Kayne Anderson BDC (NYSE:KBDC) reported first-quarter 2026 net investment income of $0.43 per share, covering its $0.40 quarterly dividend by 108%, as management emphasized the company’s defensive portfolio positioning and disciplined lending approach amid a more uncertain private credit environment.
Co-CEO Doug Goodwillie said the quarter reflected “solid performance” and the resilience of KBDC’s value lending strategy despite sector headwinds. Net investment income was slightly below the $0.44 per share reported in the fourth quarter. The company generated an annualized return on equity of 10.6% during the quarter.
Net asset value per share ended the quarter at $16.23, down from $16.32 at the end of the prior quarter. Goodwillie said the decline was partly attributable to portfolio markdowns, offset in part by origination activity, positive portfolio marks and accretive share repurchases.
The board declared a regular second-quarter dividend of $0.40 per share, payable July 16 to stockholders of record as of June 30. Goodwillie said management remains confident in the company’s ability to sustain the dividend through 2026, citing portfolio positioning, a weighted average portfolio yield of 10.1% and limited exposure to software and technology.
Portfolio Remains Focused on First-Lien, Middle-Market Loans
Goodwillie said 93% of the portfolio was invested in first-lien investments, with the company focused on “stable and staple industries” and borrowers with average leverage of just over four times. He contrasted KBDC’s 2% exposure to software and technology with what he described as larger exposures among many BDC peers.
“Our minimal 2% exposure to the sector has insulated us from this pressure,” Goodwillie said, referring to concerns about the impact of artificial intelligence and automation on software companies’ business models.
President Frank Karl said that as of March 31, KBDC’s portfolio included 105 companies with a fair value of $2.2 billion, along with $289 million of unfunded commitments. The average position represented about 1% of fair value, and the top 10 investments accounted for 20% of the portfolio.
Karl said the portfolio’s top five sectors — commercial services and supplies, healthcare, distributors, food products, and containers and packaging — accounted for just over 50% of the portfolio. He said those exposures were consistent quarter over quarter and reflected the company’s effort to avoid sector concentration risk.
Excluding watch-list and opportunistic investments, KBDC’s portfolio companies had weighted average leverage of 4.4 times, an interest coverage ratio of 2.4 times and loan-to-enterprise value of approximately 43%, Karl said. The weighted average EBITDA of private middle-market portfolio companies was $52.6 million.
Non-Accruals Rise, but Management Expects Improvement
Non-accrual investments represented 2.5% of debt investments at fair value as of March 31, up from 1.4% in the prior quarter. Goodwillie said Score and Regiment’s last-out tranches were added to non-accrual status during the quarter, while ArborWorks was moved off non-accrual.
Karl said management expects both Sundance and Regiment to come off non-accrual over the next one to two quarters, noting that Sundance is in the final stages of its realization process and Regiment is going through a sale.
CFO Terry Hart said KBDC recorded $2.3 million of realized losses during the quarter, mainly tied to the restructuring of its debt investment in Regiment Security Partners, which resulted in a $2 million realized loss. The company also recognized a $0.3 million realized loss related to the rotation out of a broadly syndicated loan.
Hart said net unrealized losses on the portfolio totaled $9 million, compared with $7.2 million in the prior quarter. The losses were largely tied to negative fair value changes in investments in Score, Seagleg, Tembo and Four Oaks.
Investment Activity and Liquidity
KBDC made new private credit commitments of $93 million during the quarter. Total fundings were $99.1 million, including new investments and draws on existing unfunded commitments. The company received $74.6 million in private credit repayments and $17.4 million from broadly syndicated loan sales, resulting in net funded investment activity of $7.1 million.
Goodwillie said the pricing environment for new originations remained favorable, with new floating-rate loans averaging 549 basis points over SOFR in the first quarter, 20 basis points wider than in the fourth quarter.
As of March 31, KBDC had a debt-to-equity ratio of 1.05 times, within its target range of 1.0 times to 1.25 times. Liquidity totaled $569.7 million, including $32.7 million in cash and $537 million in undrawn debt capacity.
Hart said total assets were $2.3 billion and net assets were $1.1 billion at quarter end. Debt outstanding totaled $1.138 billion. KBDC also closed a term extension of its largest credit facility, led by Wells Fargo, and reduced the interest rate on that facility by 20 basis points.
During the quarter, the company repurchased $21.4 million of shares at an average price equal to 86% of NAV per share under its $100 million share repurchase program. Hart said the program was extended for one year on May 5, and the $100 million authorization was renewed beginning May 25.
Income Declines From Lower Rates and Fees
Total investment income for the quarter was $57.3 million, down from $61.9 million in the prior quarter. Hart said the decline was primarily due to lower average reference rates, spread compression and $2.1 million less accelerated amortization of original issue discount and prepayment fees tied to realization activity. Those factors were partly offset by $2.2 million of payment-in-kind interest income related to ArborWorks moving to accrual status.
Total expenses were $28.4 million, down from $31.8 million in the prior quarter. Hart attributed the decrease to lower reference rates on borrowings, lower average borrowings, lower incentive fees and the absence of $0.5 million of excise taxes incurred in the fourth quarter.
Hart said the $0.09 decline in NAV per share included $0.17 per share from net realized and unrealized losses, partially offset by $0.03 per share of net investment income in excess of the dividend and $0.05 per share from accretive share repurchases.
Management Sees Selective Opportunities as Spreads Widen
Goodwillie said M&A activity has remained below earlier forecasts due to geopolitical tensions, though the company has seen a “noticeable uptick” in activity over the past four to six weeks. Karl said that since quarter end, KBDC has closed or is finalizing $150 million of new commitments.
In response to an analyst question from UBS’s Cory Johnson, Goodwillie said the company is tracking toward nearly $200 million of commitments for the second quarter, while remaining disciplined on leverage and pricing. He also said some upper-middle-market deals are beginning to show better pricing, with opportunities in businesses generating $75 million to $100 million of EBITDA that include covenants and “decent pricing.”
Asked by RBC Capital Markets analyst Kenneth Lee about leverage, Goodwillie said management is comfortable operating between 1.0 times and 1.1 times debt-to-equity and does not expect to move aggressively toward the top end of the target range given the possibility of a prolonged dislocation.
Goodwillie and Karl also said KBDC continues to rotate out of its remaining broadly syndicated loan exposure, which stood at $29.8 million at quarter end. In response to Bank of America analyst Derek Hewett, management said the remaining BSL portfolio consisted of four credits and is expected to be largely monetized during the current quarter, though some sales could slip into the third quarter.
About Kayne Anderson BDC (NYSE:KBDC)
Kayne Anderson BDC, Inc (NYSE: KBDC) is a closed-end, non-diversified management investment company structured as a business development company under the Investment Company Act of 1940. The firm focuses on providing bespoke financing solutions to U.S. middle-market companies, offering first-lien and second-lien secured loans, unitranche facilities, mezzanine debt and selected equity co-investments. KBDC targets businesses with EBITDA profiles generally ranging from $10 million to $100 million, aiming to generate attractive income and potential capital appreciation for shareholders.
The company's portfolio spans a variety of sectors, including healthcare, technology, energy services, consumer products and industrials.
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