BDC Weekly: Hercules Raises $400 Million as BDC Stocks Slide
Lenders can still raise money. Their shareholders have a harder question: how much of the income survives borrowing costs, expenses and credit losses?
October 5, 2026. Market prices through Friday, October 2; company news through Monday evening.
By The Drift Research Team
Hercules Capital raised its hand for $400 million on Monday and found buyers willing to lend. It will pay them 6.70% a year.
That is welcome access to money, with a substantial interest bill attached. Hercules must put the capital to work, cover its expenses and collect from its borrowers before shareholders can enjoy the earnings. A business development company, or BDC, is a lender with bills of its own.
The new unsecured notes carry a 6.70% annual coupon and mature in October 2029. Hercules expects the offering to close October 8, subject to customary conditions; the transaction has been priced but has not yet closed.
The announcement follows a week in which seven of the ten BDC stocks in our sample fell. We cannot attribute those declines to this new financing. Still, the contrast is useful: lenders can find funding while shareholders remain cautious about the income they will keep.
Monday also brought fresh money for data centers, through Ares Secondaries funds. That deal deserves a closer look, especially for anyone who sees the name Ares and thinks of the publicly traded BDC.
The new debt carries a $26.8 million annual coupon bill
Hercules, which trades as HTGC, lends to venture-backed technology and life-sciences companies. It expects to use the new proceeds for debt repayment, investments and other corporate purposes. The announcement does not assign every dollar to a specific use.
On the full $400 million, the coupon comes to $26.8 million a year, before issuance expenses. That assumes the principal remains outstanding for the full year. It is not necessarily $26.8 million of additional expense: if Hercules repays existing debt, some of the old interest bill goes away.
Borrow at one rate, lend at a higher one, keep the difference. The business sounds tidy when you say it quickly. In practice, cash may wait to be invested, borrowers may pay late, and loans may lose value. Operating costs take their share, too. A reported portfolio yield can include fees that will not turn up again next quarter.
The new notes fix this coupon through maturity, unless redeemed sooner. Interest charged to borrowers can move on a different timetable. If loan income falls while the financing bill stays put, less income remains for shareholders. The next earnings reports should help us see how that balance is developing.
For a fuller explanation, our BDC funding lesson follows the journey from borrowed capital to loans and investor income.
Seven BDC stocks fell last week
Our ten-company sample ended Friday with seven declines and three gains. Prospect Capital fell 8.68%, Blue Owl Capital Corporation 4.72% and Blackstone Secured Lending 4.26%. Capital Southwest rose 1.69%, Golub Capital BDC gained 0.64% and Main Street Capital was almost unchanged, up 0.02%.
The VanEck BDC Income ETF, which trades as BIZD, fell 4.57%. It is an exchange-traded fund with a different portfolio and weighting from our ten-company sample; it is not our sample's average.
These are price changes between the September 25 and October 2 closes, excluding dividends. They should not be read as total investment returns. A distribution's ex-dividend date can affect the share price, so a price decline alone does not establish deteriorating credit or explain investor motives.
Friday's 10-year Treasury yield was 5.28%, according to Federal Reserve data distributed through FRED. An income investor has a meaningful alternative to consider. A BDC may offer a larger quoted distribution yield, but its shareholder also bears borrower losses, financing risk and changes in the stock price. The extra yield comes with extra work to understand it.
The weekly price data cannot prove why investors sold. It does show that an open funding market does not automatically translate into stronger stock prices.
Which Ares fund wrote the data-center check?
Sabey and National Real Estate Advisors said Ares Secondaries funds' total investment in Sabey Data Center Properties now exceeds $500 million. The follow-on builds on a minority equity investment announced in July.
For an ARCC shareholder, the important words are Ares Secondaries funds. They made an equity investment. The announcement does not identify a loan from Ares Capital Corporation, the publicly traded BDC known as ARCC, or establish that its shareholders own this exposure.
An investment manager can operate credit, equity, real-estate and infrastructure vehicles at the same time. Its name on a deal does not tell us which balance sheet holds the asset or whether investors are earning interest, collecting rent or taking ownership risk.
Before treating a data-center announcement as part of a BDC investment story, follow the money one step further. Which fund owns the investment? Is it a loan or an ownership stake? Who gets paid first if the project struggles? Those details tell us far more than the manager's name alone.
Last week's power-delay analysis examined when infrastructure starts earning. This week's announcement adds another question: which investors actually own the financing?
What to watch in the next earnings reports
Behind these financing decisions are businesses trying to build, hire and grow. BDCs can help fund that work. For shareholders, the task is to understand whether the lender is financing it on terms that leave enough room for expenses and mistakes.
Start the September-quarter reports with the interest bill and the income left after expenses. That second figure is net investment income, or NII. Does it cover the matching distribution? How much comes from payment in kind, or PIK, where interest is added to the loan balance rather than collected in cash? NII can include PIK, so reported earnings and cash collected are not the same thing.
Next, inspect non-accruals, the loans on which the lender has stopped recognizing interest income under its accounting policy. Read both cost and fair-value measures when available. Finally, examine net asset value, or NAV, per share. A dividend can arrive on schedule while the value supporting it weakens.
Our NII coverage guide and earnings-report walkthrough explain those checks. Keep regular and supplemental distributions separate, and preserve each issuer's definitions when comparing companies.
Hercules has found buyers for its new debt. Now the attention turns to what it earns with the money. A lender's ability to borrow is useful; the income left after paying the bills is what supports the shareholder's dividend.
Quick answers
Does Hercules' 6.70% coupon predict its stock dividend?
No. It is the contractual interest rate on the new notes. The stock distribution depends on earnings, available resources and board decisions. Debt holders and shareholders have different claims and risks.
Does the Sabey announcement give ARCC direct data-center exposure?
The announcement does not establish that. It identifies Ares Secondaries funds and a minority equity investment. Direct ARCC exposure would require evidence tied to ARCC's own portfolio.
Did all BDC stocks fall last week?
No. Seven fell and three rose in our ten-company sample. The sample is not the entire BDC market, and the changes exclude distributions.
Terms used here
AI: artificial intelligence. BDC: business development company. HTGC: Hercules Capital's stock ticker. ARCC: Ares Capital Corporation's stock ticker. BIZD: VanEck BDC Income ETF's ticker. ETF: exchange-traded fund. NII: net investment income. PIK: payment in kind. NAV: net asset value. SEC: Securities and Exchange Commission. FRED: Federal Reserve Economic Data, maintained by the Federal Reserve Bank of St. Louis. Coupon: the contractual interest rate on a bond's principal. Unsecured: not backed by a specific pledge of collateral; this does not mean free of repayment obligations.
Sources and calculations
- Hercules Capital, October 5 pricing announcement distributed by Business Wire: $400 million, 6.70% coupon, October 2029 maturity, expected October 8 closing and intended proceeds uses. The October 5 SEC preliminary prospectus is preliminary; priced terms above come from the subsequent issuer announcement.
- Sabey Data Centers, October 5 announcement distributed by GlobeNewswire: Ares Secondaries funds, minority equity and total investment above $500 million. No ARCC holding is inferred.
- Federal Reserve Board via FRED, 10-year Treasury constant-maturity yield, October 2 observation: 5.28%. This is a benchmark yield, not a BDC borrowing quote.
- Yahoo Finance historical chart data: unadjusted September 25 and October 2 closing prices for BIZD, ARCC, BXSL, CSWC, FSK, GBDC, HTGC, MAIN, OBDC, PSEC and TSLX. Price change equals October 2 close divided by September 25 close, minus one; rounded to two decimals. Dividend income is excluded. The retained source record contains both closes and the retrieval URLs.
- The Drift's authenticated editorial database: October 5 recap packet 133 and evening snapshot. The packet collected SEC filings, company news, macro observations and institutional leads. Unavailable Moody's report details and unrelated promotional releases were excluded from the thesis.
- Coupon calculation: $400,000,000 x 0.067 = $26,800,000 a year before issuance expenses, assuming the full principal remains outstanding. This is not incremental net expense or a dividend forecast.
Disclosure
The Drift is published by Drift Research LLC for informational and educational purposes only. Nothing published by The Drift constitutes personalized investment advice, financial advice, tax advice, accounting advice, legal advice, or a recommendation to buy, sell, or hold any security. The Drift is not a registered investment adviser, broker-dealer, financial planner, or fiduciary. Data and calculations are derived from sources believed reliable and from methods described in the applicable source and calculation notes, but they may contain errors, estimates, rounding differences, or information that has become outdated. Readers should review the original sources and make their own assessment. All investments involve risk, including possible loss of principal. Past performance and hypothetical results do not guarantee future results. Consult qualified professionals before acting.
