BDC discounts offer a margin of safety
The bull case for publicly traded Business Development Companies is that their steep discounts to net asset value provide a massive cushion against potential credit defaults.
The argument
The guest argued that BDCs like Blue Owl Capital Corporation and Morgan Stanley Direct Lending are trading at 25% to 30% discounts to NAV, yielding 12% to 13%. Because these portfolios consist primarily of first-lien loans with low leverage, the steep discount allows investors to withstand significant default rates and still achieve attractive returns.
The thesis, stress-tested
✓ What validates it
- ✓BDC management teams executing stock buybacks
- ✓Default rates remaining low or offset by high recovery rates
▸ Risks discussed
- ▸Weakening credit quality in software or middle-market loans
- ▸Management teams failing to buy back stock at a discount
Hear it yourself
"So like 90%, or higher are are first lien adjustable rate loans. And, you know, there's some confusion because you have the publicly traded business development companies like, Blue Owl Development Company, OBDC, or Morgan Stanley Direct Lending, or Blackstone, Secured Lending."
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