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BDC Market Update: Monday February 24, 2020

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MARKET UPDATE

Monday February 24, 2020 was the first day that the markets reacted in a material way to the threat of a global pandemic, as the futures warned all week-end.

The BDC Reporter seeks to provide a quick summary of what happened to the broader markets, and to the BDC sector, on this day of high stress.

BROADER MARKETS

Here was CNBC’s useful summary of what happened to the major indices:

The Dow Jones Industrial Average closed 1,031.61 points lower, or 3.56%, at 27,960.80. The S&P 500 slid 3.35% to 3,225.89 while the Nasdaq Composite closed 3.71% lower at 9,221.28. It was the Dow’s biggest point and percentage-point drop since February 2018. The Dow also gave up its gain for 2020 and is now down 2% for the year. The S&P 500 also had its worst day in two years and wiped out its year-to-date gain as well.

The 10 year Treasury yield dropped from 1.4710% to 1.377%, but reached 1.3520% intra-day, reaching close to a YTD and 4 year low.

BDC SECTOR

The UBS Exchange Traded Note with the ticker BDCS – which measures sector price performance – was down to $20.07, after closing at $20.43 on Friday and opening Monday at $20.39.

According to Yahoo Finance that was a (1.79%) drop.

Likewise, the BDC sector ETF with the ticker BIZD was down (1.58%).

The volume of shares traded in both sector instruments was lower than their historical averages.

BDC STOCK METRICS

Of the 45 BDC public stocks the BDC Reporter tracks 43 were down and 2 were up.

The two in the green were Solar Capital (SLRC) and BlackRock Capital Investment (BKCC), but by only modest percentages – well under 1%.

We assume the favorable price movement in the former was due to over-selling the week before when SLRC’s stock dropped sharply after MIXED quarterly results.

Some investors may have been taking advantage of perceived bargain pricing.

Volume was more than twice the normal volumer.

Volume was unusually high in BKCC, but we know of no particular reason why the stock – trading between its 52 week high and low – should have bucked the general trend.

Amongst the 43 BDC stocks in the red, there were 4 whose price dropped (3.0%) or more:

Horizon Technology    (5.43%)

OFS Capital                   (4.14%)

THL Credit                    (3.88%)

Newtek Business         (3.43%)

Coincidentally or otherwise, none of the 4 top losers have yet reported IVQ 2019 results.

Investors might have been taking profits or protecting themselves against projected bigger price drawdowns by these sales.

In all cases transaction volume was higher than historical averages, sometimes substantially so.

52 WEEK

Only one BDC hit a new 52 week low on the day: Capital Southwest (CSWC) which fell to $20.21 after closing at $20.53 on the prior Friday.

CSWC has dropped (11.75%) since reaching a high of $22.90 in mid August 2019.

In the past two quarters, the BDC Reporter has rated the BDC’s overall financial performance as MIXED.

NAV per share has dropped from $18.58 at the end of June to reach $16.47 at 2019 end of year.

According to the BDC ($0.90) of the NAV Per Share reduction was attributable to a special, one time, “deemed distribution” relating to a major capital gain harvested.

BDC FIXED INCOME

Of the 44 different BDC unsecured debt issues we track, 13 were up in price, 2 were unchanged and 29 were down in price.

The biggest individual issue was was OFS Capital’s Baby Bond with the ticker OFSSI, down (2.57%).

The median price was $25.69, barely unchanged from $25.72 as of Friday February 21, 2020.

CONCLUSION

The BDC sector fared pretty well compared to the major indices on this record breaking down day for the markets.

BDCS and BIZD fell at only half the pace of the broader market indices, probably reflecting the only indirect impact of the global pandemic risk in the minds of investors.

Despite the price drop, the BDC rally that’s been underway for months remains underway, as we require a (5.0%) drop between recent high and low to call an end.

In fact, BDCS trades just above the level reached at the end of January.

At time of writing, the futures indicate a bounce back in the markets on Tuesday, but we’re not taking anything for granted.

We’ll check back with readers as this “black swan” event plays out.

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