value.
“Between the increasing asset holdings of PIK loans and CLOs, and the growth of nontraded and perpetual funds, the landscape of BDCs is evolving.”
Read more: Most compelling investments ‘no longer on public markets’
