Mitchel Penn, Managing Director of Equity Research at Oppenheimer and Co., says that while business development companies (BDCs) have struggled this year, they are positioned well to ride out the changing interest rate cycle. He says that when the Federal Reserve starts cutting interest rates, he expects BDCs to see higher fee income, though some of that could be offset by a higher level of defaults. However, he notes that because those defaults are a hangover from high-rate conditions, they have already been priced into many portfolios, creating a cushion against potential credit losses. Penn also discusses the kinds of BDCs that balance out the current risks and that historically have generated high returns on equity with low credit losses, naming several BDCs that fit that description.