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Triangle Capital: Shocked !

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We noticed that National Securities issued a report following the announcement of the proposed  Triangle Capital (TCAP) two-way sale, with the portfolio being sold to Benefit Street Partners and the management rights to Barings, a Mass Mutual subsidiary.

Direct 

Most striking was what the National Securities analyst Chris Testa said regarding about the Benefit Street purchase:

“The company [TCAP] announced the sale of its 12/31/2017 portfolio (valued at $1.02 billion) to BSP for $981.2 million – a 3%haircut on a highly distressed and largely subordinated portfolio. We are not ones to mince words: we think it is utterly incredible that BSP would pay this, but it certainly benefits TCAP shareholders”.

[The highlight is ours]

Hear, Hear

Those are our sentiments entirely and in both respects.

Yes, BSP paid a very full price by everything we know about TCAP’s sorry portfolio.

Yes, we’re surprised that the buyer would pay such a rich price.

That high price (versus the okay price being paid to TCAP shareholders for agreeing to be externally managed) is what has rescued TCAP shareholders  from what could have been a much worse outcome.

In our humble opinion.

Supply and Demand

Of course – as we’ve said before – there are only so many $1bn portfolios to be bought lock, stock and barrel.

What Is Good For Goose May Not Be For Gander

Plus, there’s always that tension between the interests of the asset manager who’ll be harvesting rich fees on that TCAP portfolio and its investors who may or may not reap a decent eturn fom the net earnings over time.

That’s between Benefit Street and the investors in whatever funds the portfolio is being placed in.

The End In Mind

We also recognize that when TCAP’s valuation group took its pencils to valuing the year end 2017 portfolio an ultimate sale might already have been in mind.

As a result, TCAP may have written down some assets more aggressively than otherwise might have been the case.

It’s a win-win. Of a sort.

TCAP gets to sell its troubled portfolio close to book value (albeit way off cost) and the Board and managers can take a victory lap and Benefit Street might be able to write-up some investments in the future.

Caveat

We’ll be interested to see when we look into the details what hold-back provisions – if any – TCAP has agreed to with Benefit Street Partners.

We’ve looked at TCAP’s SEC filings page and found no details as of yet.

We want to determine if BSP has any recourse to TCAP in the future for any material amounts of reimbursement should portfolio performance not match whatever representations were made.

Conclude

If TCAP has sold its portfolio free and clear – and even taking into account a hidden discount in the book value, we will also not mince our words.

We will heartily agree with Mr Testa that TCAP’s management (and Houlihan Lokey)  pulled off a coup at the end of its eleven year history.

Small consolation for shareholders who bought the stock at $30 a share Back In The Day but a boon for more recent investors.

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