BDC COMMON STOCKS

Week 16

Hot Water

When the history of this episode in American capitalism is written, this will be remembered as the week that mild-mannered Fed Chairman Jerome Powell attracted the ire of the President following remarks he made at the Economic Club Of Chicago.

The major markets dropped across the board, and were down for the week – as shown above.

However, the BDC sector – at least as measured by the price action of the exchange traded fund with the ticker BIZD – went up by 4.1%.

(The S&P BDC Index – calculated on a price basis only – moved up 3.8%).

Why the discrepancy between the major indices and the BDC sector?

Maybe the Fed keeping rates unchanged and seemingly prepared to wait before countenancing any change was read as a positive by BDC investors and not by the rest of the market, who’d prefer rates to drop and drop.

Beware What You Wish For

If we can throw in a little commentary here: if the Fed HAD suddenly decided to cut rates, the markets would likely have interpreted the move as reflecting deep concern about the state of the economy and the outlook for unemployment.

The likely result would have been both a mother of all drops in the main indices and in the BDC sector.

Instead, the Fed remains intent on holding the line against inflation as its main priority for the moment, something the Administration seems to have little interest in.

End of commentary.

Unavailable

Typically at this point in the Recap we discuss how many BDCs moved up or down in price during the week.

However, and probably due to the holiday shortened trading week, the Seeking Alpha data we rely on is not correct and we don’t have the capacity to manually calculate the numbers ourselves.

We have other data, though, to provide some color:

Just one week after 42 BDCs reached new 52 week lows in a spectacular and near universe downward drop, only 2 moved further down to new depths.

The BDCs involved are on the smaller side and one is shortly to be gobbled up by the other: Portman Ridge Finance (PTMN) and Logan Ridge Finance (LRFC).

(Shareholder votes at both BDCs are in the offing after an Agreement and Plan of Merger was entered into on January 29, 2025).

Most every other BDC bounced up considerably in price from its lowest levels, in recognition that a panic had occurred.

Unchanged

Another favorite metric: the number of BDCs trading at or above their net asset value per share (NAVPS) remained the same as the week before at 12.

News

The most important news in these four days was that both Capital Southwest (CSWC) and Main Street Capital (MAIN) offered investors preliminary results for the IQ 2025.

The BDC Reporter wrote about both and found very little to worry about as recurring earnings; NAVPS and non-accruals in both cases seemed to have hewed close to expectations in the first 3 months of the year.

Data from these two BDCs and other earlier revelations from Horizon Technology Finance (HRZN) and Trinity Capital (TRIN); as well as comments made on IVQ 2024 BDC conference calls held in February and March have all painted a picture of a low level of new investment activity and of refinancings.

However, given that the first quarter of every year is traditionally “slow” and the uncertain macro environment, this revelation will surprise no one.

Where We Are

What A Difference 8 Weeks Makes

The current environment, with its outsized daily and weekly price moves, dates back only to Week 9.

As recently as Week 8, BIZD had reached a new 52 week high and all was well with the world – if you were long the sector.

The chart below illustrates the dramatic price moves that have followed better than we ever could:

Just a few days ago, BIZD was at $13.50 intra-day – a massive (24%) price drop from the price peak of late February 2025.

At that point, BIZD had lost 2 years of price gains in 6 weeks.

As of Thursday’s close, though, the “damage” is more modest.

BIZD is down (9.4%) in price – not even in “Correction” territory.

On a total return basis, going by the slighly different S&P BDC Index, the sector is off “only” (7.1%).

Compared to the S&P 500, down (9.8%) on a total return basis over the year-to-date, BIZD is performing better, if that’s any consolation to our readers.

Still, 41 BDCs are down in price in 2025, including 21 off by a double digit percentage.

Here are the 10 worst performers, none likely to achieve a positive total return in 2025 even if prices do not drop any more, regardless of what dividends they might generate.

Consequences

Most of the BDCs on the list “belong” there in the sense that they have not performed very well where fundamentals are concerned over the last many quarters (PTMN,TCPC,TPVG,PSEC, CION and PSBD).

Just go to the BDC NAV Change Table and look up the percentage drop in NAVPS these BDCs have registered in 2024.

The exceptions to the rule are CCAP, CGBD and RWAY.

CCAP had a weak IVQ 2024 earnings and book value wise which may have spooked investors. The stock price dropped by nearly (30%) from February 2025 high to April 2025 low, but is (22.5%) down from its peak now.

CGBD’s NAVPS barely dropped in the IVQ 2024 and recurring earnings were above analyst expectations. The stock price, though, has likely been negatively impacted – as we’ve mentioned before – by its recent merger with a sister non-traded Carlyle BDC. Maybe the former shareholders of the private BDC have been selling off their shares.

Anyway, CGBD dropped as much as (32%) in recent weeks and is now (22%) off its intra-day high on January 31 2025.

Finally, RWAY – with new owners, boasting good results in the IVQ 2024 and a 2.1% increase in NAVPS in 2024, has still been hammered price wise.

From recent highest to lowest, the venture debt BDC dropped (27%) and is currently off its 2025 high by (22%).

Where We’re Headed

The BDC Reporter – like everybody else in the known financial universe, including the leaders of the current Administration – have no idea where we go from here in terms of the macro environment.

Given that said macro environment – as we’ve repeatedly posited – is the main short-term swayer of BDC prices, the outlook is far more unclear than usual.

We can say that we have no reason to believe the uncertainty is anywhere near over unless the Administration makes a complete U-turn and in short order negotiates a lasting tariff regime with all our main trading partners; respects the independence of the Federal Reserve; institutes a reasonable level of supervision over our critical financial institutions and does something to rein in the growth in the deficit.

Won’t Help Much

The upcoming BDC earnings season won’t be of much use even if the initial impact of tariffs will be reflected in some portfolio company results.

Businesses both large and small are in the same boat as everyone else and likely – as Bloomberg was reporting this morning – putting off all sort of capital expenditure and strategic decisions.

We continue to believe the uncertainty about what the ultimate rules of engagement will be is more dangerous than whatever is decided.

The benefit to BDCs of rates likely to stay higher for longer will ultimately be much offset by the macro miasma affecting everyone.

Looking Into The Abyss

BDC prices have fallen a great deal in a short time but there is still plenty of downside.

At this point, BIZD still stands 12% higher than the level in September 2022 when the consensus was that a recession was coming.

BIZD is also way, way higher than its level in March 2020 when Covid was deemed certain to crash the economy (but thankfully didn’t).

Popular BDCs like Ares Capital (ARCC) and MAIN still trade at prices not too far off their highs and above their book value.

Which is all to say, BDC investors remain reasonably calm, although prone to occasional tactical sell-offs.

Sometimes

We could readily see BDC prices shoot up if the market – rightly or wrongly – believes the all-clear has been sounded.

Take Your Pick

What we can’t see yet is what it might take for BDC prices to find new 52 week or multi-year lows.

There are just so many options.

Still, the potential downside remains much greater than the upside whatever one believes might happen to us all in the months ahead.

We may look back and see Week 16 as the calm in the eye of the hurricane.

Your guesses are as good as ours.

Maybe better.

Go About Our Business

We’ll just continue to do our best to track the inevitably changing nature of BDC fundamentals in these “interesting times”.

This is not a time to take one’s eyes off the reality on the ground even if it’s subject to major changes.