Recently, the Wall Street Journal published a short piece noting that Moody’s Ratings had lowered its outlook for Business Development Companies (BDCs) from “stable” to “negative.” But I think the downgrade gives investment opportunities – in particular, with Hercules Capital Inc. (HTGC), writes Tim Plaehn, editor of The Dividend Hunter.
The article glosses over what I think are a couple of important points. BDCs come in two basic types. Publicly traded BDCs have shares listed on the stock exchanges. Investors can buy and sell shares without affecting how the companies operate.
(Editor’s Note: Tim is speaking at our 2026 MoneyShow Masters Symposium Dallas, scheduled for May 14-16. Click HERE to register.)
Hercules Capital Inc. (HTGC)
Private BDCs are managed by large financial institutions. Investments in these funds are sold through financial advisors. They are not liquid investments, and investors are made aware of the tight withdrawal limits.
“Private credit” has become a scary buzzword for investors. Both public and private BDC funds make loans to companies. What makes these loans private is that they do not trade on any markets.
Private lending loans are not easily sold or turned into cash. That is why these BDCs have strict withdrawal limits. Recently, private credit fear mongering has pushed investors to request (from private BDCs) a lot more than the allowed withdrawal limits.
This has caught the attention of the financial media, who are hoping that where there is smoke, there is fire. In this case, the actual fire would be growing default rates in the $1.5 trillion pile of private credit debt. But as I listen to BDC management teams, I don’t hear any news of higher-than-normal default rates.
I recommend you use the market’s current fears to pick up some BDCs while they’re “on sale.” HTGC, for one, is down 19% year to date. The 10% regular dividend yield is very secure, and supplemental dividends will tack a couple more percentage points to the cash return.
When private credit fears subside, I expect HTGC to trade at least 25% above its current value.
Recommended Action: Buy HTGC.
