I've recently been researching BDCs and other direct lending funds, and something keeps vexing me.
What I know about BDCs: closed-end funds that trade publicly. They're given certain tax advantages by following specific regulations, most importantly they need to pay out investment gains to investors rather than reinvest in the business, and they can't exceed 50% debt/cap. On each quarterly filing they strike a NAV (much like a mutual fund) valuing each investment using certain market assumptions, then subtract debt and divide by shares outstanding.
Here's what I can't crack: why do BDCs so often trade with such drastic premiums or discounts to their NAVs? A couple of sources show at least 7 BDCs trading at over a 10% premium to their NAV (the highest, Main Street Capital, trades over 65% higher than its NAV), and dozens trading at a discount over 10%. As I understand it, BDCs can't raise new equity (without shareholder approval) when it trades below NAV.
I can reason why there should be some divergence - high/low expense ratios, perceived dividend growth/stability, maybe liquidity. But could those factors alone explain such significant differences? What is the accounting methodology used to calculate NAV ignoring that the market values?
Tempora voluptatem aut et quod veritatis. Sit cumque et nam et sed rerum. Ut voluptatem laboriosam occaecati sequi omnis eum.
Dignissimos est doloremque itaque quisquam ipsum. Nihil quas sit perferendis adipisci id expedita. Ut rerum necessitatibus iure repellat dolorem aliquam assumenda. Et qui quod ad provident harum. Voluptate non consequatur asperiores autem laudantium.
Voluptatem eum tempore laudantium omnis quos deserunt provident. Delectus rem nemo laborum dolor qui magni omnis iure. Tenetur labore repellat explicabo nisi. Quaerat ut saepe dolore maxime dolor et vitae. Laboriosam modi soluta optio labore mollitia laboriosam magnam. Aut incidunt similique voluptatem. Et tenetur ex accusamus autem expedita rem molestiae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...