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Monroe Capital Offers 15% Yield Due To Portfolio Credit Issues

Published Wed, 26 Dec 2018 18:31:23 -0500 on Seeking Alpha

I have recently been purchasing shares of higher-quality Business Development Companies ("BDCs") with risk-averse balance sheets prepared for rising interest rates and/or a potential economic downturn. However, I have not purchased shares of Monroe Capital (MRCC) since 2016 for the reasons discussed in this article.
High-yield investments, including BDCs, have been declining since early September potentially for a few reasons including investors expecting higher yields and fear of an economic slowdown and/or higher interest rates. However, MRCC has declined more than the others and is now below its January/February 2016 lows (discussed next):

Source: Yahoo Finance
Quick BDC Market Update
The general markets have been declining for various reasons, some of which are related to BDCs (including a potential economic slowdown) but the underlying fundamentals of the U.S. economy and BDCs remain strong. In January/February 2016, the markets experienced similar concerns including slowing Chinese growth and increased energy sector defaults driving higher yield expectations especially for non-investment grade debt as shown in the chart below. Please see “Junk bonds suffer a rare negative return in January”. This also resulted in wider interest rate spreads and favorable lending conditions. Higher quality BDCs typically have much higher portfolio growth during these periods as they take advantage of higher market yields.

Source: FRED
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Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
BLACKROCK KELSO CAPITAL 5.28   0.0 -0.12 0.56 13.77
GARRISON CAPITAL 7.05   0.0 -0.17 0.92 13.14
CAPITALA FINANCE 8.20   0.0 -3.13 1.00 12.42
APOLLO INVESTMENT 16.05   13.6 1.18 1.80 11.32
PROSPECT CAPITAL 6.53   10.9 0.60 0.72 11.20
ARES CAPITAL 18.64   10.2 1.82 1.60 8.73
GLADSTONE INVESTMENT 11.52   6.9 1.67 0.82 7.17
GOLUB CAPITAL BDC 18.34   15.5 1.18 1.28 6.97
MAIN STREET CAPITAL 42.47   16.5 2.57 2.46 5.80

BLACKROCK KELSO CAPITAL - BKCC
BLACKROCK KELSO CAPITAL - BKCC  


Older articles featuring Blackrock Kelso Capital (BKCC):
9.4% Yield Driven By 14 Consecutive Dividend Hikes And Still Growing: Capital Southwest
Assessing Risk: Retirement Portfolio Using BDCs Yielding 10%+
LOUD Dogs Flash Dividend Yields, Upsides, And Gains In July
62 Dogs Cry Out LOUD By Dividend Yields, Upsides, And Net Gains For June
10% Yielding New Mountain Finance Receives Fitch Rating
Dividend Increases For The High-Yield BDC Sector, Part 5: BlackRock TCP Capital
Tax-Loss Harvesting And Merger Fears Driving 10%+ Yield For BlackRock TCP Capital?
Your 50 Financial WallStars Show Bountiful Yields With Net Gains For November 2019
Why I Sold This 11.1% Yielding BDC That Could Now Be A 'Buy'
This Stable 10.1% Yielding BDC Is A Strong Buy At These Levels

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