{
    "success": true,
    "data": {
        "id": 1750672,
        "msgid": "watch-out-for-cheap-prices-on-private-debt-bdcs-1779545956",
        "date": "2026-05-19 23:17:23",
        "title": "Watch Out for Cheap Prices on Private-Debt BDCs",
        "author": " ",
        "source": "GALERT",
        "tags": "",
        "topic": "Investment",
        "summary": "Editorial summary: The article explains that buying shares of private-debt business-development companies (BDCs) at a discount or premium involves more than yield; it discusses how income from fees and equity components can affect returns, and highlights the regulatory landscape in the US versus Indonesia. It also notes that healthy BDCs may need to raise capital and that valuation depends on asset value alignment and embedded fees.",
        "content": "<p>(Vibiznews \u2013 Column) Borrowing a line from Winston Churchill,\ninvesting in a business-development company (BDC) can be likened to\nbuying a loan wrapped in a fund, then being put back into shares. Some\ninvestors may be enticed to enter these publicly traded private\nfinancing vehicles, especially when markets are shadowed by concerns\nabout borrowers\u2019 credit risk, such as software companies. Many of these\ninvestment vehicles are currently trading at steep discounts to their\nnet asset value, and sometimes offer high dividend yields. As the market\nadage goes: be greedy when others are fearful. But buying BDC shares is\nnot the same as buying a loan or a bond and simply collecting the\ninterest payments. And buying at a cheap price does not necessarily mean\ninvestors will obtain greater value for their money. In fact, it may\nmake more sense nowadays to look at BDCs trading at a premium to their\nnet asset value. To begin with, many funds do not hold only loans. Their\nassets often include equity stakes, and sometimes investments in other\nfinancing funds. Equity investments of this kind are among the hardest\nto value for investors. Moreover, BDCs often generate various types of\nfee income from their lending activities. These fees can be earned when\nborrowers prepay loans through refinancing, or when new loans are\narranged. The magnitude of these fees can fluctuate with how active the\nloan market is. This risk is different from straightforward credit risk.\nFor example, Sixth Street Specialty Lending recently signalled a period\nof lower fee income when explaining their decision to cut the quarterly\nbase dividend. Sixth Street Specialty Lending\u2019s Chief Executive, Bo\nStanley, told analysts that activity-based fee income may take several\nquarters to normalise after a market dislocation. Another characteristic\nof the kinds of loans BDCs extend also affects their revenue swings.\nSome loan payments can be delayed, or known as payment-in-kind. The idea\nis to give borrowers time to preserve cash to weather tough periods.\nHowever, such payment-in-kind arrangements do not inject cash into the\ninvestment fund. As a result, a BDC\u2019s ability to continue paying\ndividends can be pressured, even when all of its loans remain\ntechnically current. Private debt fund yields can be higher than\ntraditional loans or other forms of corporate credit. But higher yields\nalso reflect different risks than regular debt instruments. A researcher\nfrom Ohio State University, in a recent study, argued that the returns\non private debt funds should be measured using an approach that accounts\nfor both equity-related and debt risks. Marc Rowan, Chief Executive of\nApollo Global Management, has said that debt profiles that resemble\nequity are indeed sought by many investors, particularly in BDCs.\nAccording to him, investors who enter leveraged loans are not those\nmoving Treasury or investment-grade portfolios, but those selling their\nshares to enter the instrument. Viewing BDCs more like stocks can also\nlead to an odd strategy: focusing on funds trading at a premium to their\nnet asset value. To enable healthy funds to capitalise on a nervous\nmarket by offering higher-yielding loans, they may first need to raise\nadditional equity capital. That is much easier for funds that are not\ntrading at steep discounts. Sixth Street Specialty Lending is one of the\nBDCs currently trading at a premium to NAV, at around 10%. The company\u2019s\nshares had fallen after the dividend cut was announced, narrowing the\npremium. But the dividend sacrificed now may not be gone forever. Sixth\nStreet\u2019s BDC tracks what is called embedded fees that could be earned\nfrom future activity. Some of the fund\u2019s activity fees can also shield\nthem from prepayment by borrowers to refinance at a tighter spread. The\nability to issue shares and channel loans at higher interest rates can\nalso lift fee income going forward. To maintain the premium, investors\nmust trust that the loan values in the fund portfolio truly match what\nthe company claims. Thus, amid the various dynamics affecting BDCs,\nthere is in fact nothing mysterious about their core mission: to provide\ngood loans. The concept of a business-development company (BDC) as in\nthe United States does not really exist in Indonesia\u2019s capital market\nstructure. However, there are several instruments and institutions with\nsimilar functions, particularly in mid-market financing, private credit,\nand alternative investments. In the US, a BDC is an investment company\ntraded on an exchange, focused on channeling loans or capital to\nmid-sized companies that struggle to obtain financing from traditional\nbanks. Investors can buy BDC shares like ordinary stocks while enjoying\ndividends sourced from loan interest and investment income. In\nIndonesia, such a model does not yet have a dedicated regulatory\numbrella. The Financial Services Authority (OJK) is more familiar with\nschemes such as financing companies, venture capital, real estate\ninvestment funds, and limited partnership mutual funds. Therefore, the\nclosest form to a BDC in Indonesia at present are venture capital\ncompanies, private equity, multifinance, and certain private debt fund\nmanagers. Nevertheless, there are differences that<\/p>",
        "url": "https:\/\/jawawa.id\/newsitem\/watch-out-for-cheap-prices-on-private-debt-bdcs-1779545956",
        "image": ""
    },
    "sponsor": "Okusi Associates",
    "sponsor_url": "https:\/\/okusiassociates.com"
}