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Garrison Capital: IVQ 2019 Conference Call – Annotated

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The BDC Reporter has annotated the Garrison Capital (GARS) IVQ 2019 conference call transcript, just hours after the meeting was held. Unfortunately for our readers that’s not such a great achievement as the prepared remarks were short; no discussion occurred about the KBW-led attempt to sell the  BDC (the investment bankers involved should get a bonus for even trying in these conditions) and no questions were asked when the Q&A rolled round. Furthermore, the BDC had not published its 10-K, which will arrive on Monday. Still, there was an Investor Presentation with plenty of information. 

Garrison Capital (GARS) CEO Joseph Tansey on Q4 2019 Results – Earnings Call Transcript

Mar. 13, 2020 11:24 AM ET | About: Garrison Capital (GARS)
Company Participants
Joseph Tansey – Chief Executive Officer

Conference Call Participants

Joseph Tansey

Good morning everybody and thank you for joining the call. I’m joined by Brian Chase, our Chief Operating Officer; and Daniel Hahn our Chief Financial Officer.

On Thursday afternoon, we issued a press release that included financial results for the fourth quarter, ended December 31, 2019 and also posted the earnings presentation to our website and we’ll be referring to it throughout today’s call. We expect to file our Form 10-K results on Monday after the market closes.

Before I begin today, I want to remind you that GARS has retained KBW and is in the midst of a strategic review process. While we are actively working with KBW to explore all options and are committed to taking actions that will maximize shareholder value, we cannot make  any assurances that the company will be able to execute on any of them.

BDCR Notes: Obviously, just the worst of time for a long drawn out sales process, now under discussion for months. 

As we’ve previously said, we do not expect to comment further or provide any periodic updates until — to the market until the company’s Board of Directors has approved a specific transaction or otherwise deems disclosure appropriate or necessary. And I will not be commenting further or answering questions today regarding the strategic review process.

BDCR Notes: For the record, the stock price of GARS has dropped as much as (53%) since the pre-crisis high of February 20. The stock price is at $3.080 at time of writing, just 36% of NAV as of 2019. NAV Per share – according to the BDC Reporter’s NAV Change Table – has dropped  in each of the last 8 quarters and (27%) overall.  

I’ll start today by spending a few moments discussing our financial results and portfolio activity during the quarter and we provide a few comments on the current market conditions before opening up the lines for Q&A.

We reported fourth quarter net investment income of $0.16 per share, which was slightly higher than our fourth quarter dividend of $0.15 per share. Our NII was offset by net losses of $0.54 per share resulting in a drop in net asset value to $8.51 per share. These losses were primarily driven by markdowns taken on six investments and realized losses from our investments in Gold Coast Bakeries and HRI, exiting our investments in Gold Coast Bakeries and HRI Holding Corp.

Both Gold Coast and HRI were non-accrual as of 3Q bringing the number of non-accruals down to two as of December 31, 2019.

BDCR Notes: Those big losses- far greater than recurring income – were the reason we gave GARS a POOR rating on our News Feed

Finally, the Board declared a dividend of $0.15 per share in the first quarter of 2020 payable on March 31st to shareholders of record as of March 20th.

During the fourth quarter, new additions totaled $12.2 million across eight portfolio companies offset by repayments and — of $64 million across seven portfolio companies, resulting in a net decrease of $51.8 million. We have used a portion of these net proceeds to repay approximately $40 million of our SBIC debentures in 4Q 2019 and 1Q 2020.

We expect to repay the approximately $20 million of debentures remaining over the next two quarters and intend to wind up the SBIC entity once the debentures have been repaid.

BDCR Notes: Jumping to conclusions : that looks like a BDC as much in liquidation as being sold. It’s a realistic approach, though, because the SBIC license is unlikely to be part of any eventual package if and when GARS is sold. Also, selling a bunch of assets just before a market collapse – even if it occurred by accident rather than design – is a Good Thing.

Now, turning to current market conditions, we are seeing significant volatility in both credit and overall markets as a result of the COVID-19 headlines. Although it is too early to determine what the overall impact would be on our underlying portfolio of companies, we are closely monitoring the situation and are in contact with our portfolio companies as the situation continues to develop.

[No questions from investors]

BDCR Notes: This is just the appetizer before we review the 10-K and the portfolio list.  

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