Interest from PIK loans at BDCs dips amid concerns over credit quality, AI disruption

In this archetypal portion of a two-part series, LCD examines PIK involvement income among the apical 15 exchange-traded BDCs. A consequent communicative volition see a comparative investigation of involvement rates, assemblage concentrations, and indebtedness sizes.

PIK involvement income fell 10% successful the archetypal 4th among the apical 15 exchange-traded BDCs, arsenic managers worked to right-size portfolios amid increasing concerns implicit recognition prime and AI-disruption hazard successful backstage credit. Rising capitalist redemptions added further pressure, pushing BDCs to prioritize liquidity.

Based connected March 31 filings, PIK income for the cohort declined to $229 cardinal successful Q1, a two-year low. It was the steepest quarter-over-quarter driblet successful the information dating backmost to 2021. As a stock of full involvement income, PIK involvement income slipped to 8.2%, its lowest level since Q4 2023.

Key findings:

• PIK involvement income fell to $229 cardinal successful Q1. The 10% diminution was the biggest quarter-over-quarter driblet successful the information dating backmost to 2021 erstwhile PIK involvement meaningfully surpassed $100 million.

• PIK involvement income successful the 12 months done Q1 2026 was $979 million, down 4.8% from the LTM Q1 2025 fig of $1.028 billion.

• Five of the 15 BDCs reported double-digit declines successful LTM PIK involvement income, portion 9 of them reported an increase.

• The proportionality of PIK involvement to full involvement declined from 8.6% to 8.2% from Q4 2025 to Q1 2026.

Quarterly PIK involvement declines 10%
Among the 15 largest publically traded BDCs, quarterly PIK involvement fell by $25 million, oregon 10%, to $229 cardinal successful Q1, the lowest level since Q1 2024. The driblet was chiefly driven by reductions of $17 cardinal by FS KKR (FSK) and $9 cardinal by Blackstone Secured Lending Fund (BXSL), which were partially offset by a $6 cardinal summation by Golub Capital BDC (GBDC). Overall, 11 of 15 apical BDCs reported decreases successful quarterly PIK involvement successful Q1. Prospect Capital (PSEC) and Bain Capital Specialty Finance (BCSF) had flimsy increases successful PIK interest, and Morgan Stanley Direct Lending (MSDL) posted a marginal gain.

As for currency involvement income, the driblet was a milder 5% successful Q1, to $2.57 billion, arsenic each 15 BDCs but for Capital Southwest Corp. (CSWC) reported declines. The Q1 quarterly currency income was the lowest since Q1 2024 erstwhile it was $2.48 billion.

PIK involvement income LTM tally complaint beneath $1 billion
The latest speechmaking reflects a continued downward trend. PIK involvement was $997 cardinal successful 2025 and $1.011 cardinal successful 2024. Annualizing the $229 cardinal Q1 PIK involvement amount, we estimation a tally complaint of $916 million.

LTM PIK involvement to full involvement declined somewhat to 8.4% done Q1, from 8.5% successful 2025. Assuming that the Federal Reserve does not little rates this twelvemonth and that notation rates stay astatine oregon supra existent levels, this ratio volition apt stay astatine the first-quarter’s 8.2% level oregon lower.