By Patturaja Murugaboopathy and Gaurav Dogra
Sept 2 (Reuters) – U.S. private-credit portfolio values showed signs of stabilising in the second quarter after a broad deterioration early in the year, even as lenders marked down select software loans and reported a rise in debt that has stopped generating income.
Private credit has come under sharper scrutiny this year as investors questioned opaque valuations, redemption pressure emerged at some non-traded funds and concerns grew over software exposure and weakening borrower performance.
A Reuters analysis of regulatory filings from 44 U.S. business development companies, which lend mainly to small- and medium-sized firms, showed portfolio values moved further below reported cost in the first half of 2026 as market spreads widened and stress emerged among some borrowers, particularly in the software sector.
While most broad markdowns occurred in the first quarter, second-quarter losses at several prominent BDCs were concentrated in a relatively small number of borrowers.
“What we are seeing is largely a repricing,” said Sitara Sundar, J.P. Morgan Private Bank’s head of alternative investment strategy, pointing to weaker deal flow, redemption pressure at non-traded funds, softer sentiment, concerns over AI-driven software disruption and near-term debt maturities.
The 44 BDCs had investments with a combined fair value of $92.88 billion on June 30, compared to $95.19 billion of reported cost or amortized cost. At the end of 2025, fair value was $95.82 billion against a cost of $96.54 billion.
The analysis covers total reported investment portfolios, including debt and equity.
The aggregate fair-value-to-cost ratio fell to 97.77% in the first quarter from 99.25% at end-December, and eased further to 97.57% in the second quarter.
Chris Cessna, a managing director at Houlihan Lokey’s Portfolio Valuation and Fund Advisory Services, said the 168-basis-point fall over the first half of the year was materially larger than typically observed.
“In stressed loans, weaker borrower fundamentals are contributing to lower marks,” he said.
SOFTWARE LOANS WRITTEN DOWN
Data cited by Cessna showed BDCs had written down 81% of software loans this year, compared with 40% outside of the sector. About 4% of all borrowers had loans marked below 80% of par, up from around 1% from 2023 through 2025.
Clay Montgomery, a vice president in Moody’s Ratings’ financial institutions group, said a relatively narrow group of investments accounted for an outsized share of unrealized losses at several prominent BDCs.
Blue Owl Capital Corp. said its second-quarter net asset value decline was driven primarily by one credit-specific markdown, whereas in the first quarter roughly three-quarters of the decline reflected a broader widening of spreads.
At Ares Capital Corp., two software companies accounted for just over a third of year-to-date net unrealized losses of $527 million, according to a filing, rising to more than half when considering a further five software companies.
At Golub Capital BDC, losses were concentrated in a small number of junior debt and equity positions, while FS KKR Capital Corp. also said a handful of investments accounted for a substantial majority of its markdowns.
Across 10 BDCs for which Reuters reviewed comparable filings, non-accrual investments – where borrowers are significantly behind with payments or considered unlikely to pay – rose to about 3.4% of portfolio cost at the end of June from 2.5% at the end of 2025.
(Reporting By Patturaja Murugaboopathy; Editing by Kirsten Donovan)
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