3 Above-10% Yielding BDCs To Play The Private Credit Boom

Core Viewpoint - The private credit sector is experiencing significant attention due to its high yields, but concerns about borrower risk and competition are rising [1][6]. Private Credit Overview - Private credit has gained popularity, with yields often exceeding 10%, attracting both institutional and retail investors [1]. - Business Development Corporations (BDCs) are a key component of private credit, created to support distressed U.S. companies, and they enjoy tax advantages similar to REITs [1]. Oaktree Specialty Lending (OCSL) - OCSL is currently trading at a discount to its net asset value (NAV), with a reported NAVPS of $18.73 and a stock price of $17.67, indicating a significant discount [2][3]. - The company has a portfolio yield of 12% and maintains a strong liquidity position with $1.005 billion in accessible cash against $3 billion in total investments [3]. - OCSL's debt to equity ratio is 1.09, indicating relatively low debt levels for a financial entity [3]. Goldman Sachs BDC (GSBD) - GSBD focuses on software and financial services, primarily offering first lien or senior secured loans, which provide better recourse for investors [4]. - The BDC has a high yield of 11.9% and trades at approximately its net asset value, suggesting a portfolio that may not be investment grade [4]. - Valuation metrics include trading at 6.4 times earnings and 1.04 times book value, with a net margin of 45% and a return on equity of 13% [4]. Monroe Capital (MRCC) - Monroe Capital offers a high yield of 13.4% and has a diverse portfolio across various industries, including healthcare and technology [5]. - The company’s stock trades at 7.4 times earnings and 0.8 times book value, earning an 'A+' on valuation metrics [5]. - Monroe Capital has a current ratio of 3.5, indicating a healthy balance sheet, but its profitability metrics are weaker compared to OCSL and GSBD [5]. Conclusion - Private credit BDCs present high potential returns but come with inherent risks; careful selection is crucial [6].