A loan is placed on non-accrual when its lender stops recognizing interest income because collection has become doubtful — typically after payments go 90+ days past due, or sooner when management concludes full collection is unlikely. The non-accrual rate is a credit portfolio’s headline distress statistic, and reading it well is core BDC literacy.
How non-accrual status works
Accrual accounting recognizes interest as earned; non-accrual status halts that — the loan stops contributing income, previously accrued-but-unpaid interest is generally reversed, and cash received (if any) is often applied to principal rather than income. The transitions are the news events: a loan going on non-accrual signals recognized deterioration (usually after quarters of visible stress in marks); coming off signals restored performance or restructuring. In BDC and credit-fund reporting, the rate is disclosed two ways — non-accruals as a percentage of portfolio at fair value and at cost — and the gap between them is informative: the fair-value figure is lower because troubled loans are already marked down, so the cost-basis figure better represents how much of the original book has soured, and both belong in any quarter-over-quarter read alongside the watch-list and mark migration. The reading nuances that separate analysis from headline-checking: sector context (rates ran historically low through the 2010s and rose with floating-rate stress; comparing a lender to peers matters more than absolute levels), **what’s not on non-accrual** — amendments, PIK conversions, and maturity extensions can keep struggling loans technically current, deferring the statistic (rising amendment-PIK alongside flat non-accruals is the pattern worth questioning) — and restructuring outcomes: loans exit non-accrual through recovery, workout, or realization of loss, and which door dominates is the manager’s actual credit record.
Related terms
PIK (Payment-in-Kind) · BDC · Distressed Debt · Going Concern · Direct Lending
Educational content only; not investment, tax, or legal advice. Consult qualified professionals regarding your specific circumstances.
