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BDC Common Stock Market Recap: Week Ended April 6, 2018

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BDC Common Stocks

Modest Gain

Overall, the week ended April 6 2018 was a positive one for BDC common stocks.

The UBS Exchange Traded Note with the ticker BDCS which serves as our down and dirty guide to sector performance was up to $19.97.

That’s from $19.79 as of Thursday the week before, before the Good Friday holiday.

Or 0.9% up.

Headed Up

As this chart below shows BDCS has been on a rickety upward trend since March 1, 2018 when BDCS was at a YTD  (and almost 2 year) Low of $19.05.

That’s a 4.8% increase off that Lowest Low.

Regular Metrics

On the week, three-quarters of BDCs were up in price (34 of 45).

Also boosted by the week’s results were the number of BDCs trading over their 50 Day Moving Average, which reached 23, up from 11 last week, and 16 the week before.

Still, we’re far from a Bull Market, with only 4 BDCs trading above the not-so-hard-to-beat 200 Day Moving Average.

There’s no denying, though, that the sector is mostly moving marginally up.

The number of BDCs trading within 5% of their 52 Week Low is 13, down from 16.

6 BDCs are trading within 5%-10% of their 52 Week Highs, but none within 5%.

Softly, Softly

If this a BDC Sector revival, it’s a tentative one.

Only 4 BDCs were up 3.0% or more on the week.

That’s SCM (5.0%), TCAP (4.2%), FSIC (3.4%) and OCSL (3.1%) for those of you keeping score at home.

Look back 4 weeks and only half are up in price and go back year and the number is zero.

Fallen

We had a notable Stock Watch, which occurred just as the week ended and too quickly for a post.

Goldman Sachs BDC (GSBD), whose stock price has been sickly for weeks, found a new 52 Week Low.

GSBD reached $18.95.

That was a just over 2 Year Low, and not so very far from the famed BDC’s All Time Low, as this chart shows.

GSBD remains one of 8 BDCs trading above book value, but with only a 5% margin.

New Law

So far the new law allowing BDCs to leverage up does not seem to have impacted most stock prices materially.

Partly that may be due to the fact that most BDCs electing to push the leverage envelope don’t get the benefit till 12 months out.

Only BDCs that ask shareholders for permission get to jump in head first – if approved – right away.

On Friday Stellus Capital Management (SCM) was the first BDC to put the matter to its public shareholders.

Godzilla vs King Kong 

Then there’s the push-pull between many of the leading BDCs and S&P, which is threatening to pull the investment grade ratings of any fund which adopts the 150% coverage.

In another stunning development, Prospect Capital (PSEC) which had initially allowed its “independent directors” to elect the new leverage level reversed itself.

Wazzup ?

Is PSEC listening to S&P ?

Inquiring minds want to know more.

This happened in a week that the controversial BDC lost its CFO of long standing (mentioned in the Daily News Table).

Any connection or are we watching too much television ?

Dribble

Finally – as we’ve been trying to point out with articles about Apollo Investment (AINV) and FS Investment (FSIC), the bottom line benefits to shareholders from growing the portfolio financed exclusively by debt are debatable.

Which is not to say that the new law may not be behind some of the BDC price increases this week and last.

It may just take some time for investors to fine tune their models and determine if they believe earnings will go higher.

Non Sudden Impact

The BDC Reporter is trying not to generalize and taking each BDC in turn (2 down and 43 to go) but those  first results suggest a modest increase in recurring EPS in the short run and no benefit or net losses in the long run.

That’s as increased credit losses kick in and – perhaps – as LIBOR rises and pushes up funding expenses.

We’re a long way from finding out – and the data will be obscured by all the other moving parts in a BDC income statement, including spreads on new loans; portfolio mix changes, prepayment velocity; equity stake harvesting etc.

Outlook

In the short run, BDC price performance is likely to be determined more by general sentiment than prospects for earnings after the new leverage rules kick in.

As we’ve een before – and given that the broad markets are in turmoil – this could go either way in the weeks ahead.

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