A New BDC Is Launched With More to Come

Includes: CODI, KED, NMFC
by: Nicholas Marshi

We welcome one more public Business Development Company to the ever more crowded industry. On May 20th, New Mountain Finance Corporation (ticker: NMFC) went public, raising $100mn at $13.75 a share. (The stock has traded down since opening, but that’s another story).

We are now tracking 28 different BDCs, plus 1 Grantor Trust (Compass Diversified Holdings) whose ticker is CODI and one former BDC (Kayne Anderson Energy or ticker, KED). Overall, there are already 31 BDCs in the market.


Waiting in the wings are several more public BDC wannabees: we heard about Churchill Capital’s planned BDC a few weeks ago. Monroe Capital and TPG Capital have also been filing the preparatory paperwork for BDC launches. More recently on May 18th , a Bloomberg article delineated the BDC ambitions of Alda Capital and Oaktree Capital Management:

Oaktree Capital Management LP, in a May 11 filing to raise $125 million for a BDC that will make direct loans to companies, cited data from research firm Preqin Ltd. that U.S.-focused buyout firms are sitting on about $535 billion of “dry powder,” or uninvested capital. The private-equity firms will need debt financing to supplement their capital for leveraged buyouts, according to the Los Angeles-based firm’s filing.

Alda Capital is a more complicated story because its principal Daniel Zwim has a chequered past. All the details are in the Bloomberg piece, but we’ll quote the key paragraphs:

The flagship D.B. Zwirn Special Opportunities Fund [which Daniel Zwim managed] closed in February 2008 after investors asked to withdraw more than $2 billion. The fund had told clients in early 2007 that an internal investigation had found improper financial transfers and accounting of expenses. It took until December 2007 for an independent auditor, PricewaterhouseCoopers LLP, to report that Zwirn’s financial statements conformed to generally accepted auditing standards.

D.B. Zwirn has said it was the victim of misconduct by a former employee, and that an investigation showed the company’s actions were above reproach.

Fortress Investment Group LLC, a New York-based money manager, agreed in April 2009 to handle the liquidation of the $4 billion fund, whose assets included private-equity investments and loans to companies that had trouble obtaining financing elsewhere. Clients were repaid with interest on any money they were owed because of the audit.

The SEC last month filed a complaint against Perry Gruss, D.B. Zwirn’s former chief financial officer, alleging that he authorized $870 million in improper transfers between the Special Opportunities Fund’s onshore and offshore accounts without informing Zwirn or any of the firm’s other partners.


There may be even more BDCs getting ready for their day in the sun. (However, it’s not uncommon for a registration to get pulled. We found an old article back in 2004 about KKR’s planned BDC. Never happened. (Don’t worry they’ve done fine since). New BDCs are being minted at a pace never before seen in the relatively short history of the industry. We expect that the BDC industry may soon have close to 40 companies listed on the public exchanges, and we may soon be tracking as many as 35 companies in a wide variety of sizes, industries and strategies.

NOTE: By the way we don't track the following BDCs,either because their market capitalization and stock float are just too tiny or because they are pursuing an equity only investment strategy and do not pay a regular cash dividend as part of that policy: Harris and Harris (TINY), Capital Southwest (NASDAQ:CSWC) and Equus Total Return (NYSE:EQS).

Disclosure: I am long CODI.