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Main Street Capital: IVQ 2020 Update On Private Loan Portfolio

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NEWS

Main Street Capital Corporation (NYSE: MAIN) (“Main Street”) is pleased to announce the following recent activity in its private loan portfolio. During the fourth quarter of 2020, Main Street originated approximately $80.5 million in new private loan commitments across four (4) new borrowers and funded total new investments across its private loan portfolio with a cost basis totaling approximately $98.5 million.

The following represent notable new and incremental private loan commitments during the fourth quarter of 2020:

  • $35.0 million in a first lien senior secured loan and $2.5 million in a first lien senior secured revolver to an executive search placement firm focused on the healthcare and life sciences industry;
  • $15.5 million in a first lien senior secured loan and $4.7 million in a senior secured delayed draw loan to an operator of futures trading platforms;
  • $11.4 million in a first lien senior secured loan, $5.7 million in a first lien senior secured delayed draw loan and $2.9 million in a first lien senior secured revolver to a manufacturer and distributor of residential and commercial fencing;
  • $12.0 million in a first lien senior secured loan and $1.0 million in a first lien senior secured revolver to a subcontractor of interior acoustical walls and ceilings;
  • $10.0 million in a first lien senior secured loan to a provider of physical and virtual application delivery controllers and an operator of a global network intelligence company; and
  • $10.0 million in a first lien senior secured loan to a manufacturer and distributor of charitable gaming supplies to the global social and charitable gaming market.

As of December 31, 2020, Main Street’s private loan portfolio included total investments at cost of approximately $769.0 million across 63 unique borrowers. The private loan portfolio, as a percentage of cost, included 90% invested in first lien debt investments, 3% invested in second lien debt investments, and 7% invested in equity investments or other securities“.

See the press release attached


ANALYSIS

According to MAIN’s IIIQ 2020 10-Q, the number of “private loan” borrowers was 68 at September 30, 2020, and the aggregate cost $823mn.

“Private loans” accounted for 33% of the overall MAIN portfolio at cost.

The IVQ 2020 numbers suggest that – notwithstanding four new borrowers – the total size of the “private loan” segment has dropped, as may its percentage of the portfolio, but that cannot be yet confirmed.


VIEWS

Uncertain

Frankly, we don’t see the point of these press releases from BDCs which cover only a portion of the portfolio and omit key metrics (fair market value ? yield ?).

Nonetheless, we try to get what value we can out of the new information.

In this case, by a process of deduction, we get the impression the “private loan” portfolio is shrinking at the end of 2020.

We’ve been expecting since the pandemic began that MAIN would focus most of its portfolio developments on the lower middle market (LMM), and away from the “private loan” and “middle market loan” segments.

(MAIN divides up its portfolio in these groups, which have very different characteristics- especially where LMM is concerned).

Not So Great

From a credit standpoint, neither of the latter categories have performed well from a credit standpoint; and offer lower loan yields and little opportunity for equity upside.

However, on its latest conference call management indicated a preference for the “private loan” group over the “middle market”, with the LMM remaining the main focus.

Last quarter, “private loans” increased at cost by $69mn over the level in the IIQ 2020.

In the IVQ 2020, this growth has turned to a loss in dollars invested,  so we’re not certain what the underlying reasons for these contradictory changes might be.

We look to the IVQ 2020 financials and the earnings conference call for better guidance.

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