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Five BDCs With Rising Short Activity

By Dividend Channel Staff, Tuesday, June 12, 1:43 PM ET
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The most recent short interest data has just been released for the 05/31/2018 settlement date, and we here at BDC Investor have sifted through this fresh data and screened out these five BDCs. A metric we find particularly useful when comparing short interest data is the "days to cover" metric because it considers both the total shares short and the average daily volume of shares traded. For the five BDCs below, we have detected a notable change in days to cover, not just from the prior reporting period but also going back a full month. The table below summarizes what we found, with the five columns showing data for each of the five BDCs, and the rows showing the days to cover values first from the 04/30/2018 reporting period, then the most recent 05/31/2018 reporting period, followed by the change and percentage change:

NMFCTCRDARCCHTGCSAR
04/30/20181.021.391.951.410.29
05/31/20181.521.622.151.550.42
Change0.510.230.200.130.13
% Change49.82%16.49%10.13%9.26%44.45%

At New Mountain Finance Corp (NYSE:NMFC), average daily volume at the 05/31/2018 settlement saw a decrease to 168,391, as compared to 212,664 at the 04/30/2018 report. That brought days to cover up to 1.52, a 49.82% increase from the 1.02 days to cover calculated at the 04/30/2018 settlement date. Looking at total shares short, there was a 40,263 share increase to 256,362, a rise of 18.63% since 04/30/2018. The below chart shows the historical days to cover for NMFC at previous short interest release dates:

Meanwhile at THL Credit Inc (NASDAQ:TCRD), average daily volume at the 05/31/2018 settlement moved higher to 93,397, as compared to 92,950 at the 04/30/2018 report. That brought days to cover up to 1.62, a 16.49% increase from the 1.39 days to cover calculated at the 04/30/2018 settlement date. Looking at total shares short, there was a 22,048 share increase to 151,389, an increase of 17.05% since 04/30/2018. The chart below shows the historical days to cover for TCRD at previous short interest release dates:

Over at Ares Capital Corporation (NASDAQ:ARCC), average daily volume at the 05/31/2018 settlement increased to 1,715,735, as compared to 1,354,588 at the 04/30/2018 report. The resulting days to cover value was up to 2.15, a 10.13% increase from the 1.95 days to cover calculated at the 04/30/2018 settlement date. Looking at the running total of all outstanding shorted shares, there was a 1,042,064 share increase to 3,680,502, a 39.50% increase since 04/30/2018. The below chart plots the historical days to cover for ARCC at prior short interest release dates over time:

At Hercules Technology Growth Capital (NYSE:HTGC), average daily volume at the 05/31/2018 settlement rose to 298,424, as compared to 291,539 at the 04/30/2018 report. The days to cover calculation moved up to 1.55, a 9.26% increase from the 1.41 days to cover calculated at the 04/30/2018 settlement date. Looking at the total of all open short positions, there was a 48,808 share increase to 461,146, a 11.84% rise since 04/30/2018. The chart below shows the days to cover over time for HTGC at previous short interest release dates:

And at Saratoga Investment Corp New (NYSE:SAR), average daily volume at the 05/31/2018 settlement increased to 19,480, as compared to 8,865 at the 04/30/2018 report. That brought days to cover up to 0.42, a 44.45% increase from the 0.29 days to cover calculated at the 04/30/2018 settlement date. Looking at total shares short, there was a 5,544 share increase to 8,094, an increase of 217.41% since 04/30/2018. The following chart plots the historical days to cover for SAR at previous short interest release dates over time:

An increased "days to cover" value could indicate that short sellers are using these BDCs to hedge long bets on other BDCs or elsewhere, or could also mean that short sellers believe the stocks will decline in price. When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. So investors tend to keep an eye on that days to cover metric, because a high value could predict a sharper price increase should a company put out some unexpectedly good news short sellers might then rush to cover their positions, and if the days to cover number is high, it would then be more difficult to close those positions without sending a stock higher (until the higher price produces enough sellers to generate the necessary volume the short sellers need to close their positions).

In afternoon trading Tuesday, NMFC was down about 1.1% on the day, TCRD was up about 0.8%, ARCC was off about 0.3%, HTGC was down about 1.9%, and SAR was down about 0.7%.


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