Five BDCs With Rising Short Activity Symbols: MRCC

The most recent short interest data has just been released for the 02/15/2019 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 01/15/2019 reporting period, then the most recent 02/15/2019 reporting period, followed by the change and percentage change:

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At Monroe Capital Corporation, average daily volume at the 02/15/2019 settlement saw a decrease to 84,514, as compared to 191,994 at the 01/15/2019 report. That brought days to cover up to 7.41, a 137.07% increase from the 3.13 days to cover calculated at the 01/15/2019 settlement date. Looking at total shares short, there was a 26,125 share increase to 626,139, a rise of 4.35% since 01/15/2019. The below chart shows the historical days to cover for MRCC at previous short interest release dates:

Meanwhile at Golub Capital BDC Inc, average daily volume at the 02/15/2019 settlement moved lower to 196,386, as compared to 280,182 at the 01/15/2019 report. That brought days to cover up to 9.17, a 70.48% increase from the 5.38 days to cover calculated at the 01/15/2019 settlement date. Looking at total shares short, there was a 293,867 share increase to 1,801,524, an increase of 19.49% since 01/15/2019. The chart below shows the historical days to cover for GBDC at previous short interest release dates:

Over at Gladstone Capital Corporation, average daily volume at the 02/15/2019 settlement decreased to 136,708, as compared to 151,456 at the 01/15/2019 report. The resulting days to cover value was up to 5.14, a 40.45% increase from the 3.66 days to cover calculated at the 01/15/2019 settlement date. Looking at the running total of all outstanding shorted shares, there was a 148,289 share increase to 702,183, a 26.77% increase since 01/15/2019. The below chart plots the historical days to cover for GLAD at prior short interest release dates over time:

At Blackrock Capital Investment Corporation, average daily volume at the 02/15/2019 settlement declined to 208,747, as compared to 393,375 at the 01/15/2019 report. The days to cover calculation moved up to 2.63, a 115.13% increase from the 1.22 days to cover calculated at the 01/15/2019 settlement date. Looking at the total of all open short positions, there was a 68,111 share increase to 549,121, a 14.16% rise since 01/15/2019. The chart below shows the days to cover over time for BKCC at previous short interest release dates:

And at Capital Southwest Corporation, average daily volume at the 02/15/2019 settlement decreased to 63,837, as compared to 103,207 at the 01/15/2019 report. That brought days to cover up to 2.07, a 185.40% increase from the 0.73 days to cover calculated at the 01/15/2019 settlement date. Looking at total shares short, there was a 57,329 share increase to 132,239, an increase of 76.53% since 01/15/2019. The following chart plots the historical days to cover for CSWC 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 Thursday, MRCC was down about 0.9% on the day, GBDC was down about 0.5%, GLAD was up about 0.5%, BKCC was off about 0.1%, and CSWC was off about 1%.