Overall, CGBD had another strong performance, outperforming the sector once again with modest increases in both the net asset value (NAV) and net income.

Although there was a slight increase in non-accruals, the overall quality of the portfolio remained stable. It’s worth mentioning that CGBD has a typical business development company (BDC) portfolio profile, with a majority of their investments being first lien loans. They also have a focus on the healthcare and software sectors, which is quite common in the BDC space.

In terms of the quarterly results, total investment income increased by 4% compared to the previous quarter. Net investment income also saw a 4% increase, reaching $0.50. The company maintained its dividend at $0.37 as a base and $0.07 as a supplemental dividend, resulting in a total dividend coverage of 114% and a base dividend coverage of 135%.

The NAV experienced a 0.6% increase, primarily due to retained income. Additionally, the company continued its share buyback program to take advantage of its low valuation, contributing to a penny increase in the NAV.

Looking at the income dynamics, net new investments were slightly lower as sales and repayments exceeded new fundings. However, leverage remained stable and within the target range. The portfolio yield increased slightly due to higher base rates, along with a rise in interest expense. The yield differential between the company’s assets and liabilities was slightly below the sector median, mainly because of its above-average floating-rate liability profile.

In terms of portfolio quality, a new company, American Physician Partners, was added to non-accruals. This was primarily due to labor shortages, wage inflation, and their inability to fully pass on these costs. Although non-accruals increased slightly, the overall portfolio quality, as per internal ratings, improved slightly. It’s important to note that the addition of the new non-accrual was not surprising and was likely already factored into the portfolio rating metrics.

CGBD has performed impressively, consistently outperforming the average valuation of BDCs. Since the COVID crash, it has demonstrated strong performance, trading significantly cheaper than the sector average. Currently, CGBD is trading at a valuation 12.5% below the average BDC in their coverage.

To summarize our stance and takeaways, we initially invested in CGBD when it traded at a valuation that was more than 25% cheaper than the sector average.