BDC COMMON STOCKS

Week 15

Fake Out

Don’t be fooled by the seemingly positive stock market data above.

Week 15 was the worst week yet in the short history of this tariff-centered crisis.

In mid-week, we peered into the abyss when Treasury yields – which historically have dropped in times of trouble as investors seek shelter – shocked everyone by rising.

Even when the Trump Administration hit the pause button on its “reciprocal” tariff plans, the rates kept going higher.

The odds of a financial crisis – potentially much more damaging than anything we’ve experienced since the GFC – have begun to increase sharply.

As Mohammed E-Erian said in Bloomberg:

The only good thing about some of Friday’s price action in the US Treasury market is that it happened on a Friday.

Source- Bloomberg April 11, 2025

Pretty Bad

The BDC sector did not participate in the stock price upward whipsaw that occurred at week’s end.

BIZD – the only BDC-focused exchange traded fund – fell (2.8%).

The S&P BDC Index – calculated on price only basis – was down (2.6%).

However, intra-week the BDC indices were much, much lower.

On Wednesday last, BIZD fell (9.0%) from its close on the prior Friday.

During this week of weeks, 40 BDCs reached new 52 week lows, just a week after 44 had already reached that inauspicious milestone, as we reported in the Recap for Week 14.

The new 52 week low for BIZD is $13.50, (24.4%) below the 52 week high registered on February 19, 2025.

Let’s take that in for a minute: the mighty and popular public BDC sector managed to “lose” a quarter of its value in less than 2 months and all due to extraneous factors.

To be fair, though, if we use the close on Friday, BIZD is at $14.47 – down just short of a Bear market drop of (19%).

Still, as in the prior week, a 2025 record 30 BDCs out of 46 dropped (3.0%) or more in price, the end of week price revival notwithstanding.

Exception To The Rule

Where We Are

As noted, BIZD has bounced off its lowest level – by 7.2% to be precise.

Looking at the ETF’s 5 year stock price chart below, the most noticeable insight we have to offer is that BIZD still trades higher than during the darkest days of the summer and fall of 2022.

Then, “everyone” was certain that a U.S. or global recession was headed towards us – traditionally a “bad thing” for any sort of credit asset.

Between late March 2022 – when all was well in BDC-land – and September of that year – when the mood was at its grimmest, BIZD fell in price by (25%) -a remarkably similar percentage of loss as experienced through Wednesday.

Once More

Now we’re back to playing the recession guessing game.

Apparently every pundit, economist, government official and person on the street has an opinion on the subject.

Goldman Sachs this week famously predicted a recession and then changed their minds within hours.

All we know is that virtually everybody with an opinion is going to be proved wrong and even those who are right are likely more lucky than good.

There are too many elements at work, all operating in complex and – mostly inscrutable- ways for anyone to correctly predict the future.

Unfazed

Based on where BIZD has landed, we get the impression BDC investors are far from convinced that a tsunami of bankruptcies and credit losses are coming.

Also, there are still 12 BDCs trading at or above their net book value per share.

At other dark and stormy times – think Covid or GFC – every BDC traded below book and – mostly – at much, much lower prices than currently.

For example, at its lowest point during the Covid crisis Ares Capital’s (ARCC) stock price dropped to $7.90. During the GFC, the price nadir was $3.40. At the moment, the biggest BDC trades at $19.91.

Based on the historical data, we would argue that the pullback in BDC prices since February 19, 2025 has been relatively orderly and suggests investors – even while they’re selling – remain bullish on the prospects for this segment of the market.

We’ve not yet reached the stage we remember from the GFC when journalists – it was mostly journalists – questioned whether leveraged lending was even a viable asset class and investors pulled out – seemingly forever.

Where We’re Headed

As we write this, the Trump Administration is already poking holes in its own tariff list, exempting many big ticket items like smartphones and computers.

We may be getting a climbdown or just a pause that refreshes before some new front is opened by the Administration.

All to say: the economic and political environment remains in flux, which should lead to continued price volatility.

Either Way

We could have reached our crisis low last Wednesday but – as we hope we’ve made clear – there is still plenty of price downside possible, especially if we get a broader financial crisis.

Who can put their hand on their heart and say that such an outcome is impossible? Or even implausible.

Unknowable

Unfortunately, even if we heard from the BDCs themselves – as we did in the wake of the Silicon Valley Bank crisis – they would have little to tell us – handicapped like everyone else by the fog of the trade war.

Nor will IQ 2025 results coming soon – see the BDC Earnings Calendar in the Tools section – provide much solace.

Virtually no impact is likely to show up in the performance and valuations of the 6,000+ companies financed by the BDCs.

At this point – as at so many others – the best we can offer our readers is a famous quote from Churchill which captures what to expect in the short run: