Public BDCs trade at attractive NAV discounts
The guest argued that publicly traded Business Development Corporations (BDCs) represent a highly attractive arbitrage opportunity relative to private, non-traded BDCs.
The argument
The guest pointed out that large asset managers often have an 80% overlap in underlying loan assets between their public and private BDC vehicles. While private BDCs artificially smooth volatility and redeem at net asset value (NAV), public BDCs trade at market-driven discounts (often 15% to 20% below NAV), allowing investors to buy the same loan portfolios at 80 cents on the dollar.
The thesis, stress-tested
✓ What validates it
- ✓The gap between public BDC share prices and their reported NAVs begins to close
- ✓Borrowers organically pay off loans, providing cash to public BDCs to redeploy into higher-yielding originations
▸ Risks discussed
- ▸Public BDCs are subject to market volatility and sentiment shifts
- ▸Some heavily discounted BDCs may have underlying loan quality issues or high leverage that requires paying down debt instead of buying back shares
Hear it yourself
"Something that a lot of investors, I feel, don't appreciate is how much overlap there is in assets between when a when a large asset manager, you pick your name and when you compare their non traded BDC to the publicly listed one, there's gonna be 80% overlap in in assets."
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