BDCS - Fitch rating outlook on BDCs turns negative on expected credit deterioration

Fitch Ratings revises its rating outlook for the business development company sector to negative as it expects BDCs' asset coverage to be pressured heading into 2021.Credit performance across BDC portfolios is expected to deteriorate next year due to the continuing impact of the COVID-19 pandemic on the economy, the ratings company said."Outsized losses could result from an uptick in non-accruals and covenant amendments for distressed borrowers," said Fitch Director Chelsea Richardson. "If credit losses rise and valuation volatility returns, asset coverage cushions will be pressured relative to targeted levels."Asset quality deterioration has been expected for several years, but now cash earnings will also be hurt by lower interest rates, high non-accrual levels, and an increase in paid-in-kind income, which will lead to weaker dividend coverage for some BDCs, according to "Fitch Ratings 2021 Outlook: Business Development Companies (Credit Issues Will Test Sufficiency of Asset Coverage Cushions)".Solid funding flexibility offsets some

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Fitch rating outlook on BDCs turns negative on expected credit deterioration