Key Takeaways
- • Valuation discrepancies across US private credit portfolios widened, with 12.3% of borrowers held by two or more business development companies (BDCs) showing loan valuations differing by at least five percentage points as of June 30, up from 9.3% a year earlier, according to research from the Frankfurt School of Finance & Management reported by Bloomberg.
- • Roughly one in 10 private credit loans held by BDCs was valued below 90% of face value, versus 7.7% a year earlier, signaling growing pressure on borrower credit quality.
- • The analysis draws on regulatory filings submitted to the US Securities and Exchange Commission, providing a verifiable basis for the marks under review.
- • Study co-author Sascha Steffen warned that widening valuation gaps could point to underlying financial deterioration and that private credit markdowns tend to surface more slowly than in public debt markets.
- • The findings intensify scrutiny of valuation transparency in private credit, where managers exercise significant discretion over marks that influence reported net asset values and management fees.
Summary
Valuation discrepancies across US private credit portfolios are widening, according to a report by Bloomberg citing research from the Frankfurt School of Finance & Management. The study found that 12.3% of borrowers held by two or more business development companies had loan valuations differing by at least five percentage points as of June 30, up from 9.3% a year earlier. The analysis was based on regulatory filings submitted to the US Securities and Exchange Commission.
The research also identified a rise in distressed-looking marks. Approximately one in 10 private credit loans held by BDCs was valued below 90% of face value, compared with 7.7% a year earlier. The researchers characterized this as evidence of growing pressure on borrower credit quality.
Sascha Steffen, an author of the study, said that widening valuation differences could indicate underlying financial deterioration. He cautioned that markdowns in private credit often emerge more slowly than in publicly traded debt markets, which can delay recognition of credit problems in reported values.
The findings highlight mounting concerns over valuation transparency in private credit. Managers exercise significant discretion over portfolio marks, and reported net asset values influence management fees, giving the valuation process an added dimension of scrutiny for allocators and fund investors.
The research also identified a rise in distressed-looking marks. Approximately one in 10 private credit loans held by BDCs was valued below 90% of face value, compared with 7.7% a year earlier. The researchers characterized this as evidence of growing pressure on borrower credit quality.
Sascha Steffen, an author of the study, said that widening valuation differences could indicate underlying financial deterioration. He cautioned that markdowns in private credit often emerge more slowly than in publicly traded debt markets, which can delay recognition of credit problems in reported values.
The findings highlight mounting concerns over valuation transparency in private credit. Managers exercise significant discretion over portfolio marks, and reported net asset values influence management fees, giving the valuation process an added dimension of scrutiny for allocators and fund investors.
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