BDC Common Stocks

Week 44

Knocking At The Door

The BDC common stocks sector is so very close to setting new 52 week price records…

During a week where the major indices were universally on fire, BDCZ – the UBS-sponsored Exchange Traded Note (ETN) which holds most BDC stocks climbed 0.25% to $20.11.

That’s just (0.9%) off the intra-day 52 week high set by the ETN in June.

BIZD – the Van Eck backed BDC exchange traded fund – reached even closer to its own 52 week high, getting within (0.5%) of the one year high point.

Even the Wilshire BDC Index – which calculates a total return – is just a tad off its all-time record level: (0.3%).

Upward Momentum

We may not have reached a new record, but there’s no doubt that since the end of September, the BDC rally – stuck in neutral since mid-summer and sometimes seemingly at risk of a correction – has resumed.

For example, BIZD – since paying out its quarterly distribution on September 30, is up 6.0% in these past 5 weeks.

Many Metrics

All the rest of the data also suggests the BDC sector is on the move. Let us trot the numbers out:

30 of 42 BDC stocks were up in price (29) or unchanged (1) this week and 12 were down.

Amongst the BDC stocks in the black, 6 increased by 3.0% or more.

(No BDC stock dropped by greater than -3.0%).

At least 11 BDCs reached new 52 week highs this week and 29 are now within 5% of their 1 year price records.

When you add the 6 BDCs between 5%-10% off the high, that’s 35 players – more than eight tenths – trading at high prices.

The Outsiders

Of the 7 BDCs left out, only one – Newtek Business Services (NEWT) – can point to good fundamental performance.

Each of the rest has some sort sort of trouble brewing on their balance sheet and/or in their income statement.

Funnily enough, the biggest gainer this week was NEWT – up 5.7%, climbing back some more to the price heights achieved before management announced its intended departure from the BDC-fold and the likely coming great reduction in the dividend payout.

NEWT remains (18.2%) off its 52 week high.

More Metrics

Also 20 BDCs are trading at or above net book value, the highest level in two months and close to the 22 reached in mid-June.

Price momentum, too, screams rally.

In the last 30 days and using a 50 day moving average, 34 BDCs are up in price.

Using the 200 day moving average, the number rises to 37.

The 5 BDCs that have been left behind – by ticker – are: ICMB, OXSQ, MRCC, AINV and GSBD.

Even there – the worst performer by this metric – ICMB – is only (3.9%) in the red versus the 200 day moving average.

Makes Sense

None of this broad-based positive price performance is at variance with the results we’ve seen in this the second full week of earnings season.

27 BDCs have provided full IIIQ 2021 results (Gladstone Capital – GLAD – has offered only preliminary key metrics)

At the two-thirds stage, the BDC: NAV Change Table clearly shows that the rate of increase of net book value per share across the sector is slowing down, but remains in positive territory at 1.5%. (That’s an interim calculation).

19 BDCs have reported higher NAV Per Share in the IIIQ versus the IIQ. Even the 9 in the red include a few brought low by one-time events such as an unusually high special distribution or loss from extinguishment of debt.

In fact, the only BDC to have recorded a material loss in this category – and as we’d anticipated – was tiny BDC Great Elm (GECC), down (5.1%).

Ka-Shing

Also encouraging – and supporting this rally – has been a slew of good earnings and – even more importantly to investors – generous distributions.

Going just by the 27 BDCs that have reported their full results, there have been some juicy dividends announced as we approach year end from a distribution standpoint.

For example, Fidus Investment (FDUS) paid an increased regular distribution of $0.32 for a second time and two additional dividends amounting to $0.09. For 2021 FDUS has paid or announced $1.60 in payouts, 20% than last year and even higher than the $1.56 in 2019.

Capital Southwest (CSWC) has also managed to pay out more in 2021 than 2020: $2.5600 to $2.0400.

Hercules Capital (HTGC) – on the back of a very favorable market environment and like CSWC an internally managed BDC – has posted a record 2021 payout of $1.5500, versus $1.300 in 2020 and $1.3194 in 2019.

(All this dividend data is drawn from our non-public internal database which has a wealth of information curated by the BDC Reporter and which we hope to make available to our Premium readers after we’re done with this earnings season).

We’re still compiling all the relevant dividend data for 2021 and finalizing our projections for 2022 – which we’ll share with readers in a week or two.

Looking Good

However, already clear is that both distribution levels in 2021 and the expectations for 2022 are compelling, especially in a low yield world where most other comparable investments are registering lower payouts.

The great run-up in BDC net asset values that began from the IIQ 2020 may be petering out – as one should expect – but there’s no end in sight yet to the healthy distributions coming out of most every player.

Of course, we’re not done yet with either IIIQ 2021 results or this year but – at the moment – all the underpinnings for BDC prices to remain elevated – or even reach new heights – are in place.