Ever More

UPDATE

The BDC Baby Bond universe has been expanding of late. Thank you Chairman Powell for raising rates since early 2022. The consequence has been a sudden drop-off in unsecured BDC notes getting repaid early. Also, the public market for new issues – for a time a desolate place with tumbleweeds rolling around to an Ennio Morricone soundtrack – has revived. We’ve just added WhiteHorse Finance’s (WHF) just completed Baby Bond offering, which has the ticker WHFCL, to the BDC Fixed Income Table.

Before that, though, there were issues from Gladstone Capital (GLAD), whose issue is GLADZ, and from Great Elm Capital (GECC) which issued GECCZ with an eye to repaying existing Baby Bond GECCN, technically maturing in June 2024.

By the way, this latest Baby Bond yields 8.7500%, up from 6.5000% on GECCN – another consequence of the Fed’s fiddling with interest rates.

Tabled

We’ve added these new issues, with the latest addition added just today – August 28, 2023 – as the bonds began to trade in the public market.

As always, we’ve provided all the key details an investor might be interested in, including the coupon, the current yield, the maturity date and earliest redemption date, and much more.

For what it’s worth – and opinions are divided – almost all these issues, or the issuers involved, are rated investment grade – typically by smaller, less well-known rating groups.

High Yield

Intriguingly for fixed-income investors looking to be decently compensated for locking up their monies for up to 5 years (the typical Baby bond period)there are now 6 issues out of the now-26 on offer with a par yield of 8.0% or more.

Using a slightly lower threshold, there are 9 issues yielding 7.5%, or higher, annual yields at current market prices.

Relatively Speaking

With short-term risk-free rates over 5% even those elevated BDC yields might not seem like bargains but if the market consensus that rates will be dropping is correct that’s comparing an apple with an orange.

Maybe more appropriately, the 5-year Treasury yield is at an elevated 4.4%. As a result, BDC bond investors can earn a premium over what the government offers of as much as 4.4%.

All the Baby Bonds issued in the good old days of low-interest rates pay a much more modest yield. However, the patient investor should expect to pick up substantial price appreciation as issues currently priced at a discount are ultimately redeemed at $25 a share par value.

OUTLOOK

We expect the fixed-income market for both privately placed and public issues to continue to be active in the months ahead.

As a result, we expect to be updating the BDC Fixed Income Table much more often than was the case a few months ago.

We will continue to flag those changes in the Subscriber Tools section of the website as they occur, along with the weekly pricing changes that we input every week-end.