Redemption pressures intensified across rated business development companies (BDCs) and private credit funds during the second quarter of the year, according to S&P Global Ratings.

Outflows exceeded inflows at all S&P-rated BDCs during the period, reversing the picture seen in the first quarter, when several managers recorded overall net inflows.

There were some signs of improvement in June, when inflows were higher than in April or May, although S&P said it was too early to determine whether this represented a shift in investor sentiment.

Fund managers have also indicated that redemption requests are concentrated among a relatively small number of large investors, rather than being spread widely across their retail investor bases.

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Several managers said between 90 per cent and 95 per cent of investors in their funds had not submitted redemption requests.

S&P warned that continued outflows and slowing fundraising could weaken funds’ liquidity and reduce asset coverage cushions at rated BDCs. However, it said ratings remained stable under its base-case scenario because the firms currently maintain high asset coverage ratios.

“We continue to evaluate the stability of our ratings as we track these redemptions,” the ratings agency said.

S&P also highlighted private credit managers’ continued exposure to the software sector as a key concern, despite efforts by some firms to reduce their allocations.

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Software loans account for 18 per cent of assets in S&P-rated middle-market collateralised loan obligation transactions on a par-weighted basis, and 14 per cent when measured by issuer count.

Exposure varies significantly between managers, with 18 of the 42 firms assessed by S&P holding only single-digit allocations to software borrowers.

The ratings agency said the effect of artificial intelligence on legacy software companies would depend on factors including how deeply products are embedded in customer workflows, whether they are supported by proprietary data and the strength of incumbents’ market positions.

S&P estimates that approximately $50bn (£37bn) of loans to software companies it assesses for credit quality will mature by the end of 2028, down from $60bn at the end of 2025.

As maturities approach, borrowers are expected to seek extensions through loan amendments. S&P said extensions granted without sufficient compensation for lenders could be treated as distressed exchanges and result in selective defaults.

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