US private credit firms have marked down more loans in the first half of 2026, with software borrowers facing particular pressure despite signs that portfolio values stabilised during the second quarter.
A Reuters analysis of regulatory filings from 44 US business development companies (BDCs) found that the fair value of their investments fell further below reported cost as market spreads widened and concerns grew about the financial health of some borrowers.
The companies, which mainly lend to small and medium-sized businesses, held investments worth $92.88 billion at fair value on June 30, compared with a reported cost of $95.19 billion. At the end of 2025, the corresponding figures were $95.82 billion and $96.54 billion.
The aggregate fair-value-to-cost ratio dropped from 99.25 per cent at the end of last year to 97.77 per cent in the first quarter, before edging down again to 97.57 per cent in the second quarter.
Most of the broad deterioration took place during the first three months of the year. However, markdowns in the second quarter at several large BDCs were concentrated among a relatively small group of borrowers, rather than reflecting a widespread decline across their portfolios.
“What we are seeing is largely a repricing,” said Sitara Sundar, head of alternative investment strategy at JP Morgan Private Bank. She pointed to weaker deal flow, redemption pressure at non-traded funds, subdued sentiment, concerns about artificial intelligence disrupting software businesses and debt maturities approaching in the near term.
Software loans bear the brunt of markdowns
Data cited by Houlihan Lokey showed that 81 per cent of software loans held by BDCs had been written down this year, compared with 40 per cent of loans outside the sector.
About 4 per cent of all borrowers had loans valued at below 80 per cent of their original face value, up from roughly 1 per cent a year between 2023 and 2025.
Chris Cessna, a managing director at Houlihan Lokey’s Portfolio Valuation and Fund Advisory Services, said the 168-basis-point fall in the fair-value-to-cost ratio during the first half was significantly larger than normally seen.
“In stressed loans, weaker borrower fundamentals are contributing to lower marks,” he said.
At Ares Capital, two software companies accounted for slightly more than a third of year-to-date net unrealised losses of $527 million. Including five further software investments took the share of losses attributed to the sector above half, according to a company filing.
Blue Owl Capital said its second-quarter decline in net asset value was driven mainly by a markdown affecting one specific credit. That contrasted with the first quarter, when around three-quarters of the decline was linked to a broader widening of market spreads.
Golub Capital BDC said losses were concentrated in a small number of junior debt and equity positions, while FS KKR Capital reported that a handful of investments accounted for most of its markdowns.
The filings also showed a rise in loans no longer generating income. Across 10 BDCs reviewed by Reuters, non-accrual investments increased to about 3.4 per cent of portfolio cost at the end of June, from 2.5 per cent at the end of 2025.
