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BDC Common Stock Market Recap: Week Ended June 15, 2018

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BDC COMMON STOCKS

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The rally in BDC common stocks – judging by the price of the UBS Exchange Traded Note with the ticker BDCS – took a break this week.

BDCS dropped from $20.51 to $20.36.

That’s a drop, but still keeps BDCs above the two weeks before that: $20.33 and $20.24.

This is the first down week since the BDC rally began in earnest on May 2, 2018.

(The BDC Reporter went on the record intra-week early on, “calling” the new rally on May 10, 2018 in an article entitled “Something’s Happening Here”).

Supplementary Evidence

The rest of the data on the week suggested investors were undecided about continuing to push prices up.

According to Seeking Alpha data, 20 of 46 BDCs were up in price and 26 were unchanged or down.

Moreover, the number of BDCS trading within 5% of their 5 Week Low increased from 2 to 4.

The number between 5%-10% of that 52 Week Low increased ever so slightly from 9 to 10.

Off The Top

At the other end of the scale, the number of BDCs trading within 5% of their 5 Week High dropped from 7 to 6.

The next group down – stocks between 5% and 10% of the 52 Week High went from 13 to 14.

Finally, the number of BDCs trading above their 50 Day Moving Average dropped from 41 last week to 35.

That’s more of a frisson than a full fledged pullback.

Ups and Downs

Not that there wasn’t some major individual BDC stock moves.

We count three stocks moving UP more than 3.0%.

OHA Investment (OHAI) down last week, jumped back up by 7.6% on the week, but remains almost flat in the last 4 weeks.

This is a tiny capitalization, highly speculative stock so no great surpries there.

Next was Saratoga Investment (SAR) – up 4.3% on the week and 13.2%  over 4 weeks – which we noted intra-week at a new 52 Week High.

Finally Stellus Capital (SCM) was up 3.1%.

This BDC is up over 15% since March 2018, as the chart below shows:

More Down Than Up

More in line with our theme of a softening BDC market, 9 BDCs dropped by more than (3.0%) on the week.

The leader of the pack was Oaktree Strategic Lending  (OCSL), down (5.2%).

For reason the BDC Reporter did not understand at the time, OCSL jumped in price following its most recent earnings release.

The stock was up over 8% for several weeks over the level before the earnings release, but has been tumbling in recent weeks.

We’ve looked at the remaining under-performing portfolio at OCSL that Oaktree inherited from Fifth Street and concluded that the BDC is far from out of the woods.

The market – for the moment – seems to be coming to a similar conclusion.

OCSL is priced at $4.72, well below book value at $5.87. 

Nothing New Here

The other top Weekly Losers was Newtek Business (NEWT), struggling with a thumbs down from an analyst, off (5.1%) on the week to $19.10.

Still, NEWT remains well above the $17.78 level on May 1, 2018, when the stock started to shoot upwards.

We’ve been guessing – as discussed previously – that there may be hidden reasons for the NEWT price increase, but we’ve had no confirmatory evidence.

The third Biggest Loser was Monroe Capital (MRCC), off (4.6%).

Why that may be the case is anyone’s guess. Over 4 weeks the stock is flat.

Still, at $13.12, MRCC is trading way above its 52 Week Low of $12.18, but also well off its 52 Week High of $15.32.

Summing Up

One week does one tell a full story.

This may have been the end of the BDC rally – which we will call as done if the price of the Wells Fargo BDC Index drops 5% or more from its high point.

More likely is that investors are taking a deep breath before resuming their upward climb.

The data – taken together- does not yet suggest we are in for a sustained drop.

We shall see, but we’re not yet packing our tents and heading for the hills.

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