The deterioration of portfolio values, which slowed during the second quarter, follows a broader decline earlier this year. Analysis of regulatory filings from 44 business development companies (BDCs) reveals that while the first quarter saw widespread repricing due to market spreads, second-quarter losses were driven by specific borrower stress. Non-accrual investments—loans where borrowers have fallen significantly behind on payments—climbed to 3.4% of portfolio cost by June 30, up from 2.5% at the end of 2025.

Software companies have emerged as a primary source of concern. Data from Houlihan Lokey indicates that BDCs have written down 81% of their software loans this year, dwarfing the 40% markdown rate seen in other sectors. Major firms are feeling the impact: Ares Capital Corp. reported that just seven software investments accounted for more than half of its $527 million in year-to-date unrealized losses. Similarly, Blue Owl Capital and Golub Capital have attributed recent declines to isolated credit-specific issues rather than broad market shifts. Despite these headwinds, experts suggest the current environment reflects a necessary repricing fueled by near-term debt maturities, AI-driven disruption, and redemption pressures on non-traded funds.