NMFC: The BDC raised $50mn in 2023 unsecured notes from an institutional investor at 5.36%, which included two special covenants. Also its Revolver was amended to allow a 1.5x debt to equity. The BDC Reporter adds: After receiving shareholder approval to adopt the higher leverage allowed under the Small Business Credit Availability Act, NMFC is adding unsecured debt to an already leveraged balance sheet. In this case, NMFC is adding 5 year unsecured debt at the sort of rate you'd expect for a $2bn BDC. However, the conditions required by the institutional investor are a reminder that creditors have justifiable concerns. Here are the two main conditions: "a requirement that the Company not exceed a debt-to-equity ratio of 1.65 to 1.00 at the time of incurring additional indebtedness and a requirement that the Company not exceed a secured debt ratio of 0.70 to 1.00 at any time". No word on how the rating agencies are treating this new debt as yet.
WHF: In an SEC filing WHF announced all $30mn of its Baby Bond with the ticker WHFBL would be redeemed on August 9, 2018. The BDC Reporter adds: In the BDC Fixed Income Table we'd rated the chances of WHF paying off its Baby Bond early as High given that the no redemption period was long past and the BDC can probably refinance the unsecured notes at 0.5% or more cheaper. Nonetheless, with all the BDC talk about higher leverage, we wondered if WHF might hold onto the Baby Bond, which does not mature till July 2020 a wee longer. WHF has not yet opined on whether it intends to increase its leverage so we are in the dark about plans for long term leverage of the balance sheet. Anyway, this news was a shock to WHFBL's stock price, which dropped over $0.30 in the seconds after the announcement. With WHFBL's departure, the BDC Reporter's universe of Fixed Income issues (not all are Baby Bonds) will drop back to 37 from August 9.
PSEC: The BDC filed a prospectus regarding the issuance of unsecured "Inter Notes" with 5, 8 and 10 year maturities. The BDC Reporter adds: Yet another insight into market rates for unsecured debt from an investment grade BDC with a following amongst retail debt investors. 5 year money is at 5.0%, 8 year money (a rarely used length) is at 5.75% and 10 years at 6.0%. Add a 0.25% per annum placement cost to those numbers. Smaller BDCs which are trying to take advantage of the higher leverage rules allowed by the Small Business Credit Availability Act are likely to have to pay a premium of 1.0% or more greater than PSEC. Issues are likely to be for 5 years (the preferred maturity) and cost all-in (including transaction costs) 6.25%-7.5% in most cases. That's a pretty good rate for debt investors, less exciting for BDC shareholders who will struggle for much in the way of accretive earnings and (as always) great for External Managers who maintain unchanged fees tied to asset size and earnings.
PSEC: Continuing a dizzying series of issues and repayments PSEC issued 2023 unsecured notes with a yield of 5.0% and 2025 Notes at 5.5%. The BDC Reporter adds: Worth reading for all the latest developments in the business.
CMFN: Issues its first Baby Bond in preparation for amping up portfolio size and leverage next year thanks to the Small Business Credit Availability Act. See BDCR article.
PSEC: The BDC priced $70mn of Senior Notes with a yield of 5.875%.Placed institutionally with no early redemption. Fungible with total offering of $325mn.
GSBD: The BDC is issuing $40mn of 2022 Convertible Notes, adding on to an issue privately placed in 2016. The yield is 4.5%.
GSBD: Different rating groups are giving different ratings. Fitch gave Goldman an investment grade rating despite its intention to leverage up the balance sheet. S&P did not and shortly afterwards GSBD - without public notice to our knowledge - asked S&P to withdraw its rating.
PSEC: The BDC announced that about half of its $300mn 2019 Unsecured Notes will be tendered for early payoff. See our prior article on the subject.
TSLX: The BDC issued another round for $50mn of its Convertible Notes due 2022 and with a rate of 4.5%. This joins an earlier $115mn raise of the same Notes, issued in February 2017.
PSEC: Notes maturing in 2023 are yielding 4.750% and in 2025 5.250%. The former debt is less expensive than what PSEC pays to borrow under a Secured Revolver when unused fees are considered.
5/21/2018: Weeks after S&P downgraded AINV from investment grade, Fitch begins to follows a similar path. The catalyst here was AINV's announcement of its intention to ramp up leverage to 1.4x. to 1.0x, from 0.7x currently. Article worth reading for specific comments about AINV's poor credit track record; frequent strategic changes and oil and gas exposure. Missing - as usual - is mention of the fact that AINV's largest investment Merx Aviation (18% of total assets) is already highly leveraged in its own right, making "effective leverage" higher than meets the eye. Still, Fitch is pleased the importance of Merx will eventually be diluted by all the new loans being brought on, and seems impressed with MidCap Financial as a source for the new assets.A final determination about whether AINV loses its investment grade rating awaits a BDC sector-wide review. Not good news for AINV, but hardly surprising.
HTGC: Following Hercules Capital’s (HTGC) issuance of a new $75mn Baby Bond, S&P Global Ratings assigned a BBB- rating. The BDC Reporter provides additional details.
HTGC: The BDC announced $75mn was raised by issuing a new 2025 Baby Bond with the ticker HCXZ. We were wondering how the new debt would be priced. Here’s our answer.
HTGC: The BDC filed an amendment to its draft Prospectus for the additional issuance of Unsecured Notes. Included in the new version was an important change to events of default and recent business updates.
OFS raises its first Baby Bond. We look at the economics both from a shareholder and debt holder perspective and find the numbers don't add up for either. An in-depth and exclusive article by the BDC Reporter.
OFS: The BDC announced it is in the midst of issuing Unsecured Notes due 2025. The ticker will be OFSL. Proceeds from the new debt - whose size and terms are not yet set- will be used to repay all or some of the $38.2mn in Revolver debt outstanding.
TCAP/TCBB/TCCA: As part of Triangle Capital's sale of its assets and addition of a new Investment Advisor, the BDC has announced its intention to redeem both its Baby Bonds (TCCA and TCCB) 30 days after shareholder approval is received for the new deal.
TICC/TICCL: As part of a name change, TICC Capital will be changing the ticker symbol of its public debt from TICCL to OXSQL. The change will occur March 23 and reflected in the BDC Fixed Income Table then.
KCAP/KAP: KCAP Financial - in its 10-K and in the attached Conference Call - announced its intention to redeem $20mn of $27mn still outstanding of the Baby Bond with the ticker KAP. The discussion on the subject is in the Q&A section. KCAP has arranged a $50mn Revolver, secured by loans on its balance sheet and is using essentially most of the immediately available proceeds to repay all but $7mn owed on the KAP notes, due in 2019. The rest cannot be far behind. We have updated the Fixed Income Table with the news.
ARCC/AFC: The rating agency affirmed Ares Capital's current investment grade rating of BBB. The BDC Reporter adds: Fitch spends some time in the accompanying press release giving its non-controversial views of how the BDC sector is performing, its 2018 outlook before getting round to a mostly positive-all-around report on ARCC. We mostly noted this Fitch quote: "Fitch continues to believe that Ares has the strongest capital structure in the BDC space, with unsecured debt accounting for 78.7% of total debt outstanding, at par, at Dec. 31, 2017, as the company has continued to opportunistically access the capital markets for term financing." The only publicly traded ARCC debt is the 2047 issue with the ticker AFC, which is trading at a premium to par despite higher rates and ever present risk of redemption. AFC yields 6.7% for investment grade risk - if Fitch is to be believed - but with the prospect that ARCC could - with short notice - yank both that yield and cause any recent buyer a small short term loss if the BDC calls in the issue, the oldest denizen amongst the BDC Baby Bonds.
MAIN/MSCA: One month before the earliest redemption date for Main Street Capital's Baby Bond with the ticker MSCA, the BDC has announced its intention to fully redeem the debt early at its earliest opportunity: April 1 of this year. MSCA's final maturity is 2023 and the coupon 6.125%. All outstanding Notes will be repaid on April 1 with a settlement the next day. MAIN claims the redemption of the high priced Baby Bond by using its Revolver will eventually save the BDC $2.7mn in annual interest expense - thanks to the differential in borrowing costs - but will cause a Realized Loss of $1.5mn in the IIQ 2018 due to the write-off of unamortized financing costs 5 years in advance. The BDC Reporter adds: We had a projection for early redemption of MSCA of HIGH so we were not taken aback. With its ever improving performance MAIN is likely able to borrow from the unsecured debt markets at a rate below 5.0%. We would not be surprised to see the still growing BDC issue new Unsecured Notes before long. The question mark is whether the debt will be in retail investor friendly Baby Bond form, with a public ticker. We have updated the BDC Fixed Income Table with the new information and will remove MSCA on April 1. There are now 4 Fixed Income issues subject to full or partial redemptions amongst the 37 issues we track.
NEWT/NEWTI: Newtek's newest Baby Bond with the ticker NEWTI is trading in the public markets for the first time and closed 2/23/2018 at $25.15. The 2025 Unsecured Note has a yield of 6.25%.
FDUS: Not unexpectedly FDUS announced that the underwriters of its recent Baby Bond issue (FDUSL) exercised their overallotment option, giving the BDC $6.5mn of extra proceeds. The BDC Reporter adds: FDUSL is trading at $25.30. See the Fixed Income Table for details.
NEWT/NEWTL: NEWT officially names March 21, 2018 as the redemption date for the 2021 Unsecured Note with the ticker NEWTL. The Baby Bond was just replaced with a new offering - due in 2023- and with the ticker NEWTI. BDC REPORTER ADDS: With NEWTL's imminent departure, the BDC Fixed Income Universe - already impacted by the redemption announcements for HTGX and MCV - will grow smaller. Moreover, with NEWTL gone, there will be only 2 public BDC issues with rates at 7.0% or higher. In this case, NEWTL's 7.0% coupon was replaced with NEWTI's 6.125%.
HTGC: Redeeming $100mn of 2024 Baby Bond due 2024 with ticker HTGX. Partial Redemption to Save Approximately $6.6 Million, or $0.08 per Share, in Annual Interest and Fee Expenses, says BDC. About $150mn of HTGX will remain unredeemed but the press release says HTGC will be calling in more during 2018. We first wrote about the proposed gradual redemption of HTGX on October 24, 2017: http://bit.ly/2BKLRRE
NEWT/NEWTI/NEWTL: The BDC announced the issuance of $50mn in new Unsecured Notes with a maturity of 2023 and a coupon of 6.25%. The ticker will be NEWTI. The proceeds will be used to redeem the 2021 Notes with the ticker NEWTL. The new Notes can be prepaid from March 2020.
NMFC: The BDC raised $90mn in Unsecured Notes to add to the $145mn issued previously. The prior Notes had maturities in 2021 and 2022 and this latest batch in 2023. The rate is 4.87%. The debt was institutionally placed and will not be publicly traded. The BDC Reporter adds: NMFC has never had a public Baby Bond issue, preferring to place its debt with institutions. This rate is very competitive for a 5 year borrowing The proceeds will pay down the Revolver and may cause the BDC's interest expense to increase in the IQ 2018 as a result. Still, the differential between secured Revolving debt and fixed Unsecured Notes is narrowing fast. At September 30, 2017 the BDC's Revolvers were costing about 3.5% (plus unused line fees). If the Fed does what is expected to rates, the cost may be 4.5% or higher by the end of 2018. This is a form of insurance against higher rates and allows the BDC greater covenant flexibility.
MCC/MCV: The BDC announced in an SEC filing of its intention to redeem $13mn of its outstanding $103mn of 2023 MCV debt on March 10, 2018. The BDC Reporter adds: This seems to be part of a new strategy by some BDCs whose bonds are in their redeemable period: redeem in fits and starts. Hercules Capital (HTGC) is also paying off its HTGX Baby Bond in pieces. Not good for investor uncertainty but provides the BDC with flexibility and the means to affect earnings when desired.
FDUS: For months there have been indications FDUS might break out of its reliance for long term financing on the SBIC and issue its first Baby Bond. Now the BDC has raised $43.5mn with a 2023 Baby Bond with a coupon of 5.875%. The BDC Reporter adds: With the SBIC in a non-cooperative mood and FDUS still in growth mode in its lower middle market debt and equity niche, this was a predictable and predicted move. The rate achieved is not as good as borrowing from the SBA but competitive - and more reliable - than borrowing from the banks. Given that spread compression is occuring in the FDUS lower middle market, and the BDC's fee structure is high, there will be little accretion to earnings from borrowing in this fashion, but does diversify capital sources. At September 30, 2017 ALL the BDC's $212mn in borrowings were from the SBA. The average cost of that capital was 3.6%. Moreover, FDUS has a long-in-the-tooth SBIC exposure and has to redeem older debentures constantly in the years ahead.