Publicly traded business development companies, or BDCs, are drawing a surge in short seller interest as investors make big bets that the quality of their underlying loan books is worse than what meets the eye.
Median short interest as a percentage of float has grown for five consecutive months to 4.5% in June from 3% in February, according to a recent analyst report from B. Riley Securities. The median number of days it takes short sellers to cover their positions — a widely used metric to determine short interest known as ‘days to cover’ — has more than doubled to 5.2 in June from the same period last year, the report said.
The surge in short interest comes as BDCs, investment funds lending to small and mid-sized private companies face regulatory probes, deteriorating quality in their underlying portfolios and a rush to pull out fund money from wealthy retail investors. As second quarter earnings approach, savvy investors are betting that already depressed share prices have more room to fall.
”The news has long since passed that they might be in trouble, so people have had time to do the work," said Greg Obenshain, the director of credit at asset...
