BDC COMMON STOCKS

Week 35

Regaining Ground

The last week of summer saw the BDC sector regain some ground on the major indices, and especially on everyone’s record-breaking index: the S&P 500.

As shown above, all the major indices took a breather but the BDC sector – as measured by the price performance of its only exchange traded fund – the Van Eck sponsored ETF with the ticker BIZD – moved up a solid 1.0%.

The S&P has a BDC Index which we also quote every week and that was up 1.1%, both on a price and a total return basis in these last 5 days leading up to Labor Day.

Most Everyone

38 BDCS were up in price or unchanged and only 8 were down – and not by much.

No BDC fell more than (1.86%) in price.

On the other hand, 3 BDCs were up 3.0% or more this week. See below:

Hope Springs Eternal

All 3 of this week’s price “winners” are stocks that have under-performed on a longer term basis.

Clearly, would-be “bargain buyers” are hoping that these BDCs long residence in the basement will shortly end.

Just looking at the charts, one has to wonder.

TPVG – or TriplePoint Venture Growth – has been dropping in price since November 2021 when its price peeked/peaked over $19 a share.

ICMB – Investcorp Credit Management – reached a price top in July 2021 around $6.40 a share and has been sliding down ever since.

PSEC’s – Prospect Capital – apogee can be tracked back to June 2021 when its price was well over $9.

Unfazed

Apparently investors were not much bothered by PSEC’s terrible FY 2025 results, which were finally published this week – officially closing out the IIQ 2025 BDC earnings season.

We wrote briefly about the subject in a free-to-all article just after the release.

We noted that the BDC’s “NAVPS fell (9.5%). This was the second worst performance [in the IIQ 2025], eclipsed only by Horizon Technology Finance’s (HRZN) (10.8%) loss“.

A little later, we wrote a more fulsome article at BDC Best Ideas, concerned that some investors might – ironically – see these terrible results as a good reason to buy the stock.

We’ll sum up the content of the article – written after a deep dive into the PSEC 10-K – with its one word title: “Beware”.

Apparently the market did not heed our Cassandraic warning, probably reassured by PSEC’s announcement of two more monthly dividends unchanged at $0.045 per share per month.

Over at the BDC Credit Reporter, we’ve begun to write about PSEC’s most under-performing companies, beginning with a company in the furniture importing business called Belnick, LLC which the BDC has chosen to take over.

Unfortunately, there are many, many other underperformers, most of which are controlled by PSEC which makes it difficult to know what’s going on.

Couple More

Other than PSEC’s earnings release, there were two other developments worth remembering this week.

First, there was Great Elm Capital’s (GECC) raise of $15mn of new equity from an individual investor who also – now – sits on the Board of the external manager.

We tackled this complex subject as best we could in an article.

Also, we once again returned to the issue of a potential liquidity crunch at OFS Capital (OFS) after an official filing indicated the BDC’s primary Revolver’s “re-investment period” was extended by only a month.

There may be a very innocuous reason for such a short extension so we’re waiting, and watching.

WHERE WE ARE

On Our Way

Three-quarters of 2025 is behind us, and BIZD remains (9.9%) behind its 52 week high and (3.2%) below its level at the end of 2024.

Looking back at the ETF’s price chart – and the data we collect weekly – it’s clear that the sector has plateaued since mid-May: trading three and a half months in a narrow band.

Of the 46 BDCs we track, 44 have been around all year, and of those only 14 are in the black price-wise in 2025 at the three-quarter mark.

(Please ignore MSIF on this table showing the “YTD Perf”).

14 is also the number of BDCs trading at or above their net asset value per share (NAVPS).

High And Low

As we’ve noted before, there are many BDCs at price extremes.

12 BDCs are trading within 10% of their 52 week highs, including 6 within 5%.

There are also, though, 11 BDCs within 5% of their 52 week lows, including 6 within (5%).

The rest of the BDC universe sits somewhere in-between, presumably deciding which way to go.

Bottom Line

The best price measurement for the sector – in our opinion – is the total return calculated by S&P.

That currently sits at 2.0%, which is hard to get excited about, especially with the S&P 500 – despite this week’s lackluster result – up 10.8%.

We know we shouldn’t compare the S&P 500 Index apple with the BDC sector orange, but we can’t resist because we know many investors do.

The good news is that several individual BDCs are out-performing the S&P 500 on a total return basis.

We’re in the midst of inputting a new tool that will tell us the total return for every BDC in 2025.

More on that next week.

WHERE WE ARE HEADED

What’s It Going To Take?

As noted above, BDC prices – infamous for fluctuating all over the place – have been pretty steady for weeks and weeks.

What catalyst or catalysts could change all that?

The next round of earnings season is way off – in early November.

Obviously

However, the next Fed meeting looms large.

The question on everyone’s mind is whether i) rates will be cut by 0.25%; ii) what comes after that?

Given that everyone in America believes the Fed will cut by 0.25% in two weeks that might not move any needles should it occur.

Signalling

As we argued last week, what will be more important is whether we get a clear signal from the Fed other cuts are coming.

However, when was the last time the Fed provided a “clear signal”?

Their job is to inject a healthy dose of uncertainty and that’s not likely to change till the very nature of the institution changes and becomes just another offshoot of the Administration.

Which is to say, we may not get any sense of future rate direction even in September and BDC stocks may just languish close to where they are.

Our Primary (Parochial) Concern

If that continues, there is a good chance the BDC total return – thanks to the dividends yet to come – will end up a single digit percentage in the black in 2025.

That would be well behind the annual performance of BIZD in the last two years.

In 2023, the total return was 24.6% – clearly not a sustainable performance over the long term, but much appreciated by BDC investors.

2024, though, was still strong at 14.7%.

If BIZD achieves a total return in the 1%-9% range that will still be better than the (9.1%) loss booked in 2022 – the last time the Great Consensus was that a recession was scheduled.

Just Wondering

Could the market surprise us and deliver a surge in BDC prices in the next 17 weeks of the year?

Nobody that we know of is making that call and nor are we.

However, all it would take for 2025 to resemble 2024 would be BIZD returning to the level achieved in February of this year.

As recently as July, BIZD made a move in that direction.

Thanks to that famous BDC price volatility that’s not an impossible scenario.