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BDC News Update: January 4 and 5, 2018

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Here’s what we learned from preparing the BDC News Of The Day for Thursday and Friday January 4-5, 2018.   For all the details, links, etc.  go to the Daily News Table

Who’s Booking New Business ? : Hercules Technology (HTGC)

Because the BDC Reporter subscribes to Alpha-Sense we read widely about BDC activity. Earlier in the week we reported on a refinancing with Aveo Pharmaceuticals that allowed HTGC to book some big fees. On January 4, HTGC booked a $50mn commitment to another borrower : ChemoCentryx Inc., as part of a larger $100mn capital raise by the public company. ChemoCentryx is a biopharmaceutical company developing new medications targeted at inflammatory and autoimmune diseases and cancer. That’s a large commitment by HTGC, even if drawn only in smaller tranches. HTGC was also involved in a three party debt agreement with Amedica Corporation, where its loan was guaranteed by a third party. In turn the guarantor arranged a new financing with Amedica. The amount was small but may have helped HTGC out of a tight credit spot. A third transaction with existing portfolio company Verastem Inc. saw a $25mn facility ($15mn which was already drawn) being increased to $50mn.  

Who’s Getting Sued ? : Capitala Finance  (CPTA)

In recent weeks Triangle Capital (TCAP) has faced multiple “class action” lawsuits following their poor results and huge drop in their stock price. These are common in the BDC space. Not to be left out, CPTA attracted its own suit on January 4, targeted at shareholders who owned the stock between 2016 and 2017. Here’s what a news article – taken from the lawyers press release said:

The Complaint alleges that Capitala Investment Advisors, LLC manages Capitala Finance in exchange for an annual base management fee and an incentive fee. On January 4, 2016, Capitala Finance announced that Capitala Investment Advisors agreed to voluntarily waive its quarterly incentive fee. Throughout the Class Period, Capitala Finance emphasized in its SEC filings that the Company’s success “depends on the ability of Capitala Investment Advisors to attract and retain qualified personnel in a competitive environment.” On August 7, 2017,Capitala Finance revealed that six of its investments were on non-accrual status — twice as many as it had the previous quarter. The next day, Capitala Finance revealed that Capitala Investment Advisors had been losing professional talent in underwriting and portfolio management due to the waiving of its incentive fee. Capitala Finance further acknowledged that the rising number of nonaccrual investments was connected to the loss in talent, causing the company’s stock to fall nearly 30% over the next three trading days to close at $8.99 per share on August 10, 2017.

The BDC Reporter has never been involved in a class action lawsuit so we don’t what to make of this one. We’re pretty certain, though, that if any ultimate settlement or payout occurs it’s the shareholders of CPTA who’ll be shouldering the bill along with any legal costs associated. Maybe not a huge item in the scheme of things but an irritant and an extraordinary cost.

Who’s Maintaining A Stable Distribution ? : Pennant Park Floating (PFLT) and Solar Senior Capital (SUNS) 

Two reliable dividend payers: PFLT, which has been paying the same distribution for 12 quarters in a row and SUNS whose streak is at 23 quarters, announced unchanged distributions for January 2018. Neither the BDC Reporter nor the market were particularly surprised, as both BDCs Dividend Outlook is projected as UNCHANGED  for 2018. At week’s end PFLT ended at $13.63, 4% above its 52 Week Low and 7% off its High, but below book value. The yield is 8.2%. Apparently more popular right now is SUNS, trading at $17.76 – a price well above book- and 12% off the 52 Week Low and just 4% from its high. Its yield is 7.9%.  We keep track of the average yields for all 27 BDCs that are expected to maintain their payout unchanged in this new year. The average yield (leaving out non dividend paying MFIN) is 8.6%. That suggests neither PFLT or SUNS are specially good value right now. Or, put another way, both are current investor favorites. See the Dividend Outlook Table for further information.

Suggested Reading: 10/27/2017: Why We Bought PennantPark Floating Rate 

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