Non-Listed BDCs Add $2.3 Billion in 1Q14 Investments, 1st Lien Yields Increase
Non-listed BDCs added $2.3 billion in new middle market company investments in 1Q14, which follows a strong $9.6 billion in new investments for 2013. Non-listed BDCs focused on debt investments, which represented 95% of all new investments for the quarter. Equity investments in middle market companies increased moderately from 3% in 2013 to 5% in 1Q14, as non-listed BDCs look to capture stronger equity allocations for higher total return potential.
Non-listed BDCs continued a strong focus on first lien secured and second lien secured debt, which represented 38% and 28% respectively of new 1Q14 investments. First lien debt has a priority claim on a borrower’s collateral and provides the best protection in the event of a bankruptcy. Credit spreads on first lien debt increased from 553 basis points in 4Q13 to 577 basis points in 1Q14, and the average gross investment yields on first lien debt increased from 6.80% in 4Q13 to 6.96% in 1Q14.
Second lien debt, which has a subordinate claim to first lien debt, typically warrants a higher yield to reflect the higher investment risk. In 1Q14, credit spreads on second lien debt decreased from 782 basis points in 4Q13 to 746 basis points in 1Q14, and the average gross investment yields on second lien debt decreased from 8.86% in 4Q13 to 8.53% in 1Q14. While credit spreads between first and second lien debt tightened in 1Q14, second lien debt had a 169 basis point higher credit spread.
Non-listed BDC investment data and analysis is now available in MTS Research Advisors’ Non-Listed BDC Market Intelligence Report, which is an invaluable resource for sponsors, broker-dealers, and investors in non-listed BDCs. MTS’ Non-Listed BDC Market Intelligence Report analyzes trends in credit spreads, LIBOR floors, investment yields, terms, floating and fixed rates, and fixed yields on unsecured debt and structured products. Their Non-Listed BDC Market Intelligence Report is available by subscription.
Article by Michael Stubben, President of MTS Research Advisors
MTS Research Advisors is a provider of data and analytics for non-traded REITs and BDCs.