Some specialty finance companies that lend to midsize businesses are confronting the threat of a funding squeeze just as the coronavirus pandemic is causing defaults to rise, a potential one-two punch that could curtail their activities.
The pressure on publicly traded business-development companies, or BDCs, and private-debt funds that often invest alongside them comes after years of rapid growth that was driven in large part by investors’ search for returns in an era of ultralow interest rates. Total assets under management in private-debt and direct-lending funds had grown to more than $740 billion by the end of September from about $125 billion in 2006, according to Preqin, a research firm.