BDC COMON STOCKS

Week 43

Curious

This was an unusual week for the major indices, each of which went off in different directions.

The S&P 500 – accustomed to continually reaching new heights in 2024 – 47 so far – dropped (1.0%).

The Dow Jones had a much more miserable week, falling (2.7%).

The good news came out of the NASDAQ which – despite higher rates – headed higher for the seventh week in a row.

Snooze-Fest

In all this twisting and turning, the BDC sector had the quietest of weeks.

Going by the S&P BDC Index on a price basis, we were down (0.4%) and the UBS exchange traded note with the ticker BDCZ which holds most of the BDC stocks was off (0.5%).

Side Note

There was also very little BDC news to write about so we reported on Goldman Sachs BDC (GSBD) reaching a new 52 week low and commented in the BDC Publications News Feed about Horizon Technology Finance’s (HRZN) reaching a similar milestone.

Stasis

Looking at our regular metrics, there was little movement among the 42 public BDCs we track.

One third were up in price and two-thirds were down.

No BDC moved up 3.0% or more in price.

In fact, the biggest percentage gain in price was 1.39%.

(We were so surprised by that last statistic, we had to double-check).

Duo

However, two BDCs did drop (3.0%) or more – both of them smaller BDCs with problematic credit histories.

Monroe Capital (MRCC) fell (4.67%) – the most of any BDC – according to Seeking Alpha

As this chart shows, MRCC’s stock price had been flying high all year as investors increasingly believe its credit challenges – that began in 2021 – are beginning to dissipate.

Big Payday

With most BDC stocks relatively expensive, investors are always keen to identify a turnaround story.

Some very nice returns have been achieved by buying “distressed” BDCs on the cusp of a recovery.

If you’d bought Gladstone Investment (GAIN) in October 2020 and held till December 2021, you’d have seen your stock price more than double – one of many examples we can think of.

Up Then Down

In the case of MRCC, from a recent high to its lowest low in late 2023, the stock has risen 23%.

This week, though, investors either had doubts or took profits in advance of MRCC reporting its results on November 12, 2024.

Wet Blanket

Count the BDC Reporter as one of the doubters – as expressed in an article we wrote on September 11, 2024 – ironically as the BDC reached a then 52 week high.

This is not an issue that will be resolved in one quarter but should be clear by the end of 2025.

We promise, though, to write an update about MRCC after the IIIQ 2024 results come in.

Low Blow

The other BDC sharply down on the week was Investcorp Credit Management BDC (ICMB) – off (3.8%).

This story is a very different one than MRCC’s.

Hope is in short supply at ICMB.

As this chart shows, the stock price has been dropping almost continually for a decade and is off by four-fifths.

At Friday’s price of $3.04, ICMB is close to its all time lows.

Less

In related news, the BDC’s quarterly payout is on a downswing too: $0.12 for the IIIQ 2024, down from $0.15 per share previously.

Even $0.12 seems to be on the high side. The BDC’s projected Net Investment Income Per Share (NIIPS) for 2025 by the only analyst still hanging in there is $0.40.

(Surprisingly the analyst is also projecting $0.40 in 2026 if Yahoo Finance is correct. That seems unlikely. BDC Best Ideas is projecting $0.35 in 2025 and $0.30 in 2026).

By 2027 BDC Best Ideas assumes the quarterly distribution – which was running at a $0.60 annual pace through mid-year – will fall to $0.25 per share.

For what it’s worth the BDC Reporter is projecting ICMB will receive a 2 out of 5 on our quarterly performance rating – performing below expectations – a score they’ve received in two of the last 3 quarters.

On The Sill Of Earnings Season

On Monday, Capital Southwest (CSWC) will report results and the madness will begin.

To repeat what we’ve said before, we expect 14 BDCs to underperform (a rating of 2 on our 5 point scale).

That’s worse than in the IIQ where 11 BDCs were rated 1 or 2.

Admittedly, we might be overly conservative.

On the other hand, this week alone 3 BDCs reached new 52 week lows and 15 BDCs as of Friday were trading within (10%) of their 52 week lows.

Half Full

On the bright side, 20 BDCs out of 42 have managed to increase their Net Asset Value Per Share (NAVPS) in the last 12 months and 29 BDCs can boast of having non-accrual assets at cost below 5% of their entire portfolios.

Despite lower interest rates since September, BDC Best Ideas is still projecting 9 BDCs will match or exceed their 2023 recurring earnings in 2024 and a few might still payout more next year than this year.

It’s likely to be a very bifurcated earnings season – which is not uncommon – with plenty of BDCs motoring along as hoped and prayed for and plenty of others underperforming.

Spotlight

If you forced us to choose one BDC to keep a special eye on this quarter it wouldn’t be one of the many recent disappointments like Oaktree Specialty Lending (OCSL); BlackRock TCP Capital (TCPC); TriplePoint Venture Growth (TPVG); Horizon Technology Finance (HRZN); New Mountain Finance (NMFC); OFS Capital (OFS) or ICMB.

We’re interested to see if Golub Capital (GBDC) – a much beloved player amongst investors and a BDC with an august track record – will bounce back from a lackluster IIQ 2024 due to higher than usual credit losses.

We’re adding GBDC to our list of BDCs we’ll be writing about once the dust settles and we’ve reviewed all the quarter’s disclosures.

A Final Message From The BDC Reporter’s Flight Deck

Now settle in and fasten your seatbelts, we may be in for a bumpy ride.

If you’re not already a Premium subscriber, we can’t imagine a better time to part with $50 a month in order to keep track of the many different outcomes likely to occur in the weeks ahead.