BDC Landscape: Screening for Quality
Three Public BDCs That Meet Our Criteria, Plus a Comparison to GBDC and OBDC
Private credit is in the spotlight, with potential to grow from its current $1.7 trillion market size into a total addressable market of nearly $30 trillion as it reaches maturity. But private doesn’t refer to trading: it’s the borrowers who are typically small and middle-market private companies.
Today, we will introduce our focus list of publicly traded BDCs (or Business Development Companies). The list is short: currently, only 3 public BDCs meet our criteria.
We summarize key ratios (e.g., cash NII distribution coverage, PIK as % of total income) for three selected BDCs, along with OBDC and GBDC for comparison. While all have double-digit distribution yields as of 10/29/2024, neither GBDC nor OBDC generate enough cash NII to cover their distributions.
We own shares in some of the stocks mentioned in this article. This content is for informational purposes only and should not be considered investment advice. Always conduct your own research or consult with a financial advisor before making any investment decisions.
Brief Overview
A business development company (BDC) can be viewed as a wrapper or vehicle for investors to access ownership in a diversified pool of private credit assets. For our purposes, the important consideration is that BDCs must distribute at least 90% of taxable income to shareholders. This will come into play when we discuss cash distribution coverage ratios and PIK (payment in kind).
Selection Framework
To screen public BDCs, we applied 42 criteria, organized into five key categories. We discuss metrics within each category in more detail after the next section.
Focus List of BDCs
The following 3 publicly traded BDCs made the cut: