A Wall Street Transcript Interview with Bryce Rowe, Senior Analyst with Robert W. Baird & Co. Covering Community Banks & Business Development Companies: Will Improved Regulatory Environment Benefit BDCs in 2014?

Wall Street Transcript

67 WALL STREET, New York - January 2, 2014 - The Wall Street Transcript has just published its Business Development Companies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: BDC Risk/Reward Profile - Business Development Companies Historical Overview - Yield Compression Issues - Internally and Externally Managed BDCs - BDC Dividend Growth

Companies include: Business Development Companies (BDCs)

In the following excerpt from the Business Development Companies Report, an expert analyst discusses the outlook for the sector for investors:

TWST: In your opinion, how are the BDCs doing as a group right now?

Mr. Rowe: As a group, I would say the BDCs are doing fine. The group is continuing to produce good credit quality. There are a very limited amount of nonperforming loans or nonaccrual investments. I think the biggest issue that the space is facing right now is yield compression, or the pricing that BDCs get on investments. We are seeing yield compression across the board, and that is really what is leading to a year-over-year decrease in earnings.

TWST: When you look at the BDCs, obviously their portfolio is going to be a primary determinant of their success. What else is important? Do interest rates, for example, play a major role in deciding BDC success?

Mr. Rowe: I think the perception of interest rates, in other words the way investors perceive the impact of interest rates higher or lower on a BDC investment portfolio, can certainly cause fluctuations in the stock prices. But generally speaking, the BDC sector as a whole is pretty well matched in terms of their assets and liabilities.

You should not see a BDC too terribly affected by a movement in interest rates, because either their portfolio is largely fixed-rate against a liability structure that is largely fixed-rate or vice versa, where an investment portfolio is largely floating-rate funded by floating-rate debt. Higher interest rates could directly impact investment portfolio companies by pressuring their ability to cover interest costs. The interest rate environment for the BDCs is pretty benign. The BDCs learned to better match asset and liability duration during this last cycle. We have seen capital structures improved dramatically since the last credit cycle.

TWST: What about the regulatory environment? Are the bills currently in Congress something that could impact the space dramatically one way or the other?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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