BDC COMMON STOCKS

Week 50

No Christmas Miracle As Yet

We are getting ever closer to December 25th and the end of the year and the markets – so far – are putting coal in everyone’s stockings.

This week, the Dow fell (2.77%) to post its worst week since September. The S&P tumbled (3.37%), while the Nasdaq dropped (3.99%), as per CNBC.

The BDC sector – going by BDCZ, the UBS sponsored exchange traded note which owns most BDC stocks and our weekly price guide – fell (2.7%) to $17.06.

For BDC investors, any price gains achieved in the last 30 days, evaporated.

2022 So Far

BDCZ is now down (15.0%) YTD and (17.5%) from its 52 week high.

The S&P BDC Index – calculated on a “total return” basis with most of the year’s distributions received – is off (7.9%).

Not Good

This week, only 7 BDCs increased in price while 36 were in the red – the worst performance in this regard since September 30, 2022.

The week ended September 30th is when the BDC sector was at its lowest point in 2022.

9 BDCs dropped (3.0%) or more in price – also the highest number since September 30, but then the number was 35…

Just one tiny BDC – Logan Ridge Finance (LRFC) – was up substantially in price- 5.2%.

Piling On

Many of the other metrics we track week-to-week tell the same story of a BDC sector headed in the wrong direction.

The number of BDCs with a stock price at or above net book value per share fell to just 10, from 12 the week before and 20 not so long ago.

Likewise, the number of BDCs trading within 10% of their 52 week highs fell to 3, and none were within 5%.

Lowest

For the first time in a while a BDC reached a new 52 week low.

That was Trinity Capital (TRIN), much affected by its three crypto-mining portfolio companies and other credit challenges.

The announcement of a new joint venture by TRIN – discussed on these sages – did not seem to help.

This near one year stock price chart of TRIN tells the story:

Not Much

There was little in the way of market moving BDC news this week.

Besides the TRIN JV, both Runway Growth Finance (RWAY) and Horizon Technology Finance (HRZN) were involved in booking new deals that involved issuing press releases.

Over in BDC Fixed Income, Saratoga Investment (SAR) closed a new Baby Bond issuance – also hashed over in the BDC Reporter.

For a corner of the leveraged finance market with over $100bn in assets that’s a quiet week.

Hold Out

Not much more in the terms of news is expected before year-end, except PhenixFin’s (PFX) September year and quarter end results.

We’ve not heard hide or hair from the tiny internally managed and secretive BDC since August, except for a press release in October about its participation in the buyout of Wireless Maritime Services

If for no other reason than completing our database of BDC results, both in the NAV Change Table and Credit Table, we’d like to see where PFX stands.

Year End Outlook

Hope springs eternal – the very foundation of investing – but the odds of the BDC sector shooting up in price and getting into the black in 2022 – even on a “total return” basis, seems low.

Only 3 individual BDCs are up in price in 2022 and that could get even worse if the current slump continues for the remainder of this miserable year for investors.

BDC Fixed Income holders are no better off – with an almost certain disastrous year for every issue that remains from December 31, 2021.

Ironically, this is also the year that the public market for BDC unsecured notes came back into favor as rates rose (a plus for investors seeking a decent yield) and as the institutional debt market pulled back the welcome mat.

No Joy To The World

Given that every other financial news headline projects some sort of recession in 2023, the year-end investor mood is bleak.

Unfortunately – judging by how much BDCZ and the major indices fell in September – there’s still plenty of price downside.

Plumbing The Depths

To reach its 52 week low BDCZ would have to drop (16%).

If a future downward impetus is an actual recession even that amount of sector price decline might be too little.

Where BDC investing is concerned, there’s a long tradition of shooting first and asking questions later as permanent losses of capital and income to credit problems are so hard to evaluate.

Add in there the sort of dramas in the financial sector that were a feature of the Great Recession – which we’ve blissfully avoided this time round to date – and BDCZ could go much, much lower.

On the other hand – as we saw in 2016 and 2018 – the markets could stop worrying and head higher if the recession clouds break up.

Don’t Hold Your Breath

Unfortunately, we’ve been in this “wait-and-see” world for many months now and there is no indication that any clarity – in either direction- is headed this way.

Not a very joyful summary we’re sorry to say.