Rejiggered business development companies trading at steep discounts

With some investors concerned about the private credit and loan markets in the wake of recent bankruptcies, along with declining interest rates, two business development companies (BDCs) which have recently revamped their operations are trading at steep discounts.

BDCs lend money to private companies — typically small- and mid-sized companies that might have trouble getting loans from banks. And sales of nontraded BDCs have been booming, which means some financial advisors and their clients have more exposure to billions of dollars in private loans.  

According to alternative investments fund tracker Robert A. Stanger & Co., nontraded BDCs are having a terrific year, sales-wise. Through July, sales of nontraded BDCs totaled $26.7 billion compared to a total of $35.4 billion in 2024.

In that context, two BDCs, FS Specialty Lending Fund, which until recently was a nontraded BDC but listed last week as a closed-end fund, and Blue Owl Capital Corp., a listed BDC, are both trading at discounts to their net asset values (NAVs). Investors buy alternative investments such as BDCs and nontraded real estate investment trusts seeking extra yield.

“Th discounts to NAV right now are a combination of what’s happening at portfolio level, meaning concerns about the quality of the credits they’re holding, and what’s happening at the shareholder level,” said one senior industry executive who spoke privately to InvestmentNews about the BDC market. “FS Specialty Lending just listed and Blue Owl is merging with another BDC.”  

FS Specialty Lending Fund, with $1.9 billion in assets, published on November 4 an NAV of $18.60 per share. After months of preparation, the company began trading 10 days later on the NYSE, giving investors the opportunity to easily sell shares if they desired.

On Tuesday afternoon, FS Specialty Lending Fund was trading at $13.52 per share, a discount to its NAV of 27.3%.

FS is a leading manager of private credit and other alternative asset classes; FS Investments, based in Philadelphia and the brainchild of Michael Forman, this summer rebranded the firm as Future Standard, with $86 billion in investments.

Meanwhile, Blue Owl Capital Corp., with $17.6 billion in assets, said earlier this month it was merging with a related nontraded BDC, Blue Owl Capital Corporation II, with $1.8 billion in assets. Until the transaction is completed, investors in the latter won’t be able to redeem or sell a portion of shares back to the company.  

The stock’s share price on Tuesday afternoon was $11.77; at the end of September, Blue Owl Capital Corp. reported an NAV of $14.89, before the merger announcement.

“In general, it’s a tough time to be a BDC right now,” the executive said.