Kayne Anderson BDC NYSE: KBDC reported second-quarter 2026 net investment income of $0.42 per share, exceeding its quarterly dividend by $0.02 per share, while net asset value declined amid realized and unrealized portfolio losses and the completion of its exit from broadly syndicated loans.
The company’s board declared a regular third-quarter dividend of $0.40 per share, payable Oct. 16 to shareholders of record as of Sept. 30. Co-Chief Executive Officer Ken Leonard said the dividend represented an annualized yield of about 10% based on current NAV per share and a dividend coverage ratio of 105%.
“We remain confident in our ability to sustain this dividend through 2026,” Leonard said. Annualized return on equity based on net investment income was 10.5% during the quarter.
Net Asset Value Declines on Portfolio Losses
Net asset value per share was $16.00 as of June 30, down $0.23, or 1.4%, from $16.23 at the end of the prior quarter. The decrease reflected $0.26 per share of realized and unrealized losses, partly offset by $0.02 per share of net investment income above the dividend and $0.01 per share from accretive share repurchases.
Chief Financial Officer Terry Hart said the company recorded net income of $0.16 per share and total investment income of $55.7 million, compared with $57.3 million in the first quarter. The decline in investment income was primarily attributed to $2 million less in payment-in-kind, or PIK, interest tied to ArborWorks. The prior quarter included a catch-up recognition of income that had been deferred since the fourth quarter of 2023 after the investment returned to accrual status.
Interest income was also affected by American Soccer being on non-accrual during the second quarter, Hart said, though new investments and the rotation out of broadly syndicated loans partly offset that impact.
Second-quarter realized losses totaled $12.2 million, including a $9.4 million loss from the liquidation of Sundance, a $0.9 million loss related to the restructuring of Diverzify debt, and $1.9 million of losses from selling the remaining broadly syndicated loan positions. Net unrealized losses were $4.6 million, primarily due to valuation changes in American Soccer, 4over and Regiment Security.
Private Credit Originations Continue as BSL Exit Concludes
KBDC closed $138.7 million of new private-credit commitments during the quarter and funded $146.4 million, including new investments and draws on existing unfunded commitments. New floating-rate loans carried an average spread of 566 basis points over SOFR, 17 basis points wider than in the first quarter.
Leonard said the company continued to reject opportunities where risk-adjusted returns, sector exposure or leverage profiles did not meet its standards. He cited demand from middle-market borrowers, slower capital formation in non-traded and private investment vehicles, and higher risk premiums as factors supporting current loan pricing.
Repayment activity totaled $67.9 million, including $38.1 million of private-credit repayments and $29.8 million from sales of the remaining broadly syndicated loan positions. President Frank Karl said the company has now fully exited the broadly syndicated loan portfolio, which had been intended as a temporary allocation following KBDC’s initial public offering.
Karl said the broadly syndicated loans had spreads of roughly SOFR plus 300 basis points, compared with the 566-basis-point average on the company’s second-quarter direct-lending originations. “You are picking up 250 basis points plus or minus on a rotation out of those names,” he said.
Portfolio Credit Metrics and Liquidity
As of June 30, KBDC’s portfolio consisted of 104 companies with a fair value of $2.3 billion and $293 million of unfunded commitments. Since quarter-end, the company had closed or was finalizing $69 million of new commitments, Karl said.
Excluding watch-list and opportunistic investments, portfolio companies had weighted-average leverage of 4.5 times, interest coverage of 2.4 times and loan-to-enterprise value of about 43%. The weighted-average EBITDA of its private middle-market borrowers was $53.7 million.
Non-accrual investments represented 2.7% of debt investments at fair value, up from 2.5% in the prior quarter. KBDC added 4over and Diverzify Intermediate LLC’s last-out tranche to non-accrual status, while Sundance was removed from non-accrual after its position was fully realized.
Karl said the company’s watch list represented about 5.5% of the debt portfolio’s fair value and had remained relatively consistent over an extended period. He described the credit environment as showing signs of “a shallow, slow slowdown,” including increased non-accruals and restructurings across the market.
PIK income fell to 4.5% of total investment income from 7.5% in the first quarter, following the one-time ArborWorks catch-up. The weighted-average portfolio yield, excluding non-accruals, rose to 10.2% from 10.1%, aided by the shift from broadly syndicated loans to higher-yielding private-credit investments.
Leverage Remains Within Target Range
KBDC ended the quarter with $1.238 billion of debt outstanding and a debt-to-equity ratio of 1.17 times, up from 1.05 times at the end of the first quarter. Management said the increase mainly reflected expected realizations shifting into the third quarter rather than a deliberate effort to raise leverage.
The company targets a debt-to-equity ratio of between 1.0 and 1.25 times and expects to operate around the midpoint of that range over time. Liquidity totaled $476.7 million at quarter-end, including $39.7 million in cash and equivalents and $437 million of undrawn committed debt capacity.
Karl said KBDC expects some realizations during the third quarter, including transactions that had slipped from the second quarter, and does not anticipate a significant change in leverage. He also said approximately 5% of the portfolio is scheduled to mature during the second half of 2026, absent a material acceleration in exit activity.
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.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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