Blue Owl Technology Finance and FS KKR Capital both reported first-quarter losses after valuation declines outweighed positive investment income, offering a clear view of the pressure building across listed business development companies. The results show why dividend income alone can give an incomplete picture of performance when loan values are falling and leverage is rising.
Blue Owl Technology Finance recorded GAAP net investment income of $0.37 a share for the three months to March 31, 2026, but net realised and unrealised losses of $0.84 a share produced a $0.47-a-share decrease in net assets from operations. Net asset value fell to $16.49 a share from $17.33 at the end of 2025. The company attributed most of the decline to wider credit spreads rather than a broad deterioration in borrowers, while non-accrual investments remained at 0.1% of the portfolio at fair value.
The balance sheet still moved in a less comfortable direction. Blue Owl Technology Finance ended the quarter with $14.1bn of investments at fair value and net debt to equity of 0.85 times, up from 0.75 times three months earlier. The portfolio remains heavily exposed to floating-rate credit, with 96.3% of debt investments carrying floating rates, leaving earnings sensitive to changes in benchmark rates as well as borrower performance.
FS KKR Capital reported a steeper accounting loss. Net investment income was $0.42 a share, but total net realised and unrealised losses reached $2.00 a share, resulting in a quarterly loss of $1.57 a share. Net asset value dropped to $18.83 from $20.89, while net debt to equity increased to 131% from 122%. Its portfolio was valued at $12.3bn at March 31, with 63.7% invested in senior secured securities.
FS KKR responded with measures intended to support shareholder value and balance-sheet flexibility. A KKR subsidiary agreed to invest $150m through cumulative convertible perpetual preferred stock, while KKR also announced a tender offer for up to $150m of common shares. The board authorised a separate $300m share repurchase programme. Those actions may reduce the discount between the share price and net asset value, but they do not remove the underlying need to stabilise portfolio valuations and control leverage.
Fitch Ratings has maintained a deteriorating outlook for the US BDC sector, citing pressure on net investment income, asset quality and funding flexibility. Its June review found that nine BDCs were at or above 1.25 times leverage at March 31. Fitch has also highlighted the sector’s use of payment-in-kind interest, which represented an average 8.1% of interest and dividend income in 2025 among the firms it reviewed. PIK can support reported income while adding interest to a borrower’s outstanding debt rather than producing immediate cash.
The Financial Stability Board has separately identified credit risk, valuation uncertainty, leverage, funding pressure and liquidity mismatches as areas requiring closer monitoring in private credit. Listed BDC filings provide more visibility than many private vehicles, but fair-value assumptions, joint-venture structures and non-cash income still require careful interpretation.
The immediate accounting lesson is to separate net investment income from the full movement in net assets. Cash interest, PIK income, realised losses, unrealised markdowns and financing costs have different implications for dividend capacity and capital resilience. Second-quarter reporting will show whether the first-quarter declines were mainly a market-pricing event or the start of a more persistent deterioration in borrower credit and fund profitability.
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