BDC COMMON STOCKS

Week 25

Dull

There are important developments going on in the world but the U.S. markets were unmoved this week.

As the headline above makes clear, all the major indices either barely bothered to get out of bed in this holiday-shortened week or, in the case, of the Dow Jones, didn’t.

Ditto for the BDC sector – as measured by the price change of BIZD – its one and only exchange traded (ETF) – which dropped slightly by (0.3%).

That’s two weeks in a row of the same tiny percentage downward movement.

The S&P BDC Index – calculated on a total return basis – illustrates our point even better – remained flat this week.

Also, the number of BDCs trading at or above book value clocked in at 13 of the 45 weeks we track – same as the week before and the week before that.

Not Done Yet

However, when we look a little closer at all those BDCs there was some interesting price activity that will matter to BDC investors.

Up

As the mini-chart below shows, 3 BDCs moved up more than 3.0% in price:

The PhenixFin (PFX) percentage price increase is not particularly noteworthy as the stock is thinly traded so any fluctuation in purchases or sales can cause a sizable – but not meaningful – price change.

YTD, according to Seeking Alpha, the stock is down (1.7%) as buyer enthusiasm fluctuates.

Together

However, the big jumps in the prices of Logan Ridge Finance (LRFC) and Portman Ridge Finance (PTMN) are noteworthy, and related.

As readers will know, the former is about to be swallowed up into the latter in a merger.

In fact, this week the shareholders of LRFC voted in favor of the union, but not before the manager of the soon-to-be-departed BDC sweetened the pot:

Pursuant to the terms of the agreement, and contingent upon the closing of the Merger, LRFC’s Investment Adviser will finance a pre-closing cash payment of $0.47 per share to LRFC shareholders of record as of May 6, 2025. 

Source: LRFC Press Release

Not To Be Outdone

PTMN’s external manager was also busy this week making promises about what a post-merger reality would look like.

Notably the Portman Ridge name and PTMN ticker are to be dropped and become the very generic  “BCP Investment Corp”. and trade under the ticker symbol BCIC. n addition, dividends will be paid monthly versus quarterly currently.

I

Vowed

Finally, a pinkie promise was made to purchase BCIC’s shares in the market, in an effort to signal the external manager’s alignment with shareholders.

These are noble sentiments but how much of this will actually happen remains an open question. Also hard to determine is who will be buying these shares. Here is the actual wording in the press release:

To further align our interests with shareholders and drive additional value creation, the Company, along with its management, its adviser and their affiliates intend to acquire up to 20% of the Company’s outstanding common stock over the next 24 months to the extent the Company’s shares continue to trade below 80% of net asset value (“NAV”), which implies a share price of $15.08 based Portman Ridge’s March 31, 2025 NAV per share, or a 31% premium to PTMN’s June 16, 2025 closing market price. These purchases will begin no earlier than 60 calendar days following the date of the closing of the LRFC merger and may occur through various methods, including open market purchases and privately negotiated transactions, and may be conducted pursuant to Rule 10b5-1 and Rule 10b-18 trading plans. In this regard and as previously announced, PTMN’s Board of Directors has authorized an open market stock repurchase program of up to $10 million for the period from March 12, 2025 to March 31, 2026. The Company, its management and its adviser also reserve the right to conduct tender offers as part of the Company’s broader value creation initiatives.

Source: PTMN Press Release

However, the whole package seems to have done just what PTMN hoped for, boosting the stock price this week as we’ve seen.

Not Done Yet…

Ironically, despite all this improved sentiment, PTMN’s shareholders did not vote in sufficient numbers to cause the merger to be approved. There will be another attempt to get enough votes registered on June 27, 2025.

Nonetheless, we have no doubt the merger will be approved and go through very shortly.

In The Red

Strangely, in this quietest of weeks, we noted a great number of BDCs dropping in price by (3.0%) or more. Here’s the list:

We don’t have time to consider why each of these BDCs might be out of favor this week.

However, when we look down the list all – with the exception of Bain Capital Specialty Finance (BCSF) – are BDCs who have under-performed where fundamentals are concerned of late.

Maybe investors are positioning themselves early for potential further bad news when the second quarter earnings season rolls round.

Of course, if BDC performance “surprises to the upside”, these stocks could move up all the more.

WHERE WE ARE

Same Same Old

We don’t have much more to say than last week as to where the BDC sector stands almost at the halfway mark of 2025.

Briefly: BIZD is now (10%) off its 52 week high, and (3.4%) down on a year-to-date price basis.

Switching to the S&P BDC Index Total Return, the sector is off (0.8%), not terribly far behind the S&P 500 by the same measure, which is up 2.1%.

Only 6 BDCs are up in price in 2025.

At this stage, 10 BDCs are trading within 10% of their 52 week low price and 52 within 10% of their 52 week highs.

That leaves 26 in the great in-between.

In terms of the BDC YTD price leaders they remain OFS Capital (OFS), Sixth Street Specialty (TSLX) and Gladstone Investment (GAIN) – same as last week.

WHERE WE ARE HEADED

The Eternal Question Mark

The only major development this week that could ultimately affect the direction of BDC performance and prices was the Fed meeting.

Here’s how Perplexity summed up what we learned:

At its June 2025 meeting, the Federal Reserve kept interest rates steady at 5.25–5.50% and signaled a cautious outlook, projecting just one rate cut before year-end—down from earlier expectations of three. Chair Jerome Powell emphasized that inflation, while easing, remains too high to justify immediate easing, and that the Fed will remain “data dependent.” The updated dot plot revealed a divided Fed, with some officials seeing no cuts at all in 2025, while others anticipate up to two. Markets, however, are still pricing in a potential rate cut as early as September. Overall, the Fed is proceeding carefully, balancing cooling inflation with a still-resilient labor market and a soft-landing scenario for the economy.

Perplexity Summary

Thumbs Up To That

Just one rate cut – presumably of (0.25%) – or none, as “some” Board members are plotting for – would be undoubtedly positive for BDC earnings, especially when contrasted with the “earlier expectations of three”.

Two cuts would – in all likelihood – not be much different than one as the timing would probably be at the back end of the year.

Consequences

However, that would set up 2026 for further locked-in income decreases, much like what occurred in the first quarter of this year.

As Always

We are as unsure as the Fed itself as to what is going to happen to interest rates and so must be all BDC investors.

Maybe this continuing, numbing uncertainty is why prices are have just been sitting there week in and week out, as everyone waits for a sign.

Lest We Forget

In the interim, investors long BDC stocks are collecting generous yields.

For example, this week Trinity Capital (TRIN) announced a $0.51 quarterly dividend for the IIQ 2025. At the closing price on the announcement date, this translated into a 14.2% annualized yield.

Juicy

TRIN is not alone in offering a generous yield for those willing to hold BDC stocks during this uncertain period.

BDC Best Ideas, which projects a full year 2025 payout for 42 BDCs, says the average yield may end up being 13.0% at current prices.

12 BDCs – including TRIN – are projected to yield 14.0% or higher, all the way up 19.0%.

Ephemeral

Those are yields that in the past did not stick around for long before either prices moved up sharply as more investors piled in or the dividends were widely cut.

Later in the year, that could still go either way but in the short term – both because interest rates are flat and managers are keen to keep their payouts stable – BDC yields are solid.

Unmoved

We expect dividends to be announced for the IIIQ 2025 when IIQ 2025 results come out will remain very much where they were before.

That should be some compensation for BDC investors.