Oppenheimer's Penn: 'Fairly valued' BDCs

Mitchel Penn, Managing Director of Equity Research for Oppenheimer & Co., says that business-development companies are now "fairly valued" by the market, which means that their biggest potential gains for the remainder of the year will come from simply capturing dividend payouts. In 2026, with the industry likely facing interest rate cuts, BDCs will see their return on equity shrink in line with rate declines, saying that for every 1% cut in rates, BDC payouts would be expected to shrink in step. In an interview from AICA's BDC Forum in June, Penn noted that he was worried about a spike in credit losses that BDCs experienced in the first quarter of 2025; he said that pressure has passed, dramatically reducing his concerns about the potential for BDCs to disappoint investors.