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Solar Capital Ltd. Message Board

  • slcehamrick slcehamrick Nov 7, 2013 10:45 AM Flag


    Anyone looking at this baby bond? It does not mature until 2042 so obviously you have a very long duration but at the current price of around $21 you are getting close to a 9% YTM. It seems like a superior alternative to the common if you think, as I do, that the Fed stays in accomodation mode semi-permanently.

    No lender to a public BDC has ever lost a dime of principal although of course the track record for the industry is less than 20 years.

    The structural protections aren't very good BUT management here seems unusually committed to capital preservation.

    Thoughts anyone?

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    • The analysts at KBW really like the BDC baby bonds primarily because they are above the common in the capital structure. They calculated what percentage of a the BDC assets (for each BDC) would have to go to zero before the interest payments on the baby bond was impaired and it was a remarkably high percentage. For example, on the Medley 3/31/19 bond it was 78%. They do however suggest that an investor stick to maturities of 7 years or less to avoid long term interest rate risk on these fixed rate investments. There are 8 of them that fall into this category. Generally, the baby bonds will yield less than the common and can be hard to buy in large quantities.

20.20Aug 23 4:00 PMEDT