BDC FIXED INCOME

Month 10

Consistent

We’ve been Googling synonyms for “unchanging” to describe BDC fixed income prices between September and October.

Regular readers will know that the median price we review every week – and now every month – varies little.

That remains the case even though it’s been a month since the last Fixed Income Market Recap and much has happened to the denizens of the sector.

We calculate that the median price as of October 29, 2021 is $25.43.

At the end of September, the comparable number was $25.40.

Neither are the highest price we’ve reached, but for months now this mid-point price has remained within a very, very narrow range.

We’re talking less than a 1%.

Above And Below

At this point there are 6 BDCs trading above $26.00 a share and 1 below.

That last one is Fidus Investment’s (FDUS) Baby Bond with the ticker FDUSG, which is about to be redeemed.

Departed

Speaking of redeemed: Gladstone Capital’s (GLAD) last Baby Bond – ticker GLADL – has been called in once and for all.

(On Friday, the mid-sized BDC announced a new privately-placed debt offering for $50mn and with a yield of 3.75%).

Also gone is OFS Capital’s (OFS) Baby Bond with the ticker OFSSG.

More To Go

On the chopping block – and all likely to be gone before November is done – are 5 more issues from 4 different borrowers.

See the BDC Fixed Income Table for the debt involved, and all the pertinent details we can assemble.

Speculative

There are more early redemptions that could happen before year-end.

We rate 3 LIKELY and 2 POSSIBLE.

If that were all to occur, the BDC universe would drop to 14 issues.

However, OFS did tap the public market for a new Baby Bond – ticker OFSSH – this month.

The debt is already out there trading on the NASDAQ since Thursday, and closed Friday at $25.55.

This latest unsecured debt issue yields 4.95% and matures 10/31/2028, but can be redeemed starting from 10/31/2023.

That – temporarily – causes the number of BDC debt issues available to the public – to be 25, spread over 15 issuers.

By the end of November – assuming no other changes – 25 will become 20 and the number of issuers will drop to 13.

Changes

With two more months to go in the year 2021 has proven a hugely transformative year for the public BDC Fixed Income sector.

The “great refinancing” – thanks to those record low yields and an institutional debt market willing to consider most – but not all BDCs – as prospective borrowers, has drastically changed the landscape.

Even the yields on what BDC public debt remains has dropped by about 10%, from roughly 6.25% to 5.75%, with a range between 4.875% and 7.2500%.

Credit Risk: Low

The silver lining for BDC public debt investors is that the credit quality of the underlying BDC issuers remains favorable, helped by the generally positive economic and financial environment.

Looking down the list of BDC issuers still likely to be with us at the end of 2022 – admittedly a small group – that fundamental credit quality should continue, with one possible exception.