Three business development companies (BDCs) have taken to public markets this year amid anticipated interest rate cuts in 2024, and strong demand for private credit.
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BDCs are closed-end funds that pool money from investors to execute investment strategies, which may include illiquid credit and equity investments in SMBs and middle-market companies. They frequently trade at a discount to their net asset value (NAV), and regularly make distributions based on a percent of taxable income. Unlike mutual funds and ETFs, closed-end funds manage a pool of capital that is not impacted by open-market buys and sells.
Three BDCs have gone public since the start of the year, primarily focused on opportunistic private credit; in each case, first-lien loans make up at least 85% of the investment portfolio. The companies weathered the past years'rate hikes well, thanks to higher yields and a decline in bank lending, and they now stand to benefit from an easing rate environment, which should firm up their ability to make healthy dividend payments.
Note: BDCs and other closed-end funds are excluded from Renaissance Capital's IPO stats.
| 3 Closed-End Funds Have Gone Public in January | |||||
|---|---|---|---|---|---|
| Issuer Business | Trade Date | Deal Size | First Day Return | Return at 01/25 | |
| Palmer Square Capital BDC (PSBD) | 01/18 | $90M | -2% | -1% | |
| BDC that primarily lends to and invests in corporate debt securities. | |||||
| Morgan Stanley Direct Lending Fund (MSDL) | 01/24 | $103M | -0% | -0% | |
| BDC focused on lending to middle-market companies. | |||||
| Nuveen Churchill Direct Lending (NCDL) | 01/25 | $99M | -1% | -1% | |
| BDC focused on investing in senior secured loans to PE-owned US middle-market companies. | |||||
Palmer Square Capital BDC sold 5.45 million shares at $16.45 per share, raising $90 million at an initial market cap of $535 million, and its shares began trading on the NYSE under the symbol "PSBD" on January 18. At year-end, it had an estimated NAV of $17.04. The BDC's investment advisor is a majority-owned subsidiary of Palmer Square Capital Management, a Missouri-based investment firm led by Christopher Long with about $28 billion in AUM. As of 9/30/23, Palmer Square BDC had 219 debt and equity investments in 184 portfolio companies, with total assets of $1.1 billion. Top industries in its portfolio included software, healthcare products and services, and IT services. J.P. Morgan, BofA, RBC, and UBS were the lead bookrunners on the IPO.
Morgan Stanley Direct Lending Fund sold 5.0 million shares at $20.67, raising $103 million at a market cap of $1.8 billion, and began trading on the NYSE under the symbol "MSDL" on January 24. It is managed by MS Private Credit, a subsidiary of Morgan Stanley with about $19 billion in capital, and led by Jeff Levin, Co-Head of Morgan Stanley's North America Private Credit team. As of 9/30/23, the BDC had total assets of $3.3 billion, and its investments spanned 165 companies across 29 industries, focusing on debt to US middle-market companies backed by private equity sponsors. Morgan Stanley, J.P. Morgan, and Wells Fargo were the lead bookrunners on the IPO.
Nuveen Churchill Direct Lending was the latest BDC to come to market, selling 5.5 million shares at $18.05 to raise $99 million at a market cap of $989 million, and its shares began trading on the NYSE under the symbol "NCDL" on January 25. The BDC is managed by two affiliates of Nuveen, the investment management division of TIAA, and is led by Ken Kencel, CEO of Nuveen's Churchill Asset Management. As of 9/30/23, Nuveen Churchill had debt and equity investments in 174 portfolio companies, with $1.5 billion in assets. Top industries in its portfolio included business services, healthcare and pharma, and high technology. BofA, UBS, Morgan Stanley, Wells Fargo, and Keefe, Bruyette & Woods were the lead bookrunners on the IPO.
