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BDC Common Stock Market Recap: Week Ended June 1, 2018

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BDC COMMON STOCKS

And On

Last week we began by saying that the BDC common stock rally was continuing with the headline “The Beat Goes On”.

The same is true this week.

Based on just the increase in price of the UBS Exchange Traded Note with the ticker BDCS, this is a slow moving rally.

BDCS ended up at $20.33, from $20.24.

Nonetheless, that’s a month of steadily increasing BDC prices, up 5.3% since May 2, 2018, as this chart shows:

Miscellaneous Indicators

As before, other metrics tell of an upward trending market.

Over the past 4 weeks, according to Seeking Alpha data, 38 of 46 BDCs are up in price.

If we eliminate BDCs down by 2.0% or less, there is only 1 BDC with a serious negative trend: Medley Capital (MCC), down by (16.0%).

That’s confirmed by the number of BDCs trading above their 50 Day Moving Average: just 7.

Again, MCC is the only stock materially down.

Using the 200 Day Moving Average, there are 30 BDCs in the green and 16 in the red.

Of the latter half are 3% or less below that average.

Good. Not Great

With that said, we’re hardly in a full fledged Bull Market for BDC stocks.

There are still as many BDCs within 10% of their 52 Week Lows as their 52 Week Highs.

Also, this week we had 3 stocks moving up 3% or more in price (CMFN,MRCC and ABDC), but also 2 more than 3% down (TPVG and SCM).

On a Year To Date price-basis, BDCS remains in negative territory by (2.1%) as the chart below shows.

On a Total Return basis, though, the Wells Fargo BDC Index is up 2.52%.

Slow

From a news standpoint, this was an unexciting week, with few developments to move even individual stocks, let alone the market as a whole.

Prospect Capital (PSEC) – as we’ll discuss at greater length in the Fixed Income Market Recap – issued a new Baby Bond.

Neither the tiny amount raised or the interest rate paid moved the envelope much for the BDC’s shareholders.

The stock price was down an immaterial (0.4%) on the week.

Monroe Capital (MRCC) and Saratoga Investment (SAR) announced distributions.

The former’s pay-out was unchanged, the latter’s increased by 1 cent. Both were expected.

Otherwise – as a glance down the Daily News Table will show – there was very little in the way of material news.

Outlook

As mentioned last week, the BDC Reporter does not have very strong feelings about the short term future direction of the BDC Sector either way.

We’ve seen rallies of this nature fizzle before as much as we’ve seen them continue upwards.

Coming up in the weeks ahead will be multiple votes by BDC shareholders about adopting the new higher leverage rules.

If approved, that will give the ten BDCs who are embracing this dialogue with their shareholders the ability to increase assets and earnings in the second half of the year.

Of course, we remain concerned about the longer term implications but in the short run we may see a prospective boost in profits which could draw in investors.

We’re keeping a close eye on Goldman Sachs BDC (GSBD), which has made the most aggressive pitch for higher leverage by offering a one-third cut in its Management Fee.

GSBD’s stock price has jumped on the prospect, as this chart shows, but has pulled back of late.

We’ll be interested to see what happens after the shareholder vote on June 15, 2018, both to GSBD’s own price and that of other BDCs with a similar profile.

In any case, the impact of the Small Business Credit Availability Act on BDC results, dividends and pricing will take many months to play out.

Much can happen – for better or worse – in the interim.

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