GECC: Don't be too impressed by the $0.57 Net Investment Income Per Share achieved in the quarter versus $0.36 last quarter, and way above the $1.0 annual dividend bogey. Much of the profit was due to the reversal of incentive fees, or $0.20 per share. Moreover, book value per share stayed the same in the quarter at $11.79. Once again, biggest investment and a major contributor to earnings Avanti Communications was written down in value, despite its recent restructuring. We reserve all judgement till we review the latest 10-Q and the Conference Call transcript in greater detail.
CCT/FSIC: In a Form 425 Filing, CCT republished an excerpt from its Investor Presentation which gave the investment benefits to be derived from merging with/into FS Investments (FSIC). Specifics or dollar estimates are not to be found - either in the presentation or during the accompanying Conference Call. Some cost savings (operating costs and interest expense) promised, which seems likely but minor. From a risk standpoint, less concentration of top 10 holdings is a plus. On the other hand, the enlarged FSIC eyeing greater usage of the enlarged 30% non qualified asset basket is a euphemism for more off balance leveraged activity, and less disclosure on how the investments are performing. Otherwise, no mention of lower fees and no discussion of whether this much bigger portfolio might push the combined BDC into ever larger transactions ( a very competitive arena and head to head with more experienced lenders, including Ares Capital) and away from the middle market.
HRZN: The technology BDC filed a Form N-2 Prospectus to raise up to $250mn in new capital. We believe an unsecured note offering is more likely than common stock,
CCT: Soon to be merged into FSIS, CCCt reported the sort of results you might expect. "Pro Forma Net Investment Income Per Share" was $0.40, up from $0.39 the quarter before. The dividend - payable in October before the merger - was unchanged at $0.402. Net Asset Value dropped as certain investments were written off. On a per share basis NAV - critical to the ultimate value shareholders will receive when merging with FSIC- dropped to $19.58 from $19.72, only a 0.8% reduction. We won't discuss any more of the metrics or any projection given the short life remaining in this BDC which only went public last October. "CCT, We Hardly Knew Ye !".
MCC: We won't seek to summarize the components of this highly unusual and complex proposed transaction here. Many details are yet to be filled and a Proxy is weeks away. The bottom line, though, if this deal goes through is that MCC will disappear as a public BDC and be absorbed into Sierra Income - currently a non traded BDC - which will itself go public. Plus, the asset management activities of Medley Management - the current Investment Advisor of MCC - will be folded into Sierra Income. Our initial reaction to all this financial engineering is not positive. We sense a certain desperation after continuing decline in performance at MCC and the unresolved question of how Medley Management was to repay or refinance its unsecured debt. We are staying away in droves until we learn more.
MCC: The troubled BDC reported the lowest Net Investment Income in its history ($0.02 per share). Even if we add back unusual costs, the running rate remains well below the dividend. NAV and NAV Per Share also dropped sharply as the BDC prepares to merge with Sierra Income - a non traded BDC - and with the parent of its Investment Advisor.
FSIC,CCT: In an unusual move, KKR and FS Investments have set up a huge Revolver for use by multiple BDCs controlled by the two partners, including publicly traded FSIC and CCT.
FSIC: We have projected Net Investment Income Per Share (NIIPS) for FSIC of just $0.80, just slightly over the $0.76 in dividend "liability". This quarter, adjusted NIIPS were just $0.19 or $0.76 annualized. Despite some Realized Gains (will look for names in the 10-Q), book value dropped as unrealized depreciation increased. Book value per share dropped for the third quarter in a row to $8.87. Leverage was relatively high at 0.77x, suggesting that there's little in the way of portfolio growth to boost earnings. We're reserving final judgement till we read the 10-Q and have a better look at the 109 (!) company portfolio. For the moment, we're projecting adjusted NIIPS over the next 12 months of $0.76. Not a very exciting starting point for a BDC about to get much bigger with the addition of Corporate Capital Trust (CCT). Still FSIC is trading within a 25% band, 7% off its 52 Week High. Its $8.10 price is a 10.7x multiple of projected 12 month earnings and a 7% discount to book.Neither very cheap nor very expensive.
TCRD: For a second quarter in a row TCRD has been able to hang onto its $0.27 Net Investment Income Per Share (NIIPS) . We've been expecting a drop of NIIPS to $1.00. Instead TCRD soldiers on with the Investment Advisor making fee concession after fee concession with a view - by 2019 - of getting the portfolio back on an even keel. According to the Conference Call transcript, management claims some success turning around troubled portfolio companies. We'll defer agreeing or disagreeing till we review the 10-Q. In any case, this is a BDC still very much in a turnaround mode. We're not going to make a 12 month NIIPS projection at this point and wait till we can undertake a full portfolio review.
HTGC: In a filing, HTGC updated an agreement with JMP Securities for the latter to sell shares on its behalf. There are still 6.2mn shares that could yet be sold under this slow and steady way of raising capital.
PNNT: According to the press release and the Conference Call, everything is going swimmingly at PNNT even if Net Investment Income Per Share (NIIPS) was down to $0.17 in the quarter from $0.19 the quarter before. Book value per share increased to $9.09 from 9.00 the quarter before. We had projected for 2018 NIIPS of $0.75,but are marginally reducing our outlook for the next 12 months to $0.72. Coincidentally or otherwise, that earnings level exactly covers the annual dividend liability.
PFLT: Helped by LIBOR and a growing portfolio PFLT actually earned - on an adjusted basis - more than its dividend in the quarter, even if book value dropped slightly. In the first quarter Net Investment Income Per Share was $0.24, this quarter $0.28 or $1.12 annualized. For the next 12 months we project $1.16, allowing PFLT for the first time in a long time to generate earnings beyond its dividend and without reliance on any fee waivers.
MRCC: Adjusted Net Investment Income Per Share was in line with our full year $1.51 projection. We expect the next 12 months to climb higher to $1.60, well above the annual $1.40 dividend level. Book value was hurt by the decision to close The Picture People restructuring, dropping from $13.49 to $13.35. The BDC has seen its book value drop several quarters in a row, but we have no reason to believe at the moment that further troubles lie ahead. A full portfolio review will give us greater confidence.
AINV: As expected AINV's Net Investment Income Per Share (NIIPS) was $0.15, same as the quarter before and in line with our 2018 projection of $0.55. Book value per share dropped - again - to $6.47. Last year the number was $6.73. That drop continues despite a health buyback program which boosts NAV Per Share. Confusing to us is that leverage was up a lot to 0.78x (debt to equity) from 0.57x the quarter before and still NIIPS remained the same. Maybe management is just waiting for the extra capital that will flow in 2019 from adopting the new leverage rules and which could add as much (at the targeted maximum of 1.4x debt to equity) as $0.84bn in new assets/debt. How much extra earnings can inure to shareholders remains a mystery as the BDC's cost of borrowing is very high, and management is targeting lower risk-lower yield assets after a run of bad credits. We still need to review AINV's 10-Q to see what's happened to the risk profile of the BDC. Judging from the higher leverage number, and the fact that unrealized depreciation of assets has increased (net of offsets to Realized Losses) risk seems to be on the increase even as return is flat.
HCAP: The tiny BDC's Core Net Investment Income Per Share increased to $0.25 from $0.19 in the prior quarter. Still HCAP is below our original 2018 projection of a $1.12 NIIPS, undertaken before some credit issues clouded the outlook. The distribution is at a $1.14 annual pace - albeit paid monthly. That begs the question as to what could cause HCAP's earnings to rev up. We will need to review the 10-Q and the Conference Call to work that out. Despite the increase in NIIPS in the quarter we remain worried about HCAP whose book value is only $80mn and trades at a 11% discount.
GBDC: Using the Net Investment Income Per Share adjusted for the cap gain incentive fee due, GBDC earned $0.33 per share in the second quarter, up from $0.32 in the first quarter. We had projected adjusted NIIPS of $1.25 for 2018, which is within our 5% margin of error on an annual basis. Going forward twelve months we're projecting - based on the very solid performance of this highly diversified BDC $1.28 of adjusted NIIPS. That will cover the dividend of the same amount. More importantly - at first blush - credit quality appears to remain good shape with only a tenth of the 192 company portfolio (on a value basis) in the under-performing category. No word yet as to whether GBDC is going to lever up in some way.
SCM: The BDC reported better Core Net Investment Income Per Share than in the first quarter, reaching $0.33, up from $0.27. That's in line with our projection that SCM will earn $1.36 in 2018 (up from $1.24 in 2017). However, a growing portfolio and an increased Revolver egged on by shareholder approval to increase leverage should push the next 12 months earnings up even more: to $1.40 in our estimate. That's above the dividend of $1.36 which SCM has paid quarterly in unchanged fashion for 23 quarters.
WHF: On the one hand, even when using Core Investment Income WHF struggled to generate recurring earnings to meet its long established $0.355 quarterly distribution. In fact, those recurring earnings were lower than a year before at $0.331. On the other hand book value jumped substantially thanks to the incredible reversal of fortune at the Aretec Group, one of WHF's biggest historical credit slip ups but now a soon to be sold equity investment, going at a premium price. That has helped book value reach a new high, and increase 7.5% in a year. Looking forward, we had projected 2018 Net Investment Income Per Share of $1.42. Combining both the first two quarters, we're still optimistic that number will be met and we expect the next 12 months to go up slightly to $1.45, covering the $1.42 dividend. WHF will be helped by the initial leveraging up of its balance sheet, just approved by its shareholders. The challenge - as is the case with most BDCs- is finding enough good deals to replace the constant portfolio run-off. A quality problem to have.
HTGC: Two lenders resign from Wells Fargo Revolver as facility is extended. No explanation, just an SEC filing.
TCPC: TCPC's Net Investment Income Per Share (NIIPS) was $0.41 per share in the second quarter. That's in line with our 2018 projection of $1.64, and a step up from the first quarter's $0.37 result. Looking forward twelve months, we project NIIPS should hover around that $1.64 level, well above the stated distribution level of $1.44. The BDC did report lower values on 4 portfolio companies - out of 97 - but all were well known - to the BDC Reporter at least - as troubled credits. NAV Per Share is now at $14.61 from $14.90 but should have little impact on recurring earnings. There is only 1 company on non accrual, but we've not yet undertaken an in-depth portfolio review. Of course, much time on the IIQ Conference Call was devoted to the new ownership of the Investment Advisor by BlackRock Inc, which has resulted in a name change : BlackRock TCP Capital. However, the ticker remains unchanged as does the logo on the press release ! In fact, management struggled to make much of a case for how its new relationship with BlackRock would cause much visible change in the BDc's future strategy, performance, costs or management style. Likewise, nothing has yet changed where the BDC's leverage is concerned. Unlike many of its peers who are rushing to adopt higher leverage, TCPC is still mulling what to do, which is refreshing. Nonetheless, we're betting TCPC will eventually join the higher leverage crowd, probably with some self imposed limitations. In the interim- both in terms of likely earnings and business strategy - it's business as usual at TCPC.
NMFC: The BDC achieved $0.34 in Net Investment Income Per Share, equal to the prior quarter and in line with both our 2018 projection and the dividend. We still expect 2018 and the next 12 months to result in $1.38 per share.
TPVG: We now know what price TPVG will be receiving for it's large secondary stock offering: $13.66. Plus the $0.04 per share of costs the BDC's Investment Advisor will be absorbing as a good faith gesture. That's a slight premium to the latest book value per share of $13.45. In any case, it's refreshing - at a time when many BDCs are adding capital prospectively with a Board and/or shareholder resolution allowing for more debt issuance, to see equity capital being raised. This will shortly allow TPVG to leave the under $500mn in portfolio assets club in which there are 18 denizens, and enter the $0.5bn-$1.0bn group, where there are already 12 players. We expect TPVG - by portfolio size - will be right in the middle of the 46 BDC pack (soon to be 44 when ACSF liquidates and Corporate Capital Trust disappears into FS Investment). That's an accomplishment for a specialty BDC that came public only in March 2014.
BBDC: As promised from the outset, the newly renamed BBDC is doing everything in its power to support its stock price. In this case, the new Investment Advisor - shortly after buying $100mn in shares at book value for itself - is arranging a Dutch Auction to buy-back up to $50mn of the BDC's common stock. That follows a on time distribution to shareholders as compensation for Barings taking on the external management of what was internally managed Triangle Capital. This whole exercise will be over by September 6 and the new team can settle down to focus on the business of deploying the large amounts of cash on the balance sheet into a viable loan portfolio. From our perspective, Barings LLC is doing all the right things - except where the Management Fee is concerned which will still eventually increase back to 1.375% - from a shareholder's standpoint. (For the record, we bought the stock in the week). However - as the expression goes - there can be too much of a good thing. The Dutch Auction leads to much speculation and short term thinking which has resulted in huge volumes of traded shares and a bouncy stock price on a BDC with no investment assets and nothing but blue sky ahead. How long till BBDC joins the ranks of "normal" BDCs with at least its equity capital fully invested in loans ? We're guessing no earlier than the IVQ 2018, which means we won't be listening to any Conference Calls and reviewing portfolio lists till early 2019.
GARS: The Net Investment Income Per Share (NIIPS) of GARS dropped to $0.27 from $0.31. That's a $1.08 annual pace and in line with our 2018 projection of $1.11. Book value dropped as well, for yet another quarter as Unrealized Depreciation in the portfolio continues. We will review the 10-Q and listen to the Conference Call before projecting the next 12 months NIIPS.
CGBD: The Carlyle BDC announced Net Investment Income Per Share (NIIPS) of $0.45, up from $0.40 the quarter before. We were below our $1.70 per share 2018 projection in the first quarter and above in the second quarter. On a YTD basis,though, our 2018 projection is on plan. However for the next 12 months we expect a tick-up - boosted by LIBOR and a bigger portfolio - that NIIPS will climb to $1.80, which is well above the $1.48 annual dividend and an OK Return on equity of 8.3%. Still, we're not ignoring the fact that larger unrealized depreciation caused book value per share to drop materially to $17.93 from $18.09 3 months before. We will have a better picture after reviewing the 10-Q.
WHF: There were 3 items up for a shareholder vote at WHF. Two were routine and were approved. The third item was approving the lower asset coverage limit under the Small Business Credit Availability Act. That was overwhelmingly passed by shareholders and means - on a pro forma basis - the BDC can add as much as $395mn in assets to its balance sheet and a like amount to its debt. That would be a 77% increase of the former. We await guidance on the BDC's actual Target Leverage. For our own calculations (the BDC Reporter is keeping a list of BDC adoptees and the likely maximum amount of increase in assets/debt) we have assumed Target Leverage of 1.5x, which would result in a $243mn increase in assets/debt and a nearly 50% increase. One more piece of evidence of how monumental the changes that will be wrought by the new law even though WHF and its peers will struggle to deploy that extra capital in full before 2020 in our estimation.
SUNS:Yet another BDC signs up for the higher leverage allowed under the Small Business Credit Availability Act. The Board is targeting leverage as high as 1.5x equity (versus 2.0x allowed). Shareholders will get the chance to say Yes - which they likely will - shortly. Interestingly, the BDC expects to bring loan assets held in its off balance sheet JV back on because of the new "flexibility". Anyone thinking that's out an abundance of caution would be mistaken. SUNS wants to free up room under its now expanded 30% non-qualifying asset exception to invest further in third party finance companies. Of course those entities use third party leverage themselves, which will boost "real " leverage all the more. In any case, we calculate that on balance sheet assets/debt will increase by $219mn at the 1.5x leverage level. That's a nearly 50% increase in total assets.
SLRC: Like its sister company, SLRC is adopting the new leverage limits and asking shareholders for approval shortly. Likewise, SLRC- whose business is otherwise very different than SUNS - will be bringing its off balance sheet Joint Ventures in-house. Again, that's to allow the BDC to invest in non-qualifying assets : i.e. acquiring other finance companies, as very clearly spelt out in this press release. There are a few differences between the SLRC and SUNS approach. SLRC is aiming at Target Leverage of "only" 1.25X, which should add $687mn in assets/debt to the $1.4bn portfolio. That will increase total debt - currently at $472mn - by nearly 150%. In a now frequent concession by the bigger asset managers, SLRC will be reducing the Management Fee on assets over the 1:1 debt to equity limit to 1.0%. What has historically been one of the most under-leveraged BDCs is positioning itself to become one of the most highly leveraged, especially when portfolio finance company third party debt is taken into account.
PSEC: In a not unexpected development PSEC was able to extend the maturity of its secured Revolver to 2024. In an un-generous and not very material change, the spread over LIBOR was reduced by 5 basis points to L+2.20%. That's a pretty good interest rate, and a lengthy maturity from PSEC's perspective given the relatively high risk assets securing the obligation. Given,though, that PSEC barely uses the Revolver, preferring the more expensive but less restrictive unsecured note market the impact on liquidity and expenses should be minimal.
ACSF: After weeks of anticipation, the Investment Advisor announced the likely proceeds of the BDC's liquidation and the time involved. Initially each share of ACSF will receive $8.80 per share on August 27. A second round of distributions is targeted for September in a range of $3.53-$3.66. Using the top of the range that adds up to $12.46. There have been $0.388 in dividends paid already. There won't be any more and the BDC will be de-listed on August 27. Total proceeds will thus be a max of $12.85. That's a 2% discount to the book value of ACSF at March 2018. So we are almost at the end of the existence of the BDC - by no coincidence - with the lowest Management Fees (and no Incentive whatsoever !). Ares Management - parent of the External Manager - has not covered itself in glory in this self designated dismount. A more generous parent would have guaranteed the full value of the stated book value, purchased the assets into one of its own funds and paid off ACSF shareholders in one lump sum and we'd be done by now. Instead, shareholders will have to check their mailbox two or three times before this liquidation is complete. Shareholder friendly ? Only as long as the External Manager is making its nut.
CPTA: The troubled BDC met our modest expectations ($1.08 for the full year) with a Net Investment Income Per Share of $0.26 ($1.04 annualized), two cents down from the prior quarter. Several bad investments were written off for a total of ($22.6mn). That's a quarter of aggregate Realized Losses and equal to 9% of equity capital at par. However, that was all expected and none of the assets involved were generating any income for CPTA for some time. Book value actually increased in the period, thanks to Unrealized Appreciation. There are still 3 loans on non accrual with fair value of $26mn. Nonetheless, the picture is less grim that it seems. There is only 1 loan on our Worry List that might impact earnings in the future (CableOrganizer). The rest have no impact on income and there do not seem to be any new companies deteriorating in performance. Even more importantly, CPTA is still in position to sell multiple equity positions (over $120mn in FMV) and use some of its big cash balance ($41mn), not to mention draw on its Revolver, to fund future loan and income growth. If management - constantly pointing to its loan origination capabilities - can start booking some lower risk-lower yield loans we may see (as we've anticipated in our 12 month projection of $1.10) an increase in EPS in the quarters ahead, even if NAV drops a little further.
SUNS: The slow but steady BDC, which like its sister company is evolving into a multi-armed finance company - reported Net Investment Income Per Share of $0.35. That's exactly the same as the last quarter and as we expected in 2018, where our full year estimate is $1.42. Of course some of that predictability in SUNS earnings is achieved by having the Investment Advisor waive a portion of fees in the period. Still that subsidy has reduced by half since last year and should become A Thing Of The Past in the next quarter or two. With bad debts seemingly low and higher income likely from that increasing LIBOR and higher leverage, we project $1.42 of NIIPS over the next 12 months.
SLRC:For a second quarter in a row, SLRC's Net Investment Income Per Share exceeded our 2018 projection of $1.72. Instead SLRC reported NIIPS of $0.45, or a $1.80 pace. What's more book value per share continued to meander upwards for yet another quarter. Earnings are running far over the $1.64 annual dividend rate.The conversion of the BDC into - essentially - a holding company for multiple finance companies continued, with few hiccups to date. We are projecting over the next 12 months (we like to look forward on a rolling basis) even higher NIIPS, both from momentum in the underlying businesses as well as the fillip to come from the adoption of the higher leverage allowed under the Small Business Credit Availability Act. As to risk ? We'll have a look at that apparently forgotten subject on reviewing the 10-Q and the latest Conference Call transcript.
TPVG: The venture-debt BDC is aiming to raise a boatload of new equity capital in a secondary from both public investors and at least two well known institutional groups. That could bring in as much as $100mn in new equity into a BDC which has only raised about $240mn in equity capital to date. Add to that the just approved extra leverage allowed under the Small Business credit Availability Act and total assets could be ready to grow by $280mn from $398mn currently. We'll save you from reaching for your calculators: that's a pro-forma 70% increase at full stretch. To put that into perspective, that would make TPVG 3 times as large in portfolio assets terms as Horizon Technology (HRZN) and half the size of Hercules Capital (HTGC). We are both impressed and worried about where all this capital is going to go. Fast growth and BDCs rarely go together. BDC historians will point to Fifth Street Finance and Medley Capital (MCC) - which both grew at a breakneck pace- and then tripped up. Lending - which is still mostly what all these VC oriented BDCs do - is more akin to a craft shop than a factory. We'll be taking TPVG off our Long Term Income prospect list for awhile out of an abundance of caution, while keeping our eyes peeled for a Special Situation opportunity should the stock price drop too much. We won't be holding our breath. Investors are in a semi-euphoric mode. The main beneficiaries in 2018 will be the holders of the BDC's Baby Bond (TPVY) - which includes us - who will gain from the greater diversification and increased equity capital that will ensue.
CSWC: Before reviewing the 10-Q and listening to the CC, CSWC seems to be on target for further drama-free growth. We refer to the continual upward slope where EPS is concerned; the absence of any non accrual and the continuing major unrealized gain in one of its portfolio companies. Moreover, debt to equity is still at only 0.4 to 1.0 and the BDC has shareholder approval to "leverage up" to boot. Then there's a sensible, no nonsense management team with an ever increasing cadre of professionals and all of this in a low cost "internally managed" model. Like with Triple Point (TPVG) our greatest concern is that haste will make waste where credit quality is concerned. That's not been the case to date but these are early days for a portfolio that has largely been gathered only in recent years. CSWC is doing everything right, which only makes the BDC Reporter keep an even more eagle eye on its progress. After all, the stock is trading at a 14.75x multiple of current earnings annualized; close to book value and only 6% off it's all-time high as a BDC. "Trust but verify".
BBDC (TCAP): The Triangle Capital (TCAP) website has become the Barings BDC website. The new ticker is BBDC. Barings now becomes the Investment Adviser to formerly internally managed TCAP. So long and farewell to TCAP, long a high flyer but a serial dissapointer from a credit standpoint in recent years. That portfolio is now owned by Benefit Street Partners. What remains at BBDC is cash including $100mn just funded by the new Investment Advisor. Here we learn what BBDC paid for the new stock issued: "At close, Barings invested $100.0 million in cash in new Barings BDC shares at a price of $11.72 per share, which represents TCAP's pro-forma NAV estimate, accounting for the sale of TCAP's assets to BSP Asset Acquisition I, LLC, as well as other transaction expenses including but not limited to debt extinguishment costs, transaction fees, restricted stock vesting, severance costs, and a partial year bonus payment."
ABDC: As we expected ABDC's Net Investment Income Per Share dropped from $0.27 in the first quarter to $0.25 in the second quarter. We have projected $0.85 for 2018, compared to $1.46 in 2017. That's what happens when you make a series of loans that go on non accrual; reposition yourself into lower yielding assets and change out your management team. We still expect further quarterly drops from a lower portfolio size and yield. This quarter the yield dropped but not as much as we should expect going forward. Moreover - notwithstanding $20mn in Realized Losses - the credit quality of the remaining portfolio continued to weaken with setbacks at several under-performing portfolio companies. W count 3 key troubled companies whose future performance - for good or ill - will greatly impact ABDC's future NAV and - most importantly - its recurring earnings. By no means is the turnaround underway at ABDC yet completed. The new management - when drawn on the subject - gave themselves a two year time frame to "fix" the BDC. The good news ? No new under-performing companies added to the Watch List. The bad news ? There are still 10 companies on the Watch List out of 32 in total (up 3 CLOs), and nearly $50mn in troubled assets of one kind or another by our count (management's number in the 10-Q is $23mn). That's on a total portfolio of $246mn. At a stock price which is at a (44%) discount to book ABDC may seem like a bargain, but there are real issues here which could go any number of ways and a senior management team that is new, untested and kept very busy with its "legacy" investments.
NEWT: On the same day as NEWT reported its earnings, one of its subsidiaries arranged a new $75mn Revolver with Capital One (its lender of choice), guaranteed by the parent.
MVC: This transaction - announced some time ago and covered by the BDC Reporter - has now closed with details of cash received now confirmed. In relative terms, a smaller size deal for MVC.
GSBD: Based upon a review of the earnings release alone, GSBD had a slightly better quarter than the IQ 2018, with Net Investment Income Per Share at $0.50 (versus $0.47) helped by higher fee income and other items that fluctuate from quarter to quarter. However, there was a slight drop in book value due to Realized and Unrealized Losses of ($2.7mn), which is worth investigating. The BDC has a relatively shareholder friendly Incentive Fee arrangement. That brought down those fees this quarter, which also contributed to the higher earnings. Ironically - given that GSBD has received shareholder approval to substantially increase leverage - total debt on the balance sheet is down from year end. (It's up in the JV as GSBD continues to grow that half billion dollar portfolio in which it has a 50% stake). Looking forward for the next 12 months, we expect Net Investment Income Per Share will exceed our $1.91 projected for 2018. We project $2.10 versus a dividend of $1.80, and supports our earlier view that GSBD will be raising its regular distribution some time before March 2019.
FDUS: The lower middle market BDC's results were almost identical with the prior quarter, with Adjusted net Investment Income at $0.36, and NAV Per Share down 8 cents to $16.20. Although Unrealized and Realized Gains together continue to be positive a third borrower (from 2 last time) went on non accrual. However, there are numerous equity stakes that could offset these losses. Nonetheless, the BDC's recurring earnings continue to lag the $0.39 quarterly dividend. Helping out in the short term is a good deal of Undistributed Taxable Income of $0.30 a share. At some point, though, FDUS will have to shift a gear to increase recurring earnings, which may not be so easy with its business model. Performance remains below our expectations of $1.60 for 2018 at its current pace of $1.44 annualized. We envisage that EPS will increase over the next 12 months, aided by higher rates and a slightly bigger book, plus the eventual increase in total yield assets outstanding. We're projecting $1.50 a share, but that's still beneath the $1.56 dividend liability. At some point the undistributed taxable income will run out.
HTGC: The technology BDC offers up different GAAP and non-GAAP numbers. This quarter we gravitated to the Adjusted Distributable Net Operating Income Per Share, which is corrected for non-cash employee share compensation and the recent cost of paying off unsecured debt early. The result was $0.32, above the $0.31 quarterly distribution and in line with our $0.31 a quarter/$1.24 for the year 2018 estimate. There was a large amount of net Realized Losses in the portfolio in the quarter but that was more than offset by even higher Unrealized Gains - as you'd expect in this environment - which materially boosted NAV Per Share up to $10.22. Looking forward, we project for the rolling twelve months coming up Adjusted DNOI of $1.28, above the running rate of the current distribution and our calendar 2018 at $1.24.
MVC: According to SEC filings famed investor Leon Cooperman owns 1,470,445 shares in MVC, or 7.8% of the shareholding. That's down from 1,483,310 reported on February 14, 2018.
8/2/2018: Four relatively standard and non controversial issues were up for a vote and all were approved.
MAIN: What is remarkable is less than MAIN booked a $15mn gain on an investment held nearly a decade but that the final value received as a Realized Gain was $6.5mn above the level which the BDC valued the Company as recently as March 31, 2018. Just another gain for a BDC whose shareholders have become (too ?) accustomed to these singles, doubles and triples amongst its diversified group of equity stakes.
TSLX: The BDC handily exceeded last quarter's Net Investment Income Per Share of $0.51, with a $0.56 second quarter result. The BDC is performing at mid-year at an annualized rate of $2.07, above our annual 2018 target of $1.90. The BDC is very close to its prior regulatory limit but will shortly be able to access higher leverage. We are projecting a 12 months forward NIIPS of $2.20, but also a bigger balance sheet and more debt. We are still waiting on the 10-Q and CC transcript, and may revise our projections yet.
TPVG: The less well known venture-debt BDC reported strong results ("fantastic" to quote the CEO) of $0.50 Net Investment Income Per Share. Last quarter, the number was $0.34. TPVG is ahead of our 2018 projection of $1.44 (the level of the dividend). With a potential 20% increase in assets allowed by shareholders under the Small Business Credit Availability - and expected to be funded by Revolver borrowings - the BDC's growth should continue, even if quarterly results may vary. For the next 12 months we project - but it's only guesswork given the wide fluctuations caused by when loans are prepaid - of $1.80. That compares with $1.61 in 2017, and is well above our 2018 target. We still have to review the 10-Q to see what's happened to the BDC's risk profile.
TCPC: As expected, the acquisition of TCPC's parent has been completed. How BlackRock - a firm that thinks big - will treat TCPC is up in the air. Will there be an attempt to boost the BDC's scale by raising new capital ? Will BKCC be merged into TCPC like Corporate Capital Trust is about to be with FS Investment ? Or will TCPC - with a new owner but the same managers - continue as before ? Inquiring minds want to know and may get some hints on TCPC's earnings Conference Call .
NEWT: The Adjusted Net Investment Income Per Share of $0.44 - the BDC's favorite metric - came in at the same level as in the prior quarter and in line with our 2018 projection of $1.75. Book value was essentially unchanged from the prior quarter. However, there undoubtedly seems to be momentum underway in NEWT's new business and new portfolio initiatives. Those will be supported by the shareholders vote to allow the BDC to immediately increase leverage. That capital will start to get to be used before long - and just in time as NEWT's debt to equity was bumping against the prior limit. We are projecting higher EPS over the next 12 months : $1.84. Full steam ahead for NEWT but this remains an unusual BDC and a difficult entity to understand.
KCAP: Income and recurring earnings were flat, in line with our expectations ($0.32 Taxable Income for 2018) but below the market's, which has since resulted in a lower stock price. Weighing on results was a further unrealized write-down of various assets in the portfolio, which reduced book value. That's at least 6 quarter in a row of book value decline. We're waiting to review the CC transcript and the 10-Q, but the first impression is that the BDC's attempted turnaround has gotten stalled before getting very far. A drop in the stock price below $3.0 is possible. The 52 Week Low is not far off at $2.91 and the all-time low not much before that at $2.62. Revisit ?
HRZN: Net Investment Income Per Share was up to $0.29 from $0.28 the quarter before on a higher yield and portfolio. NAV slightly down.The BDC Reporter adds: The BDC again achieved results above our 2018 projection, which is for $0.87. Instead, HRZN was at a $1.16 annualized rate in the IIQ, and $1.14 over the first 6 months. The variance includes a higher portfolio yield, helped by unexpected portfolio exits which boosts that metric. Also management has been waiving incentive fees. We have not yet read the 10-Q, but on the CC management said credit quality was improving, even as book value per share dropped slightly ($0.05). Management is clearly trying to get EPS to $1.20 or above with higher leverage and the new JV and might succeed. We have been to conservative in our outlook. For the next 12 months, we expect recurring EPS to increase to $1.20. Of course, risk is increasing as well with more investments both on balance sheet and off, but that's another story.
GLAD: Net Investment Income Per Share was $0.22 and NAV increased. The BDC Reporter adds: The BDC met our expectations. We have projected $0.84 in EPS for calendar 2018 and GAIN is at $0.43 after two quarters. In the next twelve months, we expect a (slight) acceleration to $0.86. Helping out the numbers is the restructuring of a forner non-accrual loan back into a performing investment; still high portfolio yields and some capacity for growing portfolio size. Note, though, that this quarter was boosted by some on and off items (fees from selling investments) which may not recur next quarter. Still, a good sign for both manager and shareholders is that no fee waiver subsidy was needed to "make the numbers" this quarter.
GAIN: Actual Net Investment Income Per Share was nil, but adjusted for a capital gain fee came in a $0.20. NAV jumped sharply thanks to portfolio company gains.The BDC Reporter adds: Adjusted earnings came in as expected. We still have to review the 10-Q and the CC transcript. Note that the earnings press release omits key data (like a balance sheet !) and cannot be relied on for a comprehensive picture or even a partial one.
BKCC: Net Investment Income Per Share was unchanged from prior quarter at $0.16. NAV dropped despite an increase at US Well and accretion from buybacks.The BDC Reporter adds: BKCC fails to deliver for a second quarter in a row in 2018 with Net Investment Income Per Share of $0.16 ($0.64 annualized) below our 2018 projection of $0.68. The differential comes from an unplanned for continued shrinking of the portfolio (10% in the IIQ alone) and not unexpected credit troubles. Specifically Oxford Mining - a coal producer - is in deep trouble. With only an "Interim CEO" in place, we continue to believe BKCC will be absorbed into TCPC before long. In any case, projecting lower EPS for next 12 months: $0.60, but could be lower unless there is a major reversal in portfolio size.
ARCC: Core Earnings Per Share - non GAAP measure - was $0.39 for the quarter, unchanged from the prior period. NAV was boosted by an Unrealized Gain on one major investment.The BDC Reporter adds: Adjusted earnings were flat but the biggest accomplishment was recognizing (and later booking as a Realized Gain) a huge equity gain from an ACAS-booked portfolio investment. Also notable - before reviewing the 10Q - is that two companies came off non-accrual; higher LIBOR goosed income and the BDC decided - out of the blue (but probably in preparation for leveraging up next year) - to boost its dividend by 1 cent a quarter. All seems to be well at ARCC, as per our expectations, which are for $1.55 in Core EPS in 2018. Over the next 12 months we're projecting even higher EPS of $1.60 as a bigger portfolio, higher yields and re-investment of non-income assets into loans all boost earnings.As importantly, we get the definite impression - which we've mentioned before - that ARCC might be on the hunt for an acquisition or two...Big is better in bDC-land right now and as ARCC quietly pointed out they have less than a 10% market share and might like more.
NEWT: An SEC filing provided all the results of the July 26 shareholder meeting where 4 issues were put to a vote.The BDC Reporter adds: In a press release management focused the day before on the Yes vote on higher leverage. Also received shareholder approval to sell stock below book. Moot for now as stock price flying high. However, shareholders said No to changing by-laws by a huge margin.
OXSQ: The BDC reported the quarter's results in a press release and provided an Investor Presentation. We missed the CC, but will read the transcript. No 10-Q as yet. The BDC Reporter adds: No surprise here before we review 10-Q and CC. Adjusted earnings were up thanks to higher assets and no loans on non-accrual. However, OXSQ faced yet another quarter of declining yields, especially in CLO investments.Even adjusted earnings remain - at $0.18- below the $0.20 dividend. We are sticking with our full 2018 Adjusted Net Investment Income Per Share of $0.68, but a next twelve month target of $0.80.
NEWT: The BDC revised its forecast for the 2018 distribution to $1.80 from $1.72 previously. The BDC Reporter adds: See the Dividend Outlook.
NEWT: The BDC receives overwhelming shareholder approval to take advantage of higher leverage allowed under Small Business Credit Availability Act. The BDC Reporter adds: As usual BDC shareholders have given the nod - when asked - to higher leverage. NEWT is the 8th BDC to seek and receive shareholder support for the higher leverage. We calculate- based on IQ 2018 data - that NEWT can add $868mn in assets/debt under the new rules. Management has given no guidance as to what its actual new Target Leverage will be, if any. We may learn more when earnings are released this week.
CCT,FSIC: The BDCs file a 900+ plus page document (Form N-14 8C) setting out what shareholders will have to vote upon as part of the merger. Several ancillary items added to agenda besides combination of the two BDCs. The BDC Reporter adds: We briefly reviewed what is essentially a Proxy for the proposed merger AND consent to a number of other items dear to the heart of managers, including changes to the fee structure and a blessing for FSIC to raise capital below book if deemed necessary by Board and management. We will dig in deeper and discuss further when the actual voting date is set and certain blanks in the document are filled in. We don't have any doubt all the items to be voted on will be approved, including selling stock below book.
ABDC: Various Stilwell funds amended a 13-D filing reporting a large stake in ABDC's stock.Also lists stock sales. Filing provides details of multiple prior transactions. The BDC Reporter adds: See our article entitled "Stock Watch: Alcentra Capital". Link: https://bdcreporter.com/2018/07/stock-watch-alcentra-capital/
MAIN: Fourteen different MAIN officers and directors receive shares under the BDC's Dividend Re-Investment Plan. The BDC Reporter adds; For investors who prefer internally managed BDCs over their externally managed brethren, this is a useful reminder that there are costs - in this case the issuance of lashings of new shares at no cost to the recipient - of common shares.
WHF: The BDC filed Amendment Two to its $455mn "Shelf Offering". The BDC Reporter adds: The Prospectus is not yet complete or effective. However, we are reminded on the first page that the BDC has 11.5mn shares (more than half the 20.5mn total shares outstanding) owned by insiders -mostly H.I.G. Capital. Those shares may be sold. Here's the key language: "Sales of our common stock by the selling stockholders, which may occur at prices below the net asset value per share of our common stock, may adversely affect the market price of our common stock and may make it more difficult for us to raise capital. Each offering by the selling stockholders of their shares of our common stock through agents, underwriters or dealers will be accompanied by a prospectus supplement that will identify the selling stockholder that is participating in such offering. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders". From our perspective any material sale of the insiders share would be a definite warning signal for regular shareholders. We remind readers of how Bank Of New York sold out its position in Alcentra Capital (ABDC) and what has happened subsequently to performance and the stock price.
TCAP: All 6 proposals put to a shareholder vote were approved on July 24, 2018 by a quorum. The BDC Reporter: No one - ourselves included - expected shareholders of TCAP to reject the key proposals amongst the 6 on offer. At the end of the day, a quorum was reached (never easy even when there is a monumental decision on the line) and all proposals breezed through, with the exception of the advisory vote on TCAP managers "Golden Parachutes", which received some push-back. As a result, TCAP will disappear but be replaced by Barings. The BDC will switch from internal to external management. New capital will be raised from the new Advisor and a stock buy-back put into place. Fees will be paid. Two Baby Bonds will be retired. A one time distribution will inure to shareholders. Name and ticker will change. Then the real business of the new Barings, LLC will begin, starting with a blank slate: lots of cash, a new strategy, a new owner and new CFO. Mostly, Barings has the opportunity to create a BDC that will rank amongst the top performers in a sector where there is a huge gap between the best and worst players.
OCSI: Former CEO Leonard Tannenbaum sells 5,090 shares. The BDC Reporter adds: At this pace mr Tannenbaum will still be a major shareholder in OCSI in 2030.
GBDC: Golub Capital continues to rework its borrowings. The BDC Reporter provides an update and discusses the broader picture of BDC liability management - and what that might mean for shareholder risk and return in a new age. An in-depth article.
CCT/FSIC: In an expected but still major development, Corporate Capital Trust merges into FS Investment and the second largest public BDC is about to be born. We discuss the terms, the uncertainties and the investing opportunity involved. An in-depth article.
CCT,FSIC: The two BDCs announced a merger where CCT will be absorbed into FSIC in a stock deal at book value. The combined entity - if approved by shareholders - will have over $8bn in assets. The BDC Reporter adds: The two firms (KKR and FS Investment) have been telegraphing this move for some time but the timetable has accelerated. Why ? We don't know yet but may learn more on joint CC scheduled for 10 am EST. Big questions remain like what happens to private FS Investment funds ? Attitude towards adopting higher leverage ? Minimum deal size given the expansion ? This may roil the sector and cause some competitors (BlackRock, Ares Management and even Goldman) to react before the new, enlarged FSIC seeks to dominate the higher end LBO market.
7/20/2018: Former CEO/owner of FSFR (now OCSI) continues to sell shares in BDC. The BDC Reporter adds: Leonard Tannenbaum - as he's been doing for months, sold a few thousand more shares in OCSI. There are millions more to go. We would not use these sales as a vote of no confidence in OCSI. Just a millionaire selling to pay bills and diversify his portfolio.
MAIN: The BDC added a new lender to its Credit Facility, going from $655mn to $680m. The BDC Reporter adds: From a practical standpoint, this change will make very little difference to MAIN in the short run. At March 31, 2018, there was only $188mn drawn under the facility. To reach the stated limit - or to expand to the accordion limit of $800mn - the BDC will have to add half a billion dollar in assets or more. Nonetheless, this facility is one of the crown jewels of MAIN's liability management, even if underutilized. Funded by an unusually large number of well known and not-so-well-known banks and bearing an excellent interest rate for a secured facility whose collateral consists mostly of illiquid investments in lower middle market companies. The key question ahead is whether MAIN chooses to adopt the new leverage rules and how its bank group (who already allow a minimum asset coverage of 150% of debt) reacts. Will lenders be lost ? Will pricing (which is partly linked to MAIN's investment grade rating) increase. Unlike many of its peers MAIN has been able to raise equity capital at will, and at a big premium. Will management want to risk that reputation for higher debt levels ?
CPTA: The amendment allows for lower interest coverage from 2.25 to 1.00 to 1.75x for the balance of 2018, with a step up in 2019 to 2.00x. The BDC Reporter adds: The amendment suggests CPTA's interest coverage has dropped with its many recent set-backs, but its lenders are co-operating. Intrigued by the higher covenant from 2019, which suggests both BDC and lenders expect an improvement in this number a few months from now.
HRZN: Press release provides some details on new HRZN loan - along with Silicon Valley Bank - to Maculogix. The BDC Reporter adds: Besides letting us know that HRZN is booking new deals (which one pretty much expects from any BDC lender) this transaction is interesting because of the partnership with well regarded Silicon Valley Bank, which is sharing in the Term Loan and providing a separate Revolver. That gives us somewhat more comfort about the credit quality (two heads are better than one), an area in which HRZN has not covered itself in glory to date. Otherwise,though, the amount funded is relatively small even by HRZN's standard and won't - by itself - make much of a contribution to Investment Income.
CGBD: The BDC announced that 94% of dividend income in the q ended June 2018 is eligible - for non U.S. shareholders - to be not subject to the 30% withholding rules. The BDC Reporter adds: After a change in the regulations a few years back, more and more BDCs are reporting this information which is important only to certain foreign shareholders. The fact that CGBD - and the many other BDCs playing along - only underscores that there is a global investor base for BDCs and an ever increasing interest in the structure from abroad. After all many of the asset managers who run BDCs have global footprints and are always looking for new markets to open. With the UK already discussing launching a BDC format of its own, will the BDC Reporter be publishing an international edition before long ?
CSWC: Some details on the BDC's refinancing of an environmental pest company as sole lender. The BDC Reporter adds: Pricing and other terms are not given. This press release is interesting mostly because i) CSWC is leading and absorbing all the debt involved; ii) the amount of advance is relatively high for this type of transaction and underscores CSWC's growing confidence.
TCAP: Barings LLC has hired Wells Fargo analyst Jonathan Bock to become CFO at Barings BDC, which will be the renamed and repositioned Triangle Capital, should shareholders vote for the change on July 24. The BDC Reporter adds:This is an unusual move in the C -suite with an analyst becoming responsible for what he previously analyzed. Bock is famous for asking pointed questions of BDC managers and advocating for more "shareholder friendly" policies to a BDC industry that often talks the talk but does not walk the walk. Now Barings and Mr Bock will have to wait till July 24 and the TCAP shareholder vote that sets Barings BDC into motion. More to follow.
GAIN: The BDC is seeking to raise up to $300mn as per the prospectus. The BDC Reporter adds: GAIN has a lot of capital to raise. The stock is flying high so a equity secondary (like SAR last week) is likely. Moreover, the BDC seems to be required to repay its 3 Term Preferred issues if the higher leverage allowed by the Small Business Credit Availability Act is to be accessed. That might also create an opportunity for a lower cost of funds as GAIN's reputation continues to grow and may attract cheaper Term Preferred/unsecured debt capital. Look out for: Will GAIN get out of Term Preferred, which requires the appointment of a director to the Board and the risk - if long unpaid - of loss of control, and raise plain unsecured debt ? And at what cost ?
CSWC: The BDC filed yet another amendment to its shelf registration of securities prospectus for $500mn. The BDC Reporter adds: CSWC is far from fully invested byt the BDC has already announced its intention to take partial advantage of the higher leverage rules. This requires getting the paperwork ready for potential more debt, or even an equity raise in the months ahead. Just one part of the many moving parts put into motion by the higher leverage rules, along with GAIN as mentioned in the post above.
NEWT: The BDC announced that S&P Global Ratings increased the rating on the Class A Notes of one of its Trusts to AAA from AA.
OCSL: The BDC and its Revolver lenders agreed to loosening several covenants. The BDC Reporter adds: Here are the key changes made: "The Amendment revised the definition of “Senior Coverage Ratio,” which is used to determine the margin above the London Interbank Offered Rate for the Company’s borrowings under the ING Facility, to exclude the aggregate principal amount of the Company’s 4.875% unsecured notes due 2019 from such calculation. In addition, the Amendment revised the ING Facility to permit the Company to use borrowings under the ING Facility to refinance or prepay the Company’s 5.875% unsecured notes due in 2024 (the “2024 Notes”) in certain circumstances and to permit the Company to prepay the 2024 Notes with the proceeds of equity issuances". These changes are all part of Oaktree's preparation to leverage up its balance sheet as per the Small Business Credit Availability Act. Nothing monumental, but shows secured lenders are "working with" BDC borrowers to take advantage of extra borrowing power, even if that only involves making unsecured debt easier to raise.
HRZN: As in every quarter HRZN provided an update on new investment activity, repayments and its pipeline, all of which were higher in the second quarter of 2018 than in the first quarter. The BDC Reporter adds: Along with Hercules Capital and several other BDCs, HRZN offers up this quarterly preview of IIQ 2018 investment activity and repayments weeks before the official results are available. The key take-aways are that new investment activity was much higher in the most recent quarter than in the prior quarter. However, repayments/sales when the numbers are added up were very similar in both periods. HRZN also had 3 liquidity events, which allowed them to book fees but still no sign of any realized equity gain. Compare to HTGC, which has had multiple successes in this area.
GBDC: As in every quarter GBDC provided an update on new loan activity, repayments and the status of its JV in the just completed quarter and in advance of its earnings release scheduled for 8/8.
SAR: The smaller prices its 1,150,000 of new shares at $25.00, a premium to just announced May 2018 book of $23.06. The BDC Reporter adds: This is a major step forward for SAR whose been locked out of the equity markets since the current Advisor took over. The need for equity growth capital has been met by i) not paying out cash distributions for years; ii) underdistributing income since resuming paying dividends; iii) issuing new shares at below book through the DRIp program. The recent run up in the stock price, where SAR reached multi year highs looks increasingly as if it was artificially boosted to prepare the way for this equity raise. Still, most every fundamental - even when adjusting for an overdose of optimism at the BDC - is headed in the right direction.
HTGC: The technology focused BDC issued a press release providing the names and details of 8 portfolio companies that have had "liquidity events" such as an M&A transaction or IPO. The BDC Reporter adds: We are always a little skeptical of these one sided press releases by HTGC, which mention its successes but say nothing about poor performing or written off investments, and seems to be issued to push up the stock price. Moreover, much of the information is often a repeat of earlier announcements or not very material in size terms or already known from the quarterly filings. HOWEVER, there were a few items worth noting in this press release. Notably, the value ofHTGC's stock holding Docusign - which just went public - is much higher than what the BDC carried the investment back in March and could add (if the value holds) $0.18 to NAV. Also Tricida Inc., valued at $0.2mn at March is now worth $1.9mn on paper thanks to its just completed IPO. We discovered - and maybe we missed a press release along the way - that portfolio co Forescout Technologies resulted in a $5.7mn Realized Gain sometime in the IIQ of 2018. Taken out of the wider context , these are encouraging points of light for HTGC and its shareholders. Now we wait for the June 30 10-Q and a fuller picture.
SAR: The BDC announced results for the quarter ended May 2018. Net Investment Income Per Share moved up to $0.63 and NAV was $23.06, up from $22.96. Also announced 1mn share sale, the first in many years. The BDC Reporter adds: We've reviewed the earnings release and 10-Q. Very stable month in terms of portfolio size, minor Realized and Unrealized gains and losses. Earnings helped by acceleration of discounts on repaid investments and higher CLO income. Credit quality remains good with 6 companies on Watch List out of 32 in total, only one of which is on Non Accrual. Two Worry List names (restructured TM Restaurant Group and Elyria Foundry) but income at risk on debt portion ($3mn in total) of those two companies amounts to $0.3mn only annually , or just 2% of Net Investment Income.Still, SAR remains highly leveraged with debt to equity of 1.4x, very expensive borrowings; the likelihood the above average CLO income will eventually wind down; no word on a new SBA license and the dilutive effect of the new 1mn share issue.
OCSI: In a press release the BDC announced shareholders - at a Special Meeting- approved the higher leverage/lower asset coverage allowed under the Small business Credit Availability Act. The BDC Reporter adds: One more time shareholders - when given the opportunity - have signed up for higher leverage, even without any fee concession/offer from the Manager and for a BDC still tackling the credit problems inherited from the mismanagement by Fifth Street Finance. Notwithstanding the shareholder nod (which must have been expected) the stock price of OCSI has remained unchanged in recent weeks and is only in line with the sector as a whole on a YTD basis. Maybe shareholders just like the insurance of a higher leverage limit or are waiting to see if earnings actually increase with the higher leverage. Our calculations suggest a small boost in initial Net Investment Income Per Share gets eroded over time by lower income from credit losses, higher costs of debt and higher incentive fees.
HRZN: The technology lender announced "leading" a $15mn new loan, of which $11mn was funded to New Signature, a cloud company.The BDC Reporter adds: Details about this transaction are very few. Besides not knowing pricing, maturity, fees etc, we don't know if HRZN itself kept the entire facility or has syndicated out a portion to third parties or sister funds. This is a little bit like Ford Motor putting out an announcement that they built and shipped cars...
GBDC: Golub Capital is redeeming one of its two on balance sheet CLOs. We discuss why and the possible impact on the BDC's liability management and its earnings. An in-depth BDC Reporter review.
TCRD: The BDC reported yet another purchase of stock on July 3 by THL Credit Advisors, LLC under a Rule 10b5-1 Plan. Brings shares owned to 1,202,693, nearly triple the level when buying began in spring 2018. The BDC Reporter adds: Coincidentally or otherwise, stock is up to $8.11 from low of $7.75 in March.
SCM: The BDC's shareholders voted to allow the Board to issue stock below NAV in the next year. Also approved was the higher leverage allowed under the Small Business Credit Availability Act. The BDC Reporter adds: On a pro-forma basis, and given that SCM already has exemptive approval for SBIC debentures, the BDC's total debt could balloon over time. Our pro-forma numbers suggest debt to equity on an absolute basis will greatly exceed 2:1.
FSIC: The BDC filed a preliminary Prospectus allowing for up to $1.5bn in debt and/or equity raise. The BDC Reporter adds: There were no new disclosures in the Prospectus. Also, technically FSIC can raise equity below book thanks to shareholder approval. Unlikely but possible.
ACSF: The BDC Reporter reviews the approval by shareholders of ACSF's liquidation plan, which now proceeds to implementation.
HTGC: All 5 proposals put to shareholders were approved. None were unusually controversial (but included healthy comp for the CEO and others).
ABDC: Shareholders voted in a director and blessed KPMG as auditor. However, a proposal to allow amending company by-laws was not passed.
SAR: The wife of the BDC's CEO- and a major shareholder - sold 60,000 shares following a run up in price. The BDC Reporter adds: Inexplicably SAR' stock has jumped over 30% in recent weeks. This sale - made off the highest level reached - may have been just sensible profit taking of a position just under 10% of total holdings.
KCAP: Several of the BDC's insiders sold shares. See multiple Form 4s. The BDC Reporter adds: May have been associated with paying taxes on granted shares. In any case, stock price of KCAP has been trading in narrow band for weeks.
GARS: The BDC requests shareholder approval to reduce asset coverage to 150%. The BDC Reporter adds: The BDC is already highly leveraged thanks to BDC debt. Actual debt to equity is 1.25 to 1.00. If GARS leverages up to 1.5X Debt To Equity (versus 2.0x allowed) could result in $100mn in increased assets/debt. That would raise Debt To Equity to 1.8x. That's even before GARS avails itself of another $10mn in extra SBIC funding.
ARCC: As expected ARCC said yes to higher leverage, but imposed some limitations on just how much more leverage would be taken on. Likewise, the BDC offered a 1.0% Management (versus 1.5% currently) on all assets acquired with higher leverage over 1:1. The BDC Reporter adds: ARCC is still trying to stay within the good graces of S&P we expect by promising only a moderate increase in borrowings versus what's allowed by the letter of the Small Business Credit Availability Act. However, the proposed lower management fee is worth very little to shareholders while credit risk could increase by 50% or more.
CPTA: The chair of the Valuation Committee at the BDC resigned making the BDC out of compliance with NASDAQ rules. CPTA is moving to replace the director and get back into the good graces of NASDAQ. The BDC Reporter adds: Not a big deal. A solvable problem.
OXSQ: The BDC is adding a new financing facility. The BDC Reporter adds: OXSQ has been under-leveraged after being over leveraged. This financing may generate a modest amount of incremental income.
ARCC: As anticipated, the BDC approved the higher leverage rule, but self imposed lower leverage standards than allowed by the rules. The BDC Reporter adds: See comments In BDC Fixed Income Recap.
GSBD: The BDC's shareholders voted on a couple of routine items AND a one third reduction in the Management Fee associated with an increase in the leverage. The vote was overwhelmingly in favor...
AINV: The Proxy includes only routine items. AINV did not ask for shareholder approval to sell stock below NAV. The BDC Reporter adds: Worth looking at to see insider AINV ownership. Modest.
HTGC: The BDC issued 6mn shares of new stock at $12.15. The BDC Reporter adds: The stock was sold at a premium to book value which was $9.72 at 3/31/2018.
NMFC: See BDCR in-depth article about impact of shareholder approval of higher leverage.
.MVC: The BD's results through April 2018 were announced in a press release. The BDC Reporter adds: We also briefly reviewed the 10-Q for the period 2018 for a fuller picture. There are numerous moving parts in this period's numbers including fee waivers, fee reversals, interest income restatements etc. MVC has used up 70% of the $100mn in cash left on the balance sheet after the USGE transaction, but recurring earnings - adjusted for all the one time items - appear to not have improved much. More worrisome from our stand point, we still count 8 Watch List companies out of 27 on the books, accounting for one third of the BDC's assets. Even the performing loans are in the high risk category, bearing very high yields, some of which is in PIK. In fact 16% of all income is either PIK or deferred and more than 50% of the quarter's dubious "Net Operating Gain" (equivalent to Net Investment Income).
HTGC: The venture focused BDC reported at length about developments in its business in the IIQ of 2018 and Year To Date. The BDC Reporter adds: These quarterly press releases are mostly promotional but the highly selected information was - we admit - more impressive than usual. If nothing else, between the increasing commitments being snagged from borrowers and new ventures in lending (see SaaS below) HTGC does seem to be headed for portfolio expansion. Will a higher distribution (after 20 quarters at $0.31) follow ?
HTGC: The BDC announces a new lending group focused on borrowers involved in Software As A Service ("SaaS"). "The new group, led by senior managing director Steve Kuo, Catherine Jhung, and Thomas Harris, is expected to utilize the deep venture lending expertise of Hercules’ seasoned investment team". HTGC's ambitions seem to be growing as the BDC seeks to address another sub-market within its field of competence. Hard to determine if this is a large prospective market or not and how much of this type of lending HTGC has done before. The HTGC press release is aimed more at borrowers than investors in the BDC.
FDUS: On June 4, 2018 Michael Sell resigned from GECC and signed a "Separation Agreement", whose main terms are mentioned. The parent's CFO -John J. Woods - has taken the CFO/Treasurer position at GECC. The BDC Reporter adds: We have no further information as to why a key senior member of the GECC team has left the idiosyncratic BDC (which principally invests in publicly traded bonds). Mr Sell was a fixture on the quarterly Conference Calls, as recently as May 10. Given that the now former CFO is being paid a "Separation Agreement" we assume he has not left of his own accord for another position. Cost saving move ?
FDUS: The BDC announced the results of two shareholder vote items. First, Charles Hyman was elected Director. Second shareholders voted to allow the BDC to issue stock below NAV. The BDC Reporter adds: FDUS has a good track record at not raising capital below par and still has a decent amount of liquidity and the option - not yet taken - of embracing the new higher leverage rules. Still, any blank cheque worries the BDC Reporter...
TCRD: There were several controversial provisions. Most notably shareholders have allowed TCRD to sell stock or offer convertibles at a price below NAV and have not allowed changes to the BDC's by-laws. Finally shareholders did not approve an amendment "to remove the ability...to remove any director for cause". The BDC Reporter adds: TCRD may not have performed very well from a credit standpoint and may be at risk of cutting its distribution for a second time. The stock price is at a 21% discount to book. However, the Investment Advisor has behaved sensibly enough over the years and is unlikely to issue new shares at such a big discount. On the other hand, we wouldn't be surprised to see a Convertible issued with a strike price above the current stock price but below book to raise less expensive unsecured debt. We will know within the next few months.
SUNS: The BDC announced in an 8-K that its $200mn secured Revolver, led by Citibank has been extended to 1 June 2023 and certain provisions amended to allow for "greater flexibility". Pricing remains LIBOR + 200. The BDC Reporter adds: A more or less routine extension and SUNS retains decent pricing on its portfolio of lower risk - but less liquid than the large cap syndicated market - loan portfolio. Still, with 1 month LIBOR over 2.0% and adding 200 basis points and a 1.0% Management Fee, incremental operating expenses and an Incentive fee, very little of the 7.9% earned on First Lien loans will be dropping to the bottom line. That leaves SUNS - as they's been doing - looking at other ways to make a decent risk-adjusted return from assets bought by leveraging up. The market, though, seems doubtful with the stock trading close to its 52 Week Low and 2% off book value. This is a BDC that has been as high as $19.34 in the last 5 years and now trades (despite a long track record of an unchanged monthly dividend) at $16.54. The yield is 8.3%.
HRZN: The BDC reported the results of its regular annual shareholders meeting where 2 Board members were elected and RSM US anointed as auditor. The Board also approved the new leverage rules and will see shareholder approval soon.
OCSL: Former owner Len Tannenbaum has sold another 40,000 or so shares of OCSL in the past two days. Leaves millions more to go.
MAIN: Besides extending the Revolver maturity by 2 years, total commitments were increased to $655mn from $585mn. The BDC Reporter adds: The most telling item from the press release is the reminder that MAIN 's bank lenders only charge LIBOR + 1.85%. That's a remarkably low interest rate for a facility secured by a number of illiquid, lower middle market loans. Otherwise, this news only underscores that MAIN - as usual - is set to expand its balance sheet.
OFS: Two routine issues were up for a vote (two directors and the blessing of BDO as accountant). Both were approved. The BDC Reporter adds: OFS has not yet decided whether to adopt the new higher leverage rules. However, with its heavy use of SBIC debt OFS already has the benefit of higher leverage.
HTGC: As part of an update to its equity distribution agreement with JMP Securities that was entered into in 2017, HTGC provides several up to the minutes developments at the BDC. The BDC Reporter adds: We learn that HTGC has closed $304mn in loan commitments (not the same as advances) between April 1 and May 29. Also HTGC has sold 1.542mn shares in the past few weeks, raising $19mn in new equity capital. 8.4mn shares could still be sold under this method. Finally, we learn more about developments at 3 portfolio companies in May. HTGC shareholders may want to review pages S-8 through S-10.
HRZN: The BDC is setting up a JV to make "debt investments in development-stage companies" and has committed up to $50mn of its capital ($100mn in total) AND has raised senior secured financing for the vehicle.The BDC Reporter had the following comment to make on Seeking Alpha about what we DON'T KNOW about the new JV: https://bit.ly/2HriS4x
GAIN: Just after reporting a major portfolio sale and Realized Gain, the appropriately named GAIN filed paperwork to raise up to $300mn in equity and/or debt capital. The BDC Reporter adds: Apparently GAIN has to repay its 3 Term Preferreds before April 2019 to take advantage of the new leverage rule. Moreover - based on prior experience - the BDC is likely to strike when the iron is hot to raise more equity capital in the here and now, given its recent good results. We expect a busy next few months at GAIN.
FDUS: An 8-K filing reports that FDUS increased its Senior Secured Revolver from $50mn to $75mn. The BDC Reporter adds: The BDC is increasingly seeking to diversify its liabilities away from complete reliance on SBIC funding. If FDUS wants to grow raising on balance sheet debt, which can be used to invest in non-SBA assets, is critical. This $25mn increase is a sign that the BDC intends to continue on this path.
NEWT: Newtek Small Business Finance will be charged 0.50% less on its $100mn Revolver with Capital One. The BDC Reporter adds: A half percent reduction in a lender's interest rate is a notable event. For NEWT, whose cost of debt is high, this will result in material savings. At March 31 2018, the BDC was borrowing $25.5mn at 5.5% and $5mn at 4.5%. A 0.5% reduction could save NEWT $0.150mn annually. (If the whole $100mn facility was drawn the savings over before would be $0.500mn). However, with an interest expense bill of $14.0mn, the actual savings is just 1.0%. Every penny counts. More importantly, Capital One's decision suggests the debt markets are getting more comfortable with NEWT and its unusual business strategy by BDC standards. That's not always been the case in the past.
TCSWC: The final BDC to report is CSWC. The BDC Reporter adds: We've not yet reviewed the 10-K or Conference Call or trawled through the portfolio list. However, the headline numbers are encouraging with IVQ 2018 recurring earnings up and NAV jumping up to $19.08 from $18.44. The BDC still has no non performing loans and only 1 designated Watch List name. Over the year the portfolio size has been growing at a reasonable pace, in line with management's ambitions and increasing personnel resources. Plus the dividend was increased once again as we discuss in the Dividend Outlook. On the surface all seems well at CSWC.
PSEC: The BDC funded $80mn in acquisition financing for Eze Castle Integration, LLC by affiliates of H.I.G. Capital. The BDC Reporter adds: We know very little about the terms of the transaction except that the financing appears to be first lien, probably in the form of a uni-tranche loan. Lending to equity sponsors contonues to be one of the multiple business lines which the BDC pursues. This is a relatively large sized transaction by PSEC's standards.
GAIN: The BDC announced the repayment of its debt outstanding and its equity stake in Drew Foam companies. GAIN claimed to have booked " a significant gain" on the latter.The BDC Reporter adds: GAIN did not provide any number for the "significant gain" booked on the sale of Drew Foam's equity. However, Advantage Data's records - which we use extensively - shows the equity was carried at a nominal cost and a FMV of $14.7mn at March 31 2018. In toto, GAIN - between debt repaid and its equity gain - could have $28mn in proceeds headed its way. The only downside is that GAIN will be losing a First Lien Loan of $9.9mn and yielding 13.5%, higher than its portfolio average. From our own analysis we count 6 MAJOR potential equity gains still on the GAIN's books.
HTGC: A 8-K indicates HTGC has increased its secured Revolver with Union Bank from $75mn to $100mn. No other major changes highlighted. Historically HTGC has not used its Revolver much, so importance of this move unclear.
WHF: Two routine items up for a vote (2 directors & Crowe Horwath as accountant) and one important item: Approving reduced asset coverage. Based on comments made on the Conference Call, the immediate impact of higher leverage - if approved - would be minimal. After all, effective debt to equity is below its historic target, let alone a new target. Management has suggested some of the increase in assets that would be possible could be in "less risky" senior loans. However, given that this is likely to impact till 2019 too early to assess the economics.
OCSL: As a review of OCSL's SEC filings show former manager/owner of Fifth Street Finance/Fifth Street Management is selling shares in OCSL almost every day, presumably delighted by the higher level of late.
NEWT: In a brief SEC filing NEWT reported John Raven, who served as Chief Technology and Chief Information Security Officer has "departed". A new, unnamed Chief Security Officer has been appointed. Given the BDC's major investment in technology this is a notable - but hard to evaluate - development. We note - but do not fully understand - how Mr Raven had two titles but has been replaced with an unnamed person who has NOT been given the title of Chief Technology Officer. Yet another appointment still to be made ? Does this move hjave anything to do with the almost unmentioned and forgotten FBI investigation ?
CPTA: Director buys 4,533 shares at $8.1593.
HTGC: Most of the items shareholders are voting on are routine. However, the Proxy is worth reviewing for a detailed discussion of officer compensation. We learn a good deal about recent "retention agreements" for certain senior managers and substantial increases in compensation packages in a year where HTGC increased 1% in value. Will the compensation awards made to CEO Henriquez be sufficient to satisfy him, following a clumsy and unsuccessful attempt to transform HTGC into an externally managed BDC. We don't have the answer, but the Proxy does provide much information about compensation levels of Henriquez and a few other senior players.
OCSI: Former owner/manager of OCSI's predecessor BDC Len Tannenbaum sold a small number of shares on May 21 at $8.5 a share. Millions more shares to go.
PSEC: Included in its latest Inter Notes Prospectus PSEC includes updates on two portfolio companies: Broder Bros and National Home Healthcare.
AINV: The newly appointed President of AINV - Tanner Powell - reports owning 53,515 shares in a Form 3 filing.
GBDC: Golub Capital- Investment Advisor to GBDC - and one of the biggest middle-market lenders, is considering selling a minority stake to an outside investor, a source familiar with the process said. Golub is said to be looking at divesting a 15 percent passive stake. The BDC Reporter adds: Sign that asset management is peaking ?
ARCC: On May 14, 2018 ARCC's shareholders voted in nominee directors, approved KPMG as auditors and - most importantly - authorized issuance of shares below book value. The BDC Reporter adds: We seriously doubt ARCC will take advantage of the blank cheque requested by the Investment Advisor and granted by shareholders. However, we continue to believe this is a serious (and recurring) mistake, especially with no prior concession from the very Investment Advisor who would have got the BDC in that hypothetical predicament.
SAR: The BDC closed out a very positive year, with higher book value and EPS. Adjusted Net Investment Income Per Share was $2.27 in the just ended FY 2018, up from $2.01 in FY 2016. That's after absorbing a material credit loss on My Alarm Center, offset by realized gains elsewhere and unrealized appreciation in the CLO and various other investments. From the available info in the press release, credit issues appear to be minimal. For FY 2019 (ending in February), we project Adjusted Net Investment Income Per Share of $2.40 and a continuing increase in the quarterly distribution (currently pegged at $0.50 quarterly) to $2.06 for the year.
CSWC: The increase to the Revolver under the musically named "accordion" arrangement is modest: just $10mn more to the $200mn committed from multiple lenders. However, given the BDC's announced intention to take partial advantage of the new Small Business Credit Availability Act. That means having access to more borrowing firepower down the road. The total capacity - if more lenders can be found to join the 8 or 9 existing banks in the lending group - is $250mn. It's worth keeping an eye, though, on pricing and terms. In November 2017, the Revolver pricing was reduced to LIBOR + 3.00% (2.75% if a bigger net worth target is hit) and unused line costs were reduced (but remain expensive). That still brings all-in Revolver borrowing costs with 1 month LIBOR tickling 2% well over 5% (5.5% by our estimate, when all costs are considered and amortized). Then there is the cost of new Unsecured Notes. The first CSWC Baby Bond was priced at 5.95% (6.25% all-in). With rates and credit risks rising the next Unsecured Notes might cost closer to 6.5%. Even for an internally managed BDC like CSWC the arbitrage between what can lend at and have to pay out to borrow is slimming down.
OHAI: The BDC's NAV has stabilized but earnings are negative as the portfolio is flat and new investments are being made in much lower yielding assets. The current yield on the portfolio as a whole remains very high at 13.6%. We looked at the just filed 10-Q and noted - as we expected - that income is being bolstered by the $21.8mn loan to very troubled OCI Holdings, which bears an interest rate over 20%, and which we believe is mostly being paid in PIK form. The borrower has been in distress for years now. If OCI is dropped from the P&L, OHAI's operating loss would increase ten fold. If the same OHI is written down to zero, NAV per share would not be $2.43 but $1.53, not far off the current price...
5/11/2018: Two routine items were approved by shareholders at the Annual Meeting. The BDC did not request - and are unlikely to have received - the right to issue stock below book, as Ares Capital did.
ABDC: The BDC Reporter adds: Heads up ! We read the earnings release and the 10-Q, including a quick review of the credit portfolio. Although EPS seems high at $0.27 versus the distribution of $0.18 (admittedly much lower than $0.34 previously), the earnings trend should still be inexorably downward. The IQ numbers are boosted by a big increase in Other Income and helped by having no incentive fees. When that normalizes Net Investment Income will drop. Moreover, there are still 8 Performing companies with very high yields. When those get swapped out for "safer" loans with yields as much as half what is being earned that will impact earnings. Last, but not least, we still count 11 Watch List names, including 5 that are performing but may default/cease accruing. That's $5.6mn of income at risk at a BDC with annualized Net Investment Income of $15.1mn. ABDC - which is also going through management turmoil - remains a falling knife.
FDUS: The BDC reported Adjusted Net Investment Income of $0.36 (after adding back cap gain fee) and an increase in NAV (largely due to the write up of one investment) to $16.28 from $16.05.
NEWT: The BDC reported Adjusted Net Investment Income of $0.44 per share. NAV dropped slightly from $15.08 at year end 2017 to $15.05. This was principally due to "one time" costs associated with repaying Unsecured Notes.
TCAP: The soon-to-be-sold BDC reported Net Investment Income Per Share of $0.27, and still very high Non Accrual assets. Net Asset Value dropped to $13.36. We have no projection for TCAP for 2018 due to the sale but earnings were below what we might have expected.
ARCC: The BDC announced Core Earnings Per Share ( its favorite metric) of $0.39. NAV increased to $16.84 from $16.65. Results were in line with our expectations of 2018 Core EPS of $1.55.
TPVG: The technology BDC recorded record investment size and Net Investment Income Per Share of $0.34. and an increase in NAV to $13.34 from $13.25. Results in line with our projection of 2018 NIIPS of $1.44.
KCAP: The BDC Reported Net Investment Income Per Share of $0.07 and a 4 cent drop in its NAV. Results were within our expectations for 2018 of $0.32, up from $0.30 in 2017.
TCRD: The BDC reported Net Investment Per Share of $0.27 for the quarter, and a lower NAV of $10.44. Realized Losses were $13.1mn on two troubled borrowers. In line with our $1.00 per share 2018 projection.
GLAD: The BDC reported Net Investment Income Per Share of $0.21 and NAV increased to $8.62 from $8.48 at the end of 2017. Results were in line with our 2018 projections of NIIPS of $0.84.
ARCC: The BDC announced a modest increase in NAV - despite Realized Losses - and a Core EPS of $0.39 and Net Investment Income Per Share of $0.34. Core EPS is exactly in line with our projection for 2018 of $1.56.
HRZN: Investment Income was flat, but Net Investment Income Per Share of $0.28 was up substantially over the prior quarter - impacted by the cost of refinancing Unsecured Notes. That's higher than we anticipated. We guessed HRZN would be pressed to reach $0.27. Debt to equity was much unchanged and close to traditional self imposed limits. We have projected 2018 NIIPS of only $0.85, due to concerns about spread compression and asset quality. HRZN is ahead of projections, but we noted 5 investments have moved to the BDC's Category 2 Watch List, quadrupling in dollars to reach $21mn or 11% of debt portfolio at FMV. Last quarter there were 3 investments in this Category 2. Also debt outstandings have dropped marginally as we expected in our April 13, 2018 preview : https://bit.ly/2H7I30O. We projected $190mn, came in at $193mn and below $204mn in prior quarter. Distributions continue to outstrip the $0.30 quarterly distribution and Undistributed Taxable Income is now minimal. We may have been too conservative about 2018 EPS, but the dividend remains at risk, notwithstanding that the BDC has announced third quarter unchanged monthly distributions.
OXSQ: The BDC announced a slight increase in NAV and Net Investment and Core Net Investment Income Per Share of $0.17 and $0.15 respectively.
NEWT: For reasons unknown and after many years of operating without, NEWT signed employment agreements with its 3 top officers.
CSWC: The BDC both elected to adopt the new higher coverage rules and limit asset coverage to 166% (or 1.5 debt to equity).
SUNS: Like SLRC, SUNS was required to file its 2017 Annual Report after failing to include in the prior version sections on insider biographies, ownership and compensation.
SLRC: The BDC was required by regulation to refile its 2017 Annual Report because certain sections were previously omitted relating to director and officer bios, ownership and compensation.
NMFC: The BDC has set a Special Shareholders Meeting in June to vote on increasing leverage as per new law. However, even if shareholders say no, Board may not rescind its Yes vote.
TSLX: The BDC - which recently undertook a secondary stock offering of 3.75mn shares - announced by an 8-K filing issuing 522,224 shares to its underwriters at $17.45 per share. We note that TSLX has traded as high as $17.97 since the secondary and is trading close to that high. The BDC remains very popular with investors and trades 11% above book.
CSWC: Few details are provided about the transaction, but the deal fits the CSWC mold: backing a sponsor group in a transaction and providing both debt and an equity co-investment to a lower middle market company. We will find out more when the IQ or IIQ financial statements are released.
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]