Share buybacks are highly accretive for discounted BDCs
For BDCs trading at deep discounts to NAV, purchasing their own shares represents one of the most accretive risk-adjusted returns available in the market.
The argument
The guest argued that if a BDC management team believes in its NAV and underlying credit quality, buying back shares at a discount is a superior use of capital compared to underwriting new loans, especially in a slow M&A environment.
The thesis, stress-tested
✓ What validates it
- ✓Increased share repurchase activity reported in upcoming Q1 earnings filings
- ✓Accretive growth in NAV per share resulting from buyback execution
▸ Risks discussed
- ▸Reducing liquidity and capital available to support key private equity sponsor relationships
- ▸Potential to shrink the BDC's asset base if buybacks are prolonged
Hear it yourself
"You know, when when a BDC is trading at a premium to its net asset value, it can issue shares, raise capital, and that is accretive to to shareholders, especially if they make it doing good loans. That is the opposite when these are trading at a discount as they are now."
00:00 / 00:19
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE