Hi Brett, how’s work going?

“Awful,” she admitted. “But we are a start-up. If we can improve it terrible Simply badHe will be a great teacher for us.”

That was before one economic crash, in 2008. I had just quit my “day job” to start my first company. In a sign of this, the Great Recession is upon us.

But the bleak economic background did not matter. In fact, it was a file pond. The recession is actually Best Time To start and grow companies.

As a startup with no money, we were able to pool our limited resources together to launch the company. Our activity pennies and nickels in return bought more than they would have in a hot economy. The Great Recession – devastating to some companies – was a springboard for an opportunistic and aggressive company like ours.

Thirteen years later, the software company serves an ever-growing base of customers. (without Strategize your income these days. I sold my founding stake years ago to focus on finding profits for our like-minded contrarians!)

In early 2009, Inc Magazine featured our fundraising story. Or the lack of it – it featured prominently on my credit cards! I keep a framed copy on the wall, next to my professionally commissioned artwork, to remind me of the importance of sluggish “respect” and the value of being aggressive when competitors lag behind.

You don’t have to lecture a single 8.2% on granules. Throughout 2020, when most of their competitors were quietly shrinking away from deals, this “power lender” climbed onto the plate and gained market share.

In fact, CEO Kipp DeVeer recently stated:

"We believe that many of our competitors have not been open to business during the pandemic, and market participants have noted that we have been very active throughout this period."

Kipp's team Ares Capital (ARCC) Take market share. ARCC is a business development company (BDC). It was already the largest BDC in the block. I submitted the case before ARCC was also a file poor (That way bad is good) after showing the nerve to open up in a year when its competitors were essentially closed off.

ARCC is a "favorite of the rich" because it pays too much, and bullies its competitors.

However, it's not the only BDC that pays a lot. Are others worth thinking about?

Let's take a look at a few potential gems in this space: a combination of three micro-purses yielding between 8.7% and 10.7%.

Golub Capital BDC (GBDC)

Profitable Return: 8.7%

Let's start with Globe Capital (GBDC)Ltd., which provides a number of financing solutions, largely debt and minority investments, primarily to companies backed by private equity sponsors.

The vast majority of its loans are primary: 84% are "one-stop-shop" loans, and 10% are other conventional debt. Another 5% is equity, with 1% being start-up debt. And from this debt, 100% is a floating rate, which helps him to take advantage of the current high interest rate environment in his favour.

GBDC is a well-diversified BDC as well, spanning dozens of industries, although it's fatter in some than others. Software is the largest segment at 24%, but every other industry — including healthcare providers, specialty retail, and insurance — is made up of the single digit.

Golub Capital BDC's last quarter was strong again -- earnings rose and better than expected, credit quality remained strong, and while book value fell, it underperformed than analysts had expected.

More importantly, investors continue to undervalue GBDC. The stock is down 12% this year -- below the BDC average -- but is now trading for just 90% of NAV. This is convincing, as is nearly a 9% return at current prices.

The big question I have: When will his potential finally turn into a superior performer?

TriplePoint Venture Growth BDC

Profitable Return: 10.7%

TriplePoint Venture Growth BDC (TPVG) Similar to Golub, but "smaller". That is, instead of investing in PE-backed companies, it invests in companies backed by venture capital at the project's growth stage. It does this primarily through guaranteed growth capital loans.

As the name suggests, its portfolio primarily focuses on technology, life sciences, and other high-growth industries. In fact, its current portfolio includes some relatively well-known names among startups, including electric toothbrush maker Quip, fintech company Revolut and T-shirt maker Untuckit.

This focus on growth has served TPVG well for years, resulting in a clear outperformance against the broader BDC industry.

However, several things about TriplePoint Venture Growth make me hesitant, at least for this moment in time.

First, TPVG is not nearly in a good position to take advantage of higher interest rates; Less than 60% of its loans are currently at a floating rate.

Nor is it nearly the play value that GBDC represents. TriplePoint's recent investor presentation showed that the company has been trading at a premium to its peers over the past two years, based on book price. Currently, it's priced at 1.02/NAV — fairly rated at best.

Credit quality is also an issue here. Last quarter, one of its investments, Pencil and Pixel, was put on a non-cumulative basis and was written down significantly. This raised its non-accrual receivables to 5.1% of the portfolio at cost.

TPVG might be worth considering a better valuation, but it's hard to justify in this interest rate environment at current rates.

Pennant Park Floating Capital (PFLT)

Profitable Return: 9.3%

Pennant Park Floating Capital (PFLT) It invests primarily in companies owned by middle-market private equity sponsors who typically back their portfolio companies. Portfolio companies typically generate between $10 million and $50 million in annual EBITDA. The portfolio currently represents 123 companies spanning 45 industries.

PFLT deals primarily in secured debt with 1st mortgage (87%), with another 13% in preferred and common stock. As the name suggests, every last cent of this debt portfolio is an inherently floating rate – something I suggested that would serve PFLT well in 2022. (And it was!)

As I said in March:

“A more aggressive Pennant Park and a friendlier interest rate environment makes analysts much more optimistic about PFLT's ability to continue writing its earnings checks. That makes it a safer game — at least as long as the hawks take charge at the Fed.”

It also mentioned that PFLT has increased its investment in a joint venture with a Kimber Airport (KMPR) Subsidiary - This and the increased rates have helped improve the return on its portfolio.

Credit quality is also heading in the right direction thanks to a loan to Marketplace Events that was returned to maturity, bringing the non-cumulative interest rate down to just 0.9%.

A high 9.3% dividend yield - paid monthly, no less - sweetens the pot. It almost trades NAV, though, so it could be a little cheaper.

Brett Owens is Chief Investment Strategist at dissenting look. For more great income ideas, get a free copy of his latest special report: Your Early Retirement Portfolio: Huge Profits - Every Month - Forever.

Disclosure: none