BDC COMMON STOCKS

Week 20

Awesome

Sometimes we just have to stand back and take in the ability of the markets to turn on a dime, reacting to perceived opportunities, unburdened by what may have come before.

The major indices – given up for dead just a few weeks ago – have more than rebounded, as reflected in the 5.3% move in the S&P 500, largely on the back of a handshake and a smile in Geneva last week-end between the U.S. and Chinese delegations.

The NASDAQ is up an even greater percentage, twice the level of the Dow Jones.

Ironically enough, this week ended with Moody’s downgrading the credit of the U.S. government. Will that cause a market reversal next week or is that old hat to investors?

Follower

In any case, the BDC sector’s stock prices followed the major markets upward this week.

BIZD – the only BDC exchange traded fund – was up 4.6%.

The S&P BDC Index – on a price only basis – increased a similar 4.5%.

To put the upward move into context, this was the biggest percentage gain since the week ended November 3, 2023.

(Almost) All Together Now

41 of the 46 BDCs we track were up in price or unchanged, another very robust metric that goes with the overall sector price jump.

Even more impressively, 34 BDCs were up 3.0% or more in price, suggesting investors were almost indiscriminately hitting the BUY button.

We don’t have room to list every stock up over 3.0%, so we’ll limit ourselves to those 6.0% or more higher:

There are 14 BDCs listed here and what’s notable about them is their variety: there are representatives from all 5 market sub-segments BDCs serve; there are “good” BDCs who have posted positive results this quarter and “bad” BDCs who have disappointed; there are huge BDCs and tiny BDCs, etc.

Swivel

Maybe more interesting is to have a look at which two BDCs dropped more than (3.0%) in price this week, and understand why:

These price dips did not happen by accident.

Crescent Capital (CCAP) was one of the very last BDCs to report IQ 2025 earnings and investors were clearly not happy.

For a third quarter in a row, the BDC’s Net Asset Value Per Share (NAVPS) dropped – (1.8%) this quarter and (3.3%) in the last 12 months.

More Than Enough

Maybe more telling is that the BDC reported 4 new non-accruals in the quarter.

Management sought to minimize the importance of these credit reversals on its conference call:

The last driver of the quarterly change in net investment income was our loans on non-accrual, which increased to 3.5% and 1.8% of our debt investments at cost and fair value, respectively, at the end of the quarter. While we are not pleased with the increase in non-accruals, the 4 names that were added this quarter are all first lien positions and represent less than 1.2% of the total portfolio at fair value and resulted from one-off credit events at certain borrowers that were independent from one another.

CCAP – IQ 2025 Earnings Conference Call

Investors, though, seem to have been less forgiving.

In 2025, CCAP is now down (20%) in price – the fifth worst BDC price performer.

Clean Sweep

The other big percentage price downer was venture-debt BDC Horizon Technology Finance (HRZN).

The BDC reported (poor) results weeks ago.

This time investors were likely put off by the sudden departure of the BDC’s CEO and President and their replacement in the top spot by an “independent” member of the Board with no experience in this line of work.

On short notice, we discussed this surprising development in an article this week.

Where We Are

(Almost) Back

With this strong showing, the BDC sector – as measured by the price of BIZD, which closed at $16.04 – is down “only” (3.5%) in price terms on the year.

On a “total return” basis – using the S&P measuring stick – the sector is down only (1.1%) as of Week 20.

Admittedly, the S&P 500 is up 4.5% by the same “total” measure, but the gap is not so great.

Moving Up

At the lowest point of the “Tariff Crisis” only 5 BDCs were able to boast of being in the black in 2025.

The situation has gotten marginally better – based on Seeking Alpha data – with 9 BDCs up in price.

Furthermore, back in April and for two week period no BDC traded within 10% of their 52 week high.

Now there are 7, including Gladstone Investment (GAIN) within 5% of its highest price of the last 52 weeks and another 6 BDCs 5%-10% from their 12 month price peak.

Amongst the worst performing stocks from a price standpoint, there are now only 2 BDCs within 5% of their 52 weeks lows, down from 38 at the height of Liberation Day uncertainty.

As to that old chestnut – the number of BDCs trading at or above their net asset value per share – there are now 13 in that enviable category, up from 10 a few weeks ago when everything was going to heck, but still some way from the 20 of late February when the sector was riding high.

Visual Aid

Given that every chart tells a story, here’s the S&P BDC Index in 2025 on a price basis:

As you can see, the sector is down (4%) in price terms but when the impact of dividends received is factored on, the YTD loss is just (1.1%).

That’s probably not what BDC investors were expecting at the end of 2024 or when February 2025 came to a close but a good deal better than in early April when this index was well into “correction” territory: (14.2%) down.

Where Are We Headed

Remember Them ?

Before we go any further, we should remind our readers that IQ 2025 BDC earnings season is now done and dusted.

Moreover, we should add that the NAV Change Table shows that NAVPS levels took a hiding in the most recent period.

Have a look and you’ll see that only 6 BDCs out of 46 were able to increase their NAVPS, compared with 15 the quarter before and 28 at the end of 2023.

This metric has not been this low since the IIQ 2022 when there were only 3 BDCs in the black.

We’d like to say the drop is an aberration, but there’s been a weakening trend since the IIQ 2024.

A Lot In Just 3 Months

If we get a little more granular, you’ll see that a record 20 BDCs saw their NAVPS drop by more than (1.5%) in the quarter. Annualized that’s greater than a (6%) erosion and over 5 years, more than (30%).

In that category – marked in blood red in the NAV Change Table for a reason – the actual NAVPS loss was often much, much higher.

The worst performance came from HRZN, who we’ve already mentioned. However, also doing poorly on this score is Prospect Capital (PSEC), down (7.5%) in 3 months, despite/due to an ongoing re-positioning effort.

Also down by the same percentage is CION Investment (CION), and so on.

Analysis

One quarter of NAVPS does not tell a whole story – in either direction – but does offer a hint at what is happening under the hood of a BDC, which is why we spend as much time as we do updating the number and tracking performance over time.

Reading the NAVPS tea leaves is tricky but we’ll have a go:

Unrealized losses in BDC portfolios rose significantly this quarter and the red ink involved more than offset the positive effect of the accretive share sales made by many, many BDCs in the first half of the quarter and a smattering of share buybacks in the back end of the period. Moreover, while distributions remained high, earnings dropped causing BDCs to either dig into their big piles of undistributed taxable income or to generate smaller profits than before to retain on their books.

As Expected

Earnings dropped – by the way – mostly because BDCs were impacted for a full quarter by the decrease in SOFR that occurred in late 2024 when the Fed reduced rates by a quarter. This is a well known lag effect and the impact is obvious across most BDC results.

Going Down

At the end of the day, though, the most pernicious factor – but also hardest to get our arms around – is the drop in investment values. This varies so much from BDC to BDC and even within a given portfolio there are many contradictory comings and goings.

The bottom line, though, is that the NAVPS change may be providing a warning and that’s made ever more likely by the post IQ 2025 macro developments.

True, every BDC has taken a long, hard look at their portfolio companies and usually estimated that only a single digit percentage of companies/dollars will be directly impacted by the (much) higher tariff situation.

However, nobody could be drawn – and rightly so – by the tertiary shock waves the re-ordering of the global economy might bring.

Anyway, even a minority of portfolio companies facing struggles due to the tariffs – assuming everyone else is unaffected – may be enough to materially deepen the NAVPS loss in the IIQ 2025 and for the rest of the year.

If that turn out to be true, will weakening fundamentals arrest the BDC price recovery underway, or cause a reversal or will BDC investors continue to whistle through the graveyard?