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Multiple BDCs Have Or Will File Public Offerings

BDCs:
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The wave of new entrants will materially change the size of the public BDC sector and offer investors more choices.


NEWS

On January 17, 2024 – as reported in the BDC Publication News FeedPalmer Square Capital BDC filed to go public at $16.45 a share, raising $90mn in equity.

According to trade publication PYMNTS, “Funds managed by Blue Owl CapitalChurchill Asset Management, and Morgan Stanley are also in the queue to go public”.


ANALYSIS

One By One

Palmer Square BDC’s portfolio size is $1.1bn, and commenced operations in January 2020. Here is the stated strategy of the BDC: “The Company’s current investment focus is guided by two strategies that facilitate its investment opportunities and core competencies: (1) investing in corporate debt securities and, to a lesser extent, (2) investing in collateralized loan obligation (“CLO”) structured credit funds that typically own corporate debt securities, including the equity and junior debt tranches of CLOs”.

As of September 30, 2023, NAV Per Share was $16.76, up from $16.16 in the first quarter of 2020. There were 184 companies in the portfolio, none of which were non-accrual.

The ticker is PSBD.

On its first day as a public company, Palmer Square traded down modestly to $16.19

Next Up

Nuveen Churchill Direct Lending is currently a non-traded BDC with a portfolio of $1.5bn. The BDC dates back to March 2020 and has 174 portfolio companies currently. Its NAVPS has gone from $18.96 in 2020 to $17.96 as of September 30, 2023. The proposed ticker is NCDL.

Our investment objective is to generate attractive risk-adjusted returns through current income by investing primarily in senior secured loans to private equity-owned U.S. middle market companies, which we define as companies with $10 million to $250 million of EBITDA

Nuveen Churchill Direct Lending Prospectus

Famous Name

Morgan Stanley Direct Lending Fund has commenced an initial public offering of 5,000,000 shares of its common stock. The estimated price for the offering is $20.67 per share of Common Stock. The ticker will be MSDL.

As of September 30, 2023, the BDC had a portfolio with a value of $3.1bn and a NAVPS of $20.57. MSDL commenced operations in January 2020 and in its first quarter had an NAVPS of $18.47.

As of September 30, 2023, the BDC had 165 portfolio companies, spread across 29 industries. The weighted average EBITDA of portfolio companies is $148mn, suggesting the focus is on what we call the “upper middle market”. That’s the same segment serviced by Oaktree Specialty Lending (OCSL); New Mountain Finance (NMFC) and several others.

Last

Also coming to market, and expected to trade by January 25, 2024, is Blue Owl Capital Corporation III. The ticker will be OBDE. As readers know, Blue Owl already has a public BDC vehicle – Blue Owl Capital Corporation (OBDC).

Blue Owl Capital Corporation III … is a specialty finance company focused on lending to U.S. upper middle-market companies. As of September 30, 2023, OBDE had investments in 146 portfolio companies with an aggregate fair value of $3.6 billion. OBDE has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. OBDE is externally managed by Blue Owl Diversified Credit Advisors, an SEC-registered investment adviser that is an indirect affiliate of Blue Owl Capital Inc. (“Blue Owl”) (NYSE: OWL) and is a part of Blue Owl’s Credit platform.

Press Release

The BDC was formed on January 27, 2020, and made its first portfolio investment in June 2020. The first reported NAVPS was $14.16. The latest NAVPS is $15.40.

Totting Up

According to the BDC Credit Table, at the end of the IIIQ 2023, the value of the 42 portfolios we track was $125bn. These 4 new public players have a combined portfolio value of $9.3bn. Within a few days, the aggregate size of the public BDC sector will increase by 7.5% and by hundreds of companies.


VIEWS

We’ve Only Just Begun

The BDC Reporter – and BDC investors generally have a lot of homework to do to familiarize themselves with these new names.

Much comparing and contrasting between everyone involved will be necessary.

If you’re not a Premium subscriber already, this might be a good time to cough up the $50 a month to get our patented wall-to-wall coverage for the now-45 BDC universe.

Over at the BDC Credit Reporter, we’ll have to identify which companies are underperforming and on non-accrual.

At BDC Best Ideas – once that homework is complete – we’ll be determining if there are any compelling “Buys” – or “Sells”.

On And On

Even when we’re done – which will take many months – new public BDCs are likely to appear when market conditions are favorable, like they are right now.

There is no end in sight for the growth of the BDC sector – and its public segment.

Bright Side

In the long run, this will be good for investors – offering more choices than ever of BDCs to invest in.

In the short run – going by prior experience – the stock prices of these new names may be highly volatile as private investors are supplanted by public ones.

Thankfully, all 4 BDCs seem to be well-operated and come to market with very few credit challenges.


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