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BDC Market Agenda: Wednesday March 31, 2021

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On The Docket

You’ll excuse us for repeating ourselves but the BDC news flow continues to be weak. We noted only the following developments since our last update :

1. Blackrock TCP Capital (TCPC): Definitive Proxy For 2021 Shareholders Meeting

TCPC shareholders will get the opportunity on May 26, 2021 to vote on the appointment of 8 directors. Also on the agenda – and probably more an insurance policy than anything else – will be the approval  to allow management and the Board to issue new shares up to 25% of the current total at a price below book value. More BDCs than not have been asking for this sort of approval without anyone receiving the nod actually doing so. We expect the approval will be given but shareholders may not be so positive if TCPC were to take advantage of this option sometime in the twelve months following the vote.

2. Horizon Technology Finance (HRZN): Form  8-K- Entry Into A Material Definitive Agreement

HRZN filed a notice related about its recently issued new Baby Bond. The filing included all the key terms of the new debt. We refer readers to Quantum Online, which do a very good job of summarizing every BDC security.  Just type in the new ticker: HTFB. This notice was also useful – and reflected in the BDC Fixed Income Table – for setting the date by which the existing Baby Bond – HTFA – will be redeemed. That’s April 25, 2021.

Credit Review

As promised in yesterday’s column, the BDC Reporter – using many of the resources of the BDC Credit Reporterundertook a full credit review of Capital Southwest (CSWC). In doing so, we illustrated a dichotomous situation: a BDC with no non accruals and declining underperforming assets but still POTENTIALLY vulnerable to what happens to several still-performing companies, including its own joint venture with Main Street Capital (MAIN).

Today, we’ll be turning to the credit status of Capitala Finance (CPTA). We last wrote about the troubled, non-dividend paying BDC back on March 9, 2021 when reviewing the IVQ 2020 results. Here’s an extract of what we said about CPTA’s credit status, which we’ll be enlarging on:

“Credit quality – after 5 years of unrelenting realized losses of  ($125.6mn) – has stabilized with 4 non accruals left with an FMV of $21mn and total underperforming assets – by management’s calculation – of $38mn. That last metric is equal to 14% of the portfolio as a whole and far better than in prior quarters, largely due to realized losses booked. By our rating system, that makes CPTA’s credit status GOOD but only because so many losses have transpired earlier”.  

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