Business development companies lend to private businesses. Their distribution begins with interest collected on those loans, not with the headline yield or net asset value alone.
BDCs can hold very different loan portfolios under the same tax structure. The labels below identify the working parts DFB traces through a filing.
NII is the income left after interest expense and operating costs. It is the starting point for a recurring distribution, but it still needs to be read beside fee income, incentive compensation and the credit quality underneath it.
First-lien loans sit higher in a borrower’s capital structure than second-lien, subordinated debt or equity. Seniority does not remove loss risk, but it changes where a lender stands when a credit deteriorates.
Payment-in-kind interest is added to the loan balance instead of collected in cash today. It can be contractual and valid, but it separates reported income from immediate cash collection.
A loan is placed on nonaccrual when the lender no longer recognizes interest as income under its policy. It is a visible credit marker, but it must be read with watch-list credits and realized losses.
BDCs borrow against their portfolios. The cost and maturity of that borrowing affect how much portfolio income remains after interest expense, especially when base rates or credit spreads move.
There is no single BDC model. These names are commonly used as public examples of the asset class; classification is not an opinion about valuation, safety or suitability.
Read the loan book.
Separate cash interest from PIK.
Check nonaccruals and marks.
Read the funding stack.
Then judge the distribution.