BDC COMMON STOCKS

Week 26

Left Behind

As often happens, the major indices have suddenly surged forward price-wise, leaving the BDC sector in their dust.

As Wall Street Breakfast above notes, all sorts of records were broken this week by the S&P and the NASDAQ and the single week percentage price gains were notable for all 3 main indices.

The BDC sector – going by the price movement of its only exchange traded fund, which has the ticker BIZD – only moved up 0.8% – a quarter of what NASDAQ managed.

For the first time in 4 weeks, there were more individual BDC stocks in the black than in the red, but not by an overwhelming margin.

30 BDC stocks were up (or unchanged) and 16 were down.

Unimpressively only 1 BDC went up by 3.0% or more (TriplePoint Venture Growth – TPVG – catching one of its periodic price revivals) and 3 fell (3.0%) or more. See below:

Moribund

The number of BDCs trading at or above their Net Asset Value Per Share (NAVPS) remained the same for a fourth week in a row at 13.

Essentially, this data point and the rest, confirm a BDC sector firmly stuck in neutral for the last 7 weeks.

Plenty

As you can see from our summary of the week’s BDC news, there were a number of interesting developments, including the final approval for the merger of Logan Ridge Finance (LRFC) and Portman Ridge Finance (PTMN) to proceed; a new debt raise by Trinity Capital (TRIN) and a better-than-we-might-have-expected dividend announcement from Palmer Square (PSBD).

However, there was nothing there that particularly impressed BDC investors.

We could see this going on until IIQ 2025 BDC earnings season rolls around and that’s still a seemingly endless month away, except for Saratoga Investment (SAR), which has wrapped up its quarter at the end of May and will be disclosing its results on July 8, 2025.

High-ish Hopes

BTW, the analyst consensus for SAR’s recurring earnings is substantially higher than what the BDC reported for the quarter through February 2025: $0.72 versus $0.56 Adjusted Net Investment Income Per Share (ANIIPS).

The last quarter was impacted by a one-time charge for excise fee expense of $0.13 per share, but the analysts seem to believe a potentially larger portfolio size might generate a few cents of additional earnings.

This is important for SAR. For years the BDC carefully paid out way less in regular distributions than earned.

More recently, though, profitability has been impacted – like everyone else – by the rate decreases that began in 2024.

Switch

Moreover – as we’ve discussed on these pages – the BDC has boldly switched its dividend policy and is now paying out a dividend of $0.25 per share every month.

That’s $3.00 per share a year and begs the question: how long can that last ?

The analysts are projecting ANIIPS will amount to $2.77 in the current fiscal year than ends in February 2026 and $2.71 in FY 2027.

Sources

Presumably, SAR intends to make up the difference with “spillover income” on which excise fees have been abundantly paid.

We wouldn’t be surprised if management is looking to net realized equity gains as another source of distributions.

This is a BDC management group with deep experience and are unlikely to have committed to this new dividend “liability” – already announced through September 2025 – without having a card or two up their sleeves.

Nonetheless, SAR bears watching closely, especially as the BDC’s NAVPS trended sharply downward last quarter.

Nothing Lasts Forever

The principal problems lie with their long in the tooth CLO and never very successful but more recent senior loan joint venture.

Both these investments seem likely to continue to drop in value.

Less clear is what loss of income we should be expecting and whether SAR has any plans to disengage themselves from either vehicle.

WHERE WE ARE

In The Middle

We are halfway through the year, which is a good time to assess where the BDC sector stands.

Let’s start with BIZD which is down (2.6%) YTD and (9.3%) below its 52 week high.

Let’s not forget that through February, BDC investors were on a bit of a roll.

However, “Liberation Day” and all that followed put an end to that period of good feelings.

Divergent

The main indices may have shaken off those weeks of doubt and uncertainty in April, but the BDC sector has not.

Here’s a chart showing the price action of BIZD in 2025 compared to the S&P 500:

At this point, only 9 BDCs are up in price in 2025, which means 37 are in the red.

All In

However, as we always point out, a fairer comparison of BDC performance includes those still very high dividends being paid out.

The longer the year goes on for, the more important this factor becomes.

According to the S&P BDC Index, the sector’s total return is almost at break-even: down only (0.2%).

We calculate that at least 26 individual BDCs are in the black when distributions received to date are included.

That’s a majority.

Still – the BDC Reporter says ruefully – the BDC sector remains way behind the S&P 500, up 5.7% when its own dividends are included.

WHERE WE ARE HEADED

Candidly Speaking

We can’t help being worried that the inability of the BDC sector to “catch a wave” even in a week like this with a major swell suggests deep seated investor caution.

Not helping are the latest developments in the never ending debate about where interest rates are headed.

This week we had more chatter about the Trump Administration’s campaign to bring interest rates down.

Washington may appoint a “shadow” Fed Chair but we’re unclear on how that might play out.

In any case, the days of Chairman Powell at the helm of the Federal Reserve seem almost certain to be coming to an end when his term concludes in May 2026.

The political pressure for lower rates mixes in with another weak unemployment reading:

The number of people continuing to receive unemployment benefits (insured unemployment) rose by 37,000 to 1,974,000 for the week ending June 14. This is the highest level for continuing claims since November 2021

Source: Department Of Labor

Then there was the lower GDP number…

U.S. Q1 2025 GDP was revised to -0.5% (annualized), a sharper contraction than previously estimated, mainly due to weaker consumer spending and a surge in imports ahead of tariffs.

Source: U.S. Bureau Of Economic Analysis

Pushing the other way was a higher reading on inflation, counted two different ways by the country’s statisticiuans:

Over the last 12 months, the CPI increased 2.4%, up slightly from the 2.3% annual rate recorded in April. The core CPI, which excludes food and energy, also rose 0.1% for the month and is up 2.8% year-over-year

Finally, there was Chairman Powell himself – even if a dead man talking – showing no sign of giving up the fight against inflation and continuing to wait for greater certainty.

Federal Reserve Chair Jerome Powell, in his semiannual testimony to Congress this week, emphasized that it is too soon for the Fed to consider lowering interest rates. Powell maintained the central bank’s “wait-and-see” approach, citing ongoing uncertainty about the economic impact of recent tariff increases and the broader trajectory of inflation and growth

We know our readers have heard all the above, but we’re seeking to illustrate how unclear the path forward on interest rates remains. All these contradictory elements occurred in just one week.

Other Issues

Moreover, we still don’t know how BDCs will mark their portfolios in the light of tariffs.

Will we get major valuation write-downs for the 5%-10% of companies in the direct line of tariff fire or will BDC managers – like Chairman Powell – await more information?

(We are guessing the latter).

Then there’s the slowdown in the background machinery of M&A, which feeds into BDC investment activity and earnings.

Will BDCs keep busy enough with “bolt-on” acquisitions from existing borrowers and lower than normal pre-payments or will the reduction in fresh business materially impact bDC performance?

Questions. So Many Questions.

We won’t go on but it’s clear that there are more “known unknowns” than usual that could impact BDC performance not only in the IIQ 2025 but for several more quarters to come.

Pity the poor analyst trying to plug in even very basic assumptions into those models they spend so much time tending to.

Both Sides Now

We’re no better than anyone else and we could make a credible case both for a strong price revival in the second half of the year for BDC prices and still strong distributions adding up to a total return in the low to middle teens.

Just as easily, though, BDC prices could slip from here through the end of the year, more than offsetting what is still likely to be a robust year for distributions.

(2026 may be another story where BDC payouts are concerned, but let’s leave that for the moment).

This second half of the year may end being a doozy with plenty of volatility and BDC investors could miss these weeks of calm sailing.