Core Insights - Business Development Companies (BDCs) are publicly-traded firms that lend to small businesses and are mandated to return at least 90% of taxable income to shareholders as dividends [3][4] - BDCs offer high yields, with some providing returns up to nearly 13% [2] - The article highlights three specific BDCs that are trading below their net asset value (NAV) while offering substantial dividends [3] BDC Overview - BDCs were created by Congress to serve as new lenders to small businesses, similar to Real Estate Investment Trusts (REITs) [3] - They are characterized by their requirement to distribute a significant portion of their income as dividends, making them attractive for income-focused investors [3] High-Yield BDC 1: BlackRock TCP Capital Corp. (TCPC) - TCPC focuses on middle-market companies with enterprise values between $100 million and $1.5 billion and has a diverse portfolio of 146 companies [4] - The investment mix is primarily in first-lien debt (83%), with 94% of its debt being floating-rate [5] - TCPC has faced challenges, including a recent dividend cut and a high level of non-accrual loans at 12.6% [10][9] High-Yield BDC 2: Crescent Capital BDC (CCAP) - CCAP is associated with Crescent Capital Group and invests in 191 portfolio companies, primarily in first-lien debt (91%) [11][12] - The company has a complex dividend history, with recent changes in special dividends and a focus on undistributed taxable income [13][14] - CCAP is currently trading at a 23% discount to NAV, with an 11% yield on the base dividend [16] High-Yield BDC 3: PennantPark Floating Rate Capital (PFLT) - PFLT targets midsized companies with annual EBITDA between $10 million and $50 million and has a portfolio of 190 companies [17][18] - Approximately 90% of PFLT's portfolio consists of floating-rate first-lien debt [19] - The company pays monthly dividends with a yield of nearly 12%, but its dividend coverage is tight, with a 97% payout ratio [21][20]
Private Equity For The People: 3 High-Yield BDCs Yielding Up To 13%