Kayne Anderson BDC NYSE: KBDC reported higher third-quarter investment income and maintained its quarterly dividend, even as credit problems in several portfolio companies weighed on net asset value and pushed non-accruals higher.
The business development company generated net investment income of $0.46 per share for the third quarter of 2026, up from $0.42 in the preceding quarter and its highest level in five years, Co-CEO Doug Goodwillie said. Net investment income covered the $0.40 quarterly dividend by 115%.
The board declared a fourth-quarter dividend of $0.40 per share, payable Jan. 19, 2027, to shareholders of record on Dec. 31, 2026. Kayne Anderson had approximately $0.32 per share in undistributed net investment income as of Sept. 30.
Goodwillie said management remained confident in its ability to maintain the base dividend, citing portfolio spreads and expectations for higher interest rates. Co-CEO Ken Leonard cautioned that the board had not provided approval or guidance for a 2027 dividend. He said third-quarter net investment income comfortably exceeded the dividend even excluding $1.7 million of non-recurring income.
Credit Issues Pressure Net Asset Value
Net asset value fell to $15.71 per share from $16.00 at the end of the second quarter. The $0.29 decline reflected $0.36 per share in net realized and unrealized losses, partly offset by income above the dividend and the benefit of share repurchases.
Goodwillie said more than 70% of the quarter’s net realized and unrealized losses came from three investments: American Soccer, Centerline Communications and Seagull Egg. He characterized their difficulties as company-specific rather than evidence of a broader credit problem, while acknowledging that the watch list and non-accruals were elevated compared with historical levels.
Non-accrual investments rose to 3.6% of the debt portfolio at fair value from 2.7% in the prior quarter. At amortized cost, they represented 5.4%, up from 4.5%. The investments spanned eight borrowers in six industries.
Centerline was the only new addition to non-accrual status and accounted for approximately $28 million of the $78.4 million in non-accrual investments at fair value, President Frank Karl said. Management expects to complete a restructuring in the fourth quarter and anticipates that a sizable portion of the position will return to accrual status. Goodwillie said that, all else being equal, the change should bring the non-accrual rate back in line with the prior quarter’s level.
Kayne Anderson also restructured American Soccer during the quarter, exchanging a portion of its existing debt for new debt and preferred equity. The position remained on non-accrual, and the company recorded a $14.9 million realized loss related to the restructuring.
After quarter-end, Kayne Anderson completed the sale of Regiment. Goodwillie said its debt was repaid at a value approximately 10 points above the prior-quarter mark of 75.5% of par. Leonard described the transaction as a full exit, apart from a small escrow expected to unwind over the next year.
Investment Activity and Financial Results
The portfolio held investments in 100 companies with a fair value of $2.2 billion at Sept. 30, along with $281 million of unfunded commitments. Approximately 93% of the portfolio was first-lien senior secured, and 92 companies were paying current interest, Goodwillie said.
Kayne Anderson made $76.3 million in new commitments across 10 private credit investments during the quarter. Fundings totaled $91.9 million, while repayments reached $114.9 million, resulting in a $23 million net decrease in funded investments.
Karl said the company had closed or had visibility into nearly $50 million of new commitments since quarter-end and expected fourth-quarter realizations to be similar to those in the third quarter. Leonard said the company expected new investments to be roughly equivalent to realizations, with leverage remaining within its target range.
Total investment income rose to $59 million from $55.7 million in the second quarter, primarily reflecting higher prepayment fees and accelerated accretion from realizations, as well as higher average outstanding private credit balances, CFO Terry Hart said. Total expenses increased to $28.8 million from $28.2 million.
The company ended the quarter with $508.7 million in liquidity and a debt-to-equity ratio of 1.17 times, unchanged from the prior quarter. It repurchased 265,761 shares for $3.6 million at an average price of $13.61 per share. Leonard said purchases had continued since quarter-end and that approximately $93 million remained available under the company’s repurchase plan.
About Kayne Anderson BDC (NYSE:KBDC)
Kayne Anderson BDC, Inc is a business development company that invests in privately held, middle-market companies. The company seeks to generate current income and, to a lesser extent, capital appreciation by providing financing to businesses that may have limited access to traditional sources of capital.
Its investment activities primarily consist of loans and other debt investments, including senior secured, unitranche and subordinated debt. Kayne Anderson BDC may also make equity and equity-related investments in portfolio companies.
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