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Jul 01 2015

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.

Article by: Michael Stubben

Michael Stubben has 20 years of real estate experience across a wide range of commercial real estate asset classes. Prior to starting Summit Investment Research, he was the founder and president of MTS Research Advisors that was sold in 2014. MTS Research Advisors provided industry-leading research on non-listed REITs and non-listed BDCs. Mike has extensive experience in building cash flow models, managing real estate funds, serving as an expert witness and providing real estate strategic advisory services. He has worked as the portfolio manager of two multi-billion dollar non-listed REITs at Cole Real Estate, served as a CFO for a $300 million revenue homebuilder in Phoenix, consulted as a real estate strategist at Ernst & Young, worked as a due diligence analyst for a commercial real estate lender, and performed property inspections for a REIT. He also teaches business statistics at the University of Phoenix. Mike has a B.S. degree from Brigham Young University and an M.B.A. and J.D. degree from the University of Arizona. Mike has been a member of the State Bar of Arizona since 2000 and has been a Certified Public Accountant since 2003.

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