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LPC: BDC space ripe for consolidation

September 19, 2016

LPC: BDC space ripe for consolidation

Sep 16, 2016, 1:26 PM | By Leela Parker Deo | Yahoo

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NEW YORK, Sept 16 (Reuters) – Business development companies (BDCs), which extended share price gains this summer after a prolonged slump, still face hurdles that prime the specialized closed end investment funds for consolidation, according to sources.

While BDC share prices are trading closer to book value, a majority are still at a discount, limiting their ability to raise fresh capital. Also, smaller platforms are at a disadvantage compared to larger ones in a marketplace where lenders are competing aggressively for assets and new money deal flow.

“While the rising tide has provided lift to the sector, the average BDC still trades below book value,” said Marc Yaklofsky, senior vice president at FS Investments, formerly known as Franklin Square Capital Partners, which manages five BDCs. “If anything, the rally has heightened the demarcation between the stronger BDCs and the ones that face challenges.”

Since 2014 the sector had been trading at a steep discount to Net Asset Value (NAV), a measure of a mutual fund’s price per share, but in the last six months shares have rallied with equities. BDC prices now trade at a discount to NAV of about 4%, on average, after hitting an average discount of as much as 27% in February.

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Second Annual Blue Vault Broker Dealer Educational Summit 2016
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May 30, 2016

The time (at Blue Vault's 2nd Annual Broker Dealer Educational Summit) proved extremely informative.