FDUS - Fidus SLR stocks in the red as KBW downgrades on elevated credit risk

• Fidus Investment ( NASDAQ: FDUS ) -2.3% and SLR Investment ( NASDAQ: SLRC ) -4% are sliding in Monday afternoon trading as Keefe, Bruyette & Woods analyst Ryan Lynch cut the business development companies to Market Perform from Outperform.
• "The recent pullback in BDC stock prices have started pricing in elevated credit risk going forward but not a recession yet, Lynch wrote in a note to clients on July 10.
• That has created an "imbalance of downside risks" compared with upside potential for the BDC sector, Lynch explained.
• Declining markets multiples and spread widening comes in the wake of persistently high consumer price inflation, weaker growth and tightening monetary policy.
• Note that in aggregate, BDC stocks are trading below their historical price-to-book valuation, suggesting that the sector is "pricing in above average levels of credit risk today, but not enough for a recession," the note said. BDCs are now trading at 0.87x P/BV vs. 0.93x P/BV since 2007.
• SA contributor On the Pulse walked investors through his bullish take on Fidus .

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