BDC Weekly Review: BDCs Are Consolidating

Market Overview - The Business Development Company (BDC) sector experienced a total return of 1.5% in the last week, with only two BDCs in the coverage showing negative performance month-to-date [2]. Valuation and Market Trends - Aggregate BDC valuations are currently above historical averages, supported by a delay in expected Federal Reserve interest rate cuts [3]. - GBDC is merging with its private BDC, GBDC 3, which is expected to enhance liquidity, lower fixed costs, and improve debt issuance pricing. The incentive fee for GBDC will decrease from 20% to 15%, effective January 1, which is anticipated to add $0.03-$0.04 to adjusted net income per quarter [4]. Company Specifics - GBDC's recent management and incentive fee cuts have resulted in a pro-forma 20% increase in net income, suggesting a potential revaluation of the company due to its higher forward net income [9]. - GBDC's base dividend coverage stands at 136%, indicating room for future increases even with potential Federal rate cuts [9]. Bond Issuance Activity - Ares Capital Corp (ARCC) announced a $1 billion offering of 5.875% notes due in 2029, reflecting a trend among BDCs to capitalize on declining long-term Treasury yields [7]. - The new bond issuance is a refinancing of a previous bond, which will lead to a slight increase in interest expenses for the company [8].