BDC COMMON STOCKS

Week 50

Non-Breaking News

Even if you’ve been out of pocket crossing the Atlantic on a liner for the past week – as we have – you’ll know the “everything rally” has continued, reaching its most recent crescendo on Thursday, December 14, 2023.

Both the S&P 500 and BDCZ – the exchange-traded note that holds nothing but BDC stocks – were at their highest levels of this confusing year.

BDCZ reached a price of $18.82 before taking a breath on Friday to close at $18.74.

At this point – with only two weeks to go before we close the books on 2023 – BDCZ is up 12.1%.

More impressively, the S&P Total Return BDC Index is up 25.9%, beating out even everybody’s favorite measuring stick – the S&P 500 – at 24.9%.

Latest Metrics

Let’s review some of our other favorite data points:

This week 28 BDCs were up in price and 14 were down.

Of the BDCs in the black, 4 increased by 3.0% or more and 3 were down by (3.0%) plus.

Impressively – and assuming we didn’t miss anything – 7 BDCs reached new 5-week highs.

Also, the number of BDCs trading at or above book value per share – 17 – was at a 2023 high as well.

Exceptions

On the less auspicious side of things, 4 BDCs are trading within 10% of their 52-week lows.

That’s less than a tenth of the public BDC universe and a reminder that almost everyone has benefited from the last two years of higher interest rates.

According to Seeking Alpha, for the year so far, 32 BDCs are up in price and 10 are down but on a total return basis, only Prospect Capital (PSEC); Monroe Capital (MRCC), and Portman Ridge (PTMN) are in the red.

Latest News

We’ve been out of communication on these pages for about ten days due to travel – which meant skipping Week 49’s Market Recap.

However, there has been little in the way of hard news given the season.

Mostly – and as expected – a series of BDCs have been finalizing their distributions for 2023.

As soon as we got in front of a computer again, we wrote an article about Trinity Capital’s (TRIN) IVQ 2023 distribution – one of the last BDCs to get around to announcing its payout.

Mixed

In addition, one of the tiniest BDCs – Great Elm Capital (GECC) announced a $0.10 per share special dividend to close out 2023.

Let’s not forget, though, that GECC is one of the few BDCs that has cut its quarterly distribution recently – not once, but twice.

The dividend fell from $0.60 per share as recently as the IQ 2022 to $0.45 and then to $0.35 in the IQ 2023.

In 2023, GECC will have paid out $1.50 per share in distributions when is said and done – (37%) less than what shareholders received two years before.

Regaining Confidence

Long-term holders of GECC’s stock will have to take comfort from the recent uptick in its stock price as investors begin to believe in the BDC’s new strategy, which includes transforming itself into an owner-financier of asset-based finance companies. See the 2023 YTD price chart:

Two More

In a similar vein, CION Investment (CION) announced a final top-off distribution for 2023 of $0.15 per share.

This has become an annual exercise for the BDC.

We won’t say any more here because we’ll be reviewing the subject in greater detail shortly in a separate article.

The same applies to New Mountain Finance’s (NMFC) “Special Distribution”.

We’ve not yet done all the math and there is time yet for more 2023 dividend announcements.

Humdinger

However, based on the data collected already in our sister publication – BDC Best Ideas – there can be little doubt that 2023 will prove to be a year to remember where aggregate BDC distributions are concerned.

More intriguingly – also according to BDC Best Ideas – there’s a good chance 2024 might be just as favorable, notwithstanding much speculation about interest rate cuts ahead.

Key

In general, how BDC managers navigate the descent from record-high interest rates will have a major influence on whether the current BDC rally continues to have legs.

Judging by the wide discrepancies in the 2024 projections for the health of the economy and the timing and degree of interest rate cuts we face there’s a real prospect of much stock price volatility ahead as investors continually re-adjust their expectations.

Standing Tall

The good news for serious, long-term BDC investors is that almost every public player has plenty of liquidity; a strong balance sheet; enough new business to replace repayments, and – at this point – only “normal” credit challenges.

Chances seem good that even if BDC distributions begin to drop in 2024 or 2025, the sector will remain – in relative terms – one of the best spots for anyone seeking income and “high yields”.