BioPharma Credit (BCPR)

Biopharma Credit (BPCR) operates in a specialised niche which allows it to generate a high yield from a non-cyclical growth industry. Managers Pedro Gonzalez de Cosio, Pablo Legoretta and Martin Friedman make loans to companies in the biotechnology industry secured against cashflows from approved new products. These privately arranged loans generate very high rates and also bring returns over and above this when, as is usually the case, they are repaid early.

BPCR targets a dividend of 7 cents a share supplemented by variable special dividends, and has hit this target each full year since launch in 2017. The ordinary dividend target would deliver a yield of 7.5% on the share price, but including specials at last year’s level would bring this up to 10%. The yield is achieved without gearing up the portfolio. Shareholders can elect to receive dividends in sterling.

The trust targets a NAV total return of 8-9%, and returns have been in line with this over the long run (see Performance). BPCR has delivered returns well ahead of the US high yield or leveraged loan indices over the past five years. Last year saw NAV total returns of 12.7% in USD, although currency gave some of that back.

A large prepayment in December gave a short-term boost to returns but means that there is the highest cash weighting in the portfolio since 2020. A new floating rate loan to Zenas with an effective floor of 9% will see some of that cash put to work, but drawdown of the first tranche will still leave more than 25% in cash.

Like many yielding investments, BPCR’s Discount has steadily narrowed as US rates have come down, but it trades at a 7% discount at the time of writing, wider than the board’s 5% target.