3 Things That Make You Delusional About BDCs

Roberts Berzins, CFA14.1K FollowersFollow5ShareSaveComments(8)SummaryHigh-quality BDCs warrant selective buying, but indiscriminate accumulation exposes investors to hidden portfolio risks and potential impairments.Weighted average portfolio metrics, like interest coverage and LTV, can mask concentrated risks in smaller, weaker holdings.Valuations of portfolio companies, especially SaaS, often rely on intangible assets with questionable recovery values in distress scenarios.BDC leverage regulations limit systemic risk but can obscure true leverage and restrict growth.In the article I provide the other side of my bullish view on BDCs and emphasize again how important it is to invest in top-tier quality names. Gustavo Muñoz Soriano/iStock via Getty Images This week I issued an article titled Stop Panicking And Start Buying BDCs. I introduced a broader perspective on BDC credit risk and provided a solid ground for investors for going against the heard - i.e., to scoop up high-quality names before theThis article was written byRoberts Berzins, CFA14.1K FollowersFollowRoberts Berzins has over a decade of experience in the financial management helping top-tier corporates shape their financial strategies and execute large-scale financings. He has also made significant efforts to institutionalize REIT framework in Latvia to boost the liquidity of pan-Baltic capital markets. Other policy-level work includes the development of national SOE financing guidelines and framework for channeling private capital into affordable housing stock. Roberts is a CFA Charterholder, ESG investing certificate holder, has had an internship in Chicago board of trade (albeit, being resident and living in Latvia), and is actively involved in "thought-leadership" activities to support the development of pan-Baltic capital markets.Analyst’s Disclosure: I/we have a beneficial long position in the shares of KBDC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.