(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.

In the quarter ending on Sept. 30, Prospect reported $100 million in realized net losses tied to the restructuring of a loan for Research Now Group, which has rebranded as Dynata, and $69 million in losses on its structured subordinated notes book, according to S&P. The fund recorded $124 million of unrealized losses in the quarter.

“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.

Prospect’s stock also trades at a discount to its net asset value, which “limits its ability to raise funding from equity markets to support growth,” S&P said.

Prospect has faced increased scrutiny in recent months over its frequent use of PIK arrangements, as well as its relationship with a real estate investment trust it fully controls and its reliance on retail investors for funding. Last month, the fund cut the dividend it distributes to investors for the first time in seven years.

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

Prospect has publicly defended its 20-year track record, stressing that it has access to diversified sources of funding and that it sees PIK arrangements as appropriate for some borrowers.

(Updates with details on S&P’s action and context around Prospect throughout.)