Moving to a BDC
Accepted an associate position last summer with a BDC, given the current environment would anyone have hesitation about moving to a BDC? Supposed to make the move early Fall. Appreciate any insight from someone in the BDC/credit industry
It’s definitely going to be interesting times for BDCs and middle market lending. You might not see a lot of new underwritings but seeing the workout side of portfolio management is always a good skill set to have. With that said, BDCs are public filers so you can obviously look into the health of the firm / loan portfolio you are joining and adjust your job search accordingly.
Depending on the BDC, would definitely have some reservations. TSLX seems to be pretty well positioned, for example, but sounds like a lot of the other guys will have portfolios that will struggle. All the BDCs are releasing earnings this week / next week, so would dig into some ER reports there if I were you.
EDIT: Wanted to clarify that the commentary below is for Ares Capital Corp.
From what I've read so far, Ares should be well positioned moving forward according to their earnings release. With that said Q2 earnings will be the real test for many of these BDCs and a much more interesting read. A couple of interesting snippets from Ares' earnings:
Spreads on new business are expected to be at least ~200bps higher than pre-COVID with stronger loan documentation.
Less than 10 of their borrowers have received modifications to loan terms thus far which is pretty impressive.
~3% of borrowers are behind payments at this point.
They bought $100 million worth of common shares which I thought was particularly gutsy on management's part.
Agreed w/ BankCredit that there should be no concerns heading to ARCC.
Hiya. I spoke witha friend last year who mentioned that the PE fund they worked with also had a private credit fund. I recently read that more PE firms are moving into lending. Do you think this will drastically affect the private credit space over the next decade?
Look up what is in their portfolio, but my guess is most BDCs will be doing damage control right now with everyone tripping covenants.
I’ve covered BDCs for several years now, I don’t think this fundamentally changes things between the good and bad ones. I think the good ones you’ll get to see some workout action, and the bad ones have been failing before this and will fail during this. ARCC and TSLX are the two best and consistent BDCs. PSEC and MRCC are two of the obvious worst. share prices are an easy way to tell, but overall destruction of capital over time is the cause.
I don’t think you should be worried if the BDC already had a good rep to begin with. like if you’re going to Owl Rock don’t worry
Can you explain the reasoning for why PSEC and MRCC are the obvious worst?
also curious about why you mention PSEC and MRCC as obvious worsts
take a look at their long term share price. they destroy capital at a faster rate than the other BDCs. their div yields are consistently higher than the best in class names signaling they’re not sustainable and capital will be destroyed (share price) in the process of you getting those yields. a BDC has to dividend out almost all its income so the only way for the share price to go is down unless you run an amazing ship and people are willing to pay premiums over NAV and you can issue new shares above NAV.
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