Highlights from BDC Publications: BDC Reporter, BDC Credit Reporter and BDC Best Ideas.

December 23, 2024: FSK Prices Public Offering of $100 million 6.125% Unsecured Notes Due 2030

BDC Reporter Adds: FS KKR Capital (FSK) is adding $100mn to a $600mn unsecured note issuance launched in November, which we discussed at the time. The $100mn raised here is not material given that FSK has $8bn of borrowings of one kind or another. BTW, as we noted previously, with yields on new loans dropping below 11.0%, and after paying 1.0% in management fees (given that leverage is over 1:1) and taking into account direct costs and incentive fees, the net yield to FSK’s shareholders on new debt financed loans must come to not much more than 3.0%. That’s before any reserve you might want to make for credit losses. That makes new loans still profitable, but only paying out 40% of what loans made with the BDC’s own equity capital generate.

FSK

December 23,2024: Palmer Square Capital BDC Announces Fourth Quarter 2024 Supplemental Dividend of $0.06

BDC Reporter Adds: We calculate that with this $0.06 per share supplemental dividend Palmer Square BDC (PSBD) will have distributed $1.91 per share to its shareholders in 2024. That’s just slightly below what the analysts are projecting the BDC will earn: $1.93 per share. This was PSBD’s first year as a public company so comparisons with prior year’s earnings and distributions are not appropriate given the different economics between being private and public. Looking forward, the analysts are projecting PSBD’s Net Investment Income Per Share (NIIPS) will come to $1.83 per share in 2025 – down (6%) from this year. Presumably – given the way PSBD’s dividend strategy works, this means the payout will fall in year two as a public company to just under $1.80 a share.

PSBD

December 23,2024: CION Investment Announces Year-End Special Distribution of $0.05 Per Share

BDC Reporter Adds: With CION’s last gasp special distribution, the total 2024 payout comes to $1.52 per share, down from $1.61 in 2023, which was the record setting year but above $1.45 in 2022. With analysts expecting 2024’s Net Investment Income Per Share (NIIPS) of $1.78, dividend “coverage” is on the high side at 117%. However, the analysts are projecting earnings will drop sharply in 2025 as rates drop and credit losses – possibly – mount. Over at BDC Best Ideas, we’ve reviewed the analyst earnings estimates and our own projections of the likely changes to book vcalue and to distributions.

CION

December 26, 2024: PennantPark Floating Rate Capital Ltd. Upsizes Credit Facility to $736 Million

BDC Reporter Adds: This is a routine – but positive – development for PennantPark Floating Rate (PFLT). The BDC is increasing its Revolver, while keeping its pricing unchanged. We thought we’d have a quick look at how much PFLT will pay for this facility and compare the cost with some of its other facilities. Now that SOFR is at 4.40%, the all in yield comes to 6.75%. As of the IIIQ 2024, the all-in yield on PFLT’s loan portfolio was 11.50%, suggesting a decent enough spread of 4.75% but the current yield is likely lower so 4.5% is the more likely spread. After deducting out 1.0% in management fees, and taking into account direct costs, unused debt fees and the incentive fees, shareholders will likely receive a net yield of about 2.5%. As we’ve noted elsewhere, the net proceeds from the use of borrowings to boost the portfolio are underwhelming but just attractive enough to keep BDC managers active and shareholders complacent. Moreover, this Revolver seems to cost less than the asset-backed debt issued in February and July 2024 said to have an all-in cost of 8.1% and 7.2% respectively, but that may overstate the current cost given the recent Fed Funds rate cut.

As of the IIIQ 2024, PFLT’s debt to equity was around 1.3x, below its target of 1.5x. With plenty of unused liquidity – both in the form of cash and untapped Revolver – management has the ability to grow, but will they? Is the current crop of new loans worth the risk of pushing the leverage envelope? PFLT is coming off a successful 2024. By our count the total return of distribution and change in net asset value comes to 16.4%.

PFLT

December 27, 2024: Belk Inc: IIIQ 2024 Update

BDC Credit Reporter Premium Article – Subscription Required

A famous department store was restructured in the summer of 2024 and BDC exposure has greatly increased with the addition of two new lenders and a changed capital structure.

FSK, TSLX, OTHER