London, UK, 4 November 2022

Edison issues review on BioPharma Credit (BPCR)

BioPharma Credit (BPCR) is on track to deliver a strong (possibly record-high) annual NAV total return (TR) in FY22 on the back of a high investment level in H122, rising interest rates benefiting its floating rate loans, as well as healthy prepayment and make-whole fees from the early loan repayments in recent months. This has allowed BPCR to announce a US$0.045 special dividend, which implies a 12.0% dividend yield for FY22 on the current share price. The above-mentioned fees also provide BPCR with a good income runway for the re-deployment of prepayment proceeds. Since being fully invested in August 2018, BPCR achieved a net NAV TR of c 8% per year.

We estimate BPCR's cash position post recent prepayments at c 40% of NAV. BPCR has proved in the past that it is able to redeploy such a cash pile and the current market environment (lower valuations and fewer public equity raises) is supportive for BPCR. However, we note that its new investment activity will, in the short term, be limited by the requirement to hold cash for the purpose of its discount control mechanism. We calculate that post prepayments, c 70% of BPCR's senior loan portfolio (or c one-third of its NAV) will be floating rate and BPCR's preference for new investments is also likely to be floating rate (or high fixed rate). We thus believe that the significant increase in three-month Libor (now at c 4.46% vs 0.20% at end-2021), together with wider high-yield spreads, should support BPCR's targeted net NAV TR of 8-9% pa upon cash recycling.  

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