{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,23]],"date-time":"2026-10-23T20:43:38Z","timestamp":1792788218043,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/www.uspto.gov\/ip-policy\/copyright-policy\/copyright-basics"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>We uncover a novel stylized fact about the interest rate exposure of business development companies (BDCs): unlike traditional banks, BDCs exhibit substantial positive net interest income exposure to rising interest rates. BDCs predominantly hold floating-rate loans while financing their investments with a combination of fixed-and floating-rate debt. This balance sheet structure allows interest income to rise more than interest expense when rates increase. Yet, despite this favorable exposure, BDCs contract new lending following monetary tightening, accompanied by a decline in average spreads on newly originated loans and a shift toward safer borrowers. We argue that three distinctive features of BDC intermediation model help explain this disconnect: floatingrate lending increases borrowers' debt-service burdens and credit risk, market discipline makes BDCs' funding costs sensitive to portfolio risk, and payment-inkind (PIK) provisions create contingent liquidity demands on lenders precisely at a time when the shadow cost of liquidity is higher. Together, these features can transform positive interest rate income exposure into heightened credit and liquidity risks that constrain lending. Our findings highlight how interest rate risk transferred to borrowers can feed back to intermediaries, weakening credit supply even as their reported income increases.<\/jats:p>","DOI":"10.2139\/ssrn.7662741","type":"posted-content","created":{"date-parts":[[2026,10,23]],"date-time":"2026-10-23T20:08:06Z","timestamp":1792786086000},"source":"Crossref","is-referenced-by-count":0,"title":["Interest Rate Risk in Private Credit"],"prefix":"10.2139","author":[{"given":"Isha","family":"Agarwal","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Tetiana","family":"Davydiuk","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Tatyana","family":"Marchuk","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,23]],"date-time":"2026-10-23T20:08:06Z","timestamp":1792786086000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7662741"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7662741","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}