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50.1%Implied Recovery RateforLoans on Nonaccrual Status+97 bps QoQ26,208Aggregate Numberof Investments Held inBDC Portfolios+648 QoQ 1.2%Nonaccrual Rate-36 bps QoQ$399.0BAggregate Fair Valueof Investments Held inBDC Portfolios+$23.8B QoQ Yields and SpreadContinued to Decline3●Refinancing and repricing activitycontinued the momentum fromQ2 2024 as credit spreads acrossthe market landscape tightened.●In the second half of 2024, theFed cut the federal funds ratethree times for a total 100-basis-point decrease. Declining baserates coupled with tightening arecreating pressure on yields.●Average first lien yields acrossBDC portfolios decreased from11.44% in Q2 2024 to 10.74% inQ3 2024. On a year-over-yearbasis, first lien yields decreasedby 120 bps in Q3 2024.●Average second lien yieldsincreased marginally from 13.77%in Q2 2024 to 13.80% in Q3 2024.On a year-over-year basis, secondlien yields decreased by 45 bps inQ3 2024. Deal Count Grew; FairValues Stabilized4●Direct lending positionscontinued to grow in numberand size in Q3 2024. The totalfair value of BDC publicinvestments reached $399.0billion in Q3 2024 (up from$375.2 billion in Q2 2024),driven by approximately 2,875additional investments.●The weighted average price forfirst lien loans was roughly flat at99.18% of par in Q3 2024compared to 99.20% of par inQ2 2024.●The weighted average price forsecond lien loans decreasedfrom 97.43% of par to 96.99% ofpar over the same period. 5Distress Remains Lowand Implied RecoveryRates Stable●At the end of Q3 2024, the nonaccrualpercentage for BDC loans was 1.2% (adecrease of 35 bps from the prior quarter)and the implied recovery rate for nonaccrualinvestments was 50.1% (an increase of 97 bpsfrom the prior quarter), fueled by animprovement in asset quality.●Several BDCs categorize their portfolios byrisk level. As of Q3 2024, an average of 6.2%of BDC portfolios were deemed riskier thanat underwriting, 7.8% were considered lessrisky, and 86.0% matched the originalunderwriting risk.●An alternative approach to risk-levelcategorization is to categorize loan portfoliosbased on pricing tiers. Although variousfactors affect loan pricing, this type of tieredanalysis aims to provide a more objective,market-driven evaluation of portfolio healthand serves as an early indicator of potentialportfolio degradation or distress as thedistribution across these pricing tiers evolvesover time.●As of Q3 2024, 3.0% of BDC loans were pricedbelow 80% of par, 11.9% were in the range of80%–97% of par, and 85.1% were pricedabove 97% of par. Using loans priced below80% as an indicator of distress, it appears thatBDC portfolios are not experiencing an uptickin distressed loans, with levels at or belowhistorical norms. Partnering forGrowth●With competition between directlenders, banks, and the BSL marketshowing no signs of easing and drypower at elevated levels, some BDClenders started to look at other areasfor deployment and yield.In the secondhalf of 2024, several asset managersannounced partnerships with banks orinsurance companies. Some exampleswere Marathon Asset Managementpartnering with Webster Bank, Oaktreepartnering with Lloyds Bank, SixthStreet partnering with NorthwesternMutual, and Apollo partnering withStandard Chartered.●The use of PIK in both new issuancesand amendments remained popular.However, PIK as a percentage of totalinterest income decreased by 0.2%from Q2 2024 to Q3 2024 due toimproving credit performance anddeclining base rates.●As of Q3 2024, the public M&A marketssaw increased deal flow. This trend isexpected to continue in subsequentquarters driven by Fed rate cuts and anuptick in private equity demand. BDCstargeted capital deployments in high-growth sectors such as technology, lifesciences, and specialty finance.6 Publicly TradedBDC Market SnapshotAs of Q3 2024, large-cap BDCsreported strong new deal volumes,particularly through middle-market andsponsor-backed financing. Increases innet asset values were seen due tostable fair values and income growth.Portfolio companies exhibited stableleverage ratios with average loan-to-value ratios under 50%. Stable baserates aided interest coverage ratios.Average large-cap BDC nonaccrualrates continued to increase from Q22024 to Q3 2024, compared to thedecrease observed in average mid-capand small-cap BDCs’ nonaccrual rates.Sources: S&P Capital IQ and SEC Filings.Note: As of January 22, 2025.Large-cap = market cap greater than $1 billion.ROA = (net change in net assets + interest expense) /average assets.ROE = net change in net assets / average equity.8Large-Cap Publicly TradedBDC Market SnapshotAs of Q3 2024, mid-cap BDCs observedsubstantial new deal volumes since Q22024, driven by increased M&A due tothe expectation of rate stabilizationand refinancing activity. Yields on newdeals remained competitive with somemid-cap BDCs facing mild yieldcompression due to marketcompetition.Nonaccrual rates have remained low,with some loans moving off nonaccrualstatus due to restructuring a