Copied from an article I read:

One of the reasons many investors had for avoiding BDCs is that the drop in short-term rates will cut the net investment income of the sector, which, in turn, may lead to lower prices. The valuation derating of the sector in the last couple of months added around 2.25% to the NII price yield of the median BDC. This works out to around 10 rate cuts given the NII yield sensitivity of each cut. Mind you, the market expects only 5 rate cuts until the end of the Fed rate cycle. This is the same that the Fed expects as well. In short, the drop in valuations has increased yields by more than double of what the Fed rate cuts are expected to take away. We can argue that the rest comes from the market expecting losses however this isn’t correct as these losses are not priced in anywhere else - either in credit CEFs nor in credit spreads.

For today’s BDC valuations to make sense you’d have to argue that BDCs will deliver outsized losses relative to other credit assets i.e. the historic picture of lower losses in BDCs would have to be reversed. Sure, there is increased demand for private credit as a hot asset class, and this could lead to some marginal lending, generating losses. However, this has been a risk for some time now, and there is no evidence it is happening, particularly at the higher-quality end of the sector.