BDC COMMON STOCKS

Week 9

Entangled

We get the impression that BDC sector prices continue to be impacted at times by what’s happening in the greater world outside.

At other times, BDCs go their own way given that some of the developments that are giving the major indices migraines are favorable to BDC economics.

Right now, BDC investors and analysts – like everybody else – are worried about what the Trump Administration’s tariff policies might mean for the health and welfare of American companies.

Glass Darkly

Some journalists are gleefully even predicting a recession is now in the cards based on the slightest of data from a few sources.

Here’s an example from February 25, 2025 from Bloomberg.

“Recession Fears Rise as US Consumer Confidence Falls“

If the recession doesn’t happen, maybe stagflation will, according to this Bloomberg headline from a few days later:

“US Stagflation Fears Rise With Latest Economic Data“

Any sort of sustained economic downturn is – mostly – Kryptonite for BDC stocks, especially with sector prices flying high.

Down And Up

This negativity seems to have caused BDC sector prices to come down from this year’s peak level which occurred on February 19, when BIZD – the sector’s only exchange traded fund – reached a price of $17.86.

In the days that followed BIZD dropped sharply, reaching an intra-day low last Thursday February 27 of $17.24 – a (3.5%) drop in a few days.

However, on Friday BDC investors felt a little braver and BIZD moved up 1.45%, ending the week down (0.7%), and less than (2%) off the 52 week and 2025 high.

All in all, after two months of 2025, BDC investors are much more positive than those in the S&P 500. BIZD is up 5.5% in price terms, while the S&P 500 – which usually charges ahead of us – has eked out only a 1.2% gain.

Good, Not So Good And Ugly

We are two-thirds of the way through BDC earnings season at this point.

There was an avalanche of results released this week, which the BDC Reporter is still sorting through.

Many BDCs reported results that were expected, or even a little better such as SLR Investment (SLRC); Carlyle Secured Lending (CGBD); Blackstone Secured Lending (BXSL); Trinity Capital (TRIN); Nuveen Churchill Direct Lending (NCDL); Morgan Stanley Direct Lending (MSDL) and Bain Capital Specialty Finance (BCSF).

The results of New Mountain Finance (NMFC); MidCap Financial (MFIC) and Palmer Square BDC (PSBD) may have left something to be desired but were still “solid”.

Even some BDCs that have under-performed in recent years – such as FS-KKR Capital (FSK) and Monroe Capital (MRCC) reported results good enough to get a thumbs up from the market.

In The News

With all that said, the week was most memorable for the poor results of BlackRock TCP Capital (TCPC) and Goldman Sachs BDC (GSBD) and the outsized dividend cuts that ensued.

We discussed the latter in a Premium article on February 28 and we’ll be turning to TCPC once we get beyond earnings season and can undertake a deep dive into its portfolio.

Metrics

Overall, a slim majority of BDC stock prices – 24 – increased in price or remained unchanged and 22 were in the red.

However, only one BDC broke the 3.0% price increase barrier: TRIN, up 4.6%.

3 BDCs were down by (3.0%) or more.

The most punished – and not surprisingly given its results and reduced dividend – was TCPC, which fell (10.7%).

Since the spring of 2021 when TCPC was flying high its stock price has dropped about (44%).

In that period, the stock has rallied 9 times only to drop again as TCPC failed to convince the market of a turnaround.

Interestingly, though, TCPC’s closing price on Friday was $8.44, 8% above its post 2021 and 52 week low of $7.71.

Hope springs eternal.

Peculiar

We also found interesting that GSBD’s stock price dropped only (1.2%) despite a major cut to the quarterly dividend that has been paid like clockwork since 2015.

We have several guesses as to why that might be the case.

Our favorite surmise is that investors decided to stick around for a while at GSBD because management – even while cutting the base dividend – is promising to pay 50% of the difference between the base and actual earnings AND has announced 3 “special” dividends in 2025 as well.

The bottom line – if our calculations are correct – is that GSBD will pay out more to its shareholders in 2025 than they did in any of 2022-2024.

As we said: peculiar.

However, the source of the specials will eventually run dry and so might investor enthusiasm when 2026 rolls round.

Maybe by then GSBD can fix its credit problems and stabilize both its earnings and net asset value.

Where We Are

Let’s recap where the BDC sector after nine weeks/two months.

As mentioned and going by BIZD, the sector’s prices are up 5.5%. The S&P BDC Index – which is always a little different – says prices are up 5.0% and 5.5% on a total return basis.

Needless to say – but we’re going to anyway – this is a good start to the year and gives us hope that the sector might generate a third calendar year of above-average returns.

Since the end of September 2022 – when the markets came to the blinding realization that no recession was coming – the BDC sector has posted a 75% total return. That includes dividends and price change, with the former generating about 40% and the latter about 35%. (This data is from S&P).

YTD in 2025, 41 of 46 BDCs are up in price, suggesting a broad based rally.

Another good indicator is that 20 of the 46 BDCs we track are trading at or above their Net Asset Value Per Share (NAVPS), as subscribers can see by checking the ever-updated BDC NAV Change Table.

We also noted that in this down week for the sector as a group, 4 BDCs reached new 52 week highs and there were no stocks at new 52 week lows.

In fact, only 1 BDC is trading within 5% of its 52 week low point.

Unloved

A little surprisingly, this most under-appreciated of public BDC stocks is one of the newest in our coverage universe: PSBD.

As this stock price chart shows, PSBD burst on the scene very early in 2024 but by March of that year its price had peaked at $17.09 intra-day and has been gently descending ever since:

At this point, PSBD trades at $15.35, (10%) off its peak and ($1.10) a share below its IPO price of $16.45.

However, it’s worth noting that if you had bought the stock at the IPO, you’d be ahead on a total return basis, even if the stock is down (7%).

As we always like to say, BDC investments are very forgiving for the investor willing to buy and hold.

Seeking Alpha total return data shows that 86% of al BDC stocks held over a three year period generated a positive return.

If you had the tenacity to hold on for 5 years, the odds are even better: 92%.

That’s the benefit to shareholders of BDCs being required to pay out essentially all of their earnings over time.

Looking Forward

We still have 14 BDCs to hear from in the days ahead, but we doubt their results will do much to change investors confidence in the sector.

As always, analysts and investors will be looking further afield to what SEEMS to be happening to the economy and to interest rates.

The personal expenditures consumption (PCE) index met expectations this week which made a little more likely that the Fed can – one fine day – continue to reduce short term rates.

That’s slightly bad news for the BDC sector – thriving at the moment on the prospect that rates and thus BDC earnings will remain high-ish for longer.

However, these numbers come and go.

Our Thoughts To Be Taken Or Left

Our greatest concern, both as the BDC Reporter and as the managing member of a building products distribution business, is that the constantly changing agenda out of Washington D.C. causes companies to just stand still, like those proverbial deer in those proverbial headlights.

If you’ll forgive another well worn animal analogy, the economy is like a shark that has to be constantly on the move.

If we grind to a halt as companies and consumers (already spooked according to recent confidence data) just sit and wait, the consequences can be very dire very quickly.

We’re not there yet but there is a great deal of anecdotal data in the financial press about companies of every size putting their business plans on hold until a state of greater clarity is reached.

Nothing we read about what’s happening suggests, though, that the Great Reset is anywhere near complete so our concerns remain.

Forging Ahead

As a final point, we should say that we don’t get the impression that any BDC is taking its foot off the pedal where booking new loans is concerned in light of the said uncertainty.

Generally speaking, BDC managers tend not to make those calls most of the time.

A few were preparing contingency plans in the early days of Covid and some took evasive action during the GFC, but that’s about all we can remember in our twenty plus years of being a BDC watcher.

Unfortunately that means if something untoward should happen the BDC sector will be fully exposed.

Resilient

However – as we’ve said before – we take some comfort from the relatively under-leveraged status of most BDCs; the large components of medium term, covenant-free unsecured debt on their balance sheets and the small army of bankers, auditors and turn around specialists available to contend with any crisis.

We hope that this current uncertainty like all the ones that have come before since the GFC – in 2011, 2014, 2016, 2018, 2020 and 2022 – will also prove to be a false alarm.

Till the all clear gets sounded, though, extra vigilance is warranted, especially with BDC prices as high as they are.