Private Debt News Weekly Issue #71: BDC Collapse, Dispersion Warnings, and the Coming Shakeout

Dividend cuts hit flagship funds while Goldman predicts "very significant" performance divergence for the first time since the financial crisis

Follow me on Twitter. Interested in sponsoring Private Debt News? Discounted rates available for early sponsors—get in touch here or via e-mail.

---

The BDC rout is accelerating and it’s no longer isolated. Blackstone’s $75 billion Private Credit Fund cut its dividend for the first time ever, reducing payouts by 9% as Fed rate cuts hammer floating-rate portfolios. Blue Owl Capital dropped 19% year-to-date, Blackstone Secured Lending fell 21%, and Ares Capital declined 12%, according to Bloomberg data.

The median BDC now trades at approximately 80% of net asset value with dividend coverage hovering at 105% across 32 rated funds, according to Fitch Ratings. Oaktree and Golub already cut distributions by roughly 10% and 15% respectively, with more reductions expected as the Fed’s cutting cycle continues.

Goldman Sachs Asset Management’s James Reynolds warned that “very significant” performance dispersion will emerge across private credit managers for the first time since the global financial crisis. According to Reynolds, underperforming platforms will struggle to raise capital and face difficult explanations for “mistakes made in previous portfolios.”

Meanwhile, Aegon’s $380 billion leveraged finance head Jim Schaeffer said he’s “bracing for a little more trouble ahead” as companies hit walls after years of elevated debt payments, tariffs, and input cost pressures. According to Schaeffer, “I am more concerned about restructuring activity, recessionary market conditions, than I was 12 months ago.”

Yet contradictions persist. Credit secondaries exceeded $12 billion in 2024 and are projected to surpass $14 billion in 2025, with Coller raising a $6.8 billion fund. CVC is refinancing WebPros by moving $1 billion from leveraged loans into private credit at 525 basis points over SOFR, a rare reversal of typical deal flow. And Barron’s argues BDCs yielding 10%+ at 20% discounts represent attractive entry points.

---

Key Market Themes

1. BDC Crisis Accelerates Across Market

Business development companies are experiencing their worst selloff in years as Fed rate cuts and credit concerns combine to hammer valuations. According to Bloomberg data, Blue Owl Capital Corp fell 19% year-to-date, Blackstone Secured Lending dropped 21%, and Ares Capital declined 12%, significantly underperforming the S&P 500.

Blackstone’s $75 billion Private Credit Fund cut its dividend by approximately 9% to 20 cents per share, marking the first reduction in the vehicle’s history. According to Chelsea Richardson of Fitch Ratings, the cut appeared based on “market and rate-related predictions, rather than credit issues in the portfolio.”

Oaktree Strategic Credit Fund reduced its dividend by roughly 10% to 18 cents per share at September’s end, while Golub Capital Private Credit Fund lowered payouts by approximately 15% to near 19 cents, according to fund disclosures. More cuts are expected across the industry.

Structural Pressure

According to Fitch’s analysis, dividend coverage across 32 rated BDCs hovers at approximately 105%, meaning funds risk paying out more than they earn if coverage falls below 100%. Mike Petro of Putnam Investments forecasts a further 75 basis point rate reduction would result in an 8.5% average dividend cut from peak levels.

2. Goldman Warns of Historic Performance Dispersion

James Reynolds, Goldman Sachs Asset Management’s global co-head of private credit, warned that “very significant” dispersion will emerge between private credit managers for the first time since the global financial crisis. According to Reynolds’s Bloomberg TV interview, navigating the current environment proves difficult for managers lacking prior cycle experience.

Underperforming platforms will struggle to raise funds from investors, according to Reynolds’s assessment. Some managers will find it “more challenging to explain some of the mistakes made in previous portfolios” when seeking new capital commitments.

Despite the warnings, Reynolds remains constructive about private markets overall, highlighting the importance of discipline in underwriting and credit selection. According to Goldman Sachs Asset Management’s website, the private credit division has invested $215 billion.

Manager Separation

The performance divergence warning suggests the industry’s growth phase is ending and a quality-based shakeout is beginning. According to market observers, managers with strong underwriting and vintage portfolios will separate from those who deployed capital indiscriminately during 2021-2022.

3. Credit Deterioration Concerns Mount

Jim Schaeffer, Aegon Asset Management’s global head of leveraged finance, stated he’s “bracing for a little more trouble ahead” as the US economy slows and earnings suffer. According to Schaeffer’s Bloomberg Intelligence Credit Edge podcast appearance, “we’re starting to see more and more companies just hitting a wall.”

Schaeffer is focused on third quarter earnings starting next week, watching for revenue deterioration, guidance revisions, input cost management, and debt refinancing plans. According to the three-decade industry veteran, “I am more concerned about restructuring activity, recessionary market conditions, than I was 12 months ago.”

Companies are failing after years of elevated debt payments, pressured by tariffs and higher input costs, according to Schaeffer’s analysis. US courts saw 142 large bankruptcy filings in the year to October 4, up from 133 during the corresponding period last year, according to Bloomberg data.

Private Credit Concerns

According to Schaeffer, “I worry about private credit because we don’t exactly know all the underlying default risk in there.” The portfolio manager focusing on publicly traded bonds and loans noted that “anytime you see money move in scale and excess in any area, it usually is going to create some problem.”

4. Credit Secondaries Market Surges

Credit secondary transactions exceeded $12 billion in 2024, up from approximately $9.8 billion in 2023 and just $7 billion in 2022, according to Campbell Lutyens reporting. Deal volume is projected to top $14 billion in 2025, with expectations for continued growth into at least early 2026.

According to WSJ Pro’s Guide to the Secondary Market Buyer Survey, 39% of 2025 respondents backed a credit secondary deal in the past year, up from 30% of prior year respondents. The growth reflects muted exit activity, liquidity constraints, and institutional investors looking to rebalance holdings.

GP-led deal volume is projected to exceed LP transactions for the first time in 2025, according to Campbell Lutyens analysis. Coller Capital raised $6.8 billion for its latest private credit secondary offering, more than four times the $1.4 billion raised in 2022, while Pantheon closed $5.2 billion for credit secondaries.

Market Maturation

According to Martins Marnauza of Coller Capital, “there is always a lag between primary market scaling and secondary flow.” Most secondary activity involves direct lending assets rather than distressed or special situations because the primary market is larger and discounts are narrower.

5. WebPros Reverses Typical Deal Flow

CVC Capital Partners is negotiating with private credit lenders to finance a dividend recapitalization of Swiss software business WebPros, seeking to raise approximately $1 billion through a unitranche loan priced at about 525 basis points over SOFR, according to people familiar with the matter.

The prospective debt would refinance a $540 million leveraged loan WebPros issued in 2024, according to Bloomberg data. According to market sources, the deal would allow CVC to extract cash through a dividend while marking a rare instance where a business moves from leveraged loans into private credit.

Typically traffic flows the opposite direction as companies with private credit grow and seek tighter pricing in broadly syndicated markets. The debt is expected to include a portability clause allowing it to remain in place if CVC sells the company, according to people familiar with the transaction.

Competitive Dynamics

The reversal suggests private credit is winning some deals on structural terms rather than just pricing, particularly when sponsors value certainty and flexibility over minimizing cost. According to market participants, portability provisions and relationship continuity can outweigh spread differences.

6. Contrarian Investment Case Emerges

Barron’s analyst Andrew Bary argued that BDCs now offer compelling value with yields exceeding 10% and many trading at significant discounts to net asset value. According to the analysis, the median BDC trades at a 20% discount to June 30 portfolio values.

According to Accelerate CEO Julian Klymochko, BDCs have delivered strong returns historically when discounts reached 20%, averaging 40% gains over the following year. The VanEck BDC Income ETF fell 15% since mid-September to under $14, yielding almost 12%, while FS KKR yields 19.5%.

Blue Owl executives expressed surprise at trading levels, with co-president Craig Packer stating “we are surprised by the trading levels” given strong credit and dividend performance. According to Jonathan Lamm, Blue Owl BDCs CFO, “the only reason that the sector should be trading off like this is if there is a massive amount of credit defaults coming, which we see no evidence of.”

Risk Assessment

According to the contrarian view, BDC selloffs reflect rate cut expectations and sentiment shifts rather than fundamental credit deterioration. However, according to KBW analyst Paul Johnson, “only a handful of BDCs will not have to reduce dividends over the next year” given lower rates and tighter spreads.

7. Technology Exposure Concerns Build

Market participants are increasingly worried about private credit’s exposure to software companies potentially disrupted by artificial intelligence. According to the Cliffwater Direct Lending Index, technology accounts for approximately 23% of middle-market private loans in the US.

The concern intensifies given rising payment-in-kind deferrals in BDC portfolios as companies defer cash interest payments. According to market observers, software businesses face particular vulnerability to AI disruption while carrying elevated leverage from 2021-2022 vintage deals.

Blue Owl Technology Finance Corp, focused specifically on tech lending, trades at $13.68 with a 15%+ discount to net asset value and yields 10.2%, according to Barron’s analysis. The fund was converted from a private vehicle earlier this year.

Sector Concentration

According to industry data, private credit’s heavy technology weighting creates concentrated risk if AI disruption accelerates or software valuations compress. The 23% sector exposure represents significant portfolio concentration relative to broader credit markets.

Deals of Note

• Blackstone BCRED - First-ever dividend cut of 9% to 20 cents per share

• Credit Secondaries - $14B+ projected 2025 volume, up from $12B in 2024

• Coller Capital - $6.8B credit secondaries fund, 4x larger than 2022 predecessor

• WebPros - $1B unitranche refinancing from leveraged loans at 525bps over SOFR

• JTC Take-Private - £1.3B private credit package under consideration

Forward Outlook

• BDC dividends face continued pressure as Fed cutting cycle progresses

• Performance dispersion accelerates between experienced and inexperienced managers

• Credit deterioration concerns mount as companies face elevated debt burdens

• Secondaries volume continues growing as liquidity constraints persist

• Technology exposure faces increasing scrutiny amid AI disruption concerns

• Contrarian opportunities emerge at 20% NAV discounts and 10%+ yields

• Manager fundraising divergence widens between top performers and strugglers

Final Takeaway

BDCs are collapsing for a reason. Blackstone’s $75 billion flagship cutting dividends for the first time ever isn’t noise, it’s structure. Fed rate cuts are hammering floating-rate portfolios while dividend coverage at 105% leaves zero margin for error. The median BDC trading at 80% of NAV reflects market skepticism about reported valuations.

Goldman’s warning about “very significant” dispersion coming for the first time since the financial crisis confirms what fundraising data already showed: the winners-take-all dynamic is accelerating. Top performers close in 14 months while others struggle past 25 months. Underperformers will face impossible explanations for 2021-2022 vintage mistakes.

Aegon’s $380 billion leveraged finance chief “bracing for trouble ahead” after seeing companies “hit walls” suggests credit deterioration is real, not imagined. 142 large bankruptcies year-to-date versus 133 last year indicates stress is building, not stabilizing.

Yet credit secondaries hit $14 billion in 2025 with Coller raising $6.8 billion and Pantheon deploying $3.5 billion already. GP-led deals are exceeding LP transactions for the first time, suggesting managers are engineering liquidity rather than waiting for fundamentals to improve. The $1 billion WebPros deal moving from leveraged loans into private credit at 525 basis points shows flexibility still attracts capital despite pricing pressure.

The contrarian case has merit at 20% NAV discounts and 10%+ yields, but only if reported valuations are honest and credit performance holds. According to market skeptics, neither assumption is safe. The 19.5% yield on FS KKR reflects market doubts about both asset quality and distribution sustainability.

Private credit’s reckoning isn’t coming anymore. It’s here. BDC price action, dividend cuts, and dispersion warnings all point the same direction. The question isn’t whether performance will diverge, but whether reported NAVs will adjust to reality before investors demand liquidity that doesn’t exist.