KBRA Affirms Ratings for Franklin BSP Capital Corporation

KBRA affirms the BBB issuer and senior unsecured debt ratings for Franklin BSP Capital Corporation ("FBCC" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings and Outlook are supported by FBCC’s affiliation with Franklin Templeton, a leading global asset manager with ~$1.5 trillion in AUM as of March 31, 2025, as well as FBCC's ties to Franklin Templeton's wholly owned subsidiary, Benefit Street Partners ("BSP"), a credit platform with $76 billion in AUM as of February 28, 2025. The credit platform includes a $22.4 billion direct lending platform that provides SEC exemptive relief to co-invest among BSP affiliates and enhances scale in the competitive private credit environment. Ratings are also supported by FBCC's diversified $3.9 billion investment portfolio, comprised of 146 companies across 16 industries, excluding investments in JVs, mostly first lien senior secured loans (76.5%, and 92.4% when looking through to the JV, Post Road Equipment Finance, and Siena Capital) to middle market companies as of March 31, 2025. The top three portfolio sectors, exclusive of investments in JVs, are Business Services (17.8%), Healthcare (16.0%), and Financials (14.4%). Non-accruals at 3.0% of cost and 1.8% of fair value represent an increase year-over-year from 1.3% and 1.0%, respectively, due principally to the addition to non-accrual status of a sizeable position in a healthcare portfolio company; however, non-accruals remain consistent with peers with seasoned portfolios.

Further supporting the ratings is FBCC’s strong access to capital markets, backed by a diversified funding base that includes a secured bank facility, SPV asset facilities, and senior unsecured debt. As of March 31, 2025, the company held $445.1 million in available bank lines and $189.9 million in cash (exclusive of $15.5 million in restricted cash), offset by $300.0 million in unsecured debt maturities due in 2026 and $581.2 million in unfunded commitments. Most commitments are subject to performance tests and/or Adviser approval. Unsecured debt to total debt is ~33%, and management intends to issue additional unsecured debt to boost financial flexibility in the near-to-medium term. FBCC’s gross and net leverage (when including preferred equity as debt) are 1.17x and 1.07x, respectively, consistent with FBCC's target net leverage range of 1.10x-1.20x. The asset coverage ratio stood at 186%, providing a 24% cushion above the 150% regulatory minimum and offering additional capacity to absorb market volatility.

Strengths are counterbalanced by potential risks related to FBCC’s business as a BDC, the illiquid nature of the assets, and retained earnings constraints as a RIC, as well as an uncertain economic environment with high base rates, inflation, and geopolitical risks.

Franklin BSP Capital Corporation is a non-traded externally managed non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940. The company has elected to be treated as a RIC. The company is managed by Franklin BSP Capital Adviser L.L.C., an affiliate of Benefit Street Partners, which is a wholly-owned subsidiary of Franklin Templeton.

Rating Sensitivities

The ratings are unlikely to be upgraded in the medium term. The Outlook could be revised to Negative, or the rating could be downgraded, if there is a significant downturn in the U.S. economy that has a negative impact on earnings performance, asset quality, and leverage. Other unexpected asset quality deterioration, a rise in leverage metrics, or a significant change in senior management could also pressure the ratings.

To access ratings and relevant documents, click here.

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