Some specialty finance companies that lend to midsize businesses are confronting the threat of a funding squeeze just as the coronavirus pandemic is causing defaults to rise, a potential one-two punch that could curtail their activities, the Wall Street Journal reported. In the past seven weeks, two prominent companies that lend to middle-market businesses, Bain Capital Specialty Finance Inc. and Golub Capital BDC Inc., have both raised money by completing stock sales at significant discounts to their net asset values. Such a sale is typically seen as a sign of stress in the industry. BCSF revealed in its latest earnings report that a March 31 amendment to one of its bank facilities made it an event of default if a stock offering by the company wasn’t in the works by the end of June 22. BCSF declined to comment. The firm is also among a handful of middle-market lenders that have recently issued bonds at high interest rates. Others include Antares Holdings LP and FS KKR Capital Corp. The pressure on publicly traded business-development companies, or BDCs, and private-debt funds that often invest alongside them comes after years of rapid growth that was driven in large part by investors’ search for returns in an era of ultralow interest rates. Total assets under management in private-debt and direct-lending funds had grown to more than $740 billion by the end of September from about $125 billion in 2006, according to Preqin, a research firm.
