Clownbuck,
You make some good points, but I think your reasoning is skewed by ALD.
BDCs may or may not be junk bonds with leverage in disguise. Those that depend on syndicated paper (such as AINV in the past) are essentially that. Those that originate their own loans to middle market companies are not. That is a real business that cannot be replicated using junk bonds or junk bond funds.
BDCs are related to private equity. Some make private equity investments. Others make debt investments alongside private equity.
Some BDCs may have been akin to a Ponzi schemes (ALD, ACAS in the past?), but others, such as ARCC, have managed quite well through the crisis and are clearly reputable companies with excellent track records.
BDCs are not good to own in a credit crisis, but right now they don't seem any frothier than junk bonds. I actually think they look attractive relative to junk bonds right now, although with junk bonds yielding only 7% on average, they are not all that attractive.
There are major negatives of high fees and credit sensitivity, but all in all I think BDCs are worthy of investment consideration. I especially am interested in the senior bonds that have been coming out. Given moderate duration of these bonds, the yields seem quite attractive relative to other corporate bonds.
Best,
MC |
