Oppenheimer's Penn: BDC payouts have improved, but credit risk is up too

Mitchel Penn, managing director of equity research at Oppenheimer & Co., says that business development companies have seen yields rising in line with higher interest rates, a trend he sees continuing while the Federal Reserve continues hiking rates. The higher rates have resulted in more credit risk with more borrowers struggling to make payments; as a result, unrealized losses at BDCs have increased, and while those setbacks remain within expected ranges this year, investors will want to watch the trend to make sure losses don't grow wildly if rates keep rising and/or remain high for several years.