To The Moon

Private-credit portfolios appeared to stabilize in the second quarter, but loans that stopped producing interest continued to rise. That divergence matters for business-development companies because a modest valuation markdown can look manageable while the underlying cash income deteriorates more sharply.

Reuters reported on September 2 that the aggregate fair-value-to-cost ratio across reviewed US private-credit portfolios fell 168 basis points over six months to 97.57%. Non-accrual investments increased to approximately 3.4% of portfolio cost from 2.5%, with much of the markdown concentrated among a relatively small group of borrowers, including software companies. Reuters' private-credit analysis distinguishes broad portfolio marks from loans no longer paying interest.

The bullish case is containment. A 97.57% aggregate value-to-cost ratio does not describe a systemwide collapse, and concentration among selected borrowers suggests underwriting problems may be manageable. Senior secured structures, collateral and lender control can improve recoveries. Floating-rate loans also provide strong income when base rates remain high, helping many business-development companies cover dividends.

The bearish case is delayed recognition. Private loans do not trade continuously, so reported values depend on models, comparable transactions and manager judgment. Non-accruals are harder to dismiss because they directly reduce income. Higher interest rates can initially lift lender revenue but eventually impair borrowers whose interest coverage was already thin. Software loans are especially sensitive when recurring-revenue forecasts fail to convert into cash.

The $VanECk BDC Income ETF(BIZD)$ provides diversified exposure, although its holdings differ in underwriting and leverage. BIZD closed September 4 at $13.33 after trading between $13.28 and $13.43 on approximately 2.49 million shares. VanEck's official BIZD page explains the portfolio. Support is $13.20 to $13.30 and then $13; resistance is $13.45 to $13.60.

BIZD does not offer the consistently deep options liquidity needed to justify a high-probability spread illustration. A sector-level signal would be a sustained break below $13.20 accompanied by rising non-accruals and dividend reductions, but expressing that view through an illiquid chain could create more execution risk than analytical benefit. No options structure is justified without verified two-sided markets.

The evidence leans neutral to moderately bearish. Portfolio marks are not disastrous, but rising non-accruals are a meaningful warning for income durability. The view would improve if non-accruals decline and dividends remain covered by recurring net investment income; it would worsen if marks, recoveries and distribution coverage deteriorate together. This is personal opinion for education, not financial advice or an instruction to enter a trade.