BDC Common Stocks Market Recap: Week Ended March 21, 2025

March 23, 2025

Re-Printed From the BDC Reporter

BDC COMMON STOCKS

Week 12

For the week, the S&P (SP500) advanced +0.5%, while the tech-heavy Nasdaq Composite (COMP:IND) added +0.2%. The blue-chip Dow (DJI) climbed +1.2%.
Seeking alpha – wall street breakfast – march 22, 2025

Dead Cat Bounce?

The S&P 500 managed to avoid a streak of 5 losing weeks in a row, with its modest advance, and the other major indices were in the black as well.

Arguably, this may be the calm before the storm, with the Trump Administration’s “Liberation Day” of April 2, 2025 just round the corner.

Given that we don’t know much about which reciprocal tariffs may be imposed – and which not – and how the rest of the world will react, etc there could be further market turmoil ahead.

We’re Back. Sort Of.

For this week at least, though, investors were tentatively returning.

The BDC sector – as reflected in the price of the exchange-traded fund with the ticker BIZD – moved up 1.3% , to $16.71.

The S&P BDC Index – on a price basis – was up 1.5%.

Of the 46 public BDCs we track, 27 were up and 19 were down.

You can see in the metrics, though, that this was a tentative uptick.

6 BDCs in the black increased in price by more than 3.0%.

Source: Seeking Alpha

However, 10 of the BDCs in the red fell by more than (3.0%).

Source: Seeking Alpha

We've been avoiding committing any new monies to BDC common stock investing since the current market crisis began. As a result, we remained onlookers as the BDC sector moved up in price in 4 of the last 6 trading days. Usually we're a believer in staying "long" one's favorite positions, but there are occasional exceptions to our rule - and this is one of them. As far as we're concerned, the rules of American capitalism are being re-written before our very eyes and we'd like to have a better sense of what they will become before committing ourselves. The uncertainty about tariffs - to our mind - is only one aspect of this New World Order that is shaping up, which could dramatically change how business is conducted. Or not. The uncertainty is palpable and with leveraged borrowers being amongst the most vulnerable, a cautious approach seems the best way to go. Of course, we worry that an excess of that caution may cause us to miss out on buying opportunities in the BDC arena. The good news - in a way - is that BDC stocks have not moved all that much in price as most investors don't seem too concerned. As this chart below shows, BIZD is still trading up in 2025 over its year-end 2024 level, and is higher than when Trump was elected and is comfortably higher than in August 2024 when prices slumped. There are still no obvious "bargains" out there for would-be BDC investors.

Alone

For all the material price swings up and down no BDC reached a new 52 week high and only 1 reached a new 52 week low.

That was BlackRock TCP Capital (TCPC) – which happens to be under our scrutiny at the BDC Credit Reporter right now as we attempt to determine if there’s any prospect of a turnaround at the beleaguered BDC.

Based on our research so far – and everything that has come before – we’re not surprised that investors continue to throw in the towel where TCPC is concerned.

Rough

Net Asset Value Per Share (NAVPS) has dropped (22%) in the last 12 months and (36%) since the end of 2021.

That’s a huge percentage especially for a BDC that was well regarded for many years both before and after being acquired by BlackRock.

Here is a stock price chart dating back to April 30, 2021 and reaching to last Friday which shows the inexorable descent of TCPC, albeit peppered with mini price recoveries along the way that never last for long.

Source: Yahoo Finance

TCPC has lost half its value in these (nearly) 4 years.

Worse

The most telling statistic about TCPC, amidst a myriad amount of them, is this one, drawn from the latest earnings press release:

“As of December 31, 2024, debt investments on non-accrual status represented 5.6% of the portfolio at fair value and 14.4% at cost, compared to 3.8% of the portfolio at fair value and 9.3% at cost as of September 30, 2024”.Source: BlackRoCK TCP Capital 2/27/2025

Not only is the level of non-accrual assets very high by BDC standards – valued at cost – but has increased substantially in the most recent quarter.

Most of the time, a BDC will recognize a spike in non-performing assets and subsequently chisel away at the number through restructurings; sales and write-offs.

TCPC has been on a downward slide for years and its velocity – going by the above – is only accelerating of late.

Valuation

TCPC closed at $7.73 on Friday, trading at a (16%) discount to book and a multiple of 5.8x its analyst projected 2025 recurring earnings.

Going by the latest quarterly payout ($0.25 regular and a $0.04 special), the current yield is a whopping 15.0%.

We expect bargain hunters will shortly begin to circle TCPC as they’ve done so many times before.

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In the coming week, we'll be investigating in this publication whether TCPC - despite all its flaws and credit setbacks - has reached a BUY level. Generally speaking, we don't like to invest in turnaround situations but with nearly a third of all BDCs under-performing - see below - it's worth having a look.

While We’re On The Subject

With only one BDC left to report, the BDC NAV Change Table clearly shows there are 10 BDCs that have performed poorly in 2024 where NAVPS is concerned, with declines of (6.0%) or more.

That’s a relatively high proportion of the public BDC universe and a little disconcerting given the relatively good economic conditions we’ve been in.

Nor is the picture any better if we look back 3 years. The Table shows 14 BDCs whose NAVPS has dropped by (16%) or more.

What the data seems to show above all else is that when a BDC becomes credit troubled – and its NAVPS drops sharply – it is very unlikely that a few years later the situation will be much improved – and could be seriously worse.

We’ll avoid the super-tanker analogy, but you get the idea.

Where We Are

BIZD is now (6.4%) beneath its 52 week and 2025 YTD high, but also 3.5% above the lowest level this year, reached on March 13, 2025.

At this point, 16 BDCs are trading at or above book value and – a little shockingly given the market turmoil – 22 individual BDCs are in the black this year.

Only 5 BDCs are trading within 5% of their 52 week peak prices and 9 are within (5%) of their lowest price.

The S&P BDC Index – on a total return basis – is up 1.0% after 12 weeks, much better than the S&P 500’s (3.3%) own “total return”.

Nonetheless, this is sub-par performance.

Where We’re Going

Looking at the macro picture – and leaving aside whether we will or won’t have a recession – BDCs should benefit from the slowing pace of Fed rate cuts.

Not so long ago there was talk of 4 cuts in 2025. Now, the consensus number is 2.

We could foresee a situation where the actual number is zero.

That – everything else being equal – would keep BDC earnings higher than previously anticipated.

Long Shot

There is a possibility – if the Fed does not cut rates this year or only in the final quarter – that BDC earnings might flatten out in the second quarter of 2025.

Previously, the assumption was that earnings would step down all the way into 2026 without interruption.

Harder to fathom is whether BDC portfolio companies will be much affected by higher inflation – also the consensus view.

To date, BDC financed companies have shamelessly been able to pass along those higher costs to their customers.

This time, tariffs could make this passing of the buck more problematic, but we’re not presuming to know.

By the way, analysts have been diligently asking every BDC of every shape and size whether tariffs represent a threat to their portfolio companies. Almost unanimously, the BDCs indicate they have pro-actively surveyed their portfolios and concluded that no material impact is expected. In our opinion, investors should not take too much comfort from these reassurances. Virtually none of the tariffs are actually in operation as yet and no one knows which will be effective 1, 3 and 6 months out. Furthermore, the jury is still out on the impact on consumer and business sentiment which will take many months to play out. Nor can anyone tell us what else the Administration might want to tamper with going forward: fire Chairman Powell and reduce interest rates? Drastically reduce entitlements, like Social Security? Side-step paying the national debt? None of these weighty questions were in the zeitgeist just a few weeks ago and none were taken into account when the BDC managers were evaluating what might come down the pike. It's just too early to know.

It’s Quiet Out There

We’ve heard from multiple BDCs – and from other sources – that loan activity has screeched to a halt in recent weeks given the uncertainty surrounding…everything.

That’s not good news for BDCs in some ways and good in others.

This might mean less in the way of fees and acceleration of OID but also less refinancing pressure at very low yields.

Finally..

As we warned at the beginning of the year, price volatility – to state the obvious – is very high and should remain so.

The future is always uncertain but there are times when one feels almost anything could happen.

This is one of those times.

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All the above notwithstanding, we should report that over the week-end we heard that a BDC financed company called NinjaTrader has agreed - based on a March 20 news report - to be acquired for $1.5bn by "Kraken, one of the longest-standing, most liquid and secure crypto platforms serving more than 15 million clients globally". By anyone's standards that's a very large purchase especially as the BDC involved is Capital Southwest (CSWC), which invested $2.0mn in 2019 in preferred units, along with debt, in NinjaTrader. (CSWC focuses on the lower middle market and is rarely associated with billion dollar values). As of the IVQ 2024, CSWC's equity In the company was already valued at $16.3mn and the ultimate gain may be even higher. Just going by the IVQ 2024 valuation would result in a $0.29 per share realized gain for CSWC shareholders. The BDC's share price - as of Friday - had not materially reacted to the potential acquisition announcement, but that may change in the week ahead. CSWC closed at a price of $22.30 per share, way below its 52 week high of $27.23. This news might boost CSWC's stock price. (By the way, CSWC is one of our 9 Best Ideas).