Will BDCs Replace Banks for Middle Market Lending? a Wall Street Transcript Interview with Vernon C. Plack, Director of Research, Senior Analyst in the Specialty Finance Sector for BB&T Capital Market

Wall Street Transcript

67 WALL STREET, New York - December 20, 2012 - The Wall Street Transcript has just published its Business Development Companies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Decreased Bank Loan Competition - Low Corporate Credit Default Rate - Consistent BDC Dividend Yield - Stronger Middle Market Loan Origination - BDC Risk/Reward Profile - Private Middle Market Funding

Companies include: Fidus Investment Corporation (FDUS), THL Credit, Inc. (TCRD), Ares Capital (ARCC) and many others.

In the following excerpt from the Business Development Companies Report, an expert analyst discusses the outlook for the sector for investors:

TWST: How are the BDCs performing right now and what are the factors impacting their performance?

Mr. Plack: From a macroeconomic standpoint, conditions can be described as slow, yet relatively stable. This backdrop actually creates a favorable environment for the lenders to the middle market. Many companies needing capital have adapted quite well, having right-sized their infrastructure and their balance sheets. Summing all of that up equates to a pretty good lending environment and the BDCs are definitely benefiting from that.

TWST: Are we seeing an increasing awareness by investors of the BDC space?

Mr. Plack: Awareness is increasing, and we believe it will continue to grow, but this is still a very small industry with a total market capitalization of just over $20 billion. In fact, there are some public companies out there that have a larger market cap than the entire BDC industry. Given investor demand for income-oriented stocks and the need for debt capital in the middle market, the industry should continue to grow, which will increase awareness.

TWST: Are you anticipating any regulatory changes that would impact BDCs?

Mr. Plack: There are no approved regulatory changes that we are aware of that would materially impact the BDCs. However, changes to tax rates, a major issue being considered in resolving the fiscal cliff, could have an impact on investor demand for income-producing stocks. Additionally, there is pending legislation in Congress that would allow BDCs with small business investment corporation, SBIC, licenses to borrow more from the Small Business Administration, SBA, which is a positive, although limited in scope. A bill in Congress - H.R. 5929 - that could have an meaningful impact would modify the asset coverage limits from 2:1 to 1.5:1, allow preferred stock to be treated more favorably and simplify filing requirements, yet we view passage as highly unlikely anytime soon given the more pressing matters already discussed.

TWST: Who do you like right now in the space?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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