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L.3 · INTERMEDIATE · 2 MIN

NAV and Premium / Discount

BDC NAV per share = (total assets minus liabilities) divided by shares outstanding. Unlike open-end mutual funds, BDCs trade on exchanges and the market price often diverges from NAV. The premium/discount is one of the most important signals in BDC analysis.

Quiz · 5 questions ↓

What premiums and discounts tell you

A premium says the market trusts the manager and yield. A persistent deep discount usually says the market doubts the marks. The tier table below is descriptive — where the market has historically priced these names — not a quality endorsement or a buy list; tier membership shifts as coverage and credit performance change, and a premium is a price already paid, not an edge.

How market-perceived quality tiers trade versus NAV

BDC quality tierWhere it tends to trade vs NAVWhat that signals
Market-perceived quality leaders (e.g. ARCC)Near NAV to a small premiumMarket trusts the manager and the marks
Strong sponsors (e.g. BXSL)A premium to NAVSponsor strength commands it
Mid-tier BDCsAround NAV to a modest discountLower confidence in marks or yield
Stressed / smaller BDCsA deep discount to NAVMarket expects NAV write-downs

Sort BDCs by price-to-NAV

In the BDC view, sort by Price-to-NAV. The highest premium and deepest discount names are usually the most informative.

When a deep discount signals a coming cut

A 30% discount is the market saying 'we think reported NAV overstates real value.' Combined with a yield near 14%, it usually means investors expect a dividend cut and further mark-downs. Discount BDCs can be opportunities, but they require deep credit work on the Schedule of Investments — never assume a wide discount is irrational; the market is often pricing information the headline NAV has not yet reflected.

What explains a below-peer discount?

A BDC trades at 0.78x NAV. Peer group average is 1.02x. The BDC's NII/dividend coverage is 95% (below 1.0x). Most likely explanation for the discount?
Check your understanding

Sit with the ideas.

A BDC trades at 70% of NAV with a 14% dividend yield. Most likely explanation?

Why:
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Other lessons in this course.

  1. 01What is a Business Development Company?
  2. 02Reading a BDC's Schedule of Investments
  3. 03NAV and Premium / Discount— reading now
  4. 04Yield Decomposition -- Is the Dividend Safe?
  5. 05Non-Accruals -- The #1 Credit Metric
  6. 06Leverage and Regulatory Limits
  7. 07Manager Quality and Alignment
  8. 08Building a BDC Watchlist
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