Non-Traded BDCs Add $1.7 Billion in 1Q15 Investments; 1st Lien Yields Decrease

SK Research, a third party due diligence firm and provider of direct investment research and analysis for broker-dealers and financial advisors, recently released its Non-Traded BDC Market Intelligence Report, which analyzes trends in credit spreads, LIBOR floors, investment yields, investment terms, and floating and fixed rates relating to non-traded business development companies.

The report indicates that non-traded business development companies added $1.7 billion in new middle market company investments in the first quarter of 2015, which was below the average quarterly investment pace of $2.8 billion in 2014. Non-traded business development companies focused primarily on debt investments, which represented 97 percent of all new investments in the first quarter of 2015. Equity investments in middle market companies decreased from 7 percent in the fourth quarter of 2014 to 3 percent in the first quarter of 2015.

Non-traded business development companies continued a strong focus on first lien secured and second lien secured debt, which represented 62 percent and 22 percent, respectively, of new investments in the first quarter of 2015. Credit spreads on first lien debt, which by definition have a priority claim on a borrower’s collateral, decreased from 689 basis points in the fourth quarter of 2014, to 640 basis points in the first quarter of 2015. The average gross investment yields on first lien debt decreased to 7.44 percent in first quarter of 2015.

Second lien debt, which is subordinate to first lien debt, typically warrants a higher yield to reflect the higher investment risk. Credit spreads on second lien debt increased from 844 basis points in the fourth quarter of 2014 to 847 basis points in the first quarter of 2015, and the average gross investment yields on second lien debt increased to 9.54 percent in the first quarter of 2015. Credit spreads between first and second lien debt increased in the first quarter of 2015 to 155 basis points.

SK Research is a source of credit spread and investment yield data for non-traded business development companies. Investment data and analysis for the first quarter of 2015 is now available in SK Research’s Non-Traded BDC Market Intelligence Report, which is available to subscribers. To learn more, click here.