BDC Common Stocks Market Recap: Week Ended October 9, 2020Posted on October 13, 2020
BDC COMMON STOCKS
Balanced: That’s the best one word characterization we could find for describing BDC common stock prices this week.
Admittedly, the major indices – notably the S&P 500 – rushed ahead for a second week, making up for 5 prior weeks of red ink.
In the BDC sector, though, the tone was more measured.
The Wells Fargo index which we use to evaluate “total return” was essentially unchanged: down (0.03%) on the week.
Furthermore, the number of BDCs trading up or flat was 25 versus 21 that were down.
There were 5 individual BDCs that were up 3.0% or more, and an equal number (3.0%) or more down.
The number of BDCs trading over book remained the same at a still modest 8.
Which is not to say that there wasn’t some excitement amongst some of the 46 denizens of the public BDC universe.
Saratoga Investment (SAR) – extensively covered by the BDC Reporter this week – released results that investors warmed to.
On the week, the stock price was up 11.2% according to Seeking Alpha.
However, enthusiasm was building in the days before the results came out because since the release till Friday’s close the increase in price was “only” 8.4%.
Also on a high was Medley Capital (MCC).
As we have noted in the BDC Week In Review introduction this week, MCC announced late on Friday the sale of its joint venture loan portfolio to a Golub Capital affiliate.
(We don’t believe Golub Capital BDC – GBDC – was involved, but more on that when we analyze the subject further on Monday).
MCC was up 7.5% during the week, but 6.1% of that came on Friday.
Clearly good news travels fast. Even faster than it’s supposed to.
MCC is now trading at its highest level in the post-pandemic period.
Let Us Count The Ways
Investors are understandably excited that MCC receives $41mn in cash after the JV’s lender is repaid.
Admittedly, the BDC’s portfolio will shrink by a fifth (from $251mn at FMV to $204mn) but the cash balance – everything else equal – will increase to $92mn, or 78% from June 2020’s level.
At this stage, MCC has cash equal to 61% of its $151mn in (unsecured) debt outstanding.
No wonder its Baby Bonds jumped in price in after market trading.
Apparently early word of the transaction had reached certain common stock investors but not the debt market before the close.
That’s been remedied now.
Finally, also up in price substantially was BlackRock Investment (BKCC): 6.8%.
Unlike the other 2 big movers there was no obvious news item that would justify investor enthusiasm.
Still, at $2.66 per share, BKCC remains firmly in the dumps and still paying its dividend almost completely with more shares rather than cash.
BKCC remains a speculative stock for everybody but those in the know.
Maybe the example of Investcorp Credit Management (ICMB) should serve as an example of what goes up can come quickly down.
Just a couple of weeks ago – after reporting results but before filing its 10-K – ICMB’s stock price shot up.
This week ICMB was the Biggest Loser: down nearly (15%).
Over the last month the stock is off (12%) and (55%) YTD, the seventh worst performer in 2020.
As mentioned in the BDC Week In Review, ICMB reported early in the week material amendments to its Term and Revolver with secured lender UBS.
Our first read of the 8-K involved caused us concern, but we first wrote to the BDC’s Investor Relations for a clarification in order not to say anything incorrect in haste.
Unfortunately, we have not heard back.
Nonetheless, our reading of the disclosure suggests ICMB’s liquidity – already fragile – has only gotten worse as both debt facilities have been reduced.
This will squeeze whatever little in the way of cash resources the BDC has available.
Even before the UBS changes, the BDC Reporter has been concerned about the BDC.
Here’s what we wrote after reviewing ICMB’s conference call transcript on September 22, 2020:
“What has become abundantly clear, though, is that ICMB has severe challenges both where credit and liquidity are concerned. The BDC remains highly leveraged; has fully utilized its Term and Revolver and has very little cash in absolute terms, especially if unused commitments are netted out. Furthermore, a good portion of investment income coming in is in the form of PIK, which is not useful for paying the bills and may result in cash being depleted as costs and the dividends are paid out”.
$64,000 Question Unanswered
Are We There Yet ?
A Little Price Analysis
Can’t Help Guessing
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