Nonaccrual
Private Credit glossary · Loan Structures & Instruments
Definition
Loan status where income recognition ceases because full collection of principal and interest is no longer probable — typically when the borrower is more than 90 days past due or has defaulted on a material covenant. While on nonaccrual: (i) interest is recognized only when cash is actually received, (ii) the loan is typically marked at 40%–80% of par to reflect distressed pricing, and (iii) it is reported as nonaccrual on the BDC's 10-Q. Nonaccrual rate (nonaccrual fair value / total portfolio fair value) is a leading indicator of realized losses.
Nonaccrual in plain English
When a lender books a loan, it normally counts the interest as income as it piles up, even before the cash arrives — but only while it truly expects to get paid. 'Nonaccrual' is the moment the lender admits, 'I no longer believe I'll fully collect this,' usually because the borrower is more than 90 days late or has broken a key promise in the contract. From then on the lender stops counting expected interest and only records money it actually receives, and it marks the loan's value down — often to just $40 to $80 for every $100 of face value — to reflect that the debt is now troubled. Because it's an early confession of pain, the nonaccrual rate (troubled loans as a share of the whole portfolio) is one of the first warning signs that real losses are coming.
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