US Private Credit BDCs See Deepened Unrealized Losses to Worst Level Since 2022
Miles Bennett
Unrealized losses across 51 BDCs hit 2.35% of NAV in Q1 — the worst single-quarter drop since mid-2022 — as private credit enters what one researcher calls its first real credit cycle since the financial crisis.
How bad is "worst since 2022," exactly?
Reuters analyzed 51 business development companies — listed funds that lend to mid-market firms. In Q1, their combined unrealized losses reached 2.35% of net asset value.
This means → the loans these funds hold are losing value collectively, at the deepest single-quarter pace in nearly four years.
In plain terms = the money hasn't been lost yet, but the market is already marking these loans down.
Which firms took the biggest hits?
Investcorp Credit Management BDC (ICMB) posted unrealized losses of 16.8% of NAV — nearly one-sixth of its book value written down.
FS KKR Capital (FSK) came in at 6.7%; Blue Owl Technology Finance (OTF) at 6.5% — both well above the industry average.
This reflects concentrated positions or high-leverage deals now surfacing as risk.
PIK interest — what's the danger in "paying without cash"?
PIK — payment-in-kind interest, where borrowers add owed cash interest onto their debt balance instead of paying it — totaled roughly $477 million in Q1, up 2% quarter-on-quarter.
That's below the $633 million peak in early 2025, but still elevated. Ares Capital (ARCC) recorded $54 million, FSK recorded $38 million, Blue Owl Capital recorded $31.5 million.
Put simply = borrowers are saying "I'll owe you the interest instead of paying it now." The income statement looks fine; the cash register does not.
Why did Fitch issue a liquidity warning?
Fitch warned that rising exposure to PIK-option loans could pressure BDC liquidity if cash earnings fall short of dividend payments.
This means → a growing share of the "interest" these funds report is paper income, but dividends to investors require real cash.
If the gap keeps widening, funds may have to cut dividends or sell assets to cover the shortfall.
Why call this the "first real credit cycle since the financial crisis"?
Howard Mason, head of financial research at Renaissance Macro Research, said private credit is experiencing its first real credit cycle since the GFC.
Three pressures are converging: higher borrowing costs, a weak exit market, and AI-related software valuation stress — hitting 2021-vintage high-leverage deals hardest, especially those structured with PIK.
This reflects the delayed consequences of aggressive lending during years of low interest rates.
Could unrealized losses turn into real ones?
Unrealized losses are not defaults — but they do push down a fund's reported net asset value.
Some write-downs may reverse if borrower performance improves and book values recover.
In plain terms = this is the "paper loss" stage. But if borrowers ultimately can't repay, paper losses become realized losses.
Content is for reference only, not financial advice.