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Five BDCs With Rising Short Activity

By Dividend Channel Staff, Tuesday, February 13, 12:46 PM ET

The most recent short interest data has just been released for the 01/31/2018 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 12/29/2017 reporting period, then the most recent 01/31/2018 reporting period, followed by the change and percentage change:

PSECTPVGARCCCMFNTCPC
12/29/20178.880.781.001.001.00
01/31/201815.251.601.651.591.55
Change6.380.820.650.590.55
% Change71.84%105.17%64.86%58.96%54.98%

At Prospect Capital Corporation (NASDAQ:PSEC), average daily volume at the 01/31/2018 settlement saw a decrease to 2,112,550, as compared to 3,620,207 at the 12/29/2017 report. That brought days to cover up to 15.25, a 71.84% increase from the 8.88 days to cover calculated at the 12/29/2017 settlement date. Looking at total shares short, there was a 88,994 share increase to 32,218,623, a rise of 0.28% since 12/29/2017. The below chart shows the historical days to cover for PSEC at previous short interest release dates:

Meanwhile at Triplepoint Venture Growth BDC Corp (NYSE:TPVG), average daily volume at the 01/31/2018 settlement moved lower to 54,859, as compared to 97,828 at the 12/29/2017 report. That brought days to cover up to 1.60, a 105.17% increase from the 0.78 days to cover calculated at the 12/29/2017 settlement date. Looking at total shares short, there was a 11,477 share increase to 87,713, an increase of 15.05% since 12/29/2017. The chart below shows the historical days to cover for TPVG at previous short interest release dates:

Over at Ares Capital Corporation - Closed End Fund (NASDAQ:ARCC), average daily volume at the 01/31/2018 settlement decreased to 1,773,010, as compared to 2,313,188 at the 12/29/2017 report. The resulting days to cover value was up to 1.65, a 64.86% increase from the 1.00 days to cover calculated at the 12/29/2017 settlement date. Looking at the running total of all outstanding shorted shares, there was a 1,397,054 share increase to 2,922,968, a 91.56% increase since 12/29/2017. The below chart plots the historical days to cover for ARCC at prior short interest release dates over time:

At CM Finance Inc (NASDAQ:CMFN), average daily volume at the 01/31/2018 settlement declined to 28,516, as compared to 53,645 at the 12/29/2017 report. The days to cover calculation moved up to 1.59, a 58.96% increase from the 1.00 days to cover calculated at the 12/29/2017 settlement date. Looking at the total of all open short positions, there was a 5,319 share increase to 45,328, a 13.29% rise since 12/29/2017. The chart below shows the days to cover over time for CMFN at previous short interest release dates:

And at TCP Capital Corp. (NASDAQ:TCPC), average daily volume at the 01/31/2018 settlement decreased to 173,674, as compared to 280,220 at the 12/29/2017 report. That brought days to cover up to 1.55, a 54.98% increase from the 1.00 days to cover calculated at the 12/29/2017 settlement date. Looking at total shares short, there was a 31,540 share increase to 269,166, an increase of 13.27% since 12/29/2017. The following chart plots the historical days to cover for TCPC 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, PSEC was up about 0.6% on the day, TPVG was up about 1.6%, ARCC was up about 2.2%, CMFN was up about 0.3%, and TCPC was down about 0.4%.


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