The top business development companies saw their portfolios contract significantly in the first quarter of 2026, driven by a steep decline in new investment activity and by markdowns that reduced the fair value of existing assets.

Overall, the top 12 publicly traded BDCs tracked by LCD reported gross fundings of roughly $5.7 billion in Q1, down from $9.1 billion in Q4 2025 and from $8.4 billion in Q1 2025. That $5.7 billion total represents the lowest gross fundings since LCD began tracking this data two years ago.

Several top BDCs stand out. Golub Capital BDC saw gross fundings shrink 96% year-over-year to just $15 million. CEO David Golub told investors on May 5 that the company had prioritized share buybacks over new investment commitments, and would continue to do so.

FS KKR Capital Corp. and MidCap Financial Investment Corp. each saw their gross fundings sink by roughly 75% year-over-year; the two BDCs also committed to aggressively buy back their own shares below NAV rather than seek new debt investments.

Only one BDC increased its gross funding volume year-over-year: Ares Capital Corp. reported roughly $3.4 billion in new deployments in Q1, down from $4.8 billion in the prior quarter but still above the $2.8 billion deployed in Q1 2025.

Speaking on an April 28 earnings call, Ares Capital Corp. CEO Kort Schnabel pointed to heightened capital markets volatility, geopolitical uncertainty and net outflows from retail products, which he said had exacerbated “an already seasonally slow market period.”

Sales and repayment volumes, by contrast, were relatively stable. Notably, New Mountain Finance Corp. reported a significantly higher volume of sales and repayments in Q1 following a large secondary loan sale to Coller Capital at 94 cents on the dollar.

Overall, the top BDCs reported net outflows of $2.1 billion in Q1, the largest since LCD began tracking such data two years ago. This is the second consecutive quarter of net outflows, after the funds reported a combined $323 million in outflows in Q4 2025.

While net outflows reached $2.1 billion, the fair value of the top lenders’ portfolios fell by $3.5 billion, reflecting the additional impact of markdowns on existing portfolio assets.

Many BDCs marked down their loans to software companies and other borrowers to reflect widening spreads in public markets. Lenders like Golub Capital signaled that such markdowns would probably be reversed in future quarters as market conditions evolve.

Other markdowns will likely be harder to reverse. In Q1, several lenders moved customer experience software developer Medallia to non-accrual as the company undergoes a restructuring, and they further marked down loans to the borrower that were already significantly impaired. FS KKR disclosed that it had written down its own net asset value by 10% in Q1, driven in part by markdowns on Medallia and other non-performing investments.

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In a bright spot for lenders, portfolio yields mostly stabilized in Q1. Weighted average yield on income-producing securities among the top BDCs was 10.09% in Q1, down just five basis points from the prior quarter.

A large part of Q1 deployment for the top BDCs stems from fourth-quarter transactions that closed in the first quarter, which were committed at spreads lower than those prevalent in the market today. With most BDCs reporting considerably wider spreads in the current market, the decline in portfolio yields is bound to reverse in the coming quarters.

Several BDCs said that spreads on new investments had in fact moved higher in Q1. Morgan Stanley Direct Lending Fund told investors it had seen 25 bps of spread widening in Q1, followed by an additional 25 bps of widening so far in Q2.

For our recently released “Peek under the Hood” report and more BDC analysis, see the PitchBook website under Private Credit: PitchBook Credit Research.

Featured image by AerialPerspective Images/Getty    This article originally appeared on PitchBook News

Featured image by AerialPerspective Images/Getty