Non-Traded BDC Sales Continue to Lag During Second Quarter
Non-traded business development companies struggled to raise capital again in the second quarter of 2016 with just $500 million raised – less than half of their fundraising pace last year, according to Summit Investment Research’s most recent Non-Listed BDC Market report.So far in 2016, BDCs have raised a total of $1.1 billion in equity, a far cry from the $4.3 billion raised last year and the record-breaking $5.9 million raised in 2014.
Summit pointed to several factors responsible for the declining numbers including regulatory changes stemming from FINRA 15-02, as well as the abrupt exit of American Realty Capital from the non-traded investment space. In addition, disruptions in the high yield debt markets caused net asset values to decline, while rising credit risk is expected to further impact the space in 2016.
During the second quarter, non-traded BDCs posted their lowest quarterly capital raise in the last four years. FS Investments, formerly Franklin Square, continued to dominate the space it created with a 58 percent market share for its three open BDCs.
FS Energy & Power Fund took the top spot in the second quarter by a landslide with a capital raise of $197 million, while FS Investment Corporation IV took second with $47 million raised. FS Investment Corporation III came in a close third with $45 million. Sierra Income Corporation and CNL’s Corporate Capital Trust were not far behind with capital raises of $43 million and $42 million, respectively
Secured debt ratios dropped from 80 percent in the first quarter of 2016 to 76 percent in the second quarter, while first lien debt ratios decreased from 52 percent in the first quarter to 50 percent in second quarter. Summit noted that with the decline in private debt market prices and higher market yields, non-traded BDCs have been able to obtain comparable secured debt and first lien debt at higher yields.
So far in 2016, first lien debt yields were 7.3 percent, a decrease from 7.7 percent in 2015, while second lien debt yields remained unchanged at 9.6 percent. The high yields combined with high fixed rates on unsecured debt, non-traded BDCs maintained average gross yields of 9.1 percent in 2016. On a positive note, BDC net asset values posted a 2.7 percent increase so far in 2016 after steep 12.5 percent NAV declines last year.
Summit Investment Research has been active since April 2016 and covers non-traded REITs, business development companies, interval funds, and listed REITs (that acquired non-traded REITs or were once non-traded). The company’s research can be utilized by a variety of industry clients including financial advisors, registered investment advisors, broker-dealers, sponsors, service providers like law firms, due diligence firms, industry organizations, and news organizations, and institutions.
