Against the backdrop of depreciation, as with Prospect Capital Corp. and Fifth Street Finance Corp., heightened investor scrutiny may be on the horizon for BDCs dealing with issues like fair value marks and lower yields. Companies can increase leverage to offset lower yields, but there is a limit to how much leverage BDCs can employ and what investors and rating agencies will accept. High payout ratio companies like BDCs are susceptible to dividend cuts. Lower payout ratio entities such as commercial banks are not as long as credit quality is okay, but future dividend hikes may be much more limited than envisioned by investors for the same reason.
