The Funding Structure of Direct Lenders

Private credit funds intermediate illiquid, long-horizon loans with bank-dependent and increasingly encumbered liabilities, without the deposit-insurance or lender-of-last-resort backstops that support banks. We construct the first facility-level panel of the complete liability structure of U.S. Business Development Companies (BDCs) — the only segment of the market that files audited financial statements — covering 195 BDCs, more than 2,900 funding facilities, and $267 billion in outstanding debt from 2017 to 2025, and ask whether this funding structure is itself a source of fragility that markets recognize. We document a three-tier funding hierarchy — secured bank, securitized, and unsecured — governed by listing status rather than size: public BDCs substitute toward unsecured notes, whereas 72% of private-BDC debt is bank-originated and the median private BDC has no unsecured market access, a divide that persists even among the largest funds. Public BDCs face market-dependent refinancing risks due to a growing unsecured maturity wall, from $2.4 billion in 2023 to $18.1 billion in 2026, whose near-term exposure predicts larger stock-price declines during credit stress, and only since 2023, once the wall became material. Neither undrawn credit lines nor cash holdings attenuate this repricing consistent with investors recognizing that bank liquidity backstops cannot resolve a possible rollover risk problem, for example, because of borrowing bases or other lending restrictions.