Kayne Anderson BDC, Inc. (KBDC) stock intrinsic value fair value estimate & owner earnings analysis

Kayne Anderson BDC is a publicly traded business development company that lends to private middle-market U.S. companies (roughly $10 million to $150 million of EBITDA), mostly backed by private equity sponsors. At December 31, 2025 it held about $2,198 million of investments in 107 companies, 93.2% first-lien senior secured loans, 4.9% subordinated debt and 1.9% equity, with 95.7% of debt investments at floating rates. It is managed by KA Credit Advisors, which charges a 1.00% base fee on investments plus an incentive fee on income. It uses leverage: debt-to-equity was about 1.02x (asset coverage 198%) at year-end 2025. How we measured earnings. A lender's cash flow statement is dominated by loan purchases and repayments, which are the business itself rather than a cost of running it (operating cash flow was negative $98.7 million in 2025 and negative $544.5 million in 2024 because of net loan growth). The usual cash-flow-based approach therefore cannot be applied here. We instead used net investment income per share: interest and fee income after all expenses, including interest on borrowings and advisor fees. It has no stock compensation or plant spending to deduct, and it is before gains and losses on the loan book, which we charge through the growth path and the cases. Net investment income per diluted share was $0.94 (2021, a partial ramp-up year), $1.48 (2022), $2.16 (2023), $2.03 (2024) and $1.67 (2025). Earnings level. We anchor on $1.66 per share, essentially the 2025 result. Earlier years are not representative: 2023 and the first months of 2024 preceded the current fee schedule, and after the May 24, 2024 IPO the advisor waived three quarters of income incentive fees and 0.25% of the base fee for one year. The first half of 2026 came in at $0.85 per share (about $1.69 annualized; second quarter about $0.42), which supports the level without moving it. Growth check. Net investment income per share fell about 17% in 2025 versus 2024, in part because 2024 benefited from fee waivers. We assume year 1 at about $1.66, roughly flat to 2025, which is higher than that trailing change. The reason the decline is not expected to repeat is dated and in the filings: the post-IPO fee waivers expired by May 2025 and are fully out of the base, first-half 2026 income per share was up about 5% on first-half 2025 ($0.85 versus $0.81), and weighted average shares fell from 70.3 million in 2025 to 66.3 million in the second quarter of 2026. Base case, about $17.96 per share. Income of about $1.66 per share declines 2% a year for ten years, then 5% a year thereafter. The decline reflects credit losses: 2025 net unrealized and realized losses and tax were about $23.9 million (roughly $0.34 per share), and net asset value per share slipped from $16.70 to $16.32. Five loans were on non-accrual at year-end 2025 (1.4% of debt at fair value, 2.6% at cost), up from three a year earlier. We credit no growth: the loan book is rolled over as loans repay (3.1-year weighted remaining term), which is a mechanism only about five years old and untested through a full credit downturn. Bear case, about $8.98 per share. Income falls 8% a year for ten years, then nothing persists. This reflects rising non-accruals, a levered balance sheet (roughly $1 of debt per $1 of equity) and floating-rate loans that reprice down if base rates fall, with no lasting earning power credited beyond year ten. Bull case, about $23.57 per share. Income holds flat at $1.66 for ten years (credit losses stay contained, as from 2021 to 2024 when net asset value per share was stable to slightly higher), then declines 2% a year. We do not credit higher interest rates, a larger portfolio or lower fees. What would make this wrong. Income is directly tied to short-term interest rates, and about 96% of loans float, so lower rates cut income faster than assumed; a recession could push non-accruals well beyond the 2.6% of cost seen now. The advisory contract is renewed annually (most recently to March 15, 2027), and the advisor's fee structure is a permanent cost to shareholders. The margin-of-safety price of $11.50 reflects a wide margin of safety for a leveraged, credit-exposed lender with a short track record: it is about one-third below the base case and only modestly above the bear case.