Broadening credit concerns driving BDC weakness, KBW says

** Evolving concerns over the credit cycle and economic outlook are driving the weakness in the business development company (BDC) sector, KBW analyst Paul Johnson says

** BDCs have largely underperformed broader markets since the Fed rate hike last month, which KBW says reflects the market pricing in more challenges due to inflation, costlier financing, and further markdowns in asset value

** "Notably, spreads to maturity for CCC-rated loans widened to their highest levels since 2009, indicating heightened risk among the weakest borrowers and increasing tail risk" - Johnson

** CCC-rated bonds are the lowest rung on the credit quality scale

** KBW favors Ares Capital ARCC.O, Sixth Street Specialty Lending TSLX.N, Golub Capital BDC GBDC.O and Hercules Capital HTGC.N given their strong, long-term consistent performance

** BDCs are a wrapper for investors to access ownership in a diversified pool of private credit assets

** Ares Capital ARCC.O, the largest publicly-traded BDC, is set to report Q3 results on Tuesday, October 27

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