BDC COMMON STOCKS

Week 29

Here We Go Again

After weeks in the doldrums, BDC prices are firmly in rally mode and have been all month.

This week, the Van Eck BDC exchange traded fund with the ticker BIZD was up 1.4%, following up the prior week’s 1.8% increase.

The S&P BDC Index – calculated on a price basis only – was up 1.6%.

For a change, BDCs are far exceeding the performance of the S&P 500: In the last two weeks, BIZD is up 3.2% to 0.3% for the ever record breaking S&P 500.

More Of The Same

Of the 46 public BDCs we track, 32 were up in price and 14 were down.

That’s now 4 weeks in a row that more BDCs were in the black than in the red.

In fact 3 BDCs even reached new 52 week highs: Main Street Capital (MAIN); Sixth Street Capital (TSLX) and – a little curiously – PennantPark Investment (PNNT).

There were no new 52 week lows by any BDC.

Not so long ago, in the week ended April 11, there were 42 at those lows.

Steady Course

This week may have seen BDCs in the black but animal spirits seemed to be tempered.

Only 2 BDCs were up more than 3.0% in price.

Trinity Capital (TRIN) was up 3.9% and Blue Owl Capital (OBDC) 3.0%.

There really wasn’t any news propelling those BDCs.

As they seem to do every other week, TRIN posted a press release about committing $40mn of financing to an AI company.

OBDC has had nothing new to report for a month.

Likewise, even the BDC stocks in the red didn’t go very far.

Under-Loved

BlackRock TCP (TCPC) was the worst performer: down (2.7%), tied with Horizon Technology Finance (HRZN).

We’re sorry to tell the shareholders of both BDCs that market enthusiasm for them remains tempered, reflecting their weak performance in recent years.

TCPC had no news to report this week but HRZN did announce the arrival of a new Managing Director, who will be responsible for originating new investments.

The new Managing Director has been around the block and should be a valuable addition to the much decimated senior management where new deals are concerned.

Job 1 Not Being Done

However, HRZN’s main problem has not been finding new investments but the right ones.

On the credit front, the BDC recently announced the transfer of a Monroe Capital senior manager to become Chief Investment Officer, in yet another change of personnel.

Concurrently, Daniel Devorsetz has stepped down as Chief Operating Officer and Chief Investment Officer, but will remain involved with the Company through September 2025.

The new CIO is Paul Seitz. Here is his potted resume:

Mr. Seitz joins Horizon from Monroe Capital, where he served as Managing Director and Head of Software Underwriting. During his tenure, Paul was responsible for leading and managing the underwriting process within the software, technology and tech-enabled services industry, focusing on pre-IPO and growth-stage technology companies, managing a portfolio of loan transactions, and various account management functions. He started at Monroe in 2019 and brings over 10 years of experience in technology lending and investing. Prior to Monroe, Mr. Seitz was a Vice President at TriplePoint Capital, covering both the North American and European markets, and was responsible for identifying and evaluating investment opportunities, due diligence, market research, financial modeling and business model analysis. His experience also includes roles at NXT Capital, as Senior Analyst on the Venture Finance team, and Duff & Phelps as an Analyst. Mr. Seitz earned his B.S. in Finance from Penn State.

On paper, that’s the sort of background in credit HRZN desperately requires.

At the moment, though, Mr Seitz seems to be the only senior manager – as far as we can tell – who’s been an active underwriter and HRZN didn’t go very far to find him.

Will that be enough to correct HRZN’s credit failings going forward?

The answer will take many quarters to show up.

WHERE WE ARE

Galloping

It’s quite remarkable how a couple of good weeks of price performance can change the picture.

This week, BIZD broke through its year-end price again and is up 0.7% in 2025.

Likewise, the S&P BDC Index is up 0.4% on price basis.

Better Lens

If we look at total return, the picture is even brighter with the S&P BDC calculation – including half a year or so of dividends – up 6.1%.

There’s a promise of a double digit annual return in those numbers…

Back in April – just 3 months ago – this same all-in BDC index was down (10.6%), threatening the worst full year result since 2008.

At this point, 15 BDCs are trading at or above their net asset value per share (NAVPS), same as last week.

By The Way

Not included in the 15 is our newest public BDC, which we’re just adding to the BDC Reporter this week: Blue Owl Technology Finance (OTF).

About Blue Owl Technology Finance Corp.

• Investment Focus:
  OTF is a specialty finance company investing in U.S. technology-related companies, with a strategic emphasis on software.
• Portfolio Size:
  As of March 31, 2025, OTF held investments in 181 portfolio companies with a total fair value of $12.1 billion.
• Management:
  Externally managed by Blue Owl Technology Credit Advisors LLC, an indirect affiliate of Blue Owl Capital Inc. (NYSE: OWL).

The newbie was launched at a price of $17.15 a share and closed this week at $15.63. Its latest NAVPS is $17.09.

We now need to go away and undertake a deep dive into this newest addition to the public BDC universe and its sixth (!) venture-debt lender.

Closer To Thee

Anyway, getting back to BDC prices, we can now report that on a total return calculation the BDC sector is not that far behind the S&P 500, which is at 7.8%.

That’s a 1.7% difference when comparing BDC to S&P 500 apples – one good week could close the gap…

Other Metrics

21 of 45 BDCs are up in price on a YTD basis. (OTF does not get counted).

That may not sound very impressive but no so long ago, there were as few as 4 BDCs out of 46 in the black price-wise.

We calculate that 36 of the 45 BDCs are in the black in 2025 on a total return basis.

Moreover, 6 are trading within 5% of their 52 week highs and 9 within 5%-10%.

At the bottom end of the price table, there is only 1 BDC within 5% of its 52 week low: Monroe Capital (MRCC).

Disappointing

The MRCC story is sort a sad one.

From late 2023 through February 2025, investors treated the stock like a come-back story, raising its price by a fifth.

Not to toot our own horn too much but we were not convinced that MRCC was truly improved and we wrote this on March 4, 2025:

Since we wrote that MRCC’s NAVPS has dropped (2.5%) in the first quarter of 2025 and the analysts are now projecting recurring earnings will amount to $0.81 per share in 2025.

MRCC’s stock price has dropped nearly (30%) since late February:

The BDC is back to trading close to its all-time low.

As with HRZN, some sort of re-set is needed.

It’s Time

In fact, there are 13 BDCs whose price has dropped by (15%) or more in the last 12 months, including MRCC.

The managers of all these BDCs should be asked – and asking themselves – how they can do things differently – and better.

Unfortunately for BDC shareholders there’s little openness on BDC conference calls about mistakes made.

Most BDC managers in trouble tend to keep mum and carry on.

That’s a shame because – we believe – a little humility and frank talk might do wonders, especially if accompanied by some real counter-active measures

LOOKING FORWARD

BDC earnings season is less than two weeks away.

We’ll be spending most of our time on reviewing that large minority of BDC underperformers mentioned above and determining who might be joining their ranks and who has a hope of “turning around”.

Doubling Down

We’ve said before that we don’t expect any great spike in new non-accruals in the IIQ 2025 and we’re skeptical that BDCs will write their investments down much due to the threat of tariffs.

This is something of a contrarian view if you read the mainstream financial press which is full of dire reports of company bankruptcies reaching a multi-year high and tariffs often getting blamed.

Here’s one example amongst many:

Private US companies are running out of room to manage their growing debt loads, potentially posing trouble for their direct lenders, according to one distressed-debt firm that is ready to come to the rescue.

Bankruptcies by mid-sized private US companies hit their highest level since 2010 last year as high interest rates and costs squeezed profits, and so far 2025 looks poised for another record, according to a report from Marblegate Asset Management and RapidRatings.

Bloomberg- Private Credit Lenders Face More Pressure From Rising Debt Costs – July 3, 2025

Washington D.C. – always on the look-out for a repeat of 2008-2009 – is also paying attention, with Senator Warren deeply concerned about the always-in-the-news private credit sector, which includes BDCs.

Warren asked the Financial Stability Oversight Council to analyze how the relationship between banks and private credit funds may pose risks to US financial stability.

Banks and private credit, while typically competitors, are heavily intertwined. Bank loans to private debt funds have soared 145%, reaching about $95 billion by the end of 2024, Bloomberg previously reported.

Bloomberg – Senator Warren Sets Target on $1.7 Trillion Private Credit Market – July 18, 2025

Senator Warren – something of a gadfly on financial issues – is not alone. Others have raised similar “concerns” in recent weeks, including the very parties that want to expand their footprint in private credit. We’re looking at you Jamie Dimon.

Unconvinced

All we can say is that the evidence we see does not support any sort of apocalyptic credit scenario where public BDCs are concerned.

As we’ve discussed above, there are a number of BDCs that have not covered themselves in credit glory in recent years but the deterioration is of long standing and sort of par for the course in lending to non-investment grade companies.

It’s A Living

Nor should Washington D.C. feel too badly for investors.

Over a 5 year period only one BDC out of 36 that have been around for that period of time posted a negative return on a total return basis.

Credit losses happen but they tend to be more than offset by high levels of recurring income.

We would also remind Bloomberg, Senator Warren and anyone else deeply concerned about the credit in private credit that the markets are not.

As we’ve seen, BDC prices are moving back up to 52 week-highs (BIZD is 6.2% below) and new capital is being raised every day from the most “sophisticated” investors in the world all across the private credit and BDC universe.

Josh Easterly at Sixth Street may complain that there are too many competitors and spreads are too thin but we don’t see TSLX giving up and returning their capital to shareholders.

As long as we’ve been doing this someone has been warning that “others” are taking on too much credit risk and things are going to end badly.

Everything Is Relative

At this juncture, though, we can envisage some deterioration but from a position of credit outperformance by most BDCs in recent years.

At worst, we may get back to the long term level of credit performance in BDC-land, which means non-accruals in the 3%-4% range – hardly the end of the world as we know it.

And Now We Wait

Anyway, now we’ll have to wait around for a few more weeks and see if we’re going to get egg all over our face or whether credit conditions will remain pretty mild, as they have been since 2020.

We feel very comfortable, though, saying that BDCs – at least – will not be causing the crash of the banking system due to the intertwined nature of their relationship.