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BDC News Update: To March 1 2018

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Here are several notable developments from the BDC Daily News Table:

  • 3/1/2018: Monroe Capital Reaches New 52 Week Low – Stock Watch

    MRCC: Monroe Capital (MRCC) reached a new 52 Week Low of $12.61, well off the 52 Week High of $16.20, a (21%) drop. The BDC Reporter adds: Yet another well regarded and well performing BDC reaching a new low. MRCC is now – like many others – beginning to “revisit” levels of early 2016 when the BDC Sector – and credit investments in general – were pulling themselves out of a funk that peaked in February of that year. MRCC is trading at a (9%) discount to September 2017 book value (year end numbers still to come) and now yields 10.9%.
  • 2/28/2018: Triangle Capital Corporation Reports Fourth Quarter 2017 Results

    TCAP: The most awaited quarterly results of this earnings season has arrived. Triangle Capital (TCAP) announced IVQ 2017 and full year results. Net Investment Income Per Share increased to $0.38 from $0.36 in the prior quarter, and NAV increased to $13.43. From a credit standpoint, there were no new deals added to non-accrual, 3 were sold or restructured for large Realized Losses of ($35mn). No news of any kind was announced on the “strategic alternatives” review underway. The BDC Reporter adds: The irony – and the BDC Sector is full of them – is that TCAP’s basic metrics all improved in the fourth quarter after a drastic decline the quarter before which caused management and Board to wonder what should be done with the fund.

    However, there are still plenty of unresolved issues. We reviewed the 10-K and listened to the Conference Call. The former has a disclosure (page 46) that recaps the cost of non-accrual assets ($120.1mn) and at fair market value ($15.8mn). However, TCAP also admits there is another $133.2mn (or 13.2% of the total portfolio) carried at a discount to par, and which may have performance problems in the future.

    We undertook our own count and noted 9 companies on our Watch List (not including the non-accruals) and just under $100mn of FMV. 5 of the 9 were in our Category 4 (or Worry List), where the chances of an eventual loss are greater than full recovery.

    Then there are a number of potential equity stakes that TCAP might be able to sell – or at least benefit from when the underlying company gets sold.

    We also note cash is building up at the BDC. Management says it’s just normal pay-offs not yet re-invested, but TCAP could be preparing to repay its SBIC debentures as part of any sale of the fund to another group.

    (Typically – as Oaktree Capital discovered when taking control of Fifth Street Finance – the SBA does not honor change of control situations and requires its SBIC debentures be repaid).

    TCAP has $250mn in debentures, 40% of its total liabilities.

    Lower Earnings Ahead ?

    With assets shrinking and costs growing (including legal costs associated with the two lawsuits which TCAP is defending itself from) management guided towards lower Net Investment Income in IQ 2018 versus the IVQ 2017 numbers.

    Moreover the average yield on the portfolio continues to drop – regardless of bad debt results – as TCAP gradually implements its change of strategy.

    The debt yield is now 11.0%, down from 11.7% last year.

    However, new loans are being booked at average yields at or below 10%.

    We calculate that just a 1% drop in the $750mn of remaining performing assets over time could drop recurring Net Investment Income by 10% to $0.34 a share from the current level of $0.38, without taking into account any other factors.

    Like with Capitala Finance (CPTA) that reported recently and which we reviewed, TCAP is in a transitional phase – even if nothing happens regarding “strategic alternatives” – and where the earnings and NAV end up is very much in question.

    Unlike CPTA speculation on that front could be cut short if and when a new buyer or buyers are announced.
  • 2/28/2018: BDC Reporter Discontinues Coverage of Medallion Financial

    MFIN/MFINL: Starting immediately, the BDC Reporter has decided to discontinue any coverage – whether BDC News, Fixed Income News, Dividend Outlook, Earnings Calendar etc.- for Medallion Financial (MFIN and formerly TAXI). MFIN is in the process of giving up its BDC status and no longer pays a regular distribution. Furthermore the stock has become a speculative play that has little to do with BDC fundamentals. However, we will retain prior articles about MFIN/TAXI/MFINL in the archives for any interested readers.
  • 2/28/2018: New Mountain Finance Announces IVQ 2017 Results

    NMFC: The mid-sized BDC reported Net Investment Income of $0.35 per Weighted Average Share for the IVQ 2017 and Net Asset Value of $13.63 per Share, up from the prior quarter and for the year. Leverage remained within the BDC’s normal target at 0.71x, but has been higher. Credit quality was said to be in good shape with no loans on non accrual. Also, NMFC announced another $0.34 distribution for the IQ 2018. The BDC Reporter adds: We have not yet reviewed the 10-K or listened to the Conference Call. We’ll add to this post upon undertaking the latter.
  • 2/28/2018: Capital Southwest Announces Quarterly Dividend for IQ 2018

    CSWC: Capital Southwest increases its quarterly distribution to $0.28 for the quarter ended March 2018. For further discussion see Dividend Outlook.
  • 2/27/2018: TCG BDC, Inc. Announces Fourth Quarter 2017 Financial Results

    CGBD: The newest public BDC announced Net Investment Income Per Share of $0.43, above analyst expectations. NAV dropped following a Special Distribution to $18.12. In this quarter any fee waivers were ended. There is only 1 loan on non-accrual and asset values barely moved in the quarter.

    The BDC Reporter adds: We’ve reviewed the press release and the Conference Call transcript. It’s clear the BDC had a strong quarter to end its year as a public company. Most notable, the BDC’s earnings growth is focused on growing its senior debt JV which is at the $1bn in size level and is projected to yield returns in the mid-teens this year. Off balance sheet assets are almost rivaling on balance sheet. The portfolio profile – before reviewing the 10-Q – seems relatively conservative with first lien debt accounting for 78% of the portfolio. For better or worse – only time will tell – the two main industries CGBD focuses on are health care (very common for BDCs) and insurance brokerage (not so common). Leverage seems OK at 0.74X when looking at the metrics the BDC puts out but when the highly leveraged JV is factored in, note that $1.1bn of capital is buying $2.8bn in assets between off and on balance sheet. We were encouraged – though we shouldn’t be because these averages can be misleading – that portfolio companies grew EBITDA by an average of 10% in 2017. That’s good to know especially anticipating debt service charges will be on the rise in 2018 with the rise of LIBOR. Going forward CGBD claimed to have booked no deals yet in the IQ 2018 (being selective) and expecting $150mn in run-off. Might result in a weaker IQ 2018 than the strong IVQ 2017…
  • 2/28/2017: Goldman Sachs BDC At New 52 Week Low – Stock Watch

    GSBD: Goldman Sachs public BDC with the ticker GSBD reached a 52 Week Low of $19.36 intra-day. That’s far off the 52 Week High of $25.60. The BDC Reporter adds: GSBD has not been at these levels since August 2016. The drop of 25% in market capitalization since the high reflects both a weakening BDC Sector generally (22 BDCs trading within 5% of their year-long lows) and only OK results in the IVQ 2017 and for the full year which included a major Realized Loss, little progress in growing its JV and questions surrounding how many good deals Goldman Sachs , with other other private BDCs to feed transactions to, has to feed into the hopper. Another sign that some investors are bailing from even the former BDC favorites. Still, we’re hardly in rout territory as the stock still trades at a 10% premium to book (one of 7 BDCs) and yields 9.0%, well below the sector average of 10.4%.
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