Moody’s Ratings has changed its outlook for the business development company (BDC) sector from stable to negative, as the funds face increasing redemption pressure.
The ratings agency said the revised outlook reflects rising redemption requests at perpetual non-traded (PNT) BDCs, elevated leverage at publicly traded BDCs, and weakening access to unsecured debt and equity markets.
However, Moody’s said that while the sector outlook has shifted, its ratings outlooks on individual BDCs remain predominantly stable. This is due to the continued emphasis on first-lien, senior secured lending, as well as generally adequate liquidity and laddered maturities.
Across the entire BDC sector, which has total assets of around $400bn (£302bn), Moody’s said that despite strong net inflows throughout 2025, the sector has recorded its first-ever net outflow in early 2026. Many PNTs have reported quarterly redemption requests exceeding seven to 10 per cent of shares outstanding, with one rated BDC seeing requests above 20 per cent.
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The news comes as shareholders in Blue Owl Credit Income Corp asked to withdraw 21.9 per cent of shares in the three months to 31 March. Meanwhile, investors in the smaller Blue Owl Technology Income Corp sought to redeem 40.7 per cent of shares last week.
Across the sector, many BDCs have experienced redemption requests exceeding the typical five per cent quarterly tender offer limit in recent months, with managers responding to the requests in different ways. Many of the concerns around BDCs relate to their relatively high exposure to software companies and the potential impact of artificial intelligence (AI) on the sector.
Moody’s research found that software is the largest sector exposure for BDCs, accounting for roughly 25 per cent of portfolios on a median basis. The agency flagged AI as a developing credit risk for software borrowers, noting it could erode competitive positioning and margins over time.
“Asset quality metrics have so far remained largely benign, and software loan maturities do not increase more meaningfully until 2028–2029, suggesting AI risk will be a sentiment and monitoring issue in the near term rather than an immediate ratings driver,” said Moody’s.
