US Private Credit Market Faces Decline Amid AI Concerns

The Kobeissi Letter posted on X. The U.S. private credit market is experiencing a downturn, with the median listed Business Development Company (BDC) now trading at just 0.73 times its net asset value (NAV), marking the lowest point since 2020. BDCs, which are publicly traded entities lending to small, mid-sized, and distressed U.S. businesses, provide retail investors access to private credit markets. Currently, they are valued at 73% of their claimed worth. Over the past 18 months, the median listed BDC price-to-NAV ratio has been steadily declining. For context, this ratio plummeted to approximately 0.35 times during the 2008 financial crisis, indicating that the market valued BDCs at merely 35 cents on the dollar. This decline occurs amid growing concerns that artificial intelligence (AI) could disrupt the business models of software firms, complicating efforts to refinance debt. The average BDC holds around 20% exposure to the software sector, which is under scrutiny due to potential AI impacts. The private credit industry is facing significant pressure as these challenges unfold, raising questions about the future stability and valuation of BDCs in the market.