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BDC News Of The Day: March 31, 2017

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Here are the main news items and SEC filings from all the publicly traded BDCs that we track for Friday March 31 2017 at 11:00 a.m. EST. External links to articles or filings are in blue, internal links to BDC Reporter’s prior posts on the subject are in red. Where appropriate, we add brief comments. Today, we’ve added a “cheat sheet” of interesting issues to consider for shareholders of Solar Senior Capital in advance of the BDC’s next earnings release.





Solar Senior Capital (SUNS): Schedules release of IQ 2017 earnings

SUNS will release its financial results for the quarter ended March 31, 2017 on Tuesday, May 2, 2017 after the close of the financial markets.The Company will host an earnings conference call and audio webcast at 11:00 a.m. (Eastern Time) on Wednesday, May 3, 2017.

Shareholders may want to ask the BDC i) what’s happening about the potential registration of 500,000 shares held in illiquid form by its subsidiary Solar Senior Capital Investors LLC, which may temporarily depress SUNS stock price if many holders sell after registration. (See page 36 of the 10-K.) Current average daily volume is 68,000 shares a day.

ii) Shareholders may want to know what has been happening since “an exemptive application for a co-investment order” was filed in January with the SEC that would allow SUNS, its sister BDC Solar Capital (SLRC), its JV and Gemino Healthcare to share originated transactions, and where that leaves the BDC’s shareholders in an environment where good deals are hard to find. (See page 46 of the 10-K).

iii) Shareholders may want to check if subsidiary Gemino Healthcare Finance continues to shrink in size and number of borrowers as 2016 versus 2015 numbers suggested (pages 62-63 of the 10-K). Gemino is a substantial source of income to SUNS, 14% of the total in 2016.

iv) As always, credit quality should be reviewed. At year end 2016 SUNS portfolio was in good shape with only 1 company on non-accrual (Miller Heiman with a FMV of $3.5mn, or under 1.5% of NAV). The BDC Credit Reporter counts just 5 Watch List names in all (including the non-accrual). We worry most about software company Metamorph (aka Metalogix), to which SUNS has $12mn invested between its main balance sheet and its Senior Loan JV. Metamorph generates $900,000 of annual investment income. The senior secured debt has already been written down by over 25%, always a cause for concern. 

v) SUNS has been meeting its distribution by voluntarily waiving a portion of its fees. Shareholders may want to see if that’s becoming a real burden given spread compression in the loan market and a dearth of deals. What the Investment Advisor giveth, the Investment Advisor may taketh away. That waiver “cost” SUNS $1.9mn last year, but the Investment Advisor hopes to recoup  its not-so-generous gesture in the quarters ahead (see page 98). However, if earnings shrink for whatever reason, the Investment Advisor may have to take a deep breath and decide how much waiving to do. (Capitala Finance was in a similar position last year and opted to cut the distribution). 

Solar Capital (SLRC): Schedules release of IQ 2017 earnings

Sister BDC to SUNS, SLRC will be releasing its results on the same day and holding a Conference Call an hour earlier on May 3.  We will provide a SLRC “cheat sheet” closer to the earnings release. 

Ares Capital (ARCC) : New York Business Journal reports major portfolio company of Ares Capital Infilaw placed on probation.

A business publication reports that Infilaw-which operates two for-profit law schools” has been placed on probation by regulators, and is in danger of closing. That’s bad news for ARCC , which has been a lender and investor since 2011. The BDC Credit Reporter had placed the investment as far back as the IQ 2016, when ARCC’s Preferred was marked down. Currently, ARCC has $137mn in Preferred to Infilaw, written down by 98%. In addition, there’s a $6mn Revolver which is carried at par, but which is on non-accrual. In total that’s $143mn invested in the very troubled company. Here is a screen shot from Advantage Data, which tracks the exposure of every BDC to all their portfolio companies, and which we use religiously to update readers. A major Realized Loss-deferred for many quarters-may be in the offing, but given the Unrealized Depreciation already taken, little impact on going forward Net Asset Value or income is likely. Still, a bit of a black eye, but that’s the lending business. 


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