Risk Assessment: Business Development Companies (BDCs)

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Asset class: Business Development Companies (BDCs)

Assets: GSBD – Goldman Sachs BDC, BCSF – Bain Capital Specialty Finance, GBDC – Golub Capital BDC

What are BDCs?

Business Development Companies (BDCs) are publicly traded investment vehicles that provide debt or equity financing to small and mid-sized private U.S. businesses, often those underserved by traditional banks. In exchange, BDCs earn high interest income or potential equity upside and are legally required to distribute at least 90% of their income to shareholders, making them attractive for yield-focused investors. While they offer access to private credit strategies typically reserved for institutions, BDCs come with notable risks, including high volatility, credit exposure, and limited transparency in their underlying portfolios.

BDCs have many similarities with private credit funds that we’ve chosen to allocate to in the past - but the differences are simple. BDCs are exposed to more volatility than private credit funds (due to being publicly listed), but offer deeper liquidity. This tradeoff has the potential to be interesting for Noon’s deployments.

Read our full BDCs Primer for a detailed walkthrough of how they work, risks, examples, and trusted learning resources.

Here are a few details of the more notable BDCs:

GSBD – Goldman Sachs BDC

Manager: Goldman Sachs Asset Management
Focus: Middle-market lending, predominantly senior secured loans
Yield Profile: Historically offers attractive dividend yields (~9–11%)
Strengths:

• Backed by Goldman Sachs’ institutional credit research and origination network
• Focus on first-lien senior secured loans provides structural protection
• Conservative leverage relative to peers

Considerations:

• Merged with Goldman Sachs Middle Market Lending Corp in 2020 to scale
• Portfolio somewhat concentrated in certain sectors (e.g., software, healthcare)
• Sensitive to credit cycles and borrower defaults due to exposure to leveraged companies

BCSF – Bain Capital Specialty Finance

Manager: Bain Capital Credit
Focus: Senior secured loans to middle-market companies, with select exposure to subordinated debt
Yield Profile: Competitive dividends (~9–10%), relatively stable
Strengths:

• Part of Bain Capital’s global private investment platform with deep credit expertise
• Broad diversification across industries (over 100+ portfolio companies)
• Emphasis on conservative underwriting and downside protection

Considerations:

• Slightly higher allocation to non-first lien debt than some peers
• NAV has shown some volatility in periods of market stress
• Returns can be impacted by macroeconomic shifts affecting borrower performance

GBDC – Golub Capital BDC

Manager: Golub Capital
Focus: First-lien senior secured loans, primarily to U.S. sponsor-backed companies
Yield Profile: Slightly lower than peers (~7–9%), but with lower volatility
Strengths:

• Known for underwriting high-quality credits with strong financial sponsors (e.g., PE-backed deals)
• Historically lower loan loss rates than peer BDCs
• Conservative investment approach and strong historical credit performance

Considerations:

• More conservative risk profile means slightly lower yields
• Portfolio concentrated in certain sectors like software and healthcare services
• Less trading volume than larger BDCs, which may impact liquidity for public shareholders

Key statistics for prominent BDCs

Noon Risk Assessment: Summary

Noon Risk Assessment: Details

Market Risk
Moderate — BDCs have a beta between 0.27 and 0.5 vs. the S&P 500, meaning they do exhibit public equity market sensitivity, especially in stressed conditions.

Volatility Risk
Moderate Sharpe Ratio — While some BDCs show moderate Sharpe ratios (0.29–0.68), drawdowns can be severe. During COVID, the worst monthly drawdowns ranged from -13.1% to -46.1%.

Credit Risk
Moderate — BDCs lend to smaller, riskier borrowers, with credit quality and underwriting varying by manager. Some focus on senior secured debt (e.g., Golub), while others take more subordinated risk.

Liquidity Risk
Low — BDCs are publicly traded and offer daily liquidity via public markets. Most have strong trading volume and market depth.

Counterparty Risk
Low — Most leading BDCs are managed by reputable, regulated firms like Blackstone, Ares, and Bain Capital, though transparency into the underlying portfolio varies.

Smart Contract Risk
None — BDCs are traditional financial products and don’t interact with blockchain systems.

Our analysts’ recommendation

We have performed the analysis on BDCs to share with our community, and allow our users the opportunity to weigh in on whether Noon’s capital deployment should extend to BDCs.

After our analysis, for several reasons, our analysts recommend that we do not add BDCs to Noon’s permissible deployment strategies at this time. Why?

The short version: BDCs are too volatile for Noon’s current strategy. Because USN is a stablecoin, its collateral value should not be exposed to price swings. That’s why we’re only looking for delta-neutral strategies, or ones with very low price volatility. Noon only incorporates yield sources with stable and predictable returns—qualities BDCs currently don’t provide due to their exposure to public market price swings.

Additionally, while yields can be high, they’re not guaranteed—and the underlying portfolios of BDCs can be opaque and illiquid. We do not believe that the risk-return trade-off, or maybe the volatility-return trade-off, fits into our basket of deployment strategies at this time.

However, our analysts do recommend that we keep an eye on BDCs - and review new assets in this class, in addition to quantitative deployment strategies that deploy into this asset class. There is something extremely compelling about the ability to access the types of instruments that BDCs can uniquely deploy into - but we believe additional work must be done for Noon to deploy in a comfortable manner.

Let’s Open the Discussion, Noon Community:

While our recommendation is clear, the ultimate decision is up to our users. We invite you to participate in the discussion below on whether to add BDCs to our basket of deployment strategies in our governance forum for the next 3 weeks. After that, we will invite all $sNOON holders to cast their votes in our voting forum to officially include or exclude BDCs from our permitted deployment strategies.

In the the discussion below, please let us know your thoughts on the following questions:

1. Do you think BDCs should be added to Noon’s basket of deployment strategies?

2. If so, which BDCs do you think fit the best with Noon’s risk-return profile, and complement our other deployment strategies?

We’re evaluating all angles and looking to learn from our community as we explore the potential of this asset class.

Drop your comments below. Let’s think through this together

[Okhty21]

Really cool explanation

[pierrot498]

Good analysis, makes sense to pass for now

[rayslim]

Really good analysis, i’d keep an eye on them but wait until there is a large amount of more secure liquidity and then reassess.

[Dwija]

Great insights, looking forward for more

[ritzardxiii]

As a longterm investor. I would want a passive low-medium yield with very low risk.
And being a new token. I personally think we should be stable and avoid volatile and risky moves.
build the foundation 1st before we delve into something risky.
and must always make sure that the value of $USN would be on 1:1 always

[Deus]

Even if BDCs aren’t a fit today, this kind of open governance process is what makes Noon stand out. I’d vote no for now, but fully support keeping the door open for future iterations.

[max_noon]

Love it. Seems like BDCs can provide beautiful returns, but can also experience some drawdowns during market stress.

[Sasha]

Risk-managed experimentation could be a middle ground.

[Alice]

I agree with the recommendation to hold off on BDCs for now.

[arpan]

This is all great feedback - thank you very much for taking the time to read through our analysis on BDCs!

Our view from the start is that our returns need to always be positive - no down days. We never want to put our underlying collateral at risk - and there should never be a question whether our underlying assets are safe.

We can then “experiment” within those narrow parameters, if needed. After looking closely at BDCs, I am not even sure if experimentation is necessary at this stage to conclude that this is too volatile of an asset class for us at this time. There may be some cool things we can do with timing entry / exit, etc - but I think we’re some time away from those kinds of strategies.

But this is a very interesting (and relatively new) asset class - and with the emergence of new BDCs, will be interesting to see if we can get comfortable with them in the future.

Thank you again, and of course, welcome more thoughts on this subject. I think we have another few weeks until we close this discussion and turn to the vote!

[jormpt]

Appreciate the detailed analysis here. As someone who dabbles in researching stablecoin strategies across DeFi (when I find the time), I wanted to share a few thoughts.

In short, I agree with the conclusion not to include BDCs in Noon’s current deployment basket. The volatility profile alone makes them a tough fit for a protocol that promises stable, delta-neutral returns. That said, I think the bigger issue is strategic: Noon is drifting a little far from what most yield-bearing stablecoin protocols are doing in 2025.

Most of the major projects in this category are leaning hard into DeFi-native strategies. Think sDAI via Spark, lvlUSD with its lending pool returns, or even USDe from Ethena with the basis trade setup. These models are fully onchain, transparent, and built for composability. They’re not perfect—USDe has its own risk issues—but they’re more aligned with the ethos and expectations of a decentralised stablecoin user base.

We’ve also seen strong recent growth in DeFi lending rates. I think it makes sense to explore this more deeply. Stable yields have risen sharply just over the past few days, and will likely remain at these levels and possible exceed them in the medium term. While the BD side of acquiring such partnerships is perhaps out of my scope, it may be worth sizing them up to capture slightly better-than-average returns while still keeping within our delta-neutral framework.

Not to knock, but Noon feels like it’s doing the reverse of the typical “DeFi mullet.” Instead of CeFi frontend, DeFi backend, it’s kind of the opposite: transparent UX, but the yield engine feels more opaque and TradFi-flavoured. That may work for now, but it could become a liability if users can’t trace all yield sources in real-time onchain or understand the real risk profile of underlying deployments.

I get the appeal of BDCs. They offer exposure to private credit markets and attractive yields, and they’re liquid, which is rare in that asset class. But the price volatility, credit opacity, and macro sensitivity just don’t sit right with a stablecoin collateral base in a decentralised market that just got a huge gust of wind in the sails.

That said, if we’re thinking about alternatives, I do think there’s room for ETH-flavoured strategies that still align with Noon’s goals. For example:

• Delta-neutral structured products around ETH, like stETH vs. weETH basis trades.
• Composable fixed yield products on Pendle using ETH LSDs.
• Providing liquidity with ETH/stable pairs in Balancer-style vaults where LP positions are hedged.
• Holding ETH in a treasury capacity as protocol-owned reserves, separate from user-facing deployments.

With today’s passing of the GENIUS act, there’s perhaps an incentive to double down on decentralised, composable yield routes while we still can.

These are also the last-minute thoughts of a sleep-deprived person. I may have scrambled a bit to get this together before discussion closes, and I hope I have been sufficiently considerate to the Noon ethos and operation! As always, appreciate the open discussion, and I look forward to hearing other views.