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BDC sector offers a great moment to put your inner contrarian to test by scooping up high-quality compounders when everyone else is selling. The discounts have fallen into 20%+ zone, and the average yield level in the sector has risen to almost 13%. These metrics look too good to be true.

The business development company, or BDC, sector faces aggressive bearish sentiment, with the market pricing in severe SaaS credit risks. Currently, we are definitely in a cyclical low, which could be the right time to buy for patient and long-term investors. However, many investors (especially conservative ones and retirees) want to remain on the sidelines and jump in back when things become less volatile.

Sixth Street Lending remains a buy for income investors despite recent net investment income and portfolio contraction. TSLX maintains strong dividend coverage, outperforming BDC peers like ARCC and OBDC, with 108.2% coverage in Q4 and 89% first lien exposure. Shares trade at a 1.07X price-to-NAV ratio, below the three-year average, reflecting sector repricing and market concerns over software loan exposure.

System-wide BDC dividend cuts are highly likely as base dividend coverage averages 99% and growth is constrained. As a result, many BDC investors have decided to sit on the sidelines until the expected dividend cuts materialize. The idea is that a cut will lead to a negative share price reaction and thus provide a better opportunity to buy at a bargain price.

Shares of Sixth Street Specialty Lending, Inc. (NYSE: TSLX - Get Free Report) reached a new 52-week low during mid-day trading on Monday after Weiss Ratings downgraded the stock from a buy (b-) rating to a hold (c+) rating. The stock traded as low as $17.91 and last traded at $17.9830, with a volume of 416912