KBRA Affirms Ratings for Kayne Anderson BDC, Inc.

KBRA affirms the issuer and senior unsecured debt ratings of BBB for Kayne Anderson BDC, Inc. (NYSE: KBDC) ("the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings are supported by KBDC’s diversified ~$2.2 billion investment portfolio consisting almost entirely of senior secured first lien loans (~99%, excluding short-term investments) across 30 industries with a focus on investing in private, U.S. middle market companies with a median EBITDA of $39.5 million, excluding investments on watch list, as of March 31, 2025. KBDC benefits from exemptive relief to co-invest in all directly negotiated loans among Kayne Anderson Private Credit ("KAPC") vehicles. KAPC is a $6.9 billion AUM subsidiary of Kayne Anderson Capital Advisors, L.P. ("KACALP"), a $38 billion AUM investment platform with 150 investment professionals, and benefits from shared resources, including research, deal sourcing, and administrative services, including treasury management. The ratings also consider KABDC’s solid management team that has a long track record of working within the private debt markets with senior members each having 20+ years of experience in leveraged finance. Furthermore, the company's solid underwriting and risk management practices of a highly granular investment portfolio have resulted in the credit platform's strong credit performance over its 13-year history. KBDC's investment portfolio is conservative, with weighted average portfolio company leverage and interest coverage, excluding investments on watch list, of 4.2x and 3.1x, respectively. The top three portfolio sectors were Trading Companies & Distributors (15.4%), Commercial Services & Supplies (10.8%), and Food Products (9.2%). The company's credit quality remains solid and in line with peers despite an increase in non-accruals to 2.3% and 1.5% of total investments at cost and fair value, respectively, at 1Q25 compared to 0.4% at cost and fair value at 1Q24.

As of March 31, 2025, the company's liquidity was solid with available credit lines and cash of $430.5 million set against no near-term unsecured debt maturities and unfunded portfolio company commitments of $235.5 million. As of March 31, 2025, KBDC’s gross leverage was low at 0.86x, below the company’s target of 1.0x-1.25x. However, leverage is expected to increase to the low end of its target with additional capital deployment in the near term. The company’s asset coverage ratio was 216%, providing a solid cushion to its 150% regulatory asset coverage to withstand additional market volatility in a less favorable economic environment.

These strengths are counterbalanced by KBDC’s mostly secured funding profile (~93%). Management intends to issue additional senior unsecured debt in the medium term with a target range of unsecured debt to total debt between 20% and 30%, which would increase financial flexibility and unencumber assets for the benefit of the unsecured noteholders. Ratings strengths are further counterbalanced by the company’s limited operating history offset by the long tenure of its management in private credit, the company’s requirement as a regulated investment company ("RIC") to distribute 90% of net investment income, negating the ability to retain earnings, illiquid assets, and an uncertain economic environment with high base rates, inflation, and geopolitical risk.

KBDC is an externally managed, closed-end, non-diversified investment management company that elected to be treated as a BDC under the Investment Company Act of 1940 and as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed as a Delaware limited liability company in 2020 and commenced operations on February 5, 2021, when it simultaneously converted to a Delaware corporation. On May 22, 2024, the company began trading on the New York Stock Exchange. The company is managed by KA Credit Advisors, LLC, an indirect subsidiary of KACALP.

Rating Sensitivities

The ratings are unlikely to be upgraded in the intermediate term. The Outlook could be revised to Negative, or the rating could be downgraded, if a prolonged downturn in the U.S. economy has a material impact on performance, including increased non-accruals and a significant rise in leverage. An increased focus on riskier investments or a change in the current management structure and/or a change in strategy and risk management that negatively impacts credit metrics could also pressure ratings.

To access ratings and relevant documents, click here.

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