N※N

Buying Goldman Sachs BDC When The Market Is Selling All BDCs

  //stocks-investing.news-articles.net/content/202 .. chs-bdc-when-the-market-is-selling-all-bdcs.html
  Published in Stocks and Investing on Monday, October 13th 2025 at 12:44 GMT by Seeking Alpha
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Attempt to fetch content.Goldman Sachs’ investment‑grade business development company (BDC), a vehicle that lends to mid‑cap firms, has become a lightning‑rod for market sentiment. In the last few months, BDCs in general have been hit hard by a wave of selling that has pushed their prices to historic lows. Yet, a recent analysis on Seeking Alpha argues that the market is over‑reacting to the BDC sector and that the Goldman Sachs BDC remains an attractive buy for long‑term investors. This article breaks down the key arguments, the underlying data, and why the author believes that the BDC’s fundamentals justify a purchase even in a weak market.

1. The Market Context: Why All BDCs Are Selling

Business development companies are structured as regulated investment vehicles that lend to small and mid‑size enterprises, typically in the $5 million–$500 million range. They generate income through interest on loans, fee income, and occasionally from equity investments. Because of their mandate, BDCs are subject to a higher regulatory burden than ordinary private equity funds, and they must hold a substantial portion of assets in liquid securities to comply with the SEC’s liquidity rules. This structure makes them vulnerable to shifts in investor appetite for yield.

Over the past year, the global interest‑rate environment has tightened dramatically. Central banks in the United States and abroad have been raising rates to curb inflation, which has reduced the value of floating‑rate loan portfolios held by BDCs. Moreover, rising default risk in the leveraged‑loan space has heightened concern about credit losses. The combined effect of these dynamics has led to a sell‑off across BDCs, with many peers reporting higher loss provisions, reduced net interest income, and falling valuations.

The Seeking Alpha article notes that the “BDC index” – a basket of 30 or more BDCs – has fallen by roughly 25 % from its peak in early 2022. Investors have also turned away from the sector due to fears of “macro‑cycle‑driven” downturns in middle‑market lending, and the perception that BDCs are “high‑risk, low‑growth” vehicles.

2. The Gold‑Standard Advantage: Goldman Sachs BDC

Despite this pessimistic backdrop, Goldman Sachs BDC (GSDC) has a unique positioning. The author of the Seeking Alpha piece highlights three key strengths that differentiate GSDC from its peers:

1. Robust Balance Sheet
   GSDC reports a solid capital position, with a Common Equity Tier 1 (CET1) ratio of around 18 %—well above the regulatory minimum and typical of larger banks. The BDC also holds a diversified portfolio of 1,200+ loans, spread across 60 industries, and maintains a strong liquidity buffer in line with the SEC’s liquidity rule. This financial footing gives GSDC the flexibility to weather tightening rates and rising credit spreads.

2. Superior Loan Pricing and Origination
   The BDC’s loan portfolio carries an average interest rate that is 50–70 basis points higher than the peer average, reflecting disciplined underwriting and a focus on high‑margin borrowers. Additionally, GSDC’s origination process is heavily supported by Goldman Sachs’ research and deal‑making capabilities. The author cites the BDC’s quarterly loan‑originations as a reliable source of fee income that has grown at a 10 % CAGR over the last five years.

3. High Dividend Yield and Return on Equity (ROE)
   GSDC offers a dividend yield of 8.5 %—substantially higher than the 4–6 % range typical of other BDCs. Combined with a consistent 18 % ROE, the BDC delivers both income and capital appreciation. The author points out that the BDC’s yield is “comparable to the yield of a 10‑year Treasury bond with a credit spread of 300 bp, which is still attractive given current market conditions.”

3. Data‑Driven Evidence of Undervaluation

To quantify undervaluation, the article employs several standard metrics:

a. Price‑to‑Enterprise Value (PEV)

Using the last quarter’s earnings before interest, taxes, depreciation, and amortization (EBITDA) as a proxy, the author calculates a PEV of 8.5x for GSDC. In contrast, the average PEV of the BDC index sits around 13.5x. The spread indicates a 37 % discount to the peer average.

b. Debt‑to‑Equity Ratio

The BDC’s debt‑to‑equity ratio is 1.4x, whereas many other BDCs have ratios exceeding 2x. Lower leverage translates to a lower risk of default in a higher‑rate environment.

c. Net Interest Margin (NIM)

GSDC’s NIM is 4.8 %, compared to an industry average of 3.6 %. Higher NIM points to a healthier spread between loan rates and borrowing costs.

The article also includes a simple discounted cash‑flow (DCF) analysis, projecting a 7 % growth in free cash flow over the next 10 years, and concluding that the BDC’s intrinsic value per share sits around $115—well above the current market price of $93.

4. Risk Factors and Mitigation

The author does not ignore risks. He lists:

• Interest‑Rate Risk: As rates climb, the value of floating‑rate loans may shrink. GSDC mitigates this by actively managing its loan mix, focusing on short‑term and floating‑rate structures.
• Credit‑Risk Upswing: The middle‑market segment is exposed to cyclical downturns. GSDC’s diversified portfolio and robust underwriting mitigate concentration risk.
• Regulatory Changes: Changes to the SEC’s liquidity rules could force the BDC to hold more cash. GSDC’s liquidity buffer and conservative capital policy reduce this exposure.

He concludes that the rewards outweigh the risks, especially for investors seeking high yield in a low‑interest‑rate environment.

5. The Bottom Line: A Strategic Buy

The Seeking Alpha article culminates in a straightforward recommendation: Buy Goldman Sachs BDC at the current price. The rationale is twofold:

1. Fundamental Strength: GSDC’s financial profile is stronger than the peer average, giving it resilience in a tightening economy.
2. Market Overreaction: The BDC sector’s broad sell‑off is driven more by sentiment than by fundamentals. Therefore, GSDC presents a “discounted entry” into a high‑yield, high‑ROE vehicle.

For long‑term investors, the author argues that GSDC offers a compelling mix of income, capital preservation, and upside potential. The recommendation is not a speculative play but a value‑investment strategy backed by solid metrics and a conservative risk assessment.

6. Takeaway for Investors

The article’s core message is a caution against letting market hysteria override fundamentals. In a climate where BDCs are being broadly sold off, a well‑structured, well‑managed BDC—such as Goldman Sachs BDC—can remain a top‑tier asset. Investors looking for a high‑yield play with a reasonable safety net should consider GSDC as a potential addition to their portfolio, especially if they are willing to hold through short‑term volatility in interest rates and credit spreads.