Thanks to 2whiteroses for catching this blurb.
Here is a link to a short blurb put out a couple weeks ago by the Fitch ratings agency–I had not seen this and thought it might be of interest to others.
Note that the full article requires a subscription (of course it does), but maybe folks can find it elsewhere on the web.
Of course we all have opinions–but the more opinion the better.
There’s an interesting analysis on SA primarily focused on ARCC but compares it with other BDCs.
https://seekingalpha.com/article/4657629-ares-capitals-nav-valuation-and-dividend-versus-14-bdc-peers-part-1-includes-recommendations-as-of-1282023
It does not include SAR which is a solid performer. The article includes FMV, portfolio composition, percent on non-accrual and other metrics. Interestingly, ARCC, one of my favorites, is in the riskiest position.
I currently hold ARCC, CSWC, GAIN, OBDC, SAR and TCPC, which comprise about 14% of my portfolio altogether. I reviewed their dividend payment history and am satisfied with them all. Many were not around for GFC but weathered COVID lockdown very nicely.
As for risks, as long as spreads can be maintained, and access to funding continues, BDCs should be able to continue paying their dividends. Credit risk is unknowable now, but we are beginning to see it’s effects. I think their stock prices are affected more by mania or public perception than their actual fundamentals. I’ll only be dissuaded by dividend cuts and do not expect any.
I typically don’t spend much time on BDCs but given that Fitch seems to have figured out that interest rates are high and that economy might slow down perhaps this is a time to revisit BDCs using Fitch as a contrary indicator.
I have started drawing up a list of BDCs and am starting to dig in based on this Fitch news.
FWIW factors that I am looking for are
1)Primarily Sr whole loans on the asset side of the ledger
2)No major debt to roll over in 2024
3)No exposure to building level real estate loans, RMBS, CMBS etc
4)Diversified portfolio companies and not a sector play. EG I have enough tech elsewhere in the portfolio don’t need a tech sector play.
5)Minimal exposure to CCC credits
6)No exposure to CLO equity (have that in other places)
You can find a list of 43 BDC stock symbols, not all of which have baby bonds outstanding, at https://docs.google.com/spreadsheets/d/e/2PACX-1vTrzI03iJ7jMtQGSahr_svXcufO145R4D6dcLCu92Vue0ktvce2h6Pp36dpC52MK-Gi1m2SU-RvB1Gi/pubhtml thanks to the bdcreporter.com.
Thanks! I had seen this list, but started by picking through one of the ETFs.
It is interesting as I saw a discussion featuring the Eagle Point founder. He mentioned that they are investing in midmarket PC and BDC term debt right now.
What is also interesting is that he mentioned that nameless Private Credit funds have been re-financing CCC credits from Eagle Point’s CLO portfolios at Par. Pays to make sure that there are minimal CCC credits in these BDC portfolios.
I think he knows more about it than Fitch.
I own no BDC or mREITs, I get the ‘trades’ but not for me, in the GFC I had Capital Source and had to really trade the heck out of it to ‘recover’ and swore these off. People who do these are successful I get it, not for Bea.
This is an issue that is near and dear. Going into the 2nd quarter of 23, BDCs were 15% of my portfolio. By end of Q2 i had sold them all and turned to cash and, then, BDC baby bonds as newer issues came to market. At the start of the hiking cycle, the increased interest paid by the underlying companies resulted in more income for lenders. At some point, that much higher interest paid starts to hurt the borrowers and it eats into coverage ratios and may even turn profits into losses. I jumped the shark and exited too early and I thought things would rollover quicker than they have. My bad… I took the sure 5% in cash too soon and now I’m sitting on the sideline hoping for the second act to show up so I can buy at discounted prices. I have my targets and price points… and so I’ll just wait. But, I’m on board with Fitch… higher interest paid eventually hits home.