Shares of private credit business development companies (BDCs) are currently trading at their widest discounts to net asset value in more than five years, reflecting growing investor caution over valuation accuracy and sector risk, according to a report by Reuters citing LSEG data.
The median price-to-forward 12-month NAV ratio for listed BDCs stood at around 0.74 at the end of March, implying a discount of roughly 26% – the steepest gap since October 2020. The data suggests rising scepticism around how accurately reported valuations reflect underlying credit conditions in the private lending market.
BDCs, which provide loans to privately held companies and form a key part of the private credit ecosystem, typically offer relatively high yields but come with elevated credit and liquidity risk. Their NAVs are based on internal valuation models and fair-value estimates rather than market pricing, which can delay the reflection of stress in underlying portfolios.
Market participants have raised concerns that these valuation methods may not fully capture emerging weaknesses in certain parts of the sector, particularly as exposure to software and technology-linked borrowers comes under greater scrutiny amid concerns about artificial intelligence-driven disruption.
Moody’s Ratings noted that listed BDCs with significant software exposure have seen their share prices fall well below NAV, limiting their ability to raise new equity and reducing financial flexibility.
Liquidity pressures have also become more visible in parts of the non-traded BDC market. Barings Private Credit Corp., for example, recently saw strong demand in a tender offer, with redemption requests exceeding the amount available, highlighting constrained exit capacity for investors.
Analysts say such dynamics underscore structural liquidity mismatches in private credit vehicles, where investors exiting at NAVs that may not reflect market stress can shift potential losses to remaining holders.
