INTRODUCTION

We’re relaying to our BDC Reporter readers a development just written about in our sister publication – the BDC Credit Reporter. Twelve BDCs – including 3 public ones – have – in aggregate – huge exposure to a “national security and technology company” which appears to be in financial trouble. The Credit Reporter believes the outstandings involved – just over $600mn at cost – may be the largest currently to a single entity in the BDC space. Should the credit situation worsen – and a default and/or restructuring follow – this could be a bigger story than last year’s failure and subsequent patch-up by the lenders of Pluralsight.

Re-Published From the BDC Credit Reporter

Peraton Corp or Peraton Holding Corp: Reduced In Value By BDCs

Downgraded From CCR 3 To CCR 4. Becomes Major Important Underperformer

May 29, 2025

Peraton is a leading privately held American national security and technology company headquartered in Reston, Virginia, with significant operations across the United States. The company provides advanced IT, intelligence, cyber, defense, and homeland security solutions, primarily serving federal, state, and local government agencies as well as select commercial clients. Peraton operates in the government technology and information technology and services industry, with SIC codes including 7372 (Prepackaged Software), 7374 (Computer Processing and Data Preparation and Processing Services), and 73740104 (Service bureau, computer). The company is owned by the private equity firm Veritas Capital, which has orchestrated several major acquisitions to expand Peraton’s capabilities and scale, including the $3.4 billion purchase of Northrop Grumman’s federal IT business and the $7.1 billion acquisition of Perspecta. 

Perplexity Summary

This defense contractor has only recently become a cause for credit concern when downgraded from a 2 rating to a 3 in the IVQ 2024 and then to a 4 in the IQ 2025. The initial reasons for the downgrades were that both the company’s first lien and second lien have been written down in value by their lenders, including 3 public BDCs: FS-KKR Capital (FSK); Blue Owl Capital (OBDC) and Palmer Square Capital (PSBD). A host of non-traded BDCs are involved as well.

Total BDC exposure at cost is very high – $607mn – exceeding the amount lent to the infamous Pluralsight before its recent restructuring. The downgrade to a corporate credit rating of 4 and the amount at risk makes this a Major Important Underperformer. There are only a handful of BDC borrowers in this category which encompasses any company to whom the BDCs have $100mn or more lent to at fair market value with a rating of 4 or 5. In fact, we checked our database and with an FMV of $532mn Peraton is the BDC-financed company with the greatest amount invested.

If that was not enough to cause us to pay attention, we also hear that two famous ratings groups are not happy with the company:

Moody’s Investors Service downgraded Peraton by two notches to Caa2 from B3 with a negative outlook yesterday, May 12, following Fitch Ratings’ earlier one-notch downgrade to CCC+ from B-.

Apparently Moody’s cited Peraton’s “elevated debt levels, underperformance in profitability, and increased exposure to risks related to federal government spending as key factors for the downgrade”. Moody’s outlook was negative, which means matters could get worse. Fitch had very similar concerns.

We expect a realization event to occur in 2025. A news report on April 11, 2025 indicated that “a group of Peraton lenders has hired Centerview as financial advisor amid growing concerns over the company’s exposure to federal spending cuts, according to two sources familiar with the matter”.

Talk about gathering clouds…Causing us further concern is that a good deal of BDC exposure is in second lien debt, which is due in 2029. Based on what we’ve seen of late when highly leveraged companies get into trouble, we’d expect very little recovery for any junior position. We are presuming that if a realized loss does occur the range will be 25%-50%, with the first lien closer to the bottom of the range and the second lien closer to the top. Or worse. Some ($60mn) of annual interest income is at risk of interruption and if our worse case occurs ($30mn) could be permanently lost.

The public BDC with , far and away, the biggest exposure is FSK, but all $294mn is in first lien debt. OBDC has only lent $57mn, but all of. that is in second lien. (Other Blue Owl non-traded BDCs have some big dollars committed as well). PSBD’s debt is in both first and second lien but amounts to only about $11mn.

We’ll be keeping a close eye on Peraton because a default would be felt across the leveraged loan space. According to an article, the company’s debt is the third largest held by CLOs and – as we’ve noted – BDC exposure is substantial.

VIEWS

Direct Impact

We’ve recently been critical of the mainstream financial press about repeatedly warning about credit catastrophes supposedly coming to the realm of private credit, of which BDCs are a notable sub-set.

As we’ve tried to explain, our problem is not necessarily with the conclusion but on the data which these warnings are relying, which are flawed or simply wrong.

Better to look – as the BDC Credit Reporter and the BDC Reporter do – for concrete evidence amongst the 7,000 or so borrowers that the BDCs finance.

Not So Bad

Through the IQ 2025, the data has shown only modest sector-wide credit deterioration – as reflected in most BDCs reporting a drop in their Net Asset Value Per Share (NAVPS).

Twice as many BDCs NAVPS dropped quarter over quarter in the IQ 2025 than a year before: 38 versus 19.

However, many BDCs continue to boast of credit metrics that are substantially better than their own historic averages and those of the sector.

The BDCs involved are some of the largest and most respected players and operate in all segments of the market from the upper middle market to the lower middle market and everything in between as well as the venture debt segment and those who operate in what some call “alternative assets”.

Above Notwithstanding

With that said, we’ve promised to keep our minds open and our eyes peeled for anything untoward.

This developing situation at Peraton qualifies, both because of the huge amounts the BDCs have invested and because the problems at the company seem to be related to the seismic changes the Trump Administration is causing to happen in many areas of the U.S. economy.

“One swallow does not a summer make” but we thought this significant enough to brief our readers about.

Not On The Radar

We did check with Perplexity about whether the mainstream financial press had reported on this “developing story”. Here’s their summary:

“Mainstream Business Media:

• CNBC, Yahoo Finance, Financial Times: There is no evidence from available sources that Peraton’s financial challenges or credit downgrades have been a major story on these platforms in 2025. CNBC’s recent coverage focuses on other companies and broader market trends, not on Peraton’s specific situation15.
• Bloomberg: Main Bloomberg business and markets coverage does not appear to have featured Peraton’s financial troubles as a headline story in 2025, though its legal-focused outlet (Bloomberg Law) has covered contract-related disputes” – Perplexity