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

TICC Capital: Shareholder Vote Results

BDCs:
Premium Free

On July 6 2017  TICC Capital (TICC) held its annual Shareholders Meeting at which three issues were put to a vote. On July 7, 2017 TICC reported the results, which we discuss below. We were surprised by one outcome relating to the issue of selling stock below NAV. The BDC Reporter gives its view as to one course of action the Investment Advisor might take which some shareholders would not approve of and might mightily move the stock price:

DETAILS

The shareholders approved the re-election to the Board of Messrs Royce and Novak, as part of the staggered Board process. Mr Novak is the Chairman of TICC and an “independent director” as per the stock market rules> He was appointed to the position in 2016, at a time when the BDC was under pressure from “activist” shareholders. Mr Royce is an “Interested Director”. Both men have been sitting on TICC’s Board since 2003.

The vote was not close, but Mr Novak received more For votes than Mr Royce.

Also PricewaterhouseCoopers LP was overwhelmingly approved as the independent accountant for TICC. This must be the only uncontested election results left in the country.

However, the proposal to allow TICC -with Board approval – to issue common stock below Net Asset Value was not approved:

Proposal 3. Stockholders did not approve a proposal to authorize the Company to sell shares of its common stock at a price or prices below the Company’s then current net asset value per share in one or more offerings, in each case subject to the approval of its board of directors and compliance with the conditions set forth in the proxy statement pertaining thereto (including, without limitation, that the number of shares issued does not exceed 25% of the Company’s then outstanding common stock immediately prior to each such offering) based on the following votes:

 

 

For

 

Against

 

Abstain

 

Broker Non-Votes

With Affiliates

 

 

13,174,467

 

 

 

4,098,375

 

 

 

627,106

 

 

 

 

% of Voted*

 

 

35.42%

 

 

 

11.02%

 

 

 

1.69%

 

 

 

 

% of Outstanding*

 

 

25.59%

 

 

 

7.96%

 

 

 

1.22%

 

 

 

 

Without Affiliates

 

 

10,137,311

 

 

 

4,098,375

 

 

 

627,106

 

 

 

 

% of Voted*

 

 

27.25%

 

 

 

11.02%

 

 

 

1.69%

 

 

 

 

% of Outstanding*

 

 

20.93%

 

 

 

8.46%

 

 

 

1.29%

 

 

 

 


 ANALYSIS

We were not surprised by the re-election of the two Directors, or the appointment of Price Waterhouse.

However, we were surprised TICC’s Investment Advisor did not get approval to issue stock below NAV, which we had counted on in an earlier article.

Coincidentally or otherwise there was much volatility in TICC’s stock following the July 6 meeting. On Monday July 9th, TICC is up 2%.

Maybe investors were presuming previously that TICC would get the nod and eventually pull the below NAV trigger and this is a relief bounce.

TICC has been in a free fall since February 24 2017, dropping 22% in price from highest to lowest. At the current $6.82, TICC is still (16%) off the February high.

NAV at March 31, 2017 was $7.53.


OUR VIEW

We had guessed when reviewing TICC’s preliminary Proxy back on June 12 2017  (and shortly before the stock took another step down) the stock issuance would not be approved.

Most every time – even where under-performing BDCs like TICC are concerned  – the proposal gets approved.

In this case, the vote was close and represented a surprise No Thank-You.

That’s bad for TICC’s Investment Advisor who has had to contend with lower asset balances and a sharply reduced compensation.

Back in March 2015 TICC Management was receiving $5mn in compensation for the quarter. Two years later the number was $2.27mn, a 55% reduction.

The BDC Reporter agrees that the Investment Advisor – who not so long ago wanted to jump the management ship – has not made a convincing case for more capital from shareholders.

We – and many wider heads including the principals of TICC themselves – have argued that holding large CLO positions in a public BDC wrapper may be a problematic business model even at the best of times.

Otherwise TICC has not demonstrated any great competence in other forms of lending and does not have much of an origination platform.

What’s more, we’ve been projecting that the current distribution level – itself recently reduced – might be the object of another cut within the next several months.

We blame a shrinking portfolio and spread compression in the CLO market squeezing asset values and cash flows.

So That’s That ?

TICC Management may have been stymied for the moment about issuing stock below book.

However, there is always that other form of capital raising left to the BDC: a Rights Offering.

The Investment Advisor could argue that raising new capital is vital to the survival of the BDC and proceed with a Rights Offering which gives every shareholder a chance to participate.

In under-performing BDCs that can result in a big drop in the stock price as the price has to be set low to attract capital from an already skeptical shareholder community.

It’ s unlikely – but not impossible – TICC would use such a capital raising tactic to re-grow its balance sheets and its Investment Advisor’s fees.

TICC Management has proven itself willing to take big bets and push the envelope to get its way.

We still don’t know why two Directors recently quit.

Hard Truth

Likewise, we doubt that the Board will be any sort of block to the advisor.

We note that the “independent” Chairman of the Board is paid over a quarter of a million dollars in annual remuneration ($274,000) and supported all TICC Management’s prior actions in 2016.

Mr Novak only holds 30,540 shares of TICC (in fact all held in his wife’s name).

Circumstantial evidence perhaps,  but not data that supports the notion that the Board will block any inappropriate capital raise, or can put himself into the shoes of the BDC’s shareholders.

Already a Member? Log In

Register for the BDC Reporter

The BDC Reporter has been writing about the changing Business Development Company landscape for a decade. We’ve become the leading publication on the BDC industry, with several thousand readers every month. We offer a broad range of free articles like this one, brought to you by an industry veteran and professional investor with 30 years of leveraged finance experience. All you have to do is register, so we can learn a little more about you and your interests. Registration will take only a few seconds.

Sign Up