Reading a BDC's Schedule of Investments

§ 01Key point

Par minus fair value = unrealized loss. A loan marked at 85% of par signals the manager already expects partial loss.

§ 02Compare

§ 03Key point

Unitranche, clarified. A unitranche is NOT a 'blended first-and-second lien' instrument with mid-tier recovery. It is a single senior secured loan that combines what would otherwise be a separate first-lien and subordinated piece into one instrument with one blended interest rate. The borrower signs ONE credit agreement, the lender (or syndicate) has first-lien priority on collateral, and recovery in distress looks like senior-secured (~75-85%), not mezz. When two or more lenders share a unitranche, they may sign an Agreement Among Lenders (AAL) that re-tranches the economics privately — the 'first-out' lender gets paid first from collateral proceeds, the 'last-out' lender takes a higher coupon but absorbs the first dollars of loss. The borrower never sees the AAL; from their side it is still one loan with one rate. This single-instrument design is why unitranche grew so rapidly in middle-market private credit: faster execution, one set of covenants, one lender to negotiate with.

§ 04Try it

§ 05Key insight

When fair value falls below par, the manager believes the borrower's credit has deteriorated and full repayment is unlikely. A 30% mark-down is severe and often precedes the loan moving to non-accrual status. Watch the Schedule of Investments for clusters of marked-down loans concentrated in a single sector or sponsor — concentration in the impairments is a stronger deterioration signal than the same total dollar loss spread evenly across an otherwise healthy book.

§ 06Check-in