Quality of the manager and the manager’s credit track record are the number one factors to look at when buying a BDC because high interest rates cannot make up meaningful losses of principal in the investment vehicle, says Greg Mason, CFA, a Director and Senior Equity Analyst at Stifel Nicolaus & Co., Inc.
“Getting your money back and having low credit defaults and low credit loss rates is the key to maximizing returns in the BDC space. So the number one thing we look at is currently credit quality, and more importantly, the historical credit quality of the manager,” he said.
Mason likes Golub Capital BDC, Inc., (GBDC), a relatively new BDC in the sector, because of its conservative manager and asset base, with a lot of first-lien, lower-yielding, safer investments. He also recommends GBDC due to its available capital to make new investments.
“So while we don’t have a long-term historical public track record, their private track record, they’ve been around since 1994 with $6 billion of middle-market loans,” Mason said. “They’ve got a great private long-term track record, and the current portfolio has constituted such that it should be much lower loss rates, higher credit quality.”