This week was notable for a couple of reasons. First, well respected Golub Capital raised unsecured debt for the first time and at a very low yield to boot. That continues an industry wide shift - discussed by the BDC Reporter at length - into an even greater proportion of unsecured debt in BDCs debt stack, and with (mostly) positive consequences for the future of the sector. Also worth noting was the completion - and pricing at a very discounted price - of the third BDC rights Offering to be triggered by the impact of the pandemic. As we saw when Oaktree Strategic Income amended its secured debt agreement, the consequences of the March-April crisis are still being felt. In other news, Medley Capital continues to inexplicably toddle along - extending an expense support agreement with its manager - but with no resolution in sight for the BDC's now completely deflated shareholders two years after plans to effect a merger with its sister entities were announced, then abandoned. Finally, we posted multiple credit developments, including a possible Chapter 11 coming; a review of a new non accrual and - as a welcome change - the exit of a famous BDC financed retailer from court protection.
BDC NEWS: A few weeks ago when MVC first announced the sale of Foliofn - a portfolio company that has been on their books from the days when dinosaurs roamed the earth - this was Big News. An underperforming asset was being sold and hard cash received after being - more or less - left for dead. Now that the transaction has actually happened and MVC - in the interim - is preparing to be sold/merged with Barings BDC (BBDC), it's hardly market moving. Still, both MVC and BBDC must be letting off a sigh of relief while they turn to attention to the thousands of other details involved in their transaction.
BDC NEWS: We already knew GECC was announcing an unchanged $0.083 per month dividend for the IVQ of 2020. Now the BDC has set the record date for the 3 payments. Unchanged is the fact that 90% of the distribution will be paid with more stock and only 10% in cash. We predict this will be the last quarter with a distribution of $0.25 - even if paid in stock - given the ever increasing share count and the not increasing bottom line. As previously discussed, the BDC Reporter is also concerned that much of the income booked by the BDC is itself in non-cash form - largely from Avanti Communications PIK income.
BDC CREDIT REPORTER: We are seeing almost daily “revelations” that Mallinckrodt PLC is preparing to file for Chapter 11 “within weeks” and is feverishly negotiating a restructuring agreement with its creditors. We briefly update the situation and the exposure of the only BDC involved with the pharma giant: Barings BDC.
BDC REPORTER ARTICLE: Neiman Marcus has exited bankruptcy and the only BDC involved - Sixth Street Specialty Lending - appears to have escaped unscathed.
BDC REPORTER ARTICLE: We re-publish an article from the BDC Credit Reporter about OFS Capital's latest non performing portfolio company, and place the amounts of cost, FMV and investment income involved in context. Warning: This is now the largest OFS investment on non accrual.
BDC REPORTER ARTICLE: Golub Capital issues unsecured debt for the first time. We discuss both the details of the new debt and the role of junior debt capital in the BDC sector as a whole.
BDC NEWS: MCC reported in a filing that its Board had extended its expense support agreement with its manager for another quarter, through December 2020. The agreement caps compensation and all other expenses at $667,000 a month, limiting even greater losses than the BDC is already experiencing. In the last quarter, the support was worth $349,427 to MCC's shareholders but NII was still ($719,228). Missing from the filing is any word on the progress made on selling the business or what the way forward for a BDC that has not paid a dividend since early 2019.
FIRST LOOK: GECC has completed its contemplated Rights Offering and the results are in. Investors will pay $2.95 a share for 10,761,950 shares of new shares and for gross proceeds of approximately $31.8 million. That brings total shares to 21.186mn, or twice as many for proceeds equal to 22% of the June 30 portfolio at FMV. The new equity capital is equal to 27% of the BDC's total debt outstanding. The price new shareholders are paying is 58% of the last NAV Per Share. At its height the stock price of GECC reached $5.5050 just before the Rights Offering was announced (for reasons unfathomable) and has now dropped nearly in half now all the commitments are counted. At day's end GECC traded at $3.2. In a future Premium article we'll discuss the way forward for GECC. Opportunity or value trap ?
BDC REPORTER ARTICLE: Oaktree Strategic Income amends one of its secured loan agreements and causes the BDC Reporter some long standing disquiet about the BDC's liquidity; earnings and credit outlook.