4 BDC Execs Say This Will Drive Earnings Growth

Secondly, mergers and acquisitions allow for companies to generate fee income. BDCs don’t hold every slice of every debt investment they make. Much of it is carved up and sold on the syndicated market to investors ranging from hedge funds to other private equity companies. Those sales create origination fees and gain-on-sale revenue. You can think of the fees like the money banks make by selling mortgages to Fannie Mae and Freddie Mac.

Lastly, M&A helps a BDC grow and make use of scale to drive profits. Many BDCs report that their transaction volume has been from the repricing — or refinancing — of existing loans, which doesn’t grow the industry as a whole.

Will mergers and acquisitions play out? It’s really anyone’s best guess. But with rates on the rise, companies will have to act quickly to lock in low financing costs. That could be the catalyst for the next BDC boom.

The article 4 BDC Execs Say This Will Drive Earnings Growth originally appeared on Fool.com and is written by Jordan Wathen.

Fool contributor Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Google. The Motley Fool owns shares of Google and Microsoft. 

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