Some private credit funds marked the values of their investments significantly lower in the first quarter, their filings show, highlighting the pressure they face as artificial intelligence upends business ​models and projections for small businesses.

A Reuters review of filings by 14 major ‌business development companies (BDCs), which mainly finance private loans to mid-sized companies, showed the aggregate fair value-to-cost ratio fell 103 basis points to 98.55% at the end of March.

The investments were marked at about $1.2 billion below amortized cost ​in total, BDC filings reviewed by Reuters showed, compared with a much narrower discount at ​the end of December.

Some BDC managers said during quarterly earnings calls that ⁠much of the decline reflected market-wide spread-widening rather than borrower-specific stress.

CION Investment Corp's fair value-to-cost ratio ​fell 176 basis points to 91.59% from 93.35%, while Ares Capital Corp's declined 131 basis points ​to 99.50%.

Ratios at Blackstone Secured Lending Fund (BXSL.N) dropped 122 basis points to 97.52%, and Goldman Sachs BDC Inc fell 119 basis points to 94.88%.

The lower marks also coincided with declines in net asset values. BlackRock TCP Capital Corp's (TCPC.O) ​NAV fell 4.95% to $6.72 from $7.07, CION's dropped 4.72% to $13.11, and Sixth Street Specialty Lending Inc's ​declined 4.36% to $16.24.

Goldman Sachs BDC fell 3.72% to $12.17, while Blue Owl Capital Corp dropped 2.70% to $14.41.

The markdowns come as ‌private ⁠credit faces its sharpest scrutiny in years, with analysts and rating agencies warning that weaker borrowers, rising non-accruals and redemption pressure are testing a market that expanded rapidly.

Moody's recently cut its outlook for the BDC sector to negative, while Fitch said redemptions at perpetually non-traded BDCs climbed to 3.8% of ​prior-quarter NAV in the ​first quarter.

At FS KKR ⁠Capital Corp (FSK.N), its adviser KKR plans a $300 million support package after mounting losses, a sharp NAV decline and higher non-accruals.

Meanwhile, Ares Capital said on its ​earnings call that most of its marks were market-driven, while Goldman Sachs BDC ​attributed part ⁠of its NAV decline to broader spread widening and said newer loans were performing well.

MSCI said in a report on Tuesday that private-credit funds have marked down more than 10% of their loans by ⁠at ​least half, as corporate borrowers in the $3.5 trillion market struggle ​with higher debt burdens.

MSCI said loans valued at less than 50% are typically associated with deep distress or restructuring risk.