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Garrison Capital : IIQ 2020 Results – First Look

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We’re sorry to say that pretty much nothing was right about Garrison Capital’s (GARS) IIQ 2020 results, on the eve of the BDC’s merger with Portman Ridge Financial (PTMN). Shareholders will have noticed right away that the BDC’s dividend has been cut: to $0.05 a quarter from $0.15 – a two-thirds drop. GARS blames “the anticipated transaction costs as part of the proposed merger with PTMN“.  Net Investment Income – as you’d expect – has dropped as well: by (26%) quarter over quarter and by about half from a year ago. There are some transient reasons for the earnings drop and some long term factors such as the drop in LIBOR and lost income from non-accruals.

Net Asset Value Per Share also took a tumble, dropping from $6.57 in March 2020 to $6.29 this quarter. Looking back over a year, GARS has seen its NAV Per Share fall nearly (40%), as their Investor Presentation – which is attached – shows. The BDC Data Table, which looks at NAV Per Share all the way back to IVQ 2017 indicates the loss through IIQ 2020 is now (46.4%). In a stat that may tell us more about the bottom end of the BDC sector than GARS, that drop is the sixth largest amongst the 46 BDCs we track.

Then there’s GARS’s debt to equity – where the BDC does hold the record for worst metric: 2.67x. The BDC wrote: “As of June 30, 2020, we were in breach of our asset coverage requirements which restricts our ability to incur any additional leverage until such breach has been cured”. During the quarter, GARS paid off – as had been previously announced – all its SBIC debentures.

The percentage of underperforming portfolio assets appears to be increasing – based on management’s own internal ratings which you’ll see copied into the BDC Data Table. Currently, underperforming assets account for 55% of the total, about a third more than last quarter. By those sorts of numbers GARS appears to have one of the most troubled portfolios in the BDC sector, but we’ll take a second look when we undertake a full Credit Review.

Finally – as if that was not enough – liquidity was weak, with only $15.1mn showing in the Investor Presentation; half of the quarter and some of that in the CLO subsidiary and – presumably – not available for all purposes.

We have rated the IIQ 2020 results as POOR; Liquidity as POOR; Credit as POOR and the Long Term Outlook as POOR

For all the First Look reviews of IIQ 2020 BDC results, check out the BDC Data Table. We are constantly adding new updates as results come in and we undertake an initial survey. Besides these reports, we are also filling in NAV Per Share and investment portfolio size data to compare with prior periods; adding company or BDC Credit Reporter generated data on underperforming companies and assets and affirming or amending our earlier assessments of every BDC’s Liquidity, Credit, Dividend and Long Term Outlook

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