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BDC Common Stocks Market Recap: Week Ended March 16, 2018

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BDC Common Stocks

Undecided

We’re almost at the end of IVQ 2017 Earnings Season and the market can’t make up its mind.

Intra-week we saw the UBS Exchange Traded Note which includes most of the publicly traded funds in the sector – and which has the ticker BDCS – move up, down and up again.

In five days.

For those of you keeping score BDCS ended up at $19.52, down from $19.74 the week before.

We noticed constantly changing numbers through the week in our count of BDCs trading within 5% or 10% of their 52 Week Lows.

All Over The Place

We were up, we were down and ended up just where we started with 16 BDCs trading within 5% of their 52 Week Lows and 10 between 5%-10%.

For the week, 13 BDCs moved up in price but 32 did not.

We closed March 16 with 20 BDCs trading at prices above their easy-to-beat 50 Day Moving Average, but still only 6 are above the 200 Day Moving Average threshold.

Looking Back 

Taking a somewhat longer perspective, we visited the Wells Fargo BDC Index website – the underpinning for BDCS – and were reminded what a sea of red investors have been swimming in for some time.

As the screenshot below shows, the index is down YTD as well as over 1, 2, 4 and 12 months on a Total Return basis.

Contribution

Not helping the market settle down were the results of Alcentra Capital (ABDC), which were released in the week.

The actual earnings number was not so bad, but the BDC’s decision to cut its distribution for the second time in as many quarters was a body blow to a stock recently accustomed to being roughed up.

{We reviewed the train crash that is ABDC’s most recent performance shortly after the information was published).

ABDC lost a fifth of its market value in a matter of minutes when the news came out, and closed the week at $6.22, just off it’s All Time Low of $6.15.

Historical 

This has been one of the fastest implosions in BDC history.

Just last spring ABDC was hitting new price records, raising new equity and getting Buy recommendations from analysts- all covered by the BDC Reporter at the time.

Less than a year later, the distribution has been cut 47% and the stock price by over 50%.

(As you see, the two go hand in hand over time which is why the BDC Reporter focuses primarily on BDC dividend trends and outlook).

It’s easy to gloss over with so many BDCs out there and so much news to cover, but this is a devastating blow for ABDC, its shareholders and Investment Advisor. (In that order ?).

Given the nature of the BDC model there’s unlikely to be much of a rebound in the stock price even if the Investment Advisor meticulously implements its plans to reposition and de-risk the BDC.

Last And Least

Now we’re just waiting on the results of two BDC minnows: Harvest Capital (HCAP) and OHA Investment (OHAI).

Neither is big enough to push the BDC needle much one way or another, but both will be interesting.

OHAI has just about completed its purge of its energy assets and seeks a New Way Forward. What that will look like remains a mystery to everyone but their Investment Advisor, Board and advisers.

HCAP – as we reported last week – is going through some internal drama that has resulted in an officer resigning and involves the CEO and has caused the earnings release to be delayed.

All we can say is : Heads Up !

Going Forward

BDC investor sentiment still seems weak to this observer, despite much chatter about new rules coming out of Washington D.C. which might change the face of the sector.

More on that as we complete our readings.

We noted this week that Monroe Capital (MRCC) reached a new 52 Week Low even after announcing pretty decent results and maintaining its $0.35 quarterly distribution.

At least one analyst – Chris Testa at National Securities – projects earnings in excess of distributions in 2018 , even higher earnings in 2019 and posits a $17 Price Target.

The market begged to differ. Here’s the 5 Day Chart:

Also finding new depths to plumb was Medley Capital (MCC) and TCP Capital (TCPC). Two very different BDCs with very different track records but both out of favor.

How The Mighty Have Fallen

Many other popular favorites (more in the mold of TCPC than MCC) are trading within spitting distance of their 52 Week Lows.

Think Main Street Capital (MAIN), Golub Capital (GBDC), Ares Capital (ARCC) , both Solar Capital (SLRC) and Solar Senior Capital (SUNS), TPG Specialty (TSLX) and Goldman Sachs BDC (GSBD).

Just for fun, we created a chart of these names and looked at the 1 Year chart. As you’ll see below ALL are trading in negative territory over that period:

Even on a YTD basis, only 1 is up in price. All the rest are down.

Our conclusion: BDCs are not getting much love from the market right now.

We’ve Fallen And We Can’t Get Up

Historically this sort of trend tends to continue till the bargains are too good to pass up.

Food for thought.

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