June 27, 2011: Lower middle-market BDC, Main Street Capital (ticker: MAIN) announced the funding of a $7mn follow-on investment in portfolio company Audio Messaging Solutions. The funds will be used to acquire a competitor. The transaction was structured as a secured first-lien loan, with additional equity participation through warrants. Worth noting: at March 31 2011 MAIN had a $7.3mn existing loan to the Company, and equity warrants with a cost of $468,373. Both the loan and, to a greater degree, the equity is valued above cost. In fact, the warrants were valued at $1,280,000 or 2.73x the cost. MAIN had an 8.4% equity stake at March 31.
DEALS ADDED AT FAST PACE
The Company also reported in its press release that including the Audio Messaging transaction, over $50mn in new investments (7 in total) had been booked in the last few months since the March 31, 2011 market end. That’s a 66% annualized new business pace, but we don’t know how many investments have been repaid. The Company has over $220mn in excess liquidity, much of it in cash. Debt to equity is low. Nonetheless, announcements such as these often precede a new equity offering, but the last equity offering occurred just 3 months ago. On the other hand, the stock price is way above Net Asset Value so any new monies raised should be accretive, so management may be looking at their backlog of deals (not mentioned in the press release) and figure that another round of equity raising might be worthwhile. We rarely guess right on this subject, so you’ve been warned.
LONG MAIN
