...Recent Rating Affirmations: Fitch Ratings completed a business development company (BDC) peer review in April 2014, with all BDC ratings affirmed, reflecting modest leverage levels, strong asset quality and improved funding flexibility among other drivers. Negative Industry Outlook: Despite the affirmations, Fitch sees a number of emerging industry challenges that could pressure ratings, or at least increase rating differentiation among BDCs over a longer term horizon. These challenges include a potential increase in regulatory leverage limits, increased competition, reduced dividend coverage, expansion beyond core underwriting competencies and reduced equity liquidity, among others. Leverage Limits Under Review: Ratings for BDCs continue to be supported by a regulatory leverage cap of 1.0x as measured by debt to equity. Still, pending legislation could increase the ceiling to 2.0x. Fitch views a potential increase negatively, but would expect to evaluate each BDC`s use of leverage relative...
