The takeaway: Equity markets are reacting with extreme fear about AI’s impact on software companies, and that panic is starting to create attractive opportunities in Business Development Companies (BDCs) that hold first-lien loans to those same names. We recently published a research report on Blue Owl Technology Finance (OTF) — trading at roughly a 67% discount to NAV with a 12%+ dividend yield — and similar setups exist across the broader BDC space.
Dear Investor,
Equity markets are reacting with extreme fear about AI’s impact, particularly on software companies, and that is starting to create some very attractive opportunities. One way investors have historically played this kind of dislocation is through Business Development Companies (BDCs) that own predominantly first-lien debt on many of those same names.
Why first-lien BDC exposure is compelling right now
For these BDCs to lose money on their loans, the underlying portfolio companies would have to default and then recover at levels meaningfully below par on a senior-secured basis. At today’s prices, we are effectively buying diversified portfolios of those first-lien loans at roughly 60–80% of their net asset values, while collecting 10–15% dividend yields at current prices on the public BDC shares themselves.
That combination — a discount to stated asset value plus a double-digit current yield on already-discounted equity — is the kind of setup that can offer a reasonable margin of safety when the credit environment ultimately stabilizes.
Our research on Blue Owl Technology Finance (OTF)
We have published a detailed research report on Blue Owl Technology Finance Corp. (OTF) laying out the thesis, portfolio composition, underwriting track record, and the key risks. Clients and prospective clients can read the full write-up at the link below.
Similar setups elsewhere in the BDC universe
We think very similar arguments can be made for a number of other BDCs — names we have followed closely include OBDC, MSDL, FSK, BXSL, KBDC, and GSBD. We are happy to discuss how any of these may fit into a broader allocation.
— Tim Travis, CEO/CIO, T&T Capital Management
Important Disclosures
T&T Capital Management LLC is a Registered Investment Advisor. This article reflects the views of the author as of the date written and is for informational and educational purposes only. It is not an offer to sell, nor a solicitation of an offer to buy, any security. References to specific securities (including OTF, OBDC, MSDL, FSK, BXSL, KBDC, and GSBD) are examples of positions the firm or its clients may hold and are not recommendations to buy or sell any security. Yields, discounts to NAV, and dividend rates cited are approximate and subject to change; past performance is not indicative of future results. Forward-looking statements involve risk and uncertainty. Please read our full firm disclosures before acting on any information contained herein.
