Business Development Companies (BDCs) "Cuts, Credit, and Cautious Optimism ..."

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Business Development Companies (BDCs) "Cuts, Credit, and Cautious Optimism ..."

be the dominate theme in earnings calls, but there has

not yet been evidence of broad based disruption. However, as credit continues to

normalize, we see credit concerns persisting for an extended period of time which

should keep valuations towards the lower end of the historical range, though likely

move up from current levels.

Lowering 2026 and 2027 estimates by ~2% and 1% respectively (median)

Following 1Q earnings we are adjusting our estimates lower for 2026 and 2027. The

short term rates curve has flattened out leading to modestly higher rates for 2027

(compared to previous expectations underpinning our models), but yields were lower

than expected for many of our companies during 1Q as the full impact of Fed rate cuts at

the end of 2025 worked their way through portfolios. We have lowered our 2026

estimates 2.2% (median) and 2027 by 0.5%; see Figure 1 for individual company

details. We are ~1.6% below consensus for 2026 and in-line for 2027.

Price targets adjusted downwards by 1% on avg

We are decreasing our price targets by 1% on average – see Figure 3 for details. Our new

price targets are 89% of NAV from 86% (126% from 120% prior for internally

managed HTGC and 84% from 83% prior for our externally managed BDCs). Our new

target multiple is below the long-term average of 93% for externally managed BDCs.

We have used forward P/NAV to ROE to inform our decision on PT, adjusting for

differences in credit quality, dividend outlook, and sentiment towards names, among

other factors.

Discounted valuations to persist

We looked to past periods of dislocation in the BDC sector — 2015/16, COVID, rising

rates in 2022 — as a guide for our current valuation. In those three periods, the sector