BDC COMMON STOCKS

Week 14

Full Retreat

There was nowhere to hide in the markets on this historic week for global capitalism.

“Liberation Day” made ice-cold clear that the largest economic player in the world is determined to rip up the “free trade” rule book that has been patched together in the last 80 years.

Not so clear is what the future rules might be as every country in the world – literally – is preparing a response.

Those responses might trigger further changes from the United States where tariffs are concerned – or might not.

China has offered a robust rebuttal, the EU a more timid one, Canada and Mexico are taking a deep breath and hoping to be left alone while the UK seems ready to stand pat.

Even when the tariffs all get reset – including those between all the other countries in the world besides the U.S. – a good deal of time will have to pass before we can understand how global supply lines; input costs and market prices will shake out.

Then there’s the fiscal reaction, both here and around the world. Will governments borrow and spend or do the opposite? What will happen to capital flows? To currency relationships?

A huge rock has been dropped into the global pond and the ripples are just beginning to move off in every direction.

Like Minded

Howards Marks of Oaktree – using a different analogy – had this to say, which pretty much encapsulates our view:

All we can do on these pages right now is provide damage assessment to date.

BDC Impact

Starting at the top – and using the price change in the S&P BDC Index as our measuring stick – the sector dropped (9.8%), even more than the S&P 500 and the Dow Jones indexes.

BIZD – the only BDC exchange traded fund – paid out its quarterly dividend this week – resulting in a double whammy to its price, which fell (11.7%).

Of the 46 public BDCs we track, 44 fell in price.

Furthermore – the number of BDCs whose price dropped more than (3.0%) amounted to 30.

(Need we say no BDC increased by 3.0% or more?)

Here are the ten Biggest Losers, drawn from Seeking Alpha:

There are BDCs from every market segment represented on this list, and both BDCs that have performed well where fundamentals are concerned and that have fared poorly.

Everything suggests – including the broad based red ink – that investors just dumped shares across the board.

The result was that 29 BDCs reached new 52 week lows.

Where We Are

Not A Pretty Sight

As of Friday, April 4, 2025 BIZD closed at $14.89 – slightly off the new 52 week low set during the day of $14.83.

The ETF is (16.8%) below the 52 week high of $17.86, reached on February 19, 2025.

The S&P BDC Index – calculated on a total return basis – is at $396.93, down from its own high of $463.05 – also on February 19th – or (14.3%) off.

For those of you who like to label these things, the BDC sector would be deemed in “Correction” mode.

Note, though, that the S&P BDC Index – calculated on a total return basis – is off “only” (8.2%) in this challenging year – once again underscoring the favorable economics of the BDC model.

By comparison, the great and mighty S&P 500 Index on a total return basis is down (13.4%) in 2025…

Scraping The Bottom

Two months ago, out of the 46 BDCs we track, 29 were trading within 10% of their 52 week high price.

This week, there are ZERO BDCs trading within 10% of their 52 week highs and 38 within (5%) of their lows.

Where We’re Headed

We can’t emphasize enough that we have no idea where BDC prices go from here, and refer you back to our remarks at the top and those of Mr Marks.

Instead, we’d like to compare this week’s pullback with some of those that have come before.

We’ve been BDC price watching for twenty years and keeping records to discuss for the Recap since 2018.

Like Buses

The harsh truth is that bloodbaths like the one we’ve just experienced are not that uncommon.

For example, in the week ended February 28, 2020 everyone started to worry about this strange flu and what it might mean for the global economy.

The BDC sector fell (12.1%) that week – worse than what we just experienced.

The next week, the markets stabilized and an audible sigh of relief was heard but in the next two weeks the BDC sector dropped again: (19.5%) and (28.4%).

There was a strong bounce back the following week only for that all to be wiped out and more the week after.

At one point – for two weeks in a row – every BDC’s stock price was down by (3.0%) or more.

For four weeks in a row not a single BDC traded above its book value.

Drip Torture

Then there’s the “death by a thousand cuts” market which began on week 14 of 2022 and lasted till week 39 of the same year.

Investors began to worry that a U.S. or global recession might be coming, but there were no clear cut signs so prices ground down slowly.

The weekly price loss for the BDC sector never exceeded (7.5%) and there were weeks in the black- sometimes as many as three in a row – but the aggregate drop amounted to a (25%) loss – well in “Bear Market” territory.

Short Sharp Shock

Almost as sharp was the reaction to the problems at Silicon Valley Bank (SVB) and – coincidentally – Credit Suisse – in March 2023.

Was this the beginning of a new GFC everyone asked themselves?

In Week 10 of that year, BIZD dropped (9.9%).

34 BDCs dropped (3.0%) or more in price, even more than this week’s 30.

At that point the number of BDCs trading at or above book dropped from 15 to 5.

The markets, though, decided all would be fine and prices soon rallied.

Lessons Learned

If you’re going to live in California you’re going to put yourselves at the mercy of earthquakes, in Florida it’s hurricanes and in the BDC sector its occasional drastic moves in prices – almost always well in advance of any evidence of weakening fundamentals.

The 2022, 2022 and now 2025 downturns have all occurred weeks after BDCs reached new price heights.

There is so much further to fall when you’re flying high and investors can sell in a panic and – in many cases – still book a realized gain after years of higher prices.

The other lesson from what we’ve discussed above is that a downturn can end very quickly or just keep on going and going until whatever uncertainty swaying the market gets resolved in the minds of most investors.

We could have a hockey stick price chart next week or we could be headed lower – much lower.

Resilient

The final lesson – and one we spelled out in an article we wrote earlier in the week during the very worst of the decline – is that BDC sector prices – to date – have always bounced back.

Also, very few individual BDCs have been wrecked on the rocks of Covid; recession worries and the several other crises that have occurred since the GFC.

All the BDCs still active, with $1bn or more in assets and trading for 10 years have posted positive total returns, according to Seeking Alpha data.

We’ll concede that several BDCs did not get out of the Great Recession as independent players(anyone remember Patriot Capital?) or were so damaged as to needing to be sold in the years that followed (American Capital, Allied Capital). Investors have also been disappointed by poor underlying performance in the years that followed from several BDCs like the two Fifth Street players; Medley Capital (MCC), Capitala Finance (CPTA) and Alcentra Capital (ABDC). However, all those assets eventually found a home with a better performing peer.

In any case, there have been fewer of these BDC underperformers of late as the sector has matured and the top asset managers entered the space.

We can’t promise that there won’t any casualties if we get a recession out of this re-working of the world order, but history suggests that when this is all over the BDC sector and the vast majority of its denizens will still be standing and generating a reasonable return for their shareholders.