Short sellers are beginning to unwind positions against some of the largest publicly listed US business development companies (BDCs) after a sharp selloff in the sector delivered $127m in profits over the past month, according to a report by Bloomberg citing new research by S3 Partners.
The data shows that short wagers against the ten biggest BDCs gained 8.7% in just 30 days, marking the entirety of short sellers’ year-to-date profits in the space. Total short interest across BDC stocks now stands at around $1.22bn, though positions have been easing in recent weeks, S&P Global Market Intelligence data suggests.
The retreat follows a volatile period for private credit-linked equities. The recent bankruptcies of Tricolor Holdings and First Brands Group have amplified investor concerns over credit quality and underwriting standards across leveraged lending. Those fears drove the S&P BDC Index to its lowest level in nearly three years earlier this month.
Even JPMorgan CEO Jamie Dimon weighed in, noting that many BDCs are trading at steep discounts to book value — a sign of broader anxiety around credit risk.
S3’s report said volatility could persist if more defaults emerge, but a continued decline in interest rates may lead to short covering as traders look to lock in recent mark-to-market profits.
