jckund Posted March 20, 2020 Share Posted March 20, 2020 I've noticed a lot of baby bonds for BDCs trading in the $18-20 range (vs. $25 face), which assumes a significant degree of asset impairment caused by coronavirus. However, it seems to be a result of liquidity driven sales and a flight from "riskier" asset classes. Yes, these bonds are unsecured, but they do require a certain level of asset coverage. I looked into a number of these for the largest margin of safety, including a portfolio that is comprised mostly of first lien paper with industry diversification and minimal exposure to cyclical sectors in this economy (consumer, retail, energy). Even taking a 50% haircut to investment fair values, these baby bonds are worth >90 cents on the dollar by my calculations... so it's hard to believe they are trading in the 70 to 80 cent range. So there's 25% capital upside on notes with maturities in 2022/2023 in addition to 6% coupons. Analysis attached. What am I missing? Disclosure: I recently initiated positions in CSWCL and HCAPZ and work for a BDC.Baby_Bond_analysis.xlsx Link to comment Share on other sites More sharing options...
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