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Stock Watch: Barings BDC

BDCs:
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NEWS

The former Triangle Capital (TCAP), which is now Barings LLC (BBDC) is trading for the first time, net of the one-time payment to shareholders.


ANALYSIS

At the open, BBDC was priced at $10.79 and has since slipped in intra-day trading.

The intra-day low so far has been $10.43.

Click here for the latest stock quote from Yahoo Finance. 

As we reported in the BDC Daily News last week, the new Investment Advisor has already acquired $100mn of new shares in BBDC.

According to a August 2, 2018 press release Barings purchased the new shares at a price of $11.72, which equated to the new book value of the fund net of miscellaneous liabilities.

At close, Barings invested $100.0 million in cash in new Barings BDC shares at a price of $11.72 per share, which represents TCAP’s pro-forma NAV estimate, accounting for the sale of TCAP’s assets to BSP Asset Acquisition I, LLC, as well as other transaction expenses including but not limited to debt extinguishment costs, transaction fees, restricted stock vesting, severance costs, and a partial year bonus payment.

The current intra-day low represents an (11%) discount to the price paid by Barings, LLC.


VIEWS

Rhetorically Asked

Is investing in BBDC at this very early stage a good idea ?

Presumably investors are scratching their heads because the former TCAP portfolio has been sold and all the BDC’s assets are now in cash form.

What Happens Next

Much will depend on what the new Investment Advisor invests in over the next few months/quarters.

We have received a rough idea as part of the hand over process but in many ways this is a de novo fund with no track record for investors to rely on.

Moreover, the BDC has also adopted the new leverage policy allowed under the Small Business Credit Availability Act, which itself is a new and complex phenomenon.

Also unknown is how exactly BBDC will be financing itself and from what sources.

Will there be any unsecured debt raised to allow the BDC to maximize leverage and when will that debt kick in ?

We could go on, but the point is clear enough: BBDC is a blank canvas on which just about everything will need to be added to.

Something To Go On

The discount to book; the reputation of Barings, LLC in other formats and the addition of Jonathan Bock to the team will draw some early bird investors.

Others will wait for greater clarity which will take – based on what was announced during the change over process – at least two quarters to get into focus.

Conundrum

The BDC Reporter prides itself – rightly or otherwise – on undertaking its homework before investing.

In this case there is very little to poke and prod.

Simple Math

But we also recognize that buying BBDC’s stock at a 10%+ discount to book is also intriguing.

Should the BDC have the success of a BDC like Golub Capital  (GBDC) – currently trading at an 18% premium to book – today’s stock price will seem like a bargain.

Just for this purpose, if BBDC trades at the GBDC premium, its stock price – and we’re talking the epitome of pro-forma calculating here – would be $13.83.

That’s a 33% premium to the intra-day low.

Words To Live By

As the Special Air Service motto goes : “Who Dares,  Wins”.

Our other favorite expression also might apply: “To Each Their Own”.

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