BDC COMMON STOCKS

Week 4

And The Beat Goes On

After the occasional doubt along the way, the markets are back in full euphoria mode as the Trump Administration moves in.

As noted above, the S&P 500 reached a new all-time price high – continuing a trend of frequently finding its way to ever high levels.

The Dow Jones and the NASDAQ are not very far behind, which makes this an “everything everywhere” market – at least where the indices are concerned.

(As we all know, lift the hood and look into the constituent stocks and the picture is more complex – something which could be said of the BDC sector as well).

In Unison

BIZD – the only exchange traded fund for the public BDC sector – moved up 1.2% in price.

The S&P BDC Index on a price basis went up 1.1%, as did the index calculated on a total return basis.

The upward momentum was not as strong as the week before – pre-earnings jitters? – but 37 of the 45 BDCs we track were in the black, versus 43 the week before.

Last week 26 BDCs increased in price by 3.0% or more, while this week the number dropped to 6.

Still, not one BDC fell (3.0%) or more in price this week.

(Still) Popular

Investors continued to favor BDCs that they had favored before.

There were 7 BDCs reaching new 52 week highs and many of the names involved had posted record price levels in recent weeks.

Most notably, this included Ares Capital (ARCC) – soon to report its IVQ 2024 earnings which reached an all-time peak price of $23.53 on Friday.

Not Alone

Other BDCs reaching new highs once again are Gladstone Capital (GLAD); Fidus Investment (FDUS) and Main Street Capital (MAIN).

In regards to the latter, this week we learned more about the coming IPO of MSC Investment Corp – for which MAIN is the external manager.

We wrote about MSC this week and noted that in the short term the transition from a private to a public format is likely to cause fees paid to the external manager to fall.

However, over the long term the investment management benefits to MAIN of MSC should be considerable, especially if the latter’s assets under management increase.

We expect that several of the “internally managed” public BDCs that remain will be heartened to see that they can successfully add incremental income and value by managing additional vehicles.

Both Hercules Capital (HTGC) and Capital Southwest (CSWC) are well positioned in this regard, with the former already making progress in this regard.

Little Said

Just for the record, the other BDCs reaching new price heights were Bain Capital Specialty Finance (BCSF); FS-KKR Capital (FSK) and Stellus Capital (SCM).

We can’t help noticing that BDCs serving very different segments of the leveraged loan/private credit industry are represented here, from the lower middle market (LMM) to the middle market (MM) and reaching up into the BDCs financing some of the very largest borrowers.

Most of the BDCs mentioned have performed very well of late where net book value per share, earnings and distributions are concerned but there is also a “turnaround” BDC here: FSK.

Worst Of The Worst

At this point, there are only two BDCs trading within (5%) of their 52 week lows: OFS Capital (OFS) and Portman Ridge Finance (PTMN)

Where We Are

After 4 weeks and on the very eve of BDC earnings season, BIZD is up 3.8% in price and the S&P BDC Index 3.0%.

The S&P BDC Index on a “total return ” calculation has increased 3.1%.

Year-to-date in 2025, 39 of 45 BDCs are in the black and only 6 in the red price-wise.

Weird

The biggest price “winner” is Oxford Square Capital (OXSQ) – up 9.4% – at a stock price of $2.67 a share.

That will strike some investors as odd given that just last week OXSQ’s stock price was down about (40%) over a 3 year period and its Net Asset Value Per Share (NAVPS) has dropped by (57%) over the last 5 years.

There’s no news to justify this price jump except that the BDC continues to pay its $0.035 a month per share distribution despite continuing losses of book value – suggesting that’s all that matters to some investors.

After all, a nominal 15.7% yield is hard to resist and it was 17.5% at the BDC’s recent 52 week low of $2.40 a share.

Maybe “something is happening” behind the scenes that may be reflected in the price jump but it could as easily be that coterie of investors who move in on a stock when price depths are reached.

Perhaps, Perhaps, Perhaps

Also performing well in 2025 are two other deeply troubled BDCs – BlackRock TCP Capital (TCPC) and TriplePoint Venture Growth (TPVG) – both are up 7% or so in price.

Again, this seems more speculative than anything else after the huge price drops these BDCs have endured.

“Value buyers” move in as they have for these BDCs many times before.

For example, a glance at TCPC’s stock price chart since March 31, 2021 shows the many, many times investors have bet on a recovery, only to be disappointed:

One day, TCPC’s stock price will actually “make the turn” and head northwards for more than a few months and some buyers will be high fiving themselves for their astute purchase but – going by this data – luck will play a large part in the outcome.

Same

By the way, we had a look at TPVG’s stock chart since November 2021 and counted 11 new price lows along the way, much like the pattern at TCPC.

A great deal of the price action you see for poorly performing BDCs relates to investors throwing out a line into the deep, dark blue sea and hoping for the best.

The beauty of BDC investing – and what makes these fishing expeditions less onerous when the price declines continue – are the regular dividends still being paid out throughout.

Admittedly TPVG’s quarterly dividend did get cut by (25%) along the way but TCPC’s payout has actually increased even as its stock price has dropped by (33%) in the period above.

Where We’re Headed

Unexpected

Here is how BIZD’s price has changed in the entire rally period that began in the autumn of 2022 when the markets finally realized no recession was coming; interest rates were favorable and getting more so and market conditions were as lender-friendly as they’s ever been.

A mighty – albeit choppy – price rally ensued which peaked in May 2024 – more 18 months after it began.

During this period, BDC investors booked a “total return” – using the S&P BDC Index for this calculation – of nearly 50%.

Need we say that’s way above the long term return averages for BDCs or most other investments.

Expected

However, we were not surprised to see BIZD peak in May 2024.

After all, the Fed was constantly promising to cut short term rates (and by a lot over time); spreads on new loans were compressing as the all-clear sounded on a recession and some BDCs began to experience the credit wear and tear that comes from lending to non-investment grade companies in a high rate world.

The script seemed to make sense: the best days were behind us and the “clever money” – like Mary Poppins when the winds change – began to move out.

Between late May and August 2024, BIZD dropped – from highest to lowest – by about (9%) – which was painful for anybody long the sector but seemed rational enough.

Exciting Stuff

Now for the twist: Since August 4, 2024 – long before the election and even before the Fed reduced rates the first time by (0.5%) – BIZD has been inexorably increasing in price and now stands very close to its May 2024 high again.

So BDCs are going to earn less in 2025 than in 2024 – going by what the analysts are telling us – spreads on new loans are back to their 2021 levels and credit conditions (judging by change in NAVPS in the last two quarters) remain questionable and yet the sector is in a rally mode 2.0…

Happens All The Time

Frankly, we’re not surprised to be surprised because BDC investing is like that: you never really “know” what’s coming next.

We could come up with all sorts of reasons to explain this risorgimento but the only explanation we’re wedded to is that the BDC sector is just being carried on the much bigger wave of broad market enthusiasm.

Here is the price chart for the S&P 500 for the past year. Note that from July 16, 2024 the index fell nearly (10%) in prive, pulling itself together on August 6, 2024 – just when the same phenomenon was happening to BDC stocks.

After that, the S&P 500 was off to the races, and has increased by 18%.

BDC investors are along for the ride and that applies for both the up and the down.

We’d say that if the S&P 500 has a good 2025, the BDC sector is likely to follow suit but if Gatsby’s party should close down unexpectedly, BDC investors might need to beware.

Sad-ish

It’s a little depressing for the likes of the BDC Reporter and the many investors poring over SEC filings; analyst reports and press releases that their fate seems inextricably linked with broader sentiment that has little to do with BDC fundamentals, but that’s the way we see things.

It’s also the reason we begin each of these Recaps with a review of where matters stand in the markets generally.

To paraphrase John Donne – No Sector Is An Island – and many years of experience has demonstrated how tied BDCs are to everyone else even if the nature of the businesses involved is widely different.

Worth The Work

However, how individual BDCs perform price-wise continues to vary largely based on their prosaic fundamentals so there’s no reason to throw up one’s hands.

In the weeks ahead, we expect to hear very different results from the 44 BDCs that have not yet disclosed their IVQ 2024 results.

As we’ve shown on prior occasions, the difference in price and total return performance between the “good” BDCs and the “bad” BDCs can be huge and a very good reason to seek to determine which is which.

In a little over a week, earnings season will begin – and likely with it the usual dose of surprises – both positive and negative – that we’re accustomed to.