|AINV||Apollo Investment Corporation||BBB-||BBB-|
|ARCC||Ares Capital Corporation||BBB||BBB|
|BKCC||BlackRock Capital Investment Corp.||BBB-||BBB-|
|FSC||Fifth Street Finance||BBB-||Withdrawn at BB|
|FSIC||FS Investment Corporation||BBB-||BBB-|
|GSBD||Goldman Sachs BDC||BBB-||NR|
|MAIN||Main Street Capital||BBB||NR|
|PNNT||PennantPark Investment Corporation||BBB-||BBB-|
|PSEC||Prospect Capital Corporation||BBB-||NR|
|TSLX||TPG Specialty Lending||NR||BBB-|
Investment-grade (IG) rated Business Development Companies have an advantage on other BDCs and other financiers. They can borrow for longer periods of time, pay lower interest rates on their leverage, and spread out their maturities so that they do not rely on just one slug of debt capital.
BDCs that do not have an IG rating are generally limited to credit facilities and high-cost “baby bonds” to finance their investments. All things being equal, a BDC with an investment-grade rating has several advantages over BDCs that do not.
What’s in an investment-grade rating?
Anything lower than “BBB-” from Standard & Poor’s and Fitch is a “junk” or non-IG rating. Generally, the ratings agencies require that investment-grade BDCs adhere to certain leverage requirements, have good investment performance, and generate healthy earnings. Some criteria for maintaining an investment-grade rating include:
- Debt-to-equity ratio generally less than 0.85 to 1.00
- Low amounts of paid-in-kind (PIK) interest or dividend income
- Consistent underwriting performance
- Low amounts of off-balance sheet leverage
- Limited use of BDC’s “30% bucket”
- Favorable fee agreements
- Proven access to capital markets (debt and equity)
- Size (portfolio >$1 billion in assets, usually).