April 7 (Reuters) – Moody’s Ratings on Tuesday revised its outlook on U.S. business development companies to negative from stable, citing rising redemption pressures, higher leverage and weakening access to funding markets.
The move reflects a sharp shift in funding conditions for perpetual non-traded BDCs, which moved from strong inflows in the third quarter of 2025 to their first-ever outflows in the first quarter of 2026, Moody’s said.
Perpetual non-traded BDCs are closed-end investment vehicles that lend to private companies. They are not listed on exchanges and lack a fixed maturity, allowing them to continuously raise capital while offering limited, periodic liquidity to investors.
AI has emerged as an additional risk, particularly for BDCs with sizable exposure to software companies.
The concern is adding to pressure on private credit, already a persistent pain point for alternative asset managers, as investors worry AI could pose an existential threat to software portfolios, a key area of exposure for the $2 trillion industry.
Though executives repeatedly dismissed those concerns as overblown, investors remain on edge. Redemptions have surged at large funds amid fears that portfolio quality could deteriorate as AI technology evolves.
BDCs, which lend to many of the same middle-market borrowers as private credit funds, act as an early barometer of stress in the sector.
(Reporting by Prakhar Srivastava and Manya Saini in Bengaluru; Editing by Sriraj Kalluvila and Tasim Zahid)
