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Screen bdc quality income

Date: 2026-07-14 | Criteria: Quality BDCs for income — coverage, NAV discipline, credit quality | Scout + Fundamentals | Live prices via Public.com Prior run: screen-bdc-peer-arcc-2026-04-08.md — this refreshes it 3 months on and adds three names not covered then (TRIN, TSLX, CSWC).

⚠️ Data note: Yahoo Finance MCP was offline this session. Prices are live (Public.com); NAV/NII-coverage figures are from Q1 2026 filings + web. roic FCF is meaningless for BDCs (negative = normal lending outflow) so it's excluded. Treat NAVs marked ~ as approximate — verify at entry.

Macro Context — The BDC Backdrop Has Eased Slightly Since April

The April screen was written into a BDC panic (record 9.2% private-credit default rate, -40% fundraising, dividend cuts cascading). H2 2026 is calmer but not clear:

  • Fed has cut ~175bps off the 2023 peak → funds rate 3.50–3.75%. This is the core headwind: floating-rate NII compresses as base rates fall. Every BDC's forward yield is under mild pressure.
  • Credit stress localized, not systemic — the weak names (FSK, MFIC, PSEC) kept cutting; the disciplined names (ARCC, MAIN, TSLX) held NAV and coverage.
  • Selection still beats sector. Same conclusion as April: this is a stock-picker's asset class right now, not a "buy the ETF" moment.

Universe Screened (live 2026-07-14)

Ticker Company Price ~NAV/TBVPS P/NAV Yield NII Coverage Mgmt Verdict
MAIN Main Street Capital $53.15 ~$33.2 1.60x (prem) 5.4%+specials ~1.40x Internal ✅ Gold standard ()
TSLX Sixth Street Specialty $17.15 ~$17.2 ~1.0x ~9.5%+specials ~1.1x External (disciplined) ✅ New Tier 1
ARCC Ares Capital $18.83 ~$19.9 0.94x (disc) ~10.2% ~1.05–1.25x External (Ares) ✅ Core anchor ()
TRIN Trinity Capital $17.75 $13.27 1.34x (prem) ~12% 1.04x Internal ⚠️ Growth+income, but priced
CSWC Capital Southwest $24.00 ~$16.6 ~1.45x (prem) ~10–11% ~tight Internal ⚠️ Quality, rich
HTGC Hercules Capital $16.20 ~$12.1 1.34x (prem) ~12% ~1.02x External ⚠️ Tech niche, priced
BXSL Blackstone Sec. Lending $23.62 ~$26.9 0.88x (disc) ~12% <1.0x (GAAP) External (BX) ⚠️ Watch coverage
OBDC Blue Owl Capital $10.99 $14.41 0.76x (disc) ~11% 1.0x post-cut External ⚠️ Discount play only (analyzed 7/14)
GBDC Golub Capital $13.01 ~$15.1 0.86x (disc) ~11% <1.0x External ❌ No differentiator
FSK FS KKR $10.89 ~$20.9 0.52x (disc) ~22% Unclear External ❌ Yield trap
PSEC Prospect Capital $2.27 ~$7 ~0.32x (disc) high Chronic under-cover External ❌ Serial cutter, avoid

Filtered Shortlist

✅ TIER 1 — Own These

A portfolio-specific passage was removed from the public build.

#2 — TSLX | Sixth Street Specialty Lending — new to the screen; quality operator, but see the correction below. - $17.15. Sixth Street is one of the most disciplined underwriters in the space — best-in-class non-accruals (0.6% FY2025 vs ARCC 1.0%), Moody's Baa2 investment-grade, ROE ~11.9%. - ⚠️ CORRECTED after full /analyze (2026-07-14): this line originally called TSLX "at NAV / best new idea." That used stale FY2025 annual NAV. Q1 2026 actuals: NAV fell -4.3% to $16.24, NII missed at $0.42, and the base dividend was cut $0.46→$0.42. At $17.15 that's a ~5% premium to a falling NAV, not a discount. Verdict downgraded to [6.5] WATCH — quality-at-fair-price, buy on a pullback to ~$15 (≈0.92x NAV), don't chase here. See analyze-2026-07-14.md.

#3 — ARCC | Ares Capital — core anchor, add on weakness. - $18.83, ~5.6% NAV discount, ~10.2% yield, lowest non-accruals (~1%), largest/most diversified book with Ares' credit engine behind it. Coverage stable ~1.05–1.25x. - ** — but position is trivially small (~1 sh). This is the DCA-into-weakness name; any dip toward $17–18 is a clean add.

⚠️ TIER 2 — Quality but Priced / Conditional

  • TRIN | Trinity Capital ($17.75) — The interesting new name. Venture-debt + equipment financing to tech; NII grew 37% YoY, $0.53 NII vs $0.51 dividend = 104% coverage, 24 straight quarters of maintained/raised dividend, now monthly. But it trades at a 34% premium to $13.27 NAV — you pay up like MAIN/HTGC without MAIN's decade-plus track record, and the ~12% yield leans on equity/warrant gains that are lumpier than pure spread income. Growth+income profile is genuine; valuation isn't a bargain. Wait for a pullback toward NAV+15% (~$15) or a proven coverage cushion. Watch, don't chase.
  • CSWC | Capital Southwest ($24.00) — Internally managed lower-middle-market lender, well-run, ~10–11% yield. Also trades at a meaningful premium (~1.45x ~$16.6 NAV) and has leaned on ATM equity issuance. Quality, but no margin of safety here.
  • HTGC | Hercules ($16.20) — Unchanged thesis: unique venture/tech-lending niche, growing EPS, but 34% NAV premium and tight ~1.02x coverage. Starter-only, and TSLX is the cleaner expression of "quality external BDC."
  • BXSL | Blackstone ($23.62) — 99% senior-secured, ~12% discount to NAV, but GAAP EPS was declining and coverage sits below 100% on GAAP. Watch Q2 print for dividend confirmation before touching.

❌ TIER 3 — Avoid

  • OBDC (0.76x NAV) — already analyzed 7/14: [6.0], discount-harvest only, not an upgrade over MAIN/ARCC.
  • GBDC — discount without a differentiator.
  • FSK (0.52x NAV, 22% yield) — textbook yield trap.
  • PSEC ($2.27) — chronic under-coverage and serial dividend cutter. Hard pass.

How This Changes the Watchlist

Current BDC/Income sleeve: MAIN [7.5] , ARCC , OBDC [6.0] watch.

Recommended action: 1. Add TSLX to watchlist [—, pending /analyze] — the one genuinely new quality idea. Clean book at ~NAV with real excess-spread coverage; a better "second BDC" than OBDC's discount bet. 2. Add TRIN to watchlist [—] as a WATCH-on-pullback — best growth+income profile in the group, but only interesting nearer NAV (~$15), not at today's 34% premium. 3. Hold the line on MAIN/ARCC — no thesis change. MAIN in add zone $50–54 (now $53.15); ARCC add $17–18.50. 4. Sizing: keep total BDC exposure 3–6% of portfolio. MAIN core + ARCC anchor + one satellite (TSLX preferred over OBDC) is the clean structure.

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