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BDC Market Recap: Week Ended December 22, 2017

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COMMON STOCKS

Coal In The Stocking

No Christmas Cheer here.

The BDC common stocks sector closed out the week before Christmas on another weak note.

Pretty much every indicator we look at – both for the week and YTD – was poor.

The very rough method of just looking at the price of the Exchange Traded Note which covers most of the stocks in the sector with the ticker BDCS, was down to $20.93 from $21.00 the week before, and $20.94 two weeks before that.

The Wells Fargo BDC Index – on which BDCS is built – is down (7.74%) YTD.

Not Good 

Only 12 of 46 BDC common stock prices are trading above their 50 Day Moving Average, and only 10 over the 200 Day Moving Average.

On the week, 12 BDCs were up in price, but 34 were flat or down. Ditto over the last 4 weeks.

Matters look better if we take a 52 Week perspective, but still only one-third of BDCs are up in price over this time last year. Two-thirds are down.

Since the end of March 2017, BDCS is down (12.5%) and stands only a couple of percentage points over the calendar year’s lowest point.

Too Many To Mention. Again. 

This week – as we chronicled on the Daily News Table – a host of individual BDCs hit new 52 Week Lows, or worst.

Not just the Usual Suspects, but also several names that are typically amongst the Best And The Brightest in a BDC context.

We felt compelled – in a news lite week – to write an article about the phenomenon on December 21st.

The week closed with 18 BDCs within 5% of their 52 Week Low price and another 7 between 5% and 10% off.  That’s 25 names weighted to the downside out of 46.

Summing Up And Looking Forward

As we’ve been pointing out for months the BDC bull market is long gone and we are in Correction Mode.

Unfortunately – unless we have a major shift in sentiment – the BDC Sector is headed towards Bear Market territory at some point in 2018.

You’ll know Things Are Bad when Mr Market starts throwing out the baby with bathwater and even solid performing BDCs get universally and sharply written down.

Not There Yet

That’s a process which is already happening – which compelled us to write the intra week market update – but we’re at an early stage.

12 BDCs are still trading at a premium to book value, even if 34 are trading below.

We’ll predict that in a BDC Bear Market just about every name will trade at a discount.

An Optimistic View

However, another step down in BDC prices- while likely in the BDC Reporter’s jaded eyes – is not inevitable.

The lower prices we’ve been seeing of late might be year-end buying and selling.

With 2018, and the influx of new monies into the stock market and an average BDC yield climbing towards 10.0%, investors might be in a more optimistic frame of mind than they’ve been of late.

Green Eyed Monster

Unfortunately, though, from any perspective 2017 has not been a very good year for investing in most BDC common stocks, or in the sector as a whole.

Even more galling for BDC investors has been the strength in the broader markets.  BDCs kept up through the spring and then…


FIXED INCOME

Narrow

The storyline where the BDC Fixed Income sector is concerned remains very different from common stocks.

The number of issues we track has dropped from 36 to 34, but the median price at the end of this week was $25.56, from $25.34 last week and $25.49 the week before.

More importantly for BDC Note Holders, the median has remained in a very, very narrow band all year.

Just for fun, we revisited a Market Recap from roughly this time last year and found that the median price was $25.32, and had been $25.42 the week before.

Or, in other words, nothing much has changed, except for the number of investment choices which was 42.

As Usual

This week, there were 3 fixed income issues trading above $26.00 a share, which has been the norm all year.

There are two issues trading below par (CPTAG and MCV). However, distressed buyers will be frustrated because the discount to par is very modest: about (1%) at worst.

Medallion Financial‘s Baby Bond with the ticker MFINL – and the highest coupon issue out there at  9.0%- is ending the year at a price above par.

With just 1 week to go, no BDC Fixed Income issue is in the proverbial dumpster price-wise versus a third of the common stocks.

Going, Going, Gone

As we’ve been showing on the BDC Fixed Income Table, SLRA and MVCB have been slated for redemption for weeks.

Both issues have now been paid off.

Solar Capital refinanced SLRA with a new 4.5% Unsecured Note which was placed with institutional investors and does not have a ticker symbol for public trading.

MVC Capital refinanced MVCB with a new publicly traded Baby Bond – at a lower coupon (6.25%) – and a ticker : MVCD.

Up To Date

As mentioned above, the BDC Reporter is now tracking 34 different issues.

The latest addition is Capital Southwest‘s CSWCL, which began to trade in earnest just this week and closed the week at $25.60.

The effective yield at that price is 5.8%.

Comings And Goings: Next Chapter

With the year coming to a close, we have a clear picture of which fixed income issues remain.

Interestingly 9 issues which could have been redeemed early in 2017 are still outstanding.

The guessing game – which we participate in with our predictions in the BDC Fixed Income Table – about which issue will be paid off will continue into next year.

In fact, the uncertainty is going to increase with another 10 issues becoming eligible for pay-off between now and the end of next year.

That’s 19 different issues potentially on the chopping block.

To Name A Few

Judging by recent price action market participants expect Medley Capital’s 2023 Unsecured Note (MCV) with a 6.125% coupon to be paid off soon.

Both the Triangle Capital issues (TCCA and TCCB) are also on the list even though the latter is not eligible for redemption till the end of March 2018.

Under-performing THL Credit has already indicated that repaying its 2021 TCRX Note is a priority.

Keep an eye on News Of The Day for developments and the Fixed Income Table for changes to the BDC Reporter’s assessment of “Redemption Risk”.

We’ll begin to assess 2018 potential redemptions in the new year.

Final Note

Happy Holidays To All.

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