HCAP: The BDC's annual Proxy for a "virtual" shareholders meeting on June 12, 2018 includes two routine matters. No mention of the new leverage rules or selling stock below book as yet. We did note in the Proxy that former CEO Richard Buckanavage owns only 49,272 shares in the BDC but new;y appointed CEO and Director Joseph Jolson owns 8.1% of all stock, held in one form or another. Overall officer ownership in HCAP is very low, especially as three individuals have recently resigned/been pushed out. The top holder of shares amongst current personnel (except Mr Buckanavage) is the new CFO with 2,038 shares. For investors who like to see "skin in the game", only Mr Jolson is showing any.
HRZN: The BDC has set the annual shareholders meeting for June 7. However, only routine items are on the agenda. HRZN has not chosen - as yet - to ask shareholders to vote on either increasing leverage or selling stock below NAV.
NMFC: On April 12, 2018, the Board of NMFC voted to utilize the lower asset coverage alternative provided by the Small Business Credit Availability Act. That will begin in April 2019. In the interim, the BDC will seek shareholder approval of the higher leverage. If approved, the new rules would apply immediately. That would allow NMFC - at a stroke to add nearly a billion dollars in extra borrowing to add to the $870mn of debt already on the books. We'll look at the economics of NMFC in a new article shortly.
4/17/2018: Roumell Asset Management, which owns 2.1% of the stock of MCC, wrote a letter to the BDC's Board asking that the business be sold. Roumell also complained about the independent directors "alignment" with shareholders. More to follow.
CSWC: The BDC added a new lender to its Revolver, bringing total commitments to $200mn from $180mn. The maximum envisaged in the "accordion" facility is $250mn. This is notable principally as further evidence that CSWC is becoming increasingly popular amongst lenders. The next big challenge ? Lower borrowing costs...
FSIC: On 4/12/2018 the Board of mega-sized BDC FSIC reversed an earlier decision to adopt the lower asset coverage rules allowed by the recently enacted Small Business Credit Availability Act. The SEC filing by the BDC pointed to the new industry guidelines issued by S&P on April 3, 2018 as the reason for the move. The BDC Reporter adds: Prospect Capital (PSEC) - as we've reported - also has undertaken a similar about face. Frankly, we're surprised that FSIC took this route given the huge potential leverage/assets/fees at stake. Moreover, we don't know if FSIC might not have a second go in the future after negotiations with the ratings group. In the short run, the BDC appears to have been unwilling - unlike Apollo Investment (AINV) - to defy S&P and place its investment grade rating at risk. Also, our regard for S&P (unlike Fitch which has been wishy washy where the new law is concerned) has increased, and given us some hope that some BDCs will be forced to think twice before leveraging up what are are risk-heavy balance sheets at what may be the tail end of one of the longer economic cycles. S&P seems to "get" what Congress does not, but then there are no lobbyists and campaign contributions involved.
The BDC Reporter analyzes Horizon Technology Finance's IQ 2018 portfolio preview and comes away with a SELL rating on the stock and maintains an AT RISK view about dividend sustainability.
CGBD: The Board of CGBD approved the new higher leverage rules and sought to gain a shareholder vote on the proposal, to occur shortly. No date given.
OHAI: The Board of the smallest public BDC voted to adopt the 150% asset coverage limit as allowed by the laughingly misnamed Small Business Credit Availability Act. As a result, from April next year, the BDC will be able to effectively double its leverage. Shareholders will not be consulted so OHAI has to wait a year till the rule takes effect. The BDC Reporter adds: Given that under its current and former investment manager OHAI racked up huge credit losses, bringing Net Book Value Per Share to $2.37 this represents some chutzpah by the Board and Investment Advisor. If OHAI had access to the extra leverage a few years ago and credit losses were proportionate with what has occurred all equity value would probably be lost by now. However the new Investment Advisor is confident that they were more stewards of the BDC's decline than responsible and seem to have concluded that "this time things will be different". Which they will, but success is not guaranteed. Anyway, in the short term, OHAI is barely holding onto its existing Revolver (amendments and waivers have been necessary) and has no access to the Unsecured Note market. We assume this action is more a seed for a still very opaque feature for a BDC 6 months into a review of its "strategic alternatives".
HRZN: The technology BDC increased its Revolver limit by $5mn to $100mn and extended the revolving period and final maturity. Encouraging but not unexpected,
GLAD: Like so many of its peers, GLAD sought and received Board approval to reduce minimum asset coverage to 150%. The new rules begins applying in April 10, 2019.
PFLT: The BDC's Board approved reducing asset coverage - as per the new Small Business Availability Act- to 15)%. The new rule will apply from April 15, 2019.
HTGC: Gibraltar Business Credit - a finance company recently purchased by Hercules Capital (HTGC) - has added two lenders.
NMFC,TCPC,OXSQ,GLAD,PSEC,OCSL: The education company announced raising $25mn from its existing owners, which includes at least two BDCs; TCP Capital (TCPC) and New Mountain Finance (NMFC). An article to follow about this news item. BDC exposure to Edmentum-related companies is over $100mn to 6 public BDCs.
FSIC, CCT: FE investments and KKR announced that - following shareholder approvals at 6 public and non-traded BDCs- they are jointly managing $18bn in assets. Moreover, the 6 funds will participate in transactions together and "KKR Credit's institutional funds and accounts". As previously announced Blackstone's GSO Capital Partners is out of any advisory role.
TCAP: Business Development Corporation of America (BDCA), a non-traded BDC advised by an affiliate of Benefit Street Partners LLC, indicated a portion of the $981mn of Triangle Capital's portfolio being acquired will end up on its books. Other details about the transaction are included.
PSEC: The BDC - in a surprising move and only days after deciding to proceed to use the lower asset coverage requirement mandated by the new BDC rules= has reversed itself. The brief SEC filing referred to the threat of losing its investment grade status made by S&P.
SCM: The BDC's independent directors voted to allow asset coverage of debt to drop to 150%. Now the Board is putting the matter to a shareholders vote.
ARCC: The BDC extended the investment period and maturity of its $2.1bn Revolver. The BDC Reporter adds: The extensions are standard fare. We noted that there were no reductions in pricing. Most notably the facility continues to maintain a 2:1 asset to debt coverage ratio, which begs the question: will this get amended in the future ?
KCAP: The BDC announced in an SEC filing that its "independent" directors voted in the lower asset coverage level as per the new BDC rules. The move is effective from March 2019. There was no press release. The BDC Reporter adds: KCAP is internally managed but management seems keen to further ramp up a balance sheet already heavily committed to a JV, owning two asset managers and investing in multiple CLOs. This may boost earnings for a while but in the Next Recession, KCAP may be one of the first candidates to be a Major Problem. KCAP barely survived the Great Recession. We'll have to wait and see how the BDC uses the laxer rules but our initial reaction is that the risks at KCAP will be going to unacceptable levels.
PSEC: The BDC reported in an SEC filing that Brian H. Oswald is no longer the CFO, Treasurer, Secretary and Chief Compliance Officer. He has been replaced by Kristin Van Dask, previously the Controller. The BDC Reporter adds: Very curious that PSEC did not give any explanation for Mr Oswald's departure or even go through the formality of wishing him well in his future endeavors.
GARS: The BDC followed in the footsteps of many other public BDCs and adopted the new lower asset coverage requirements which will take effect in 2019. The BDC Reporter adds: GARS has been public since 2013 and lost a quarter of its equity capital to bad debts. Nonetheless, the Board has said Yes to more risk.
AINV: The BDC announced in a press release that its Board had approved the application of the lower asset coverage requirements, which will take effect in April 2019. The BDC Reporter adds: Yet another BDC takes the pledge. However AINV bothered to issue a press release and suggest that the extra assets acquired would be of a lower risk nature and would tap the parent's origination network. Most interesting of all - despite unilaterally proceeding with the "independent" Board members approval, AINV emphasized it's intention to " work closely with all constituents – our lenders, our shareholders, the rating agencies, and our Board – to discuss how this additional capital will be deployed, and the impact to the Company.” This - at least - reflects a realization that extra leverage is not necessarily a Good Thing for everyone and some modus vivendi might be necessary. Good PR, but too early to tell if more than that.
TCRD: The BDC has appointed Jane Musser Nelson to its Board Of Directors. The BDC Reporter adds: Ms Musser has a very strong background in credit in a variety of positions and firms. We point out that many BDCs don't turn often to corporate credit specialists for their Board appointments. We will let readers draw their own surmise as to why that might be. To their "credit" (unavoidable pun), TCRD are prepared to have someone sitting on the Board who has been active in the lending industry. Even Ms Musser's knowledge of CLOs -even though TCRD has jettisoned all its positions - will prove useful in an indirect way. We doubt that it's any coincidence that the new Board member has been brought on after TCRD has continued to stumble from a credit standpoint. We are now more than 2 years into the vaunted change of strategic direction promised by the Investment Advisor and the turnaround in credit quality necessary to stabilize earnings and NAV. Instead, TCRD is still struggling with credit. How much one more member of the Board can do to help is debatable and unknowable, but in terms of optics - at least - this is a positive move.
MAIN: The BDC - as happens regularly - announced its financing of the leveraged buy-out of a San Diego-based company. The BDC Reporter adds: The transaction - for a Lower Middle Market deal, which is MAIN's forte - is relatively large. As usual, MAIN does not make clear how much of the total capital is being provided by itself and how much by management and the unnamed "co-investor". Judging from what has come before MAIN is probably effectively in control and is - far and away - the predominant source of the capital. This is what MAIN does best. Control allows the BDC to benefit greatly if all goes well and to decide how to restructure or walk away when matters go wrong. The principal downside is that in Recessions the value and liquidity of these businesses is greatly affected.
MRCC: Like several other BDCs already, MRCC's Board approved using the new lower bar of 150% asset coverage permitted by the new BDC rules. The BDC Reporter adds: As with all the others, we're a little surprised at how quickly so many BDCs are adopting the new rules and with very little fanfare or explanation to shareholders. MRCC dispensed with a press release or any special presentation or conference call in advance of adopting the most important change in the BDC format since 1980. However, this only seems to underscore our contention that BDCs will flock to this new higher leverage status like bees to honey. Some commentators have said there will be little change and this is much ado about nothing. We don't think so even if nothing very tangible has happened less than two weeks after the adoption of the new regulations that allow a doubling of debt by BDCs who choose to. Something is going to happen and investors - and the BDC Reporter - will need to evaluate the likely impact on future results. With BDCs offering up little besides the Board decision, though, it's hard to evaluate much of anything. We need to understand how much extra debt will be added in each, what leverage targets will look like, what will change in terms of assets (if any), the timeframes involved; the attitude towards existing and future JVS by the BDCs and much more. Then there are items out of the BDCs control such as the markets reaction to the new debt required and what that might mean in terms of capital costs and terms. Our first test case was FS Investment (FSIC), which we analyzed in a detailed article. Our first vlush conclusion in that case was not very encouraging for shareholders but we'll keep an open mind where MRCC and all the other BDCs that will be treading the path of leveraging up to grow portfolios, earnings and management fees will follow.
HCAP: After much delay, HCAP reported fourth quarter and full year 2017 results. For the quarter Net Investment Income Per Share was $0.30 and $1.40 for the year. NAV dropped sharply on the year from $13.86 to $12.66. The BDC Reporter adds: Some of the drop in earnings and book is due to a non-performing credit Infinite Care, LLC. Also yields are dropping due to lower middle market spread compression. The other story is the unsettled situation at the JMP Securities owned Investment Advisor. The former CEO has been renamed Chief Development Officer, and the Chairman of the Board has become the CEO. Two financial professionals have departed - clearly pushed out despite the kind words involved- and new individuals brought in. Another senior officer has departed and no details given. While this has been happening - and delaying the filing of the results - the portfolio size has dropped. That means HCAP is under-leveraged by BDC standards and - in theory- could double its size with the new BDC rules. We wonder, though, if growing the portfolio at a time when management is in disarray; credit losses are high and risks are increasing in the lower middle market will be a benefit or not to shareholders. The skeptical observer might worry that HCAP is setting itself to fail on a bigger scale, only months after cutting its distribution and with (13%) of its capital written off on a Realized and Unrealized basis. The markets were happy about the greater clarity and the under-leveraged nature of the balance sheet, but HCAP remains a high risk investment. According to the BDC's own risk rating system, $32.6mn of assets at FMV are under-performing. That amounts to 30.5% of total investments, up from 19% a year ago. Moreover, that's after HCAP booked Realized Losses for a third year in a row. In 2017 those write-offs amounted to ($8mn).
NEWT: The BDC is setting up a new subsidiary Newtek Business Lending LLC to be the repository of all its SBA 504 loans. Capital One is promising to provide (after all we're still at the LOI stage only) a $75mn Revolver to the new subsidiary. Given high hopes for growing the 504 business, the Revolver will be expandable - with the lender's permission - to $150mn. Moreover, an existing line of credit is being increased to $40mn to fund 504 assets. (Not clear if this debt will be replaced by the new Capital One facility or not). The press release makes clear that all 504 program lending will be undertaken by this subsidiary and NEWT continues to have the ambition to grow this different program, and still hopes to generate $75-$100mn in loans in 2018. The BDC Reporter adds: NEWT is -by far - the hardest BDC to get one's analytical arms around and really looks nothing like any other BDC or even any other public or private company we're aware of. We do know that the main SBA (7a) program, which represents the bulk of NEWT's loan generation is down 10% and the BDC is growing only by taking market share. NEWT needs to offer a broader range of debt products and the 504 program fits the bill. This is still early days and tracking how NEWT does against some relatively modest asset generation expectations will tell us if this one tentacle in the NEWT octopus is playing out as hoped. At the moment NEWT is really at a very early stage of developing this business line.
FSIC: In a vote that surprised no one, the shareholders of FS Investment voted to permit FS Investments and KKR to jointly serve as Investment Advisor to the BDC. The transition from GSO Blackstone to arch rival KKR is almost complete.
OHAI: The ever shrinking BDC reported the as-expected poor results for the full year 2017 and for the fourth quarter.Net Investment Income Per Share for the final quarter of the year was just $0.02, equal to the distribution. Even that was achieved only after fee waivers from the Investment Manager and while booking investment income from highly troubled OCI Holdings, a home service operator at a rate of 20.56%. NAV Per share inched up to $2.37, above IIIQ 2017 but down from $3.99 in 2016. After the quarter end with the write-off of its remaining energy investment, OHAI claimed to have zero remaining exposure. The BDC Reporter adds: We had some hope OHAI might be able to shed its energy investments and be left with SOMETHING on which to build going forward beyond what is owed to the BDC's secured lender. Unfortunately, with OCI Holdings still in deep trouble, OHAI only has $50mn in other investment assets to point to and $36mn in Revolver outstandings and a few million dollars of other liabilities. (Admittedly there's also $20mn in cash). For yet another quarter the Investment Advisor has referenced strategic alternatives being considered. However, we're now of the opinion that any remaining net value in the BDC is likely to be very minimal and hardly worth holding out for. If OCI files for Chapter 11 the jig will be up as so much of the BDC's income comes from that troubled entity. This remains a stock only for speculators but even they will find only very limited hypothetical upside. Maybe it's time for OHAI to R.I.P. ?
The BDC Reporter describes, analyzes and provides its unalloyed initial view about the just announced change in BDC asset coverage requirements, dropping from 200% to 150%.
TSLX: The BDC Reporter discusses the new secondary stock offering by TPG Specialty and whether to Buy, Hold Or Sell.
CGBD: The $2bn in assets BDC - the most recent addition to the public ranks - has issued a preliminary Prospectus to raise debt or equity in the future and to sell 5.5mn shares held by existing shareholders. The BDC Reporter adds: With sentiment in the BDC market already weak, the prospect of existing shareholders selling shares might depress tCGBD's stock price. The BDC is already trading below book and just 7% off its 52 Week Low. This could add volatility to a stock that has been remarkably stable since converting from private to public status in 2017. We will have a clearer picture once CGBD goes ex-dividend late in March.
TICC: The BDC is changing its name and ticker symbols. TICC Capital is to become Oxford Square Capital Corp. The BDC Reporter adds: For one hypothesis for why this is occurring read our upcoming article.
ABDC: KBW re-affirms a $7.0 price target for troubled ABDC.
TCRD/MRCC: The BDC Reporter discusses in its Stock Watch column two new BDCs hitting 52 Week Lows.
ABDC: The BDC reached a new 52 Week Intra-Low of $6.10, down from $6.15.
BKCC: The BDC filed an 8-K reporting that its Revolver was to be permanently reduced to $400mn from $440mn. Also, the lenders agreed to a reduction in the minimum Net Worth covenant. The BDC Reporter adds: The reduction in the size of the Revolver is not unexpected but does continue to signal that the BDC remains in shrinking mode with the Manager - despite many protestations to the contrary- still in turnaround mode. Total assets have shrunk from $1.281bn in 2013 to $800mn 4 years later. Borrowings have dropped by more than 50%. The number of companies in portfolio has gone down from 51 to 30. This seems doomed to continue. Moreover, the reduction in the Net Worth covenant - while welcome - only underscores that with $80mn or so of assets in the riskier categories the BDC is still not far away from a breach. At 12/31/2017 book value was $571mn. We can all do the math.
TSLX: The BDC is calling a Special Shareholders Meeting to request the right for the next year to sell stock below NAV, if deemed necessary. The BDC Reporter adds: Despite trading at a premium to par all year, TSLX wants a back pocket right to sell shares below book if needed. Admittedly this is unlikely to be used except in an emergency, but you never know. Moreover, even in an emergency what's right by the Investment Advisor and what's right for the shareholders may be at variance. There are other alternatives such as selling assets - albeit also at a discount or waivers of management fees or infusions of capital by the Manager. Obviously all these hit the Investment Advisor in the pocketbook and are not popular in the big shiny offices of TSLX paid for by the BDC's fees and allocated expenses. Shareholders looking to the Board to serve as any kind of protection against these conflicts of interest is like believing in Santa Claus. No Virginia, the Board will not block the Investment Advisor who placed them in their lucrative positions. So the BDC Reporter's view - and in this case we are a shareholder - is to vote NO until a fairer arrangement comes around. (We're not holding our breath). Unfortunately most shareholders - especially the institutions - are likely to vote YES. The only good news - as stated at the top - is that the TSLX folk are relatively reasonable people and are unlikely to pull this trigger on the gun that shareholders have loaded and handed them.
ABDC: After announcing poor results and a dividend cut, ABDC's stock price drops by a fifth in early trading to reach a 52 Week and All Time Low of $6.16.The BDC Reporter adds: The stock price has dropped 50% since April 2017, but so (more or less) has the quarterly distribution. At time of writing ABDC still trades at a (43%) discount to book.
BDC Reporter Article: Harvest Capital delays its 10-K release. The reasons given in an SEC filing give us the shivers.
TCPC: The stock price hit $13.81 intra-day, a new 52 Week Low for TCPC. The BDC Reporter adds: The stock trades at a 6% discount to book and at a 2 year low. TCPC is approaching the All Time Low set in February 2016 and trades 20% below the 52 Week High.
TCRD: As promised on latest Conference Call, TCRD's Investment Advisor sets up automatic plan to invest up to $10mn in the stock of the BDC to show confidence and commitment. The BDC Reporter adds: After another disastrous earnings release due to the identification of continuing credit problems TCRD's management - to their credit - are seeking to boost their stock price by buying the shares themselves. This is allowed only under an automatic, pre-programmed plan. We doubt that even this will counter-act the damage done but it's an unusual and bold experiment for a TH Lee organization with egg on its face.
ABDC: The Bank Of New York sponsored BDC announced poor results again. Net Investment Income Per Share was up but so was Unrealized Depreciation and bad debts, which caused the dividend to be reduced for a second time in two quarters to $0.18. The BDC Reporter adds: Although earnings are not down by much, the cut in the dividend and the fact that the BDC is maxed out on the asset coverage rule (209%) underscored that all is not well. Our own initial review identified 9 Watch List names including 3 on Non Accrual. More to follow.
MRCC: IVQ 2017 Adjusted Net Investment Income was unchanged from the prior quarter at $0.35, and the portfolio yield ticked higher. NAV was down on Unrealized Depreciation on two already identified investments. The BDC Reporter adds: For the year recurring earnings are down on a per share basis due to a issue of new shares during the period and slightly weaker credit performance. Overall, though, no great surprises before we get to review the 10-K and listen to the Conference Call. The dividend remains unchanged at $0.35. The Big Question: Will the new JV which MRCC started in November contribute materially to earnings in 2018 and boost up EPS ? The answer lies several quarters ahead. Till then, the BDC Reporter needs to look at the portfolio for any red flags that might erode profits. Otherwise the portfolio yield seems reasonable and stable. A Work In Progress.
ACSF: The smaller BDC acquired by Ares Capital announced Net Investment Income Per Share of $0.25, down just 1 cent from the prior quarter. NAV dropped 3 cents due to over-distributing income, to reach $13.09.
.MVC: The oldest BDC reported higher "operating income" (aka "Total Investment Income") in the quarter thanks to deploying cash into two new loans. However, Net Investment Income (called Net Operating Income, reflecting the BDC's equity focused roots) was again negative in the quarter. Not helping was a "one time" cost of refinancing MVC's Unsecured Notes. NAV increased in the quarter thanks to stock buybacks at a discount to book and Unrealized Appreciation on some investments. The dividend was unchanged at $0.15 for the IVQ 2017. The BDC Reporter adds: Our review of the risk profile and credit performance of the BDC suggests no improvement in those areas. MVC remains concentrated in a relatively small portfolio with numerous non-income producing investments and a raft of riskier second lien loans. With the BDC's cash pile already cut in half, we question whether MVC can generate a reasonable return on equity from recurring income in 2018 or beyond, or even reach our estimate of break-even for the year.
GECC: Great Elm Corporation had a great quarter earnings-wise. However - as we show in detail drawn from the 10-K - a great change in income , earnings and book value appears to be coming. Read full BDC Reporter article.
TCRD: Former key executive at THL Credit Sam Tillinghast sold 37,339 shares at a price of $8.2843, close to the stock's All Time Low. The BDC Reporter adds: Mr Tillinghast left recently to join Sun Life Investment Management so a sale of stock is not unusual. He still holds 90,365 shares.
GLAD: Key changes to the BDC's Revolver include "a reduction in pricing, expansion of the total commitment and extension of the maturity date.". The BDC Reporter adds: From a liability management point of view, there are several wins in this amendment for GLAD. The extension of the "revolving period" by 2 years reduces any short or medium term refinancing risk. Investors may have forgotten what that risk looks like but in the Next Crisis banks may run for cover and refuse to continue lending. GLAD - at least - has a contract in place for the next 3 years. Moreover, GLAD has two years to repay any debt outstanding, also critical in times of crisis. (Many pay-off periods are gut wrenchingly short: 1 year or none at all). Plus, GLAD has managed to nab a 0.4% cut in the borrowing margin, also not to be sneezed at when floating rate borrowings are going up with LIBOR. This will mitigate some of that impact. Intriguing is that the lenders have increased the cost of unused commitments. Some BDCs are using their Revolvers as back-up lines and lenders want to be compensated for committing themselves to debt that might be used only in an emergency or not at all. GLAD has complied, suggesting that the BDC intends to draw reasonably heavily on its Revolver. That's good from a cost of capital standpoint, but riskier when market conditions deteriorate and GLAD has to deal with jittery banks and a slew of covenants. Currently three quarters of GLAD's debt is in the form of Revolver drawings, one of the highest in the BDC Sector. That percentage may well go higher. Finally there's the increase in the size of the Revolver which suggests i) as mentioned earlier, greater usage of the facility; ii) an expected increase in the size of the portfolio and the need for debt capital. These increases often precede capital raises and the BDC is trading above book...Last quarter GLAD sold some shares at $9.69 under its At The Market program. Finally - and not mentioned in the press release - GLAD is likely to incur some fees for these amendments and increases if prior changes are anything to go buy. That might impair IQ 2018 results even if future periods benefit. In conclusion, this is mostly positive from an earnings and liability management standpoint, but suggests an increase in GLAD's risk profile. It's a slight negative for Term Preferred Holders in GLADN who will likely see more debt drawn ahead of them in the capital structure but that could be alleviated if GLAD - as we expect - raises new equity capital when the going is good.
KCAP: Net Investment Income for the year was $0.30, but Taxable Income was $0.16. The BDC's NAV dropped to $4.87 from $5.24 a year before. The distribution was reduced to $0.10 in the fourth quarter of 2017. The BDC Reporter adds: Earnings and book value eroded in 2017 as KCAP changed its business model by selling off on balance sheet assets into a new JV to reduce asset coverage and to free up capital to support CLO investing and the BDC's Investment Management subsidiaries. At year end much of that reshuffling of assets has occurred and the credit portfolio is said - by KCAP - to be in pretty good shape with only 2 partial non-accruals on the books. The Big Question: will the BDC - with fresh capital from a new Revolver - be able to stem the ever dropping income level in 2018 ?
GECC: The bond buying BDC has announced IVQ 2017 and full year results. We have read the press release, 10-K and Conference Call transcript. The BDc Reporter will write an in-depth article on what we've learned - and what remains unclear - shortly.
TCRD: Most notably TCRD reported IVQ 2017 NAV Per Share of $10.51, down substantially from the prior quarter level of $11.34 and year end 2016 of $11.84. This reflected continued credit deterioration at the BDC. However, Net Investment Income Per Share was maintained at $0.27, equal to the distribution level. The Investment Advisor pro-actively promised to waive all Incentive Fees in 2018 to support earnings. The BDC Reporter adds: In a very straightforward way, TCRD admitted to having made mistakes in the past (investing in junior unsponsored loans; taking too long to switch to a safer strategy) and reaffirming its intention to make matters better. Besides the fee waiver, the Investment Advisor offered to buy back stock to boost the stock price and to sell - where possible- non income producing assets to boost interest income. Can this BDC still be turned around after several false starts ? The BDC Reporter will be looking into the subject.
GARS: The BDC reported Net Investment Income Per Share down two cents from the prior quarter to $0.27. NAV was down slightly to $11.69 from $11.74.On the year, NIIPS was $1.07. In addition, GARS announced an unchanged $0.28 quarterly distribution for the IQ 2018. The BDC Reporter adds: Results were more or less as expected. ($26mn) in Realized Losses were booked on multiple well know troublesome credits that had already been reserved for. Looking forward, liquidity is tight with only $1mn left to borrow on the Revolver and $22mn in SBIC debentures.
SCM: The BDC reported Adjusted Net Investment Income Per Share of $0.28. That's below the analyst median estimate of $0.31 for the quarter. For the year Adjusted Net Investment Income Per Share was $1.24, after adding back the expense of debt refinancing. NAV ended up at $13.81, up from $13.69 in 2016, helped by Realized Gains during the year. The BDC Reporter adds: We've reviewed the press release and the 10-K. The quarter's earnings - and the year as a whole - were affected by heavy repayments at a time when SCM had more capital to put to work. Total investment assets barely increased over the full year, but shares outstanding from 12.5mn to 16.0mn. Almost half the portfolio "turned over" during the year. However, in the first weeks of 2018 - as SCM reports - a number of new deals have been booked and no repayments as yet. That has boosted borrowings on the Revolver to $83mn from $44mn and probably used up some of the BDC's cash sitting on its balance sheet at year end. More to follow in a full length article about the BDC's credit performance and other issues.
NEWT: The internally managed, SBA-focused BDC reported a lower Net Investment Income loss in 2017 over the prior year; higher Adjusted NII of $17.77 per share versus $1.60 the year before. NAV Per Share, too, was up: by 5.5% to reach $15.08 at 2017 year-end. Debt To Equity was at $0.78. The BDC Reporter adds: Inexplicably NEWT does not report quarterly results - as most every other BDC does - along with the annual performance. We did some math using the third quarter results and calculated that ANII (the BDC's preferred metric for measuring recurring income) increased to $0.51 from $0.45. Likewise NAV was up from $14.40 at the end of September and Debt To Equity has reduced. Management is sticking with its annual projection of key metrics and the 2018 dividend estimate of $1.70. The key driver appears to be the production of SBA (7) loans which reached $386mn in 2017 and is pegged to increase to nearly half a billion dollars this year. No word on the FBI investigation into NEWT's subsidiary in the press release and unlikely to hear more on Conference Call. We've yet to see the 10-K which will have much more data on a variety of issues.
HTGC: The BDC has acquired Gibraltar Business Capital for an unknown price. The BDC Reporter adds: We doubt the purchase price was very high but is represents a potentially major shift in HTGC's business model. Besides adding a financial services company to its portfolio, this acquisition is a divergence from the BDC's historical focus on venture-debt investing in technology and related sectors. We will delve further in a follow-up article.
OFS: The lower middle market focused BDC reported earnings below analyst expectations, with Net Investment Income Per Share of $0.29, down from the quarter before. NAV was down "at the end of the quarter to "..$14.12 compared to $14.15 at the end of the September quarter. This small decline was primarily due to our distribution in the fourth quarter being in excess of our net investment income, which was partially offset by the increase in the fair value of our investments". OFS announced an unchanged distribution for the IQ 2018 of $0.34. The BDC Reporter adds: We have reviewed the press release and the Conference Call transcript. Obviously the key issue investors are worrying about is whether recurring Net Investment Income can continue to meet the dividend liability at its current level. This is the same question haunting WhiteHorse Finance and Fidus Investment, amongst others. In this case, management very explicitly said : Yes We Can. The drop in earnings is attributed to very high loan repayments in 2017 (especially in the last half of the year). That caused less loan assets to be deployed and earning income. In the current IQ 2018, OFS says much of the cash pile which built up from the repayments has been put to work and more will be going out. The message is: IQ 2018 might be soft but 2018 will still be strong from an earnings standpoint and will be in excess of the distribution. Helping will be higher rates pushing up income while much of the BDC's borrowings are fixed. On the credit front, the number of non-accruals is at 2. We are very familiar with both credits. One is Community Intervention Services, which also tripped up TCAP. The other is Southern Technical Institute, which ABDC is also invested in. Neither non-performer is a very large exposure for OFS following this quarter, so the worst is behind us where these names are concerned. Southern Tech will have cost OFS $0.6mn in annual income which the BDC presumably hopes to make up elsewhere from new incremental loans and Realized Gains.
TPVG: The technology BDC reaches an intra-day 52 Week Low of $11.12, (23%) off its 52 Week High of $14.41. The BDC Reporter adds: At the new Low, TPVG (17%) below book.
SCM: The BDC's stock reached a new intra-day 52 Week Low of $11.07, far off its $14.82 52 Week High.
WHF: The BDC Reported Net Investment Income Per Share in line with analyst expectations of $0.331 for the quarter, and $1.35 for the year. The NAV increased for the quarter and the year to $13.98. No word in the press release on credit quality or about a first quarter 2018 dividend. The BDC Reporter adds: On paper, decent results for WHF. As has been the case elsewhere in the BDC Sector, WHF struggled to grow its balance sheet size in the face of high repayments. For another quarter this caused Net Investment Income to be lower than the distribution, even as the portfolio yield remained high at 11.9%. Investors will be asking themselves if WHF will be able to bridge the gap or will just say "uncle" and reduce the payout to match its recurrent earnings. We still have the 10-K and Conference Call to review.
FSIC: The BDC announced Adjusted Net Investment Income of $0.24 per share, up from the third quarter 2017 result, helped by an increase in one time fees. FSIC remained fully invested with Debt to Equity of 0.75 to 1.00. NAV Per Share dropped to $9.30 from $9.43 due to valuation drops at three (unnamed) equity investments. The BDC Reporter adds: This is a twilight period for the BDC, with new co-investment advisor KKR not yet fully in place and GSO Blackstone packing their bags. Much of the Conference Call was devoted to discussing how the FS Investments and KKR entities would work together and jointly have $18bn in assets under management. Clearly FSIC is targeting the so-called "upper middle market" - what we would call the large cap borrowers. Already the average EBITDA of FSIC's portfolio is $85mn. That might go higher with the ability to share deals amongst FS Investment and KKR funds. This seems to be leading the new FSIC to be serving the larger sponsor groups on the larger buy-outs, a segment where Ares Capital (ARCC) has made a name for itself. However, that's all in future as there is still much to do. In the interim - as reported by the BDC - credit seems to be in good shape with only 2 loans on non-accrual and with little in fair market value. We will revisit when we review the 10-K and the very, very long list of portfolio names involved. The main take-away from the Conference Call was that FS Investments and KKR are talking about merging some or all the 6 different credit funds under their control. Here's what was said: "Upon completing the proxy and transition process, we'll focus on optimizing the platform to create value for our investors. As part of that effort, we will consider potential mergers of the 6 BDCs that comprise the FS and CCT franchises. We continue to believe that merging these entities will provide business and operational synergies that will expand long-term shareholder value, specifically through reductions in administrative cost, further expansion and diversification of the investment portfolio and the optimization of our capital structure with lower borrowing costs. Any merger will, among other things, be subject to market conditions and review and approval from the respective Board of Directors." That means the FSIC of late 2018 may look nothing like the FSIC of today. This ups the ante amongst the bigger BDCs who target the larger borrowers. Besides ARCC, TSLX, TCPC and the Oaktree BDCs will be watching what comes next with interest.
FDUS: The lower middle market focused BDC announced Adjusted Net Investment Income Per Share of $0.35, down from $0.40 the prior quarter. The earnings were below the IQ 2018 distribution announced of $0.39. NAV increased from $15.97 to $16.05. The BDC Reporter adds: Are earnings capable of increasing and "covering " the distribution. The BDC was not giving any indication of cutting its payout on the Conference Call. FDUS has come off a good year with several Realized Gains booked, making up for Realized Losses the year before. Moreover, it's equity investments growth in value caused that increase in NAV mentioned. Also importantly, FDUS seems to have tackled the need to repay multiple SBIC debenture tranches which were coming due in the next 3 years by raising Unsecured Notes in January 2018. One set-back, though, is adding a new loan on non-accrual, bringing the total to 2. More in a future in-depth article.
MRCC: Monroe Capital (MRCC) reached a new 52 Week Low of $12.61 well off the 52 Week High of $16.20, a (21%) drop. The BDC Reporter adds: Yet another well regarded and well performing BDC reaching a new low. MRCC is now - like many others - beginning to "revisit" levels of early 2016 when the BDC Sector - and credit investments in general - were pulling themselves out of a funk that peaked in February of that year. MRCC is trading at a (9%) discount to September 2017 book value (year end numbers still to come) and now yields 10.9%.
TCAP: The most awaited quarterly results of this earnings season has arrived. Triangle Capital (TCAP) announced IVQ 2017 and full year results. Net Investment Income Per Share increased to $0.38 from $0.36 in the prior quarter, and NAV increased to $13.43. From a credit standpoint, there were no new deals added to non-accrual, 3 were sold or restructured for large Realized Losses of ($35mn). No news of any kind was announced on the "strategic alternatives" review underway. The BDC Reporter adds: The irony - and the BDC Sector is full of them - is that TCAP's basic metrics all improved in the fourth quarter after a drastic decline the quarter before which caused management and Board to wonder what should be done with the fund. However, there are still plenty of unresolved issues. We reviewed the 10-K and listened to the Conference Call. The former has a disclosure (page 46) that recaps the cost of non-accrual assets ($120.1mn) and at fair market value ($15.8mn). However, TCAP also admits there is another $133.2mn (or 13.2% of the total portfolio) carried at a discount to par, and which may have performance problems in the future. We undertook our own count and noted 9 companies on our Watch List and just under $100mn of FMV. 5 of the 9 were in our Category 4 (or Worry List), where the chances of an eventual loss are greater than full recovery. Then there are a number of potential equity stakes that TCAP might be able to sell - or at least benefit from when the underlying company gets sold. We also note cash is building up at the BDC. Management says it's just normal pay-offs not yet re-invested, but TCAP could be preparing to repay its SBIC debentures as part of any sale of the fund to another group. (Typically - as Oaktree Capital discovered when taking control of Fifth Street Finance - the SBA does not honor change of control situations and requires its SBIC debentures be repaid. TCAP has $250mn in debentures, 40% of its total liabilities. With assets shrinking and costs growing (including legal costs associated with the two lawsuits which TCAP is defending itself from) management guided towards lower Net Investment Income in IQ 2018 versus the IVQ 2017 numbers. Moreover the average yield on the portfolio continues to drop - regardless of bad debt results - as TCAP gradually implements its change of strategy. The debt yield is now 11.0%, down from 11.7% last year. However, new loans are being booked at average yields at or below 10%. We calculate that just a 1% drop in the $750mn of remaining performing assets over time could drop recurring Net Investment Income by 10% to $0.34 a share from the current level of $0.38, without taking into account any other factors. Like with Capitala Finance (CPTA) that reported recently and which we reviewed, TCAP is in a transitional phase - even if nothing happens regarding "strategic alternatives" - and where the earnings and NAV end up is very much in question. Unlike CPTA speculation on that front could be cut short if and when a new buyer or buyers are announced.
MFIN/MFINL: Starting immediately, the BDC Reporter has decided to discontinue any coverage - whether BDC News, Fixed Income News, Dividend Outlook, Earnings Calendar etc.- for Medallion Financial (MFIN and formerly TAXI). MFIN is in the process of giving up its BDC status and no longer pays a regular distribution. Furthermore the stock has become a speculative play that has little to do with BDC fundamentals. However, we will retain prior articles about MFIN/TAXI/MFINL in the archives for any interested readers.
NMFC: The mid-sized BDC reported Net Investment Income of $0.35 per Weighted Average Share for the IVQ 2017 and Net Asset Value of $13.63 per Share, up from the prior quarter and for the year. Leverage remained within the BDC's normal target at 0.71x, but has been higher. Credit quality was said to be in good shape with no loans on non accrual. Also, NMFC announced another $0.34 distribution for the IQ 2018. The BDc Reporter adds: We have not yet reviewed the 10-K or listened to the Conference Call. We'll add to this post upon undertaking the latter.
CSWC: Capital Southwest increases its quarterly distribution to $0.28 for the quarter ended March 2018. For further discussion see Dividend Outlook.
GSBD: Goldman Sachs public BDC with the ticker GSBD reached a 52 Week Low of $19.36 intra-day. That's far off the 52 Week High of $25.60. The BDC Reporter adds: GSBD has not been at these levels since August 2016. The drop of 25% in market capitalization since the high reflects both a weakening BDC Sector generally (22 BDCs trading within 5% of their year-long lows) and only OK results in the IVQ 2017 and for the full year which included a major Realized Loss, little progress in growing its JV and questions surrounding how many good deals Goldman Sachs , with other other private BDCs to feed transactions to, has to feed into the hopper. Another sign that some investors are bailing from even the former BDC favorites. Still, we're hardly in rout territory as the stock still trades at a 10% premium to book (one of 7 BDCs) and yields 9.0%, well below the sector average of 10.4%.
CGBD: The newest public BDC announced Net Investment Income Per Share of $0.43, above analyst expectations. NAV dropped following a Special Distribution to $18.12. In this quarter any fee waivers were ended. There is only 1 loan on non-accrual and asset values barely moved in the quarter. The BDC Reporter adds: We've reviewed the press release and the Conference Call transcript. It's clear the BDC had a strong quarter to end its year as a public company. Most notable, the BDC's earnings growth is focused on growing its senior debt JV which is at the $1bn in size level and is projected to yield returns in the mid-teens this year. Off balance sheet assets are almost rivaling on balance sheet. The portfolio profile - before reviewing the 10-Q - seems relatively conservative with first lien debt accounting for 78% of the portfolio. For better or worse - only time will tell - the two main industries CGBD focuses on are health care (very common for BDCs) and insurance brokerage (not so common). Leverage seems OK at 0.74X when looking at the metrics the BDC puts out but when the highly leveraged JV is factored in, note that $1.1bn of capital is buying $$2.8bn in assets between off and on balance sheet. We were encouraged - though we shouldn't be because these averages can be misleading - that portfolio companies grew EBITDA by an average of 10% in 2017. That's good to know especially anticipating debt service charges will be on the rise in 2018 with the rise of LIBOR. Going forward CGBD claimed to have booked no deals yet in the IQ 2018 (being selective) and expecting $150mn in run-off. Might result in a weaker IQ 2018 than the strong IVQ 2017.
TCPC: The Santa Monica-based BDC announced Net Investment Income Per Share well in excess of the median analyst projection: $0.41 versus $0.38. A number of Realized and Unrealized losses, though, reduced NAV for the quarter and for the year by a modest amount, from $14.92 to $14.80 in the last 3 months. The dividend remains unchanged at $0.36. The BDC Reporter adds: Overall TCPC appears to have posted good results, maintaining a 23 quarter record of covering the distribution with recurring earnings. Like in the prior quarter there was one loan on non-accrual but with no material fair market value. We've not yet reviewed the Conference Call transcript or the 10-K. From what we've seen in the press release, TCPC appears to be performing within our and the market's expectations for this high performing player.
FDUS: In intra-day trading FDUS reached a new 52 Week Low of $13.04. The BDC Reporter adds: The lower middle market focused has dropped within the last year from a high of $18.21. That's nearly a 30% drop and the stock now trades close to the BDC's All Time Low of $12.22. That was set back in the meltdown of early 2016. The price drop is all that more remarkable as FDUS has already announced an unchanged distribution for the IQ 2018 of $0.39. The current yield is 11.9% and trades (18%) below IIIQ 2017 book value.
TICC: The CLO-centered BDC reported Core Net Investment of $0.17, up from the prior period's $0.13. Net Investment Income was $0.15, slightly above analyst expectations of $0.14. NAV was up, despite a ($1mn) Realized Loss to $7.55. The dividend was unchanged for a fifth quarter in a row at $0.20. The BDC Reporter adds: We have reviewed the earnings release and listened to the Conference Call. In terms of initial analysis, the key point is that TICC is maintaining a high return on equity - Core Net Investment Income to Net Assets - of 9.5% despite having a low Debt To Equity by ignoring the BDC rules on non-qualified assets. Most BDCs seek to keep Joint Ventures and Clos and other investments deemed Non Qualified at under the 30% threshold set by the regulations. TICC has decided to go another way and has 38% of its assets in this category: all in the form of CLOs. See page 4 of the Investor Presentation. This is like an adrenaline boost to earnings given that CLO equity's average "cash distribution yield" is 20.2%, versus 9.7% on its qualifying loans. No wonder then that CLO income (on a GAAP basis) outstrips "normal" loan income by $7.2mn to $5.6mn. If we used the CLO number included in Core Net Investment Income the disparity would be even higher. TICC - as usual - is marching to its own drummer. The above notwithstanding, TICC is not close to earning - whether on a GAAP basis or "Core" basis - the $0.20 quarterly dividend. Nor can management even properly estimate what Taxable Income looks like. As explained again on the call to analysts who seem to forget from period to period, TICC does not get the breakdown of income between ordinary, capital gain and return of capital till the end of the summer after the end of its calendar year. As a result, we are three quarters away from knowing whether 2017's Taxable Income was equal, less or more than GAAP Income. For more on TICC see the full article on BDC Reporter.
MAIN: The BDC sold its interest in Hydratec, Inc. for an announced Realized Gain of $7.9mn and at the valuation on the books at 12/31/2017. The BDC has been involved with the company since 2007. The BDC Reporter adds: By using Advantage Data's extensive records, we see that MAIN's initial debt and equity investment was pared down to a $7mn equity stake only since IIIQ 2013. The value of the common stock has consistently been carried at or close to the $15mn which the BDC received for several years. By the way, Hydratec Inc. develops software for the sprinkler industry and is headquartered in that hotbed of tech innovation: New Hampshire. For MAIN, this is yet another feather in its lower middle market lending and investing cap, and comes after a series of Realized Losses last year. Investors should expect both Winners and Losers from MAIN's investing in both the debt and equity of smaller companies but the track record does suggest that the former will outstrip the latter over the long haul. On the other hand, we must remember that market conditions have been favorable to selling small companies for nearly a decade. Historical experience suggests a recession will result in much lower valuations, higher credit losses and far fewer exits. Till then MAIN is making hay - and booking material net gains - while the sun shines.
SAR: The BDC continued to raise its dividend regularly with the announcement of a $0.50 distribution for the fiscal quarter ended February 2018. The BDC Reporter adds: SAR has now increased its distribution 14 times since switching from its policy of only paying out its earnings in the form of additional stock, beginning in 2010. How much longer can this continue ? Last quarter Adjusted Net Investment Income was $0.54, but earnings can be erratic in what is still a relatively small BDC. However, we wouldn't be surprised if the streak continues in 2018.
TCAP/TSLX: Jordan Wathen at The Motley Fool has written a very useful article about the interest of TPG Specialty (TSLX) in Triangle Capital (TCAP) and its curious way of seeking to gain control of the BDC: sitting around and waiting for an opportunity to develop. Only time will tell if TSLX is right or if TCAP's value - when all is said and done - moves materially up from the $11 a share level. (We've looked at the portfolio in detail and rarely seen a BDC with so many problematic loans. This may have to do with management writing everything down now to give a buyer a pop later. Or the portfolio could just be in terrible shape). For our part we've stopped speculating on TCAP given how many moving parts are involved and so much insiders and would-be buyers know (but presumably not TSLX) and outsiders don't. Still, this will be one of the most interesting stories in BDC-Land in the spring and summer, especially if mighty asset managers with too much money and too few deals begin to clash over all that permanent equity capital TCAP raised over the years and is just calling out for an Investment Manager to charge 3-4% and slot into their "assets under management". Not to be cynical but after the FSC, FSFR, FULL, MCGC and ACAS deals the well being of the shareholders of TCAP will not be the paramount issue on the minds of the insiders at both TCAP and its many suitors.
MAIN: National Securities has increased its stock rating for Main Street from Sell to Neutra;. The BDC Reporter adds: NS made clear in its notes (not shown on the link but which we received by email) to underscore that the Sell rating which preceded this change of rating was due entirely to valuation issues rather than any concerns with the BDC's business. After all, who does not like MAIN ? Here's the final paragraph of the NS commentary:"We are revising our 2018 NII/share estimate to $2.48 from $2.42 and are rolling out our 2019 NII/share estimate of $2.61. We are also upgrading shares to NEUTRAL from SELL and increasing our price target to $35 from $33. The upgrade reflects the recent selloff in MAIN shares as well as the continued outperformance of the company relative to peers and our opinion that earnings prospects remain very bright for the company. As previously stated, our prior rating of “sell” was never to be taken as a negative view of the company operationally but rather due to valuation. With the shares down from the highs and the next two years appearing to have better earnings than we had previously thought, we believe it is prudent to upgrade the stock here."
MCC: On a day without any news, Medley Capital (MCC) dropped yet again to a 52 Week and All Time Low of $4.05. The BDC Reporter adds: As we've been saying for months, the numbers suggest MCC's dividend is not sustainable and yet another cut will be required as bad debts and spread compression conspire to squeeze earnings lower. With recurring earnings already well below the distribution - and much of that income of dubious quality anyway - the market is increasingly pessimistic. However, investors in both MCC and its public investor manager Medley Management (MDLY) might want to pay close attention if a dividend cut does occur. The lower payout level might affect the strange arrangement in which investors from Fortress and MDLY have invested bundles in MCC's stock. That two tier arrangement where the Fortress investors get a Preferred return if proceeds from distributions are insufficient to cover their promised return. Both MDLY and MCC have been very close lipped about the risks involved here in this arrangement - booked through a Special Purpose vehicle called Medley Seed Funding I, LLC. However our reading - and we've written extensively on the subject - suggests that at some point there is a risk Medley Seed Funding might be forced to dump its holdings into the market. That would cause huge pressure on MCC's stock and cause Realized Losses for MDLY. Worth noting and reading our archives.
TSLX: Following the year end 2017 results of TSLX, JMP Securities is maintaining its Outperform rating. The price target is $21.5. The BDC Reporter adds: As discussed in earlier posts, TSLX continued to do just about everything right but is trading flat at around $18.20, down a whopping (16%) from the 52 Week High of $21.74 in recent weeks. TSLX, though, trades at a premium to book and 9.6x the BDC Reporter's 2018 Net Investment Income Per Share estimate. If JMP Securities is right, investors have a potential 18% upside plus any dividends received to look forward to.
GAIN: The BDC signs agreement with investment bankers to sell up to $35mn of new stock. The BDC Reporter adds: Until recently, GAIN's stock was flying high, reaching $11.50 while NAV is at $10.37. Management seems to be seeking to take advantage of the huge upsurge in its stock - which for years languished at a massive discount - to raise a modest amount of new capital. Whether any sales will be made at a discount to book is unclear, but the stock price has dropped back to just over $10.0 and slumped - inexplicably nd briefly - to $9.25. This sales arrangement is unlikely to help the stock price but is an inexpensive way to grow the shareholder base.
MAIN: Key metrics such as Distributable Net Investment Income Per Share up hugely over prior year : 26%. For year achieved DNII of $2.56 versus $2.39 the year before. NAV jumped too from $23.53 from $22.10 at year end 2016 and 2.2$ over IIIQ 2017. As reported earlier, the IQ 2018 announced dividend was higher than the prior year and MAIN continues to pay semi-annual Supplemental Dividends. The BDC Reporter adds: Obviously a very good year for a BDC accustomed to annual achievements. Noted, though, that there were no virtually no net Realized Gains in MAIN's Control portfolio- which typically consists of Lower Middle Market deals where they often serve as lender and major investor. Last year MAIN booked $32mn in Realized Gains in this group. That's surprising in this hot house M&A environment. We will look at 10-K to see if the BDC booked numerous Realized Losses in year. At year end there were 5 borrowers on non accrual, which represented 2.3% of the portfolio at cost and just 0.2% at FMV. From the BDC Reporter's perspective, credit is the key issue to look out for. That's an issue which investors often forget about where MAIN is concerned.
HTGC: Adjusted (for debt repayment costs) Net Investment Income Per Share reaches $0.32 and IQ calendar 2018 dividend announced of $0.31. Net Investment Income Per Share down on year, but NAV and credit quality up. The BDC Reporter adds: Leaving out adjustments for both 2016 and 2017, HTGC's recurring earnings dropped from $1.34 to $1.16, hurt by spread compression, above average Realized Losses and dilution from new stock offerings. Most notably so-called Core Yields were down to 12.5% in IVQ 2017 versus 12.9% a year before. The small increase in NAV is entirely due to not distributing all income during the year. Still, the high flying BDC has improved credit quality and debt to equity - net of SBIC debt - is at a relatively modest 0.62x (real leverage 0.73x), in line with the prior year. The key question from the BDC Reporter for 2018 and beyond - as HTGC continues to grow its balance sheet (now over $1.5bn) and earnings ($100mn) in absolute terms - is whether the BDC will outgrow its specialty venture lending pond, and with what consequences ? More aggressive underwriting of venture deals ? Entering new "verticals" within the venture investing space ? Entering entirely new industry segments ? Apropos of nothing we can't help noting that HTGC does offer up the most comprehensive data set in any earnings release we've reviewed to date.
GSBD: IVQ 2017 Net Investment Income was $0.47 per share, as expected by analysts. NAV dropped to $18.09 from $18.23. The dividend remained unchanged at $0.45 for the 12th quarter in a row. The BDC Reporter adds: Difficult year for GSBD from a credit standpoint with Realized Losses of over ($66mn). The impact on earnings was offset by growing balance sheet, which boosted Investment Income. Still, Net Investment Income Per Share for 2017 dropped for second year in a row to $2.07 and $2.10 and $2.14 in the two prior years. On the plus side, non-accruals now only 0.1% of total investments at cost. Stock trades at premium to book and recent increase in Revolver suggests an equity raise in 2018 might be in cards.
SLRC: IVQ 2017 Net Investment Income came in above analyst expectations at $0.44 versus $0.42 projected. For year NIIPS was $1.62. NAV was up by 1 cent. The dividend - as previously announced - was increased to $0.41 for the IQ 2018. Results achieved without special fee waivers. BDC Reporter adds: Excellent earnings in the quarter, helped by originations exceeding repayments and portfolio yield unchanged on year despite spread compression. SLRC transforming itself very quickly into a diversified commercial finance company with 200+ borrowers in various portfolios. Outlook for 2018 helped by lower 0.25% management fee announced earlier. More details to follow on review of Conference Call and 10-K.
SUNS: Earnings and NAV for IVQ and full year 2017 came in as analysts expected. Quarter's earnings $0.35 and $1.41 for year. NAV up 3 cents to $16.84. Gross yield up due to new NorthMill acquisition. No loans on non-accrual. BDC Reporter adds: We've not yet reviewed the 10-K, but SUNS appears to be on track, maintaining results essentially unchanged from 2016. However, results achieved thanks to increased fee waivers by Investment Advisor. Without the boost earnings would be well below the distribution level - now unchanged for 23 quarters after declaration through March 2018.
TSLX: The BDC announced quarterly and annual results through December 31, 2017. Net Investment Income Per Share was in line with expectations; the dividend unchanged at $0.39 (with a supplementary $0.03 payout) and the NAV Per Share identical with the prior quarter. NAV was up on the year but mostly due to undistributed GAAP earnings. Credit quality remained almost perfect. The BDC Reporter adds: On a quarterly basis, the weakest of the year at the Net Investment Income Per Share level, but a good year overall, with considerable margin between GAAP income and distributions. Leverage actually declined by year's end. However, the most intriguing element to come out of the earnings release and 10-K - which we've reviewed in detail - is TSLX's apparent interest in investing in beleaguered Triangle Capital (TCAP). TSLX famously sought- and failed - to gain control of TICC Capital (TICC) a couple of years ago (and still owns a few shares in memoriam) and now appears to have a new target in mind. In this case, though, TCAP 's insiders are open to a transaction of some sort, but we have no idea who is on the short list. More might be revealed at the Conference Call.
MAIN: The monthly distributions for the IIQ 2018 were announced, and were identical to the first quarter at $0.19, or $0.57 a quarter. That was as expected. BDC Reporter adds: We have a Dividend Outlook of UNCHANGED for MAIN in 2018 and with 2 quarters of payouts announced are halfway there.
MCC: In early morning trading MCC hit a new 52 Week and All Time Low of $4.08, continuing a trend that began in March 2013 when the stock was above $16.00. BDC Reporter adds: Market appears to share concern of BDC Reporter that dividend is due for another decrease, despite unchanged IQ payout. See the BDC Reporter's Dividend Outlook article of February 7, 2018: https://bdcreporter.com/2018/02/medley-capital-dividend-outlook-updated/
MCC: The BDC filed an 8-K containing Amendment #4 to its Revolver, which includes the repayment in full of the accompanying Term Loan by drawing on the facility on February 12, 2018. The BDC Reporter adds: Where most BDCs are seeking to build up their balance sheets and their financing arrangements, MCC is reducing both and has been for several quarters. The goal is to minimize debt costs at a time when every penny of earnings is precious as recurring earnings per share continue to sit below the (reduced) distribution level.
MCC: As many BDCs are doing to appeal to non U.S. investors MCC announced that 100% of its March 2018 distribution of $0.16 consists of "non-qualified ordinary taxable income". This information is aimed at Israeli investors on the Tel Aviv stock exchange where MCC is now also listed. The BDC Reporter adds: Just a small instance of how U.S. BDC investments are becoming a global phenomenon.
MCC: Two routine annual resolutions: the re-election of two directors and the appointment of the independent accountant were overwhelmingly approved by shareholders. BDC Reporter adds: Not material.
SAR: ComForCare Health Care Holdings LLC, an in-home care provider has acquired CarePatrol, a senior placement franchise based in Gilbert, AZ, according to a statement by ComForCare.BDC Exposure: $10.4mn in First Lien debt.
ARCC: Files Proxy to request shareholder approval to issue shares below NAV if Investment Advisor Advisor and Board deem necessary. Vote to be held in May 2018 and authority lasts 12 months. BDC Reporter adds: ARCC asks for this approval every year but has not pulled the trigger below book in many years. Unlikely to break that streak if all goes as expected. However IF a crisis does occur AND markets worry that ARCC will use approval at below book price, there is a risk of increased price drop as shareholders seek to get out ahead of forced dilution. Frequent phenomenon in 2008-2009, almost forgotten by investors today.
FDUS: The distribution is unchanged - as expected - at $0.39 for the quarter. Ex-date is March 8, 2018. BDC Reporter adds: Dividend Outlook is UNCHANGED.
ARCC: Core Net Investment Income Per Share up to $0.38, in line with distribution. NAV up to $16.65. Met our expectations despite major Realized Loss.
TOFS: Announces $0.37 Special Dividend due to Realized Gains. Mentions monetization of Malabar International and smartTours, LLC. Ex-date March 22, 2018. BDC Reporter adds: These are major Realized Gains which OFS has not chosen to reflect as a "deemed distribution". Suggests two big equity gains in IVQ 2017.
CMFN: Raymond James downgrades CMFN to Market Perform from Outperform. BDC Reporter adds: CMFN had dropped sharply in price prior to the analyst call, from $8.6 to $7.750 on February 7, 2018. Has since increased. BDC Reporter adds: Dividend Outlook is DECREASE for 2018 but IVQ 2017 results were above our expectations. Reflected in volatile stock price as uncertainty increases.
HCAP: The BDC announced monthly distributions of $0.095 for first 3 months of 2018. Down from $0.1125 monthly previously, a -16% decrease.
2/8/2018: Net Investment Income Per Share down but after adjustments for one-time items as expected at $0.25.
SUNS: Dividend unchanged at $0.1175 as expected. BDC Reporter adds: We maintain our Dividend Outlook of UNCHANGED for 2018, with two dividends announced.
GLAD: Two analysts are more positive. National Securities goes from Sell to Neutral and Ladenburg to Buy. BDC Reporter adds: We maintain our Dividend Outlook of UNCHANGEd but have a NO BUY common stock rating. Too expensive.
AINV: Net Investment Income as expected at $0.16, equal to dividend level. NAV down. BDC Reporter adds: Notwithstanding improving credit metrics, AINV cannot sustain distribution if no change made to fee structure. Current waivers are keeping earnings artificially high. Moment of reckoning comes next quarter when waivers end. Our Dividend Outlook for 2018 maintained AT RISK. Stock rating is NO BUY
PSEC: IVQ 2017 results for PSEC were above analyst expectations at $0.20 per share and NAV increased. Also announced unchanged monthly distributions of $0.06 from February to March.
HTGC: Wedbush upgrades HTHC to Outperform from Neutral. BDc Reporter adds: Wedbush has stepped in with HTGC at 5 month low. We have a Dividend Outlook of UNCHANGEd and a stock rating of NO BUY, due to uncertainty about CEO intentions.
PFLT: Dividend unchanged at $0.095 as expected. BDC Reporter adds: We maintain our Dividend Outlook for 2018 of UNCHANGED.
WHF: JP Morgan downgrades to Underweight from Neutral. BDC Reporter adds: Seems a bit late given WHF has dropped from $15.05 to $12.550 on February 5, 2018 close. We maintain our Dividend Outlook of UNCHANGED for 2018 and internal BUY rating.
2/6/2018: BDC announces $25mn repurchase program for 2018. BDC Reporter adds: Probably more symbolic than anything but stock trading $2 a share off estimated IVQ 2017 estimated book value.
MCC: Net Investment Income Per Share below expectations - and below $0.16 distribution - at $0.13. NAV down. BDC Reporter adds: Affirm Dividend Outlook for 2018 at DECREASE, notwithstanding IQ 2018 dividend announced at $0.16.
GAIN: Net Investment Income and NAV above expectations.
CSCWC: Net Investment Income Per Share $0.27 as expected. NAV up.
.GLAD: Net Investment Income Per Share $0.21, as expected. NAV up.
MFIN: On January 31, 2018 Freshstart Venture Capital - a subsidiary of MFIN- agreed to amendments of its Loan Agreement with the SBA. This was one in series of changes made in recent months as MFIN struggles to repay debt obligations in its non-bank companies.
NMFC: The BDC issued $90mn in Unsecured Notes due 2023 at a rate of 4.87%. The Notes were privately placed and will initially be used to repay existing Revolver debt. The BDC Reporter adds: That will increase interest expense in the IQ 2018 results due to the issue costs and the higher cost of the Notes versus the existing Revolver.
HTGC: The annual distribution for 2017 was $1.24: 87% Ordinary Income taxed at highest personal level and 13% LT Capital Gain. 100% of income was considered "interest related" for Non U.S. taxpayers.
ACSF: Total dividend paid in 2017 : $1.1624. 100% treated as Ordinary Income and taxed at highest personal tax rate in taxable accounts. 65% of dividend considered "Interest Related Dividends" for Non U.S. investors tax purposes.
CSWC: In 2017 paid $1.16 in distributions and only 55% were Ordinary Income and taxed at highest rates. Rest LT Gain and Qualified Dividends, which reduces tax bill in a Taxable account.
FDUS: New Baby Bond priced at 5.875%, with 2023 maturity and 2020 Early Redemption option. $43mn raised. $48mn if underwriters exercise option. Cost under 1% than all-in cost of bank borrowing.
ARCC: Breakdowns $1.52 in distributions between Ordinary,Qualified and LT Gain. 93.3% of income is Ordinary and taxed at highest rate.
FDUS: To issue 2023 Unsecured Notes with ticker FDUSL. Provides IVQ 2017 earnings/NAV estimate. VIEW: Info in Note Prospectus suggests earnings down temporarily, portfolio growing.
TCRD: At $8.68, TCRD yield is 10.4% and trades at 24% discount to NAV. Hard to tell where stock bottom might be.
FDUS: A BDC Reporter exclusive article: Fidus Investment opens the door halfway in advance of its earnings release and we have a look. Is the BDC's stock price drop warranted ?
FDUS: Lowest level since March 2016 following long slide and IVQ 2017 earnings preview. After review, we remain convinced FDUS remains on track and dividend outlook remains UNCHANGED.
BKCC: Hits new lows in advance of earnings. Hard to tell where bottom is with stock trading at 25% discount to book.
PSEC: Announced the purchase of $70 million of first lien senior secured floating rate loans as part of the acquisition of Town & Country by H.I.G. Capital.
OFS: OFS drops intra-day to $11.36 on new no news. Market appears to anticipate poor IVQ 2017 results but no date yet set for earnings release.
WHF: This is good news for the Company and for its lenders. We learn from the article that some debt has been paid down and the infusion of new equity capital by the founders and a group of investors led by Goldman Sachs solidifies the Company's prospects. One of the remaining pieces of the puzzle is identifying a new CEO. A COO has been appointed. Both the founders get kicked upstairs.
CPTA: Yet another class action lawsuit against CPTA claiming false statements and seeking damages. Not material at this stage. [Press Release]
MCC: Notable partly because Notes were issued on Tel Aviv stock exchange. Likely to repay existing MCV Baby Bonds with over 1% higher coupon. Only second BDC to tap the Israeli market with institutionally focused debt offering. [Press Release]
PSEC: Very few details on pricing, terms or reason for recap (dividend ?). [Press Release]