BDC COMMON STOCKS

Week 27- Holiday Shortened Week

Wunnerful

Holiday-shortened or not, this was another good week for the major indices – and for the BDC sector.

We won’t quote you the price of BIZD – the Van Eck exchange-traded fund for the BDC sector – which is usually our first reference point.

This was the week BIZD announced and paid its second quarter 2025 dividend.

[By the way, the dividend was $0.4390 per share, up ever so slightly from $0.4300 in the IQ 2025. More about that later on].

As a result, the 0.1% increase in BIZD does not really reflect the BDC sector’s performance over the past 4 trading days.

Instead, let’s switch to the S&P BDC Index, which was up a robust 1.9% it’s strongest weekly performance since the end of May.

That makes two weeks in a row in the black after a 0.6% increase the week before.

Individual BDC Stocks

Unfortunately, the Seeking Alpha data we rely on for calculating percentage price changes for BDC stocks mechanically goes back 1 week : i.e. Thursday to Thursday.

With that caveat in mind, we can tell you that 32 BDCs were up in price and 14 were down.

More interestingly, 18 BDCs were up 3.0% or more.

That high number of substantial price movers suggests to us investors are “positioning” themselves ahead of earnings season, which effectively begins next week with Saratoga Investment’s (SAR) disclosures.

Out Of The Gate

We wrote an article reviewing what we might expect from the lower middle market focused BDC this week.

Here are the “final thoughts” from the SAR preview:

This will be an important quarter for SAR, especially where its profitability is concerned. Earnings were very poor last quarter due to a mixture of one-time costs; a lower yield and a smaller sized portfolio. Now investors are wondering if the BDC can – at the very least – “cover” its new $0.75 per share quarterly dividend payout. The analysts don’t think so, either for the quarter or the year. Will SAR surprise everyone or is the BDC secretly hoping realized gains – both past and future – will fill the gap, along with undistributed earnings? Book value is less pressing but if Net Asset Value Per Share (NAVPS) drops for a straight third quarter, questions will be asked. We’ll be looking where the leaks in an otherwise watertight credit boat are coming from. Is it the CLO and JV (expected) or from new underperformers like Stretch Zone and others (not expected)? At the same time, whatever happens, investors shouldn’t rush to judgement as earnings per share might fall short for “good” reasons like issuing new shares accretively, and further deterioration in the value of the CLO and JV might not impact earnings or make much of a real difference. What will be the most important to investors is whether the current dividend level seems sustainable once all the facts and figures come out.

BDC Reporter – Saratoga Investment: Performance Preview – IIQ 2025 – July 2, 2025

The market seems to be relatively optimistic abour SAR. The stock is up 1.7% this week, and 5.3% just since June 10, 2025 at a recent low.

“In Other News”

As you’ll see in the BDC News In Review, a number of BDCs announced dividends this week, while others issued press releases about the very same debt ratings they already held.

The dividends were as expected and the ratings affirmations were as well.

The more interesting stories were Prospect Capital’s (PSEC) unusual investment and Main Street Capital’s (MAIN) minority recapitalization of a portfolio company.

We won’t repeat ourselves here, but both transactions were important to the BDCs involved and reflective of their managers strategic approach, and are worth reading about if you’re one of our Premium subscribers.

WHERE WE ARE

Okay

The markets are now one week into the second half of the year.

The mini-surge in prices has brought us to within (2.5%) of its level at year-end 2024 and (9.2%) under its 52 week high.

If we blend in the dividends received, and switch to the S&P BDC Index calculated on a total return basis, the BDC sector is up 2.6% YTD.

10 BDCs can claim to be trading at a price as of July 3 2025 higher than December 31, 2024.

That’s not a terribly encouraging number but 30 of 46 are in the black on a total return basis.

Same Old

Still, we’d say the BDC sector price-wise is still hanging in limbo somewhere between the dark forebodings of April and the surprising optimism of February, which occurred even as most BDCs reported weaker earnings and lower book values.

As has been the case for several weeks, the number of BDCs trading at or above book remain unchanged at 13.

The markets work in mysterious ways.

WHERE WE’RE HEADED

Should We Be Happy Or Sad?

This week ADP reported private payrolls that Fortune characterized as “dismal” and which were said to have “shocked” economists.

The private sector lost 33,000 jobs in June, according to a Wednesday report by payroll provider ADP. This marks the lowest reading since March 2023. 

Fortune- ADP says the private sector is shrinking. That’s bad news for the job market—but possibly great news for Trump- July 2, 2025

Wait! Before you panic, a couple of days later the Labor Department reported that employers added 147,000 jobs.

Job growth was stronger than expected in June. Payroll gains sailed past the 115,000 predicted by economists polled by financial data firm FactSet. The nation’s unemployment rate fell to 4.1%, down from 4.2% in May and the lowest since February. The jobless rate came in below economist forecasts of 4.3%, according to FactSet.

CBS – Employers added 147,000 jobs in June as U.S. labor market continues to defy expectations – July 3, 2025

What To Think

That leaves the markets – including BDC investors – tracking the macro environment as confused as ever. The first bit of news would lead one to expect the economy is weak and that might force the Fed to cut rates.

For a nano second, the consensus was that July might see a rate reduction after all.

Now, the cognoscenti are back to penciling in that all important first cut for September, or even December.

We Speculate

Our job really isn’t to be drawn on such matters because we have no insights to offer that you couldn’t get from your favorite Fed official; your brother-in-law or your psychic of choice.

However, we do listen carefully to the Fed’s words and – sometimes – believe we can parse their Delphic utterances.

Consequences

That translates for BDC investors into a third quarter 2025 of unchanged rates and, due to all the uncertainty out of Washington, no further shrinking in new loan spreads and less wanton refinancings than just a few quarters ago.

When BIZD pays out a third quarter dividend, we expect the payout will be very similar to the first and second quarters.

The fourth quarter remains up in the air as we’ve noted but these first 3 quarters of relative stability are nothing to sneeze at.

From this vantage point, 2025 still looks like a year of diminished earnings compared to 2024 but BDC distributions seem poised to remain close to the peak levels of 2022-2024.