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BDC Common Stocks Market Recap: Week Ended May 21, 2021

Posted on May 24, 2021

 

BDC COMMON STOCKS

Week Twenty

Revival

Just two weeks ago, the BDC common stock sector saw prices drop sharply for three days.

Market commentators blamed the drop on fears of inflation, as all the indices dropped in unison.

As our readers will already know, that period of bad feelings did not last – at least for the BDC sector.

Although the S&P, the NASDAQ and the Dow Jones have gone on to fret about crypto, this corner of the financial markets has not.

We’ve experienced 7 days of rising prices since the lowest point on Wednesday May 12, 2021.

At the close on May 21, 2021 BDCZ was at $19.33, but visited $19.50 intra-day – a new 52 week high.

The S&P BDC Index – using the “total return” feature – reached a new all-time high of 293.48, up 1.65% over the week before.

Higher

We also noticed, while updating our own database, that 9 individual BDCs reached new 52 week highs during the week.

Seeking Alpha tells us that 38 BDC prices were up or flat on the week and only 5 down.

Like the week before, 25 BDCs were within 5% of their 1 year highs, and 17 between 5%-10%.

Only Great Elm Capital (GECC) was left outside in the cold: (41%) off the 52 week peak.

We’re Back

All this to say, that the BDC sector is very much back in rally mode at the (almost) end of BDC earnings season.

(Only Capital Southwest’s reporting remains to close the books on a universally positive quarter from most perspectives).

Consequences

The top performer on the week from a price increase standpoint will be no great surprise: Newtek Business Services (NEWT).

The BDC was up 7.8% thanks to that announcement of a much higher dividend in 2021 than previously predicted.

In this time of near-euphoria in the markets, investors tend to react very well to that kind of news.

NEWT is up 107% over a 1 year time frame and trades 113% above book value.

That number alone should underscore that NEWT is unlike all of its peers in the public BDC arena and has to be evaluated differently.

Not So Lucky

The only BDC to report results this week was Apollo Investment (AINV), which was the second biggest loser in percentage price terms.

AINV fell (3.4%) on the week and (7.3%) from a pre-earnings release high point.

We’ve just published our latest report on AINV, which may explain some of the market ambivalence about the BDC.

However – given the uncertainties surrounding the BDC – we wouldn’t be surprised to see the stock price move in either direction in the future.

What happens to a handful of the 135 companies in AINV’s portfolio could have an out sized impact on investors.

Looking Forward

As we expressed last week, the BDC Reporter remains “constructive” on the outlook for BDC fundamentals and prices in the near term.

Despite all the dramatics in the broader markets nothing much has changed that would suggest are going to abandon these high dividend paying credit vehicles.

The principal challenge the BDCs face in the short term is one another, as almost everybody is out there looking for new deals to book to offset expected repayments, putting pressure on yields and terms.

However, the damage from the competitive market conditions will take time to show up – if at all – and most BDCs have a number of other income levers to pull and lower expenses (especially where unsecured debt is concerned) to take advantage of.

Credit conditions – as we’ve said maybe too many times – are favorable and that might accelerate as the economy gets going on all cylinders.

Industries not impacted by Covid are already performing well but those that were caught up in the pandemic and have survived to this point should see better income and higher values, which will show up in many BDCs books.

We’re not expecting any great across the board increase in NAV Per Share or earnings, but more of a gradually improving situation in the second quarter, not much dissimilar to what we’ve experienced in the IQ 2021.

 

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