BDC COMMON STOCKS

Week 3

Funny Peculiar

The markets move in mysterious ways.

In Week Two, all the major indices were way down – as was the BDC sector.

In Week Three – as shown above – the major indices went on a rampage – the first one of the year.

All this hinging on a less-than-terrible economic reading:

The primary driver of the moves was the core consumer price index (CPI) reading for December 2024, which surprised to the downside. The favorable inflation data reignited bets that the Federal Reserve will continue to ease monetary policy.

Yet everyone must know that the next metric might be entirely different…

Ours Is Not To Wonder Why

Anyway, the BDC sector joined in the renewed enthusiasm for common stocks.

BIZD, the BDC sector’s only exchange traded fund, jumped up 3.9% and the S&P BDC Index – price only – moved up 3.0% and 3.7% on a “total return” basis.

For what it’s worth, both indices are now solidly in the black in 2025: 1.9% and 1.0% respectively.

(Almost) Everyone

In our recently enlarged coverage universe of 45 public BDCs, 43 were up in price, or at least, flat.

Only 2 were in the red.

Amongst those moving up in price an impressive 26 increased by 3.0% or more and only 1 was down by greater than (3.0%).

Here are the top 10 upward movers:

Beyond Us

We look at that list and we can’t see any pattern. There are big BDCs and small BDCs and BDCs serving all the different leveraged finance segments.

Yes, there was a lot of BDC news this week – which we’ll cover in a different article – but the number one price gainer was Ares Capital (ARCC), about which nothing was new.

Investors seem to be making all sorts of impulsive decisions ahead of earnings season and an unsettled market environment, so we wouldn’t be surprised to see this week’s gainers become next week’s losers.

Still, there were at least 4 BDCs reaching new 52 week-highs: the afore mentioned ARCC, as well Fidus Investment (FDUS); Gladstone Capital (GLAD) and Main Street Capital (MAIN).

These BDCs DO have something in common: all have been performing well where fundamentals are concerned and have repeatedly reached new price heights in recent months.

You Too

Even the weaker BDC performers are catching a bit of a break from investors.

There were no new 52 week lows and only 3 BDCs closed the week within 5% of their 52 week lows.

Exception To The Above

As this chart shows, Goldman Sachs BDC (GSBD) has lost its magic with investors and continues to decline in price – losing nearly a quarter of its market capitalization since last spring.

Even this week’s market enthusiasm did little to arrest the decline.

OFS Capital (OFS) has seen its stock price drop by a third in the last 12 months and is currently bumping along the bottom.

Finally, Portman Ridge (PTMN) is down (20%) in price since May 2024 with the drop accelerating of late:

Who Dares Wins. Sometimes

In a market with 16 BDCs trading within 5% of their 52 week high and another 7 5%-10% away, the best future value might be determining which of the worst price performers – if any – might be come on the comeback trail.

Just to illustrate (and this is not a recommendation), GSBD would generate a total return in the year ahead of nearly 50% if its dividend remains unchanged and its stock price moved up 30% to match its 52-week high.

Looking Forward

The next few weeks in a macro sense are going to be very interesting.

The advent of the new administration could result in pretty much anything, and the markets reactions could also go in any number of directions.

In a related vein, we will continue to deal with the “will they? won’t they” guessing game about what the Fed will be doing about interest rates.

We’re guessing the Fed is going to be stricter – i.e. less likely to cut – than the market expects but then we also guessed the first rate cut in September 2024 would only be 0.25% and that was only half of what happened.

Also interesting will be the clutch of BDC results beginning at month’s end and lasting into March.

Look in the Shareholder Tools section for scheduled earnings and conference call date and times. 15 BDCs have already booked their slots.

We’ve had earnings previews and other teasers about IVQ 2024 performance from several BDCs already.

If we were to generalize from what has already been revealed, we’d say the IVQ 2024 is likely to see little in the way of Net Asset Value Per Share (NAVPS) changes, and earnings very similar to the IIIQ 2024 as well.

However, it’s better for everyone concerned that we just wait and see because there has been a wide divergence in BDC results of late and we’ve not had previews from the walking wounded.

Looked Good

We can say, though, that the BDC Credit Reporter has just completed a full credit review of Saratoga Investment (SAR) – the only BDC to have formally reported results – and found very few trouble spots to worry about.

Well be reviewing SAR’s financial performance in the next day or so.

Here’s the spoiler: the BDC is doing most everything well or better than expected but there are a couple of weaknesses to be considered.

BTW, SAR closed the week at $24.90, off its 52 week high of $26.40 but moving up in the world, and yielding 11.99% if its current regular dividend pace of $0.74 a quarter holds.

SAR is trading at an (8%) discount to its NAVPS, one of 28 BDCs in the red.