Email us with questions or comments: nmarshi.bdcreporter@gmail.com           α

Harvest Capital: IQ 2017 Earnings

The BDC Reporter reviewed Harvest Capital’s IQ 2017 earnings for our Daily News. No time yet for the 10-Q. Here’s the summary:

” No great surprises here. Recurring earnings were soft, especially compared to last year as the yield went from very high to just high on HCAP’s portfolio. Management put its best foot forward -as they are supposed to do- and pointed out that adjusted net investment income per share exceeded the distribution. (Speaking of pay-outs, the BDC has announced monthly distributions through June and unchanged). What HCAP lost on the swings, were gained back on the roundabouts, with Realized and Unrealized Gains being slightly up. That helped boost the Net Asset Value Per Share which went up compared with the year-end 2016 to $13.89. The pint sized BDC has done a good job of staying close to its net IPO price in its few years as a public company. However, we do worry about credit, as one should. Here is what the press release said. (Remember the higher the number, the worse the internal credit rating):

As of March 31, 2017, the weighted average risk rating of the debt investments in the Company’s portfolio increased to 2.03 from 2.01 in the previous quarter. Also, as of March 31, 2017, seven of the Company’s thirty debt investments were rated 1, eighteen investments were rated 2, two investments were rated 3, two investments were rated 4, and one investment was rated 5. As of March 31, 2017, two loans and a revenue linked security were on non-accrual status.

That suggests 6 companies are on HCAP’s Watch List, half in the more serious categories and half just getting going. When the BDC Credit Reporter gets a closer look, we’ll update the situation.

MARKET REACTIONS

The market, which has been falling out with HCAP for weeks, continued to mark down the BDC to $13.15, from somewhere north of $14.00 a share.

On the other hand, the public Notes with the ticker HCAPL continued to be valued at a premium to par. The BDC Reporter undertakes a shortened version of its “Stress Test” of every public BDC Baby Bond at each earnings report. In this case, we assume 30% of assets will be written off under our extreme “stress” scenario, but still come to the conclusion HCAP’s Notes will still be “covered” by investment assets by 278%, after assuming the Revolver will be paid off. Less than 20% of assets are funded by the Revolver, leaving 80% to the benefit of Baby Bond Holders.