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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (47940)	5/14/2012 2:30:49 PM
From: tytthus	3 Recommendations Respond to of 78667

a big problem during the credit crisis for the BDC was mis-matched duration of their debt and investments. most of their leverage came from rather short term credit facilities, while their assets were multi-year (generally) investments. most BDCs have been diversifying the liability side of their balance sheets since 2009. adding preferred and convertible debt and longer term back and unbacked debt. they wind up paying more than the credit facilities, but they'll be caught less flat footed when the next crisis hits.

To: Sergio H who wrote (47940)	5/14/2012 5:17:41 PM
From: MCsweet	2 Recommendations Read Replies (1) \| Respond to of 78667

Sergio H, I don't disagree with what you just said in your reply, but I don't see how you are disproving my claim that BDCs are not good to own in a credit crsis. In a credit crisis, basically all BDC stock prices will get hit. I can almost guarantee it. BDCs are extremely credit sensitive -- they are making loans to small companies at very high interest rates, and the market reflects that accordingly. I didn't say they wouldn't weather the storm or that you can't earn attractive returns over time despite a crisis, but why own them before they go into freefall? If you think a credit crisis is afoot, it is not time to be plowing money into BDCs. That much is obvious to me. They are probably good buys after a credit crisis hits, but I do not want to own them if I expect a crisis is coming. And I don't see how ARCC is an example of one gone wrong, it is probably one of the best run BDCs. Right now, BDCs offer attractive returns in my view, but I wouldn't be loading up because I think there is a non-zero chance of a credit crisis. MC