BD BDCS Loading... : Bullish and Bearish Analyst Opinions

Private credit BDCs are attractive for income.

The Kobeissi Letter reports that software loans now account for ~20% of BDC portfolios, doubling since 2016, raising concentration risk concerns for private credit investors.

The speaker explicitly states he is using private credit vehicles as a hedge by "shorting it on the way down" and confirms he is shorting BDCs. He forecasts >20% default rates in private credit, driven by risky, cyclical lending to highly leveraged companies. Liquidity outflows from funds (as investors redeem at NAV) will create refinancing and liquidity issues, forcing further price declines in publicly traded BDCs. Shorting BDCs provides a hedge against the unfolding crisis in risky credit as fundamental defaults and forced selling pressure their valuations. A swift, large-scale liquidity intervention or a sudden economic rebound that drastically lowers default rates could halt the decline.

The US private credit market is heading in the wrong direction: The median listed Business Development Company (BDC) is now trading at just 0.73x its net asset value (NAV), the lowest since 2020. BDCs are publicly traded firms that lend to small, mid-sized, and distressed US businesses, offering retail investors access to private credit markets. In other words, they are priced at 73% of their claimed worth. The median listed BDC price-to-NAV has been consistently declining over the last 18 m