BDC Market Recap: Week Ended March 31, 2017
UP, UP AND AWAY
The BDC Sector-or at least the UBS Exchange Traded Note with the ticker BDCS which we mercilessly use as a rough measuring stick-was up in Week 13.
Neatly, this was also the end of the first quarter.
2016 ended with BDCS at $22.69 and we’ve had a $0.44 distribution on the way.
BDCS ended up on Week 13 at $23.79 from $23.36 the week before.
Obviously the trend-and that’s mostly what we’re going for using this strangely weighted ETN which does not even include all component BDCs-is up, up, up in Q1.
Like two weeks before, 28 BDCs out of 45 were trading at prices above their 50 Day Moving Average.
36 of 45 were above the 200 Day Moving Average, up from 30 last week.
34 BDCs are within 10% of their 52 Week High.
Once again we had a number of individual BDCs reaching milestones.
Capital Southwest (CSWC) was at its highest level since breaking into two pieces.
Three very disparate BDCs: Fidus Investment, TCP Capital and MVC Capital were all at record highs of one kind or another.
NOT SO BAD
Even the BDC Biggest Losers were not doing so badly.
Great Elm Corporation (GECC) announced its results and saw its stock price climb.
Speculators pushed up OHA Investment’s (OHAI) stock price on no news we’re aware of.
Even much unloved Fifth Street Finance (FSC) survived a downgrade by Raymond James during the week, recovering to close to its prior level.
STATING THE OBVIOUS
Simply put, the BDC rally remains alive and well.
A BDC can cut its dividend, be loaded up with under-performing loans, max out its balance sheet, change its CEO in midstream and still see its stock price rise.
Kill-joys like the BDC Reporter and the credit rating agencies can point to growing credit problems in a series of industries and…nothing.
This week sub-prime auto lending was in focus, but then there’s Retail, Health Care, Restaurants and Energy.
Loan spreads can eat away 10-15% of a lender’s yield for equivalent risk (even more to the bottom line) and nobody blinks.
LBO activity-the bread and butter of leveraged lending-can slump, forcing an ever growing number of lenders to compete over a dwindling number of new deals and investors shrug.
The more this goes on, the more extreme the likely adjustment to the downside.
Until then, Let the Good Times Roll.
Baby Bonds had a solid week, but essentially went nowhere, one way or the other.
16 of the 35 issues we track are trading above their 50 Day Moving Average, just 1 up from the prior week.
20 are trading above the 200 Day Moving Average, 1 down from last week.
The median price for Baby Bonds was essentially unchanged.
WE ARE NOT ALONE
By the way, data aggregation firm CEF Advisors recently launched a Baby Bond Index. We don’t yet have permission to use their data, but we can confirm that their numbers tie with ours.
Both in the last week, and since the beginning of the year.
Instead of the bond implosion many predicted in 2017, Baby Bond values have been on a modest-but telling-uptrend.
ABOVE PAR BUT ONE
As per the new normal, every issue except Medallion Financial’s MFINL continues to trade above the $25.00 par.
Investors looking for bargains won’t find any here either.
Still, no action on any Baby Bond redemptions.
Great Elm Corporation seemed to be hinting that it would use a portion of its mountain of cash to pay off its inherited Baby Bond with the ticker FULLL.
Or we could be misreading them.
There are a host of other Baby Bonds which has passed their initial early redemption date and could be called at any moment.