TCPC - BDCs And Rising Inflation - It's Complicated
- That BDCs stand ready to benefit from rising inflation is a mantra investors hear often. However, the reality is more complicated.
- We discuss both the link between inflation and Fed policy as well as the behavior of BDC net investment income and higher short-term rates.
- The presence of Libor floors in BDC assets and their lack in BDC debt means that many BDCs will experience lower income as the Fed starts hiking rates.
- The risk to investors is that the Fed makes a pause after 1-2 hikes, leaving most BDCs with lower income levels than when it started.
For further details see:
BDCs And Rising Inflation - It's Complicated