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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (23742)4/13/2006 2:30:14 PM
From: Paul Senior  Read Replies (1) of 78715
 
Possible that defaults occur but possibly not because of the deal structure. I presume each deal is somewhat structured to account for rate rises. OTOH, the customers of a company might have to reduces their dealings with the company esp. if interest rates bite enough to cause a recession.
This in turn could cause the company to default on its BDC loan due to lack of cash flow. Or the company could drop in value. (Thus hurting the BDC, e.g. if there were stock or warrants invoved in the particular loan.)

Back otoh: Because bank rates to borrowers increase and become more difficult for smaller companies to obtain, I expect that more small companies will turn to these BDCs for the BDCs relatively more attractive financing, so demand for the deals that the BDCs do, might increase.

ALD has a long history: It's survived interest rate swings. I hope it and other BDCs can do so again.
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