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BDC Market Recap: Week Ended August 4, 2017

BDCs:
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COMMON STOCKS

Sunrise/Sunset

The BDC Reporter has seen a lot of sunrises and sunsets and almost as many BDC earnings seasons.

With the benefit of hindsight, it’s not unusual for the earnings releases to coincide with a move upward or downward in the sector.

Information Overload

That makes common sense as investors suddenly have 3 more months of data from a disparate range of BDCs suddenly thrust upon them.

In a few days more than 90% of everything new we’re going to learn about BDCs in a quarter flows in through earnings press releases, quarterly filings and Conference Calls.

Markdown

With earnings season in full swing,  there’s a whole lot of reassessing going on.

BDCS ended the week at $22.03, down from $22.33 the week before.

That was a -1.3% drop.

Slippage

Also notable – but not yet conclusive – the number of BDCs trading above their 50 Day Moving Average dropped.

From 27 to 19 on a universe of 46 names.

The number of BDCs trading above their 200 Day Moving Average was just 7, down from 17.

There was also slippage in the number of BDCs trading within 10% of their 52 Week High to 20 from 23.

On the other end of the 52 Week Table, 11 names were within 10% of their 52 Week Lows versus 8 last week.

Punished

We’re most interested in who reported earnings and “disappointed” the market which had been almost frozen since May 10th in a narrow range.

One name in this category – discussed in a post during the week – was Triangle Capital (TCAP).

The prospect of a dividend cut brought the once high flier to a multi year low.

Alcentra Capital (ABDC), which had been slipping for weeks as we’d been noting recently and which we’d turned skeptical about as far back as May, also dropped to end 2% off its 52 Week Low and 23% off its 52 Week High.

Hercules Capital (HTGC) is in the middle of this pack of price under-performers despite reporting decent results. As we reported at length, the CEO reminded investors on the Conference Call that Winter Is Coming, or at least a review of whether to switch from an internal management structure to an external one. Some investors bailed out. Again.

KCAP Financial (KCAP) – which we didn’t have time to write about this week – reported lower earnings and could not muster much investor enthusiasm for a poorly communicated new structure and dropped back again.

Not Alone

Some names already on the lower floors of BDC performance which have not yet reported also remained mired in this category (which contains almost a quarter of the entire public universe we track) as investors brace for the worse.

We’re thinking of Garrison Capital (GARS), which broke below the $8.0 a share level this week, ending at $7.95. Much larger , but also anticipated to cut its distribution – FS Investments (FSIC) saw its stock price remain weak.

Where Are We ? Not What You Might Expect Us To Say.

Reading the tea leaves, the BDC Reporter believes the week’s slippage in the sector’s price and the weaker other data points reflects a still bullish market.

Some shift lower in prices for individual names that under-performed  (led by TCAP) was to be expected.

However, in aggregate most investors have stuck to their guns.

There is not much impetus as yet for out-performers to move to new heights after moves of 30%-50% in the past 6 quarters.

However, there’s a Silent Majority of BDCs just sticking to their knitting and continuing to be popular with investors such as Ares Capital (ARCC), Goldman Sachs BDC (GSBD), Golub Capital (GBDC) and too many others to mention.

The well aged  BDC Reporter has seen market pull-backs, which are usually accompanied with even “quality names” dropping materially in price for no obvious reasons.

That’s not happening here as yet. Under-performers are being “punished” with a rational price re-adjustment but the better performing BDCs are holding their own.

We still expect the next major move for the BDC sector will be a leg down rather than a leg up unless new legislation in Congress causes a new surge in BDC enthusiasm.

However, this week’s -1.3% BDCS drop is no Early Warning Sign to the BDC Reporter.

Still, we’re not done yet with BDC Earnings Season…

BABY BONDS

Undeterred

If there was modest rattling and shaking amongst BDC common stocks in the week, BDC Baby Bonds remained almost as unmoved as before.

For what it’s worth, though, our median price for the 34 issues we track did drop from $25.69 to $25.54.

Still, most of the other metrics were very similar to the prior week and the week before that…

18 issues were trading above their 50 Day Moving Average versus 15 last week.

11 were trading above the 200 Day Moving Average compared to 13 the week before.

Confirmations

6 BDCs were trading above the $26.0 level, which we’ve arbitrarily chosen to note every week.

The number last week and most weeks was 5.

Only 1 Baby Bond traded below $25.00, as per the usual.

Generally speaking, it was Business As Usual in the segment.

Nothing To Say

Unless we’ve missed something in the deluge of filings and Conference Call utterances, there was a surprising absence of discussion among BDC issuers about their Baby Bond plans.

As has been the case for several quarters, analysts asked OFS Capital (OFS) if a first Baby Bond issuance was planned. As usual OFS did not rule out the possibility, but that’s all.

Otherwise, BDCs which did address their analysts and investors during the week such as ARCC, Apollo Investment (AINV), KCAP and others with existing debt issues did not give much in the way of guidance as to their redemption or new issue plans.

This keeps current holders guessing and probably accounts for the fact that most issues trade between $25.25-$25.75.

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