KBRA has released a new report examining the valuation processes of Business Development Companies (BDCs). The research indicates that BDCs generally show minimal variance in their independent valuations of identical assets, supported by robust internal processes and oversight from auditors, the SEC, and third-party valuation firms. The report analyzes a sample of BDC loans, using data to confirm the consistency of BDC loan valuations.

Interviews with independent valuation experts, including VRC’s team, aids in highlighting the reliability of valuation processes, even under economic and market stress. VRC’s John Czapla notes in the research report, “Valuation analyses [of stressed or distressed credits] rely on assumptions about default probability, equity sponsor behavior, recovery rates, and oftentimes the outcome of bankruptcy proceedings. Under those circumstances, ranges of 10 to 20 points may be considered acceptable.”

The report also references our firm’s recent report, “Exploring Private Debt Market Valuations,” which delivers insights into the market specifically addressing recent discussions centered around valuation and potential systemic and valuation risks in the private debt markets and draws from our over two decades of experience in the private debt market.