This Week in BDCs — 12/17/2016

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The Top 5 Stories in BDC Stocks

  1. American Capital (ACAS) shareholders agree to its merger with Ares Capital Corporation (ARCC). This was the expected outcome, but it’s still newsworthy. This is Ares Capital’s second big merger in its history. Can Ares capitalize on American Capital’s assets the way it did Allied Capital? What’s it mean for ARCC’s dividend?
  2. What’s Trump mean for banking? Some think his presidency could bring the repeal or relaxation of rules that kept banks from underwriting the kind of risky buyout loans that have become BDCs’ specialty.
  3. A report by third-party valuation firm, Lincoln International, suggests that companies are getting creative with their accounting. “Approximately 70% of borrowers report EBITDA adjustments,” an increase from 57% in 2015, and 48% in 2014.
  4. It’s old news, but new reporting: The SEC issued a final rule on Regulation S-X, which will require better disclosure by BDCs. In addition to other improvements, the final rule calls for BDCs to disclose the reference rate and spread for variable rate investments and provide information surrounding how much interest is paid-in-kind on individual investment securities. No longer will you have to wonder if a BDC charges interest based on 1-month or 3-month LIBOR, or if a company is paying its interest in cash or PIK.
  5. The Wall Street Journal’s Daily Shot writes about BDCs’ strong performance, showing a chart of the Wells Fargo BDC Index vs. iBoxx US HY Index (HYG). We add only that the period is very favorable (YTD performance measurement begins during period of weakness in loan prices), and that BDCs use leverage, whereas the junk bond ETF does not. Spare the scrolling and take a look at the same chart, courtesy of Google Finance. News
We added a new list of non-traded BDCs to the site. We continue to work on improvements, many of which are happening behind the scenes. Expect a big launch in 2017.

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