Not investment advice. Educational reading. See Disclaimer.
L.8 · INTERMEDIATE · 2 MIN
Building a BDC Watchlist
A disciplined BDC investor ranks names on five criteria: (1) NAV discount/premium, (2) non-accrual rate, (3) NII dividend coverage, (4) leverage vs regulatory limit, and (5) manager track record. Top decile on all five = core holding. Weak on two or more = avoid until thesis changes. A screen produces research candidates, not purchases — run the five criteria against live filings before sizing anything, and match any position to your own risk tolerance and time horizon.
Passes most criteria; smaller scale or more volatile
Solid but requires closer monitoring
Contrarian / value
Discounted but stable NAV names
Higher reward, higher work required
Avoid
Sub-90% NAV + 5%+ non-accruals
Persistent quality issues
§ 03Build a five-name BDC watchlist
In the Watchlist view (/?view=watchlist), build a 5-name BDC watchlist using these tiers. Track price-to-NAV, yield, and non-accrual every quarter.
§ 04Telling a core holding from a value trap
The first profile checks every box: modest premium (market trusts marks), low non-accruals, dividend more than covered by NII, conservative leverage, and a long manager track record. This is the profile the sector's longest-tenured large managers have historically fit. The second is a value trap waiting to cut its dividend; the third is unproven and overpriced. The discipline is to insist that all five criteria — discount, non-accruals, coverage, leverage, manager — are in the healthy range before sizing a core holding; weak on two or more is reason to wait for the thesis to change.
§ 05Which criteria to prioritize, and which are traps
You're building a BDC watchlist. Criteria to prioritize?
Check your understanding
●○○○○
Sit with the ideas.
Which BDC profile is the strongest core holding candidate?
