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BDC Market Update For Tuesday February 6, 2018

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BDC Market Update For Tuesday February 6, 2018


At last, the long awaited first Earnings Season BDC releases were published. Both CSWC and GLAD reported IVQ 2017 results that were in line with the BDC Reporter’s and the market’s expectations. (We noted the analyst earnings median estimates in yesterday’s Update). We’ve had a first look over GLAD’s 10-Q and will provide an update to the BDC’s Dividend Outlook once we review the Conference Call minutes. CSWC has reported its results in press release form, but still no 10-Q at time of writing. We’ll review CSWC in a day or two once all the information is in. However, the results at both BDCs were encouraging on the surface. We have some longer term worries about GLAD, but we’ll keep those reservations for our article.

Elsewhere, TICC – probably in reaction to the market conditions – announced a $25mn stock buy-back program for the rest of 2018 or $25mn, whichever runs out first. Of course, announcing a buy-back and executing one are two very different matters…

There’s minor news from MFIN – recalibrating for the nth time its loan agreement with the SBA at one of its subsidiaries. Not market moving but a reminder that there are still several loan agreements out there for the reviving MFIN whose lenders still expect to get repaid. Whether MFIN can achieve that goal remains a question mark even as the stock price rises from the depths.

NMFC raised additional capital by issuing another round of 2023 Unsecured Notes at a attractive interest rate. The proceeds will repay Revolver debt, and strengthen the BDC’s balance sheet against market turbulence. However – in the short run- the result will be a marginally higher interest bill for a BDC whose earnings are already straining to meet their historical levels.  As in the prior issue of these same Unsecured Notes the debt was placed with institutional investors and no trading ticker exists.

In other BDC Fixed Income news: the new FDUS Baby Bond is out of the “grey market” and is trading normally under the ticker FDUSL.

Investment Disclosure: We initiated a position in FDUSL.


Of course, the Top Story both on Monday and at the open on Tuesday, as we peck away at the keyboard, was the huge downdraft in the markets. Readers will know better than us what happened with BDCS dropping to a new 52 Week intraday low of $18.73, before closing at $19.15. That’s also a closing 52 Week Low, one in a series in the last few days.

Given the massive drop in market confidence and as you’d expect virtually every BDC common stock was down on the day and in a big way. There was some recovery late in the day but at times the BDC sector was down nearly 5%, wiping out months of distribution income received in a matter of minutes.

This is the confluence of two phenomenons: one local and one global. Investors were already pulling back for several weeks in anticipation of BDC earnings season. That was joined by the worldwide worry about inflation, higher interest rates and overheated stock market prices. Remarkably – at the end of the day – BDC prices held up to this (first ?) massive tremblor better than some of the major indices. This will be cold comfort to most BDC investors who saw 30 funds trading within 5% of their 52 Week Lows, and 40 BDCs trading below book value out of 46. We gave up trying to update the BDC Daily News Table with our Stock Watch feature, where we highlight new price records. There were just too many and the data changed throughout the day.

Here are just a couple of stocks we kept an eye on in the Monday Rout: ARCC reached a low of $15.03. That’s below NAV of $16.49 and a 52 Week High of $17.87. Not so long ago some analysts were touting ARCC at $20.00 a share…

Under-leveraged CSWC – and not burdened by the “will they report surprise bad results ? ” factor that affects most other funds till Earnings Season is done, dropped to $14.85, a new 52 Week Low intraday. That’s quite a drop for a BDC that’s been regularly increasing its distribution; has no non-performing loans ; a bright new Baby Bond and was trading as high as $17.76 in the past year.

Investment Disclosure: We bought both ARCC and CSWC, along with OFS, GBDC, MAIN and TSLX. Sold GAINM to generate liquidity. Added to GLADN position.

The BDC Fixed Income market continues to weather the market squall very well. There have been no price implosions and some issues have increased marginally in price as investors presumably seek safer positions.

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