medium · Private Credit & Debt documentation-covenants-terms
A BDC portfolio is valued under ASC 820. A specific loan was originated at par ($100) with a coupon of SOFR + 550. Due to an EBITDA decline, the borrower's internal rating is downgraded, and the market yield for similar risk is now SOFR + 750.
What is the likely impact on the loan's fair value?
- The value will increase to $102 to compensate for the higher risk.
- The loan will be marked at a premium because it is now 'higher yield'.
- The loan will remain at par due to its floating-rate nature.
- The loan will be marked at a discount to par.
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