We conclude our series on business development companies by answering your questions: Is it better for a BDC to be internally or externally managed? The costs of running an internally managed BDC are typically less than externally managed ones. That’s because it doesn’t pay a fee (which includes a profit margin) to an outside manager,…
When business development companies were created by Congress in 1980, they were designed in response to concerns about liquidity. Specifically, a provision in the 1940 Act limited the number of holders of investment company securities to 100 persons. That, of course, effectively eliminated public ownership. Private equity and venture capital firms argued this would put…
One of the many benefits of business development companies is their ability to easily hold a wide range of investments. From senior term loans, to unitranche loans, second-lien term loans, mezzanine debt, and even preferred stock, BDCs are incredibly versatile asset management vehicles. Historically, BDCs allocated more capital to higher-yielding, thus more risky, assets; particularly…
In the first installment of our special report on business development companies, we reviewed their history, summarized the basic precepts that govern them, and discussed some of their key features. This week, we take a closer look at BDC structures. As we wrote last week, BDCs are companies which issue stock to investors whose capital forms…
This past summer we ran a four-part series on collateralized loan obligations [“Why CLOs Matter”]. The excellent response to that special report encouraged us to publish another white paper, this time on business development companies. We will simultaneously be coming out with interviews with top players and experts in the BDC space. This week we…
October has a spooky reputation in the market. Like the Halloween decorations we’re seeing in neighbors’ yards, scary things always keep popping up. This month is fitting the pattern. From Beijing to Brazil, animal spirits are roiling world markets. With that in mind, we visited last week with two plugged-in observers to get their take…
It was unavoidable, we suppose, that a retired senior bank credit officer would be compelled to respond to our previous column. High debt-to-ebitda leverage, we asserted, was misleading and should be viewed in context of other considerations. Though preferring anonymity, this self-described “credit dinosaur” has been known to us for decades as an experienced participant…
A persistent misunderstanding in leveraged lending is using leverage as the sole metric for market frothiness. Drawing such conclusions is like judging an episode of Keeping Up with the Kardashians by the first two minutes. That takes at least three minutes. It’s tempting, of course, to be carried away by the headlines. Both Thomson Reuters…
NASA announced last Friday that Curiosity has finally arrived at its destination. The Martian rover took two years to drive from its landing spot to Mount Sharp – a distance of about ten kilometers – where it will begin the bulk of its scientific experiments. We’ve calculated that this leisurely pace, roughly 0.0003 miles per hour, is…
This first appeared in Middle Market Growth, the official publication of ACG. Randy Schwimmer’s column, MidPoints, is a regular feature there. You can read MMG by clicking on this link. Who invented the airplane? Depends what you mean by “invent.” “Birdmen,” a new book by historian Lawrence Goldstone, describes how the Wright Brothers became so obsessed…