The Long and Short
BDCs return to primary market on relief rally
This material is a Marketing Communication and does not constitute Independent Investment Research.
Business development companies returned to the investment grade new issue market in the last week after spreads snapped back from the local wides of mid-March. Two deals printed after a roughly 6-week hiatus. So far, BDC new issue volume is about two thirds of what priced over the same period last year. Meanwhile, secondary BDC spreads have raced back from the local peaks. This relief rally presents an opportunity for index investors to reduce exposure to BDCs ahead of more issuance and de-risk away from lingering private credit uncertainties.
While concerns about the conflict in Iran have largely dictated market moves since early March, private credit developments over the same period continue to be reflected in highly exposed sectors. BDCs have been by far the biggest nominal spread movers in the recovery over the lagging four weeks. Still, excess return data over the same period demonstrate that the biggest credit returns have been generated by the recovery in brokers and asset managers, transportation and insurance, while banking and REITs have lagged the broad relief rally (Exhibit 1). This is due at least in part to duration positioning over that period as base rates have been highly volatile with developments in Iran.
Exhibit 1. Excess returns by sector since March 16 local wides
Source: Santander US Capital Markets LLC, Bloomberg Investment Grade Bond Index
On April 13, Blue Owl Capital (OBDC: Baa2/BBB-/BBB) issued $400 million 2-year bonds entirely to PIMCO breaking a roughly 6-week drought for BDCs in the primary market. At a coupon of 6.45%, the bonds priced at a spread to Treasuries of about 270 bp. With limited float, price indications on those bonds have already tightened to about 240 bp over the 2-year note. It was the fund’s first trip to the US dollar debt market since May of last year.
The following day, Goldman Sachs Private Credit (GSCRED: Baa3/BBB-) priced a $750 million 5-year note with a 6.15% coupon or about a 255 bp spread over Treasuries compared to initial price talk of 285 bp. Remarkably, this was only 10 bp wide of where the same issuer priced 5-year notes in November of last year. While OBDC did not provide an immediate use of proceeds, GSCRED indicated their intention to primarily repay outstanding debt under the company’s credit facilities. The fund has over $4 billion outstanding on its revolving credit facility through 2030 with a little over $1 billion still available. Exhibit 2 below demonstrates how the two deals figure into year-to-date BDC issuance versus the same period in the previous year.
Exhibit 2. BDC New Issue Year-to-Date (2026 vs 2025)
Source: Santander US Capital Markets LLC, Bloomberg LP, company press releases
Only about $9 billion in BDC paper has printed so far, despite expectations that annual volume would likely eclipse the record issuance logged in 2025. An estimated $32 billion in US dollar investment grade BDC debt priced in the prior year. Furthermore, with elevated redemptions being reported across the full BDC sector, issuance needs may be even more pressing than originally projected for this year. Fitch indicated that approximately 3.8% of net asset values were redeemed across its rated universe of BDCs in the first quarter of this year, with several notable issuers seeing requests in excess of 5%. BDCs were already anticipating a banner year for issuance for both debt maturities and funding new business. Meanwhile, scheduled maturities for the year are only about $6 to $7 billion for the sector, with an additional $12 billion to $13 billion scheduled over the next two years. Windows like the current relief rally are likely to draw out more borrowers in the immediate weeks ahead. Investors should be paring down exposure in anticipation that issuers will be highly opportunistic as spreads permit, taking advantage of the of discount buying in secondaries.
Exhibit 3 below demonstrates LTM spread moved for all financial sectors in the investment grade index. The finance companies index, which comprises the BDC issuers, peaked locally at a spread of just under 200 bp on March 16 and has subsequently tightened by about 35 bp and remains about 40 bp to 45 bp wide of the September tights.
Exhibit 3. Investment Grade Financial Sector Index Spread Moves – LTM
Source: Santander US Capital Markets LLC, Bloomberg Investment Grade Sector Indices
Exhibit 4 below demonstrates the spread between investment grade finance companies, comprised largely of BDCs, versus brokers/asset managers/exchanges. The spread between the two sectors peaked at about 100 and has tightened by about 15 bp over the past four weeks.
Exhibit 4. Investment Grade Spreads – Finance Companies vs Brokers/Asset Managers (LTM)
Source: Santander US Capital Markets LLC, Bloomberg Investment Grade Sector Indices
Exhibit 5 below demonstrates the spread between investment grade finance companies versus the banking sector. Spread between the two sectors peaked at about 110 bp and has tightened by about 20 bp to 25 bp over the past four weeks.
Exhibit 5. Investment Grade Spreads – Finance Companies vs Banks (LTM)
Source: Santander US Capital Markets LLC, Bloomberg Investment Grade Sector Indices
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