In the latest quarter, CGBD performed well, with net income (adjusted for one-off events) experiencing a 9% increase. However, the net asset value (NAV) saw a slight decline of 1%, resulting in a total NAV quarterly return of +1.6%. Despite this small dip, CGBD managed to outperform the sector, and it’s worth noting that the stock is currently trading at a wide discount to book.

Due to the recent drop in the BDC sector, we decided to switch the stock’s rating back to Buy. This decision was influenced by CGBD’s strong performance and attractive valuation compared to its peers.

Looking closer at the quarterly update, both GAAP and adjusted net income fell, but when we exclude the impact of a one-off income event in Q3, net income actually rose by a solid 9%. The dividend remained unchanged, with the base dividend ticking up by 1 cent while the supplemental dividend decreased by 1 cent, resulting in a balanced outcome.

It’s worth mentioning that the base dividend has returned to its initial IPO level, and the total dividend is now higher by 19%. In terms of dividend coverage, CGBD maintained a strong 109% coverage ratio for the first quarter.

The NAV experienced a 1% decline, mainly due to unrealized depreciation. However, there was some positive news as well, with $7.3 million of share repurchases contributing to a $0.04 NAV accretion. In 2022, the NAV actually grew by approximately half a percent, which is quite impressive given the challenging market conditions.

Moving on to income dynamics, CGBD reported positive net new investments, with new originations surpassing sales and repayments. Management described the investment environment as lender-friendly, indicating their ability to allocate capital to attractive deals.

In terms of leverage, CGBD’s net financial leverage ticked up to 1.16x due to ongoing share buybacks and positive net new investments. This level of leverage is in line with the broader sector, so nothing extraordinary there.

The portfolio yield showed a significant jump to 11.4%, but it’s important to note that the interest cost also increased, reaching 5.8%. CGBD carries a relatively high interest cost due to a substantial amount of floating-rate debt, which is roughly double the sector average. Consequently, the company’s net income beta is on the lower side, reflecting a +7.4% response to a 1% rise in short-term rates, which is about 3% below the sector average.

Looking at portfolio quality, there was a non-accrual addition from PPT Management, a healthcare facilities company. Total non-accruals by fair value increased to 2.9%, which is approximately double the sector average. However, overall portfolio quality, as per internal ratings, only slightly worsened.

In terms of realized gains and losses, CGBD reported a flat performance. However, over the past couple of years, the portfolio has generated net gains, which is definitely a positive sign.

CGBD has put together an impressive performance, outperforming the sector by 2.5% per annum over the last three years in terms of total NAV, and by 1.5% per annum over the median BDC.