BDC COMMON STOCKS

Week 28

Catching Up

At long last, the BDC sector had a better week price-wise than the major indices.

All that talk out of Washington D.C. about higher tariffs for almost everyone didn’t seem to faze BDC investors who are mostly keeping busy preparing themselves for earnings season.

Anyway, the only BDC exchange traded fund – ticker BIZD – moved up 1.8% this week, and the same-but-a-little-bit different S&P BDC Index increased 1.6%.

Those are the biggest weekly percentage price moves since May – in either direction.

(Almost) Everyone

38 of 46 BDCs were up in price this week, suggesting broad based positive investor sentiment.

6 of those BDCs in the black were up 3.0% or more and none fell more than (2.3%).

So-so

Interestingly, the second worst performing stock – down (2.3%) was SAR.

Apparently, investors were not overjoyed by the latest results – which we covered at length on these pages, both immediately after the earnings press release and later when we’d had a chance to review all the data, including the 10-Q, Investment Presentation and conference call transcript.

We’re not terribly surprised that investors took their foot off the gas a little.

Even though SAR’s credit performance is currently unimpeachable, adjusted Net Asset Value Per Share (NAVPS) increased a little and the new $0.25 a month dividend seems safe, management seemed to suggest on the CC that a slowdown in the M&A market and the BDC’s high standards for underwriting new deals might keep the portfolio from growing in the short term.

That suggests the $0.66 per share in Adjusted Net Investment Income Per Share booked in this quarter might not be increasing any time soon, even if SAR’s portfolio yield has stabilized.

Still, on a year-to-date basis SAR can boast the 8th best price performance so any investor doubts are of the mild variety.

Up, Up And Away?

Switching back to the week’s price winners, far and away the most popular stock in terms of percentage price increase was Horizon Technology Finance (HRZN).

The venture-debt BDC was up 11%, more than a 3x greater price increase than any other stock.

Readers of the BDC Week In Review will know what we suspect may have contributed to this sudden enthusiasm for a BDC that was at its 52 week low as recently as May 1, 2025.

HRZN issued a press release on Wednesday of this week about its IIQ 2025 investment activity and repayments.

In the following two days, HRZN’s stock jumped 3.2%.

Here’s some of what we wrote on this subject:

BDC Reporter Adds: Once again Horizon Technology Finance (HRZN) has offered up tantalizing details about its new investment activity and repayments. Investors, always looking for an insight, are probably more interested – and intrigued – by the relatively high level of the latter. This may signal higher investment income from the acceleration of end of term payments and give HRZN’s earnings a boost when they are announced. However it’s a tricky business translating these investment flows into BDC financial performance. There are so many unknowns as to make this something of a guessing game. Yet… HRZN jumped hugely in price – albeit from a recent 52 week low.

Seeking Alpha – Comments

Way Of The (BDC) World

Even without the press release, HRZN’s stock price was almost inevitably headed higher after its most recent dip at the beginning of May.

There is a coterie of BDC investors who come out of the woodwork every time there is a significant lack of confidence in a given BDC.

As recently as June 26, as HRZN’s investors grappled with another price decline the volume of trading activity in the stock more than tripled.

As some shareholders depart, others arrive – seeking out a bargain. Or, at least, a change in sentiment that they can trade on.

There are many BDCs in the same boat right now: recent under-performers looking to pull out of a performance and price dive after several years of descent.

Inevitably there will be some turnaround stories to discuss in the quarters and years ahead.

HRZN hopes to be amongst them and has taken drastic measures – including a complete turnover of their senior management – to recover the initiative.

WHERE WE ARE

Better

The price picture for BDC common stocks – so dark in April – is beginning to brighten on the eve of earnings season.

BIZD, which fell as low as $13.50, is not $16.52 – a 22% increase.

Since the end of 2024, BIZD is down only (0.7%).

Inoculated

We’ve been involved with the public BDC market since some of our readers were in short pants so we’re accustomed to the extreme price volatility of this corner of the markets.

Sometimes, though, we wonder what a new investor who began investing this year in BDCs must be thinking. After a bright start to the year, if he/she had bought BIZD, they would have experienced a (22%) loss of value in less than two months.

This was followed by that run up we just discussed and we’re only half way through a year where most BDCs have been very stable where their dividends are concerned.

For an investment that some see as an alternative to bonds, that’s a huge amount of rattling and rolling.

Unsolicited Advice

We’d say this to our hypothetical newbie BDC investor: try and ignore the turbulence.

What you’re experiencing is mostly other investors trying to get ahead of the news cycle – guessing at where the macro environment will take us and – ultimately – BDC performance.

There may be wisdom in crowds but there’s also a lot of commotion, confusion and pushing and pulling in all directions.

However, at the end of the day BDC fundamentals will prevail and they haven’t changed much in recent weeks and “the crowd” seems to be coming to that conclusion.

We’ll get some confirmation when BDC earnings season arrives in earnest.

Boosted

Another reason for BDC investors to keep calm and stay put is to collect those generous dividends BDCs are required to pay out – sometimes to the evident annoyance of their managers.

The S&P BDC total return in 2025 YTD- which includes those dividends – is up 4.4%.

That’s still behind the S&P 500, calculated on a similar basis, but a decent performance nonetheless.

Ever More

17 individual BDCs are up in price in 2025, the highest number we’ve seen since the end of March.

Moreover, 15 BDCs are trading at or above net book value per share, as shown in the BDC NAV Change Table in the Tools section.

That matches the prior high, also at the end of March.

Very roughly speaking, we calculate that three-quarters of all BDCs are in the black in 2025 when price change and dividends are concerned.

That’s not too shabby for a year that one time was being compared to 2020 or the GFC in terms of its likely destructive impact on BDC returns…

WHERE WE ARE HEADED

Sad But True

What has gone back up can go down again, so 2025 is far from being in the bag.

At the moment, the BDC sector seems to be benefiting from some preemptive buying by investors.

Or, maybe, we are just one of the many boats being lifted by the rising market tide?

Last Time Round

Over at BDC Best Ideas, we track the analyst earnings consensus for every public BDC in 2025, and offer up our own estimates of NAVPS and distributions.

As we’ve noted before, the IQ 2025 did not go very well for the BDC sector where book values were concerned, or earnings.

More and more BDCs are now generating earnings below their “regular” dividend levels set in the days of high interest rates and wide loan spreads – both now a not-too–distant memory.

Thankfully so many earnings were retained by BDC managers that the day of reckoning when those “regular” dividends have to be right sized to reflect the lower earnings level is some way off.

Of course, said reckoning varies by BDC but we’re confident many under-earners can continue paying an unchanged dividend well into 2026.

What To Expect

This time round we’re expecting the erosion of BDC book values to continue.

Much will depend on how much BDC valuations will be influenced by the perceived impact of tariffs.

Only a small number of portfolio companies are likely to report significantly weaker results because of the new trade rules but BDCs may choose to assess a future impact.

Or not, which would be perfectly reasonable.

Prediction

What we don’t expect – from the work we do at the BDC Credit Reporter – is any great jump in the number of new BDC-portfolio companies placed on non-accrual.

As always, companies already in trouble will – in most cases – get a little or a lot worse but the greatest danger to BDC income and capital is an unexpected surge in non-performers.

If we’re right that non-accruals will remain stable, and given that there’s been no change in interest rates in the last 7 months, BDC earnings shouldn’t be much at risk of causing an unpleasant surprise.

Yes, investment activity has been slow as everyone looks around for what might happen next out of Washington and in the economy, but that also reduces the level of repayments.

Anyway, all those factors – and the stabilization of loan spreads in recent months – are all well known to market participants.

As a result – with the possible exception of the valuation front- we’re not expecting too many fireworks from BDC results this quarter that couldn’t have been anticipated.

Keep An Eye Out

What we’ll be most interested in – as previewed above – is how the (too) many BDC underperformers (like HRZN) will perform and what actions they might choose to take to turn their fundamentals around.

BDC managers – both external and internal – are loath to ever admit that there is anything untoward about their financial performance which can cause investors to feel somewhat gaslighted.

However, a glance down the NAV Change Table will show you the tickers of 18 BDCs whose Net Asset Value Per Share has dropped by (3%) or more in the last 12 months.

Of those, 13 are down (6%) plus.

For us, how the BDC “walking wounded” perform in the IIQ 2025 – and their plans for the future – will be the most intriguing subject once earnings season is upon us.

Expect much in the way of “News, Analysis And Views” on these pages.