Moody's has worsened its outlook on private business lenders in the US. What is the threat to the market?

Moody's Ratings worsened the outlook on U.S. business development companies (BDC), changing it from stable to negative on the background of growing applications for withdrawal of funds, increasing debt burden and complicating access to financing, writes Reuters. This decision of the rating agency increases tension in the market of private lending.

As Moody's notes, the conditions for raising capital in the sector have deteriorated sharply: after an inflow of funds in the third quarter of 2025, such companies faced outflows for the first time in the first quarter of 2026.

An additional risk to the sector is the development of artificial intelligence, especially for BDCs with a high proportion of investments in software developers, Reuters notes. Investors worry that AI could undermine the stability of portfolios in the software sector. These concerns add pressure on the private credit market of about $2 trillion, for which the IT sector is of key importance, the agency writes.

Perpetual BDCs are closed-end investment structures that lend to private companies. They are not publicly traded and do not have a fixed maturity, which allows them to raise capital on an ongoing basis, offering investors limited periodic liquidity, Reuters explains.

BDCs, which lend to the same segment of middle-market companies as private credit funds, are considered an operational indicator of stress in the industry, the agency said.

Major private credit fund managers, including publicly traded BlackRock and Blue Owl, began limiting investor withdrawal requests in 2026, facing a surge in requests for investment returns.

Just three prominent financiers, including iconic short-seller Michael Burry and JPMorgan CEO Jamie Dimon, have in recent days voiced alarm over the growing risks in the private credit market.

BlackRock CEO Larry Fink was quick to reassure investors in March, saying the private credit market does not pose a systemic risk to the financial system. "I don't see any similarities [to the crisis]. Zero. The 2007 crisis was based on hidden leverage - a gigantic debt load on balance sheets. Now it's not a problem of overleveraged balance sheets," he told the BBC. According to him, the private credit market remains a relatively small segment of the global financial system with transparent liquidity conditions.

This article was AI-translated and verified by a human editor