BDC COMMON STOCKS

Week 17

Returned

The BDC Reporter is back – literally arriving just a few minutes ago and writing this by candlelight late on Sunday evening.

From the high seas we watched a curious week unfold both for the major indices and the BDC sector.

The former were cheered late in the week by news of a weaker-than-expected jobs report, causing hope to rise once again that the Fed would be cutting interest rates this year.

Just a nano-second – and one earlier economic report before – many commentators had become convinced the economy was too strong and inflation too deeply entrenched to allow for such an outcome.

As per Investopedia: “For the week, the Dow finished up 1.1%, while the Nasdaq gained 1.1% and the S&P 500 tacked on 0.6%”.

Not So Great

What was – apparently – music to the ears of many stock market investors was a little more discordant where BDCs were concerned.

In fact, BDCZ – the sector exchanged traded note which holds most opf the public BDC entities – bounced around like a pinball all week as this chart shows, and dropping sharply at the end:

Over the 5 day period, BDCZ fell (0.1%).

Similarly, the S&P BDC Index – calculated on a total return basis – was flat in the period.

However…

With that said, taking a look at all our favorite BDC market metrics tells a more complicated story.

This week was notable for seeing 10 BDCs reach new 52-week high prices.

We looked back into our database and could not find any prior single week where so many BDC prices peaked all at once – nearly a quarter of the public universe that we track.

All the BDC record breakers had recently broken their 52 week high prices recently, sometimes multiple times.

Nonetheless, investors could not stay away and bid their prices up even further.

Highest

Included in the 10 BDCs were Main Street Capital (MAIN) and Hercules Capital (HTGC) – which like the week before as discussed on these pages – reaching new lifetime price records.

Despite all this investor zeal for many names, no BDC increased by 3.0% or more in price week-over week as the “bad news” about a potential slowing economy/lower interest rates sapped animal spirits.

Flip Side

Overall, more BDCs dropped in price – 24 – than increased over the week.

Moreover, 3 BDCs dropped (3.0%) or more in price: TriplePoint Venture Growth (TPVG); Trinity Capital (TRIN) and Sixth Street Specialty Lending (TSLX).

Not coincidentally, all 3 BDCs were amongst the 14 that reported IQ 2024 results as “earnings season” got underway.

The greater than (3.0%) drop in price of these three names appears to reflect some investor disappointment about current and/or expected performance.

You won’t find us worrying too much about these “Biggest Losers” of the week – all are trading at a premium to net book value per share.

Overall, there are still – like last week – a record 20 BDCs valued at a premium to book, included some names that have been underperforming where their fundamentals are concerned yet retaining a dedicated fandom.

Ratings Game

Now that we’re back and systematically reviewing the performance of every BDC, we’ll be publishing our BDC-by-BDC performance rating – using a 1 to 5 scale – as we did last quarter.

We have more numbers to crunch and 10-Qs to explore but from everything we’ve seen so far, BDC financial performance continues to be just okay – not dissimilar to the quarter before.

Portfolio yields are dropping – not because of the Fed – but from greater competition amongst lenders for new deals which is shrinking spreads from their admittedly high levels.

There have been a slew of new non-accruals reported across the sector and distribution levels have become less generous.

None of this is terribly dramatic – either at an individual BDC level or for the sector – and we have plenty more BDCs to hear from.

Meh-ish

Nonetheless, we have been left underwhelmed so far by earnings season for the first quarter of the year.

Stay tuned for more specific analysis and commentary in the weeks ahead.

In the interim, you’ll find we are updating the BDC NAV Change Table; the BDC Credit Table and the Quarterly BDC Performance Table as quickly as we can.