(Bloomberg) -- S&P Global Ratings lowered its rating on Prospect Capital Corp. to BB+, or one step into junk territory, citing losses and a deterioration in credit quality for the $7.6 billion private credit fund.

Compared to peers, Prospect has received a higher proportion of its income from payment-in-kind arrangements, which allow borrowers to defer cash interest, S&P said in a note on Friday. The fund, which is publicly traded under the PSEC ticker, also has more debt on non-accrual status compared to peers, S&P said.

“Over the next 12 months, we expect that PSEC’s overall PIK income will rise as select borrowers will continue to have liquidity pressures and an expected decrease in base rates will lead to lower net investment income,” the ratings firm said in the note.

S&P in September had placed Prospect’s BBB- rating on negative outlook, citing concerns over mounting losses and the quality of the loans in its portfolio.

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