Interest from PIK loans at BDCs dips amid concerns over credit quality, AI disruption
In this first part of a two-part series, LCD examines PIK interest income among the top 15 exchange-traded BDCs. A subsequent story will include a comparative analysis of interest rates, sector concentrations, and loan sizes.
PIK interest income fell 10% in the first quarter among the top 15 exchange-traded BDCs, as managers worked to right-size portfolios amid growing concerns over credit quality and AI-disruption risk in private credit. Rising investor redemptions added further pressure, pushing BDCs to prioritize liquidity.
Based on March 31 filings, PIK income for the cohort declined to $229 million in Q1, a two-year low. It was the steepest quarter-over-quarter drop in the data dating back to 2021. As a share of total interest income, PIK interest income slipped to 8.2%, its lowest level since Q4 2023.
Key findings:
PIK interest income fell to $229 million in Q1. The 10% decline was the biggest quarter-over-quarter drop in the data dating back to 2021 when PIK interest meaningfully surpassed $100 million.
PIK interest income in the twelve months through Q1 2026 was $979 million, down 4.8% from the LTM Q1 2025 figure of $1.028 billion.
Five of the 15 BDCs reported double-digit declines in LTM PIK interest income, while nine of them reported an increase.
The proportion of PIK interest to total interest declined from 8.6% to 8.2% from Q4 2025 to Q1 2026.
Quarterly PIK interest declines 10%
Among the 15 largest publicly traded BDCs, quarterly PIK interest fell by $25 million, or 10%, to $229 million in Q1, the lowest level since Q1 2024. The drop was primarily driven by reductions of $17 million by FS KKR (FSK) and $9 million by Blackstone Secured Lending Fund (BXSL), which were partially offset by a $6 million increase by Golub Capital BDC (GBDC). Overall, 11 of 15 top BDCs reported decreases in quarterly PIK interest in Q1. Prospect Capital (PSEC) and Bain Capital Specialty Finance (BCSF) had slight increases in PIK interest, and Morgan Stanley Direct Lending (MSDL) posted a marginal gain.
As for cash interest income, the drop was a milder 5% in Q1, to $2.57 billion, as all 15 BDCs except for Capital Southwest Corp. (CSWC) reported declines. The Q1 quarterly cash income was the lowest since Q1 2024 when it was $2.48 billion.
PIK interest income LTM run rate below $1 billion
The latest reading reflects a continued downward trend. PIK interest was $997 million in 2025 and $1.011 billion in 2024. Annualizing the $229 million Q1 PIK interest amount, we estimate a run rate of $916 million.
LTM PIK interest to total interest declined slightly to 8.4% through Q1, from 8.5% in 2025. Assuming that the Federal Reserve does not lower rates this year and that reference rates remain at or above current levels, this ratio will likely remain at the first-quarter’s 8.2% level or lower.
