BDC Buzz

Yes I am a real person named Duane Batcheler. Feel free to add me on:

LinkedIn:www.linkedin.com/in/bdcbuzz/
Google+:google.com/+BDCBuzz

My goal for writing about BDCs is to bring much needed exposure to the industry. I believe this will ultimately benefit the small and medium size businesses that BDCs invest in as investors seek to put their capital into these companies. The BDC industry will mature much like the REITs and MLPs. Below is a clip from a Wells Fargo presentation showing the history of growth for each sector.

Today BDCs are over $30 billion and growing fast with new entrants every year. When I first started to invest in BDCs as a source of income, finding comparative information about them was difficult and still is. BDCs are not a one size fits all type of investment and there are many different types to suit different needs. So I did the research myself, started doing well and decided to share with others through writing. I have learned much more about investing in BDCs since I started writing earlier this year and I hope it shows.

Personal Background

I grew up in the Northwest (mostly Portland) and initially worked in the boutique investment banking industry for a few firms in Seattle and Portland, mostly working on sell-side or private finance and venture capital. This gave me a great background for the types of investments that BDCs make. I then started to work for companies as a ‘hired gun’ for industry roll-ups and consolidations including VP of Corporate Development for Cardtronics, Inc. (CATM) [old announcement from 2002]. I retired (for the most part) when I was 32 and spent the next seven years traveling, mostly by land (see map below). During this time I was conservatively invested in income producing assets that benefitted from the financial crisis and rates being lowered but ultimately I needed to reinvest because my holdings were overvalued due to investors flight to safety. This is when I started the slow transition into cash and riskier equity investments including BDCs that seemed undervalued at the time.

I now live part of the year in Thailand which works well with writing because it’s 12 hours ahead of NY and gives me plenty of time to digest new information before the markets open the next day. I still travel but not as much.

Salt Flats (Bolivia) - Feb '06

Petra (Jordan) - Jan '08

Potala Palace (Tibet) - Jul '07

Athens (Greece) - Aug '06

Angel Falls (Venezuela) - Nov '05

Safari (Kenya) - May '08

Aleppo (Syria) - Dec '07

Taj Mahal (India) - Sep '07

Iguazu Falls (Brazil) - Mar '06

Feeding Hyenas (Ethiopia) - Mar '08

Cappadocia (Turkey) - Dec '07

Mount Bromo (Indonesia) - Mar '07

Running With the Bulls (Spain) - Jul '06

Hiking Trek (Chile) - Mar '06

Quadbiking (Namibia) - Jun '08

Mt. Everest (China) - Jul '07

The Chinese renamed it and I was expressing my thoughts.

Mostar (Bosnia) - Oct '07

Lost City Trek (Colombia) - Oct '05

Cape Town (South Africa) - Jul '08

Giza (Egypt) - Feb '08

Kuala Lumpur (Malaysia) - Mar '07

Inca Trail (Peru) - Jan '06

Trek to Mach Picchu

Machu Picchu (Peru) - Jan '06

Victoria Falls (Zambia) - Jun '08

Tropic of Capricorn - Jun '08

El Calafate (Argentina) - Apr '06

Chefchaouen (Morocco) - Jul '08

Hang Gliding in Rio (Brazil) - Mar '06

High Desert (Bolivia) - Feb '06

Sandboarding (Namibia) - Jun '08

If you would like to receive weekly email updates with price targets, recommendations and rankings for each BDC please email me at bdcbuzz@gmail.com and put "Subscribe" in the subject line and "Unsubscribe" to be taken off.

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Here are the current BDC portfolios that I am tracking. Details for all them are contained in the articles as well as in "BDC Investment Philosophy & 4 Portfolio" with the exception of the newly added Total Return portfolio that is my personal favorite.

BDC Portfolios:

For a complete list of articles by BDC click here or to sign up for the weekly newsletter with the latest BDC rankings, recommendations and price targets click here.

Here is a list of the premium BDC articles. Some of the Seeking Alpha ones require a Pro Subscription to view. I will update this list as articles are added:

Premium BDC Articles:

Main Street Capital: The Best BDC? (blog only)
Solar Senior Capital: Its Accretive Acquisition Should Cover Dividends (Seeking Alpha only)
THL Credit: Poised for Growth & Pushing Higher (Seeking Alpha only)
New Mountain Finance: Sustainable & Higher Total Returns (Seeking Alpha only)
KCAP Financial: Will it Continue to Fall? (Seeking Alpha only)
Fidus Investment: Higher Total Return? (Seeking Alpha only)
Garrison Capital: Time to Buy? (Seeking Alpha only)
Keating Capital: The Pre-IPO Investor (Seeking Alpha only)
TCP Capital: Still Overlooked? (Seeking Alpha only)
American Capital: Is it Time to Get Out? (Seeking Alpha only)
Golub Capital: Projections, Risks & Valuations (Seeking Alpha only)
Main Street Capital: More Than Just Dividends? (Seeking Alpha only)
Triangle Capital: Is it Priced for Total Return? (Seeking Alpha only)
Hercules Technology: Will it Continue to Surprise? (Seeking Alpha only)
MCG Capital: An Overpriced BDC (Seeking Alpha only)
THL Credit: Another Overlooked BDC (Seeking Alpha only)
TCP Capital: An Overlooked BDC (Seeking Alpha only)

For a complete list of articles by BDC click here or to sign up for the weekly newsletter with the latest BDC rankings, recommendations and price targets click here.

This is a follow up to "Fifth Street Finance: Time To Buy or To Sell? Part 1" and provides earnings projections and dividend coverage as well as updated BDC rankings, pricing and total return expectations for Fifth Street Finance (FSC).

This article is notpublicly available and will notbe published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

Feel free to make a donation to see the rest of this article and put the email address that you would like it sent to in the 'note to seller' section. Any donations of $10 or more will get the next premium article for free and donations of less than $5 will take 24 hours to process. Donations are simply for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the weekly newsletter in an effort to deliver timely investment advice to subscribers.

Upcoming Articles:

GBDC (after it reports on December 3^rd)
MCC (after it reports on December 9^th)
PSEC Update with my personal revised EPS estimates

GBDC and MCC will be reporting after the close of the markets on December 3^rd and 9^th, and I will have special updates before the markets open the next morning. Due to timing and the editorial process at Seeking Alpha (SA) I will publishing in two parts so that premium subscribers can have advance copies of the articles not published on SA with updated recommendations, pricing, rankings and earnings estimates for dividend sustainability projections before the market open. All subscribers who have donated more than $50 so far are already on the premium subscriber list and will be sent the upcoming articles. For those of you who would like to be included in this list please click on the donate button below or email me directly bdcbuzz@gmail.com and send me the tickers you are most interested in (of the 25 that I follow). For those of you that have donated less than $50 please just send the balance. This group will receive all premium articles from last week as well as advance copies of a minimum of 10 more over the next two to three months. I will extend this free period and the amount of articles as more people sign up. This is an effort to streamline the delivery process so that I can get back to research and providing improved content.

Website Update: The BDC Buzz website is up and running thanks to the donations from last week and I am working actively to load it up with research. The address is (www.bdcbuzz.com) and this will be a free resource to BDC investors, providing up to date research on each BDC as well as comparative analyses so that investors can choose a BDC that fits their needs or keep track of current investments. So far the key sections are:

Specific BDC Pages: eventually these pages will contain current recommendations, news and articles, key metrics, etc.
Portfolio Pages: this is where I will post any recommended changes to components or allocations as well as track the progress and returns
General Research: this section will cover all my comparative analysis for the BDC industry including risk profiles, total returns, rankings, pricing, leverage, fees, growth capital, potential equity offerings, dividend coverage, portfolio quality trends, etc.

The website will be an evolving process and if you have any suggestions please send me an email. Certain information will not be published on the site including updated pricing and rankings. This will be for the newsletter subscribers only.

If you are not already on the newsletter list and would like to be please visit: "Newsletter Sign Up" and fill out the form

This is a follow up to "Prospect Capital: Sustainable High-Yields? Part 1" and provides detail for the earnings projections and dividend coverage for Prospect Capital (PSEC) over the coming quarters as well as best and worst case scenarios. This article will cover the recent amount of shares issued to project the potential impacts to NAV values for current shareholders and provide the updated rankings compared to the other 25 BDCs that I follow with the changes from the previous quarter for PSEC.

Also included:

Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations and ‘must buy’ prices

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 to see the rest of this article and please put the email address that you would like it sent to in the 'note to seller' section. If you would like to become a premium subscriber and receive this article and the most recent FSC and MAIN articles along with at least 10 more (including the upcoming GBDC and MCC articles) please visit "Premium Subscriber".

Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

This is article provides earnings projections and dividend coverage for Golub Capital BDC (GBDC) over the coming quarters as well as updated rankings compared to the other 25 BDCs that I follow with the changes from the previous quarter for PSEC.

Also included:

Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 to see the rest of this article and please put the email address that you would like it sent to in the 'note to seller' section. If you would like to become a premium subscriber and receive this article and the most recent PSEC, FSC and MAIN articles along with at least 10 more (including the upcoming MCC article) please visit "Premium Subscriber".

Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

This article provides earnings projections and dividend coverage for Medley Capital (MCC) over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article and if you would like to become a premium subscriber and receive this article and the most recent PSEC, FSC, GBDC and MAIN articles along with at least 15 more for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

Ares Capital (ARCC) is a strong component in three of my suggested BDC portfolios: ‘Risk Averse’, ‘General’ and my personal favorite ‘Total Return’. The Federal Reserve is set to make an announcement later today that could rattle the markets and especially interest rate sensitive stocks such as BDCs. I consider ARCC a buy and one of the best positioned for rising interest rates as I will discuss and give my projected earnings impacts. ARCC has recently raised equity capital twice this quarter and I believe this is a strong indication of future portfolio and dividend growth.

The recent share issuances were above its net asset value (“NAV”) per share and accretive to current shareholders, adding to potential total return. ARCC is still under priced from the last issuance and could dip further after the Fed’s statement. Investors that would like to establish a position in ARCC should take advantage of this opportunity.

This article also provides earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article and if you would like to become a premium subscriber and receive this article and the most recent PSEC, FSC, MCC, GBDC and MAIN articles along with at least 14 more for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

TCP Capital (TCPC) has been near the top of my rankings and is a component in three of my suggested BDC portfolios: ‘Risk Averse’, ‘General’ and ‘Value& Growth’. TCPC raised equity capital twice in Q4 at prices above its net asset value (“NAV”) per share and was accretive to current shareholders, adding to potential total return. I believe the company has two key competitive advantages: low cost of debt capital and lower fee structures both of which will ultimately benefit investors as it grows its portfolio.

Management’s interests are aligned with shareholders including the CEO who reiterates on each earnings call "we have voluntarily locked up our own personal pre-IPO holdings of approximately $10 million in investments in TCP Capital for three years from the IPO and several members of the management team and the board of directors bought shares in the market after our IPO. We hope that we can see that management's interests are clearly aligned with our shareholders."

I have included a new section called “Dividend Potential” that looks at an ideal scenario with target leverage ratios and a full quarter of benefit from the portfolio to determine the maximum dividend payable from recurring income. This is optimal but not very likely because there will always be some turnover in the portfolio and management will most likely continue to grow using debt and equity. It does provide an indicator to dividend potential and I will continue to measure this in reports going forward.

This article also provides earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article and if you would like to become a premium subscriber and receive this article and the most recent ARCC, PSEC, FSC, MCC, GBDC and MAIN articles along with at least 14 more for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

TICC Capital (TICC) is a component in my ‘High-Yield’ BDC portfolio and is one of the older BDCs that I follow. It has been near the average of my rankings for a while with a riskier than average profile and higher than average returns. TICC has one key advantage over the other BDCs which is its income incentive fee structure that is very favorable to investors in a rising rate environment and is based on U.S. Treasury rates that rose by year end. This will reduce the fees paid by the company starting in 2014 and I believe these cost savings have not been factored into projected EPS or pricing. Most of its investments are at variable rates and once rates rise higher than 100 basis points TICC should begin to see higher income.

I believe its CLO investments along with higher than average use of leverage makes it one of the riskier BDCs and it should be priced accordingly.

The company will most likely issue new shares this quarter and there is a possibility of increased dividends later in the year as it benefits from reduced fees and full quarter of benefit from CLO investments.

I have included a new section called “Optimal Leverage & Dividend Potential” that looks at an ideal scenario with target leverage ratios and a full quarter of benefit from the portfolio to determine the maximum dividend payable from recurring income. This is optimal but not very likely because there will always be some turnover in the portfolio and management will most likely continue to grow using debt and equity. It does provide an indicator to dividend potential and I will continue to measure this in reports going forward.

This article also provides earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article and if you would like to become a premium subscriber and receive this article and the most recent TCPC, ARCC, PSEC, FSC, MCC, GBDC and MAIN articles along with at least 12 more for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

Sample Views

(reports are usually 10 to 15 pages)

Triangle Capital (TCAP) is a component in my ‘General’ BDC portfolio and has been near the average of my rankings for a while with an average risk profile and lower than average returns due to its pricing. TCAP has one key advantage over the other BDCs which is its internally managed cost structure that is one of the most efficient in the industry. TCAP has a strong balance sheet with plenty of liquidity to grow the portfolio and leverage this low cost structure to maximize returns to shareholders.

One of the key risks to future portfolio growth and increased dividends is the high amount prepayments due to increased competition driving down its portfolio yield. TCAP’s management has been prudent in its portfolio and dividend growth and is now well positioned for the coming quarters.

This article discusses those opportunities and issues with earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall rankings and recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article and if you would like to become a premium subscriber and receive this article and the most recent TICC, TCPC, ARCC, PSEC, FSC, MCC, GBDC and MAIN articles along with at least 11 more (20 total) for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

Sample Views

(reports are usually 10 to 15 pages)

New Mountain Finance (NMFC) is a component in both my ‘Total Return’ and ‘Value’ BDC portfolios and is considered a ‘Buy’ with a safer than average risk profile and higher than average returns. The company differentiates itself from other BDCs by investing in defensive sectors such as healthcare, education, energy and federal services, in attempt to build a recession resistant portfolio. Another key difference is that its management fees do not include a portion of the debt used to increase returns to investors and as far as I know there are no other externally managed BDCs with this investor friendly feature.

Currently NMFC is trading at a discount giving it a favorable risk vs. return ratio.

One of the key risks to NMFC’s investment strategy is its exposure to regulated industries but could still be a key component in a balanced BDC portfolio. Also I do not believe the company will raise dividends again as management has consistently stated “we have reached a fully ramped steady state dividend level.”

This article discusses the pros and cons of investing in NMFC along with earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall rankings and recommendations

This article is not publicly available and will not be published on Seeking Alpha. It is similar to my other premium articles that can be seen here: Premium Articles.

There is a minimum donation of $5 for this article or if you would like to become a premium subscriber and receive this article and the most recent TCAP, TICC, TCPC, ARCC, PSEC, FSC, MCC, GBDC and MAIN articles along with at least 10 more (20 total) for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

Sample Views

(reports are usually 10 to 15 pages)

Summary and Recommendations

THL Credit (TCRD) is a component in my ‘General’ BDC portfolio and is considered a ‘Buy’. Last year the stock was up around 15% but has recently begun to dip and is more appropriately priced. I consider TCRD to be one of the safer BDCs with the potential to grow its portfolio more than most BDCs with it topping the charts in “Total Return BDCs For 2014: Part 3” that discussed the potential for dividend growth.

Some of the key risks for TCRD are decreasing yields in its portfolio and the recent increase in second lien debt investments. However it still has a quality portfolio with lower than average use of leverage.

Growth Capital

TCRD has an average portfolio mix with almost 60% of investments as first or second lien senior debt, 30% in subordinated debt and the rest in structured products and equity type investments but also has an average debt-to-equity ratio. As discussed in “BDCs And Risk: Part 1” BDCs should use leverage levels appropriate to the credit quality of the portfolio and with TCRD’s slightly higher than average quality it should have at least average amounts of leverage. The CEO stated on the last earnings call “I think our leverage will continue to be in that 0.6, 0.7 range, consistent with a junior capital bias to the portfolio”. As of September 30, 2013 its debt-to-equity ratio was 0.28.

On October 9, 2013, TCRD closed on an additional $85 million of commitments to its credit facilities, which increased the commitments on the revolving credit facility from $170 million to $232 million and commitments on the term loan facility from $70 million to $93 million. This gives TCRD $200 million in potential capital and enough to grow the portfolio by almost another 40% without the need for more equity offerings.

Prospect Capital (PSEC) is many investors first BDC investment due to its high-yield, overall size, liquidity and growth. I usually suggest that investors look beyond the dividend yield and more to total return but there is something to be said for a bird in the hand. PSEC is the most innovative company in the industry and was the first to issue a convertible bond, conduct an ATM program, develop a notes program, issue an institutional bond and acquire a competitor. My primary concerns with PSEC are its rapid growth and issuance of shares as well as the need to continue to deliver high returns to cover dividends and the methods it uses to do this. This article will discuss the impacts of its at-the-market (ATM) program to the shareholders, the current amount of growth capital available in addition to its ATM program, portfolio growth and earnings projections, ongoing ability to cover dividends for at least the next three to four years as well as potential signs of when this might not be the case, revised rankings and potential risks, projected total return compared to other BDCs, and revised pricing using both industry multiples and total return expectations.

This article discusses the pros and cons of investing in PSEC along with earnings projections and dividend coverage over the coming quarters including best and worst case scenarios as well as updated rankings compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis
Timing for future share issuances
Projected total returns compared to the other BDCs
Price target based on expected total returns
Pricing based on multiples of NAV and projected earnings
Overall rankings and recommendations

This article is not publicly available and will not be published on Seeking Alpha. There is a minimum donation of $5 for this article or if you would like to become a premium subscriber and receive this article and the most recent TCRD, TCAP, NMFC, TICC, TCPC, ARCC, FSC, MCC, GBDC and MAIN articles along with at least 9 more (20 total) for $50, please visit "Premium Subscriber". Donations are for out of pocket expenses associated with building a new website (www.bdcbuzz.com) and the free weekly newsletter in an effort to deliver timely investment advice to subscribers.

Apollo Investment (AINV) is part of my suggested ‘underdog’ portfolio and recently reported favorable results beating EPS estimates for a third quarter in a row along with large net asset value (“NAV”) growth, driving its price to new 52-week highs. I consider AINV a ‘Hold’ due to its riskier profile and current pricing. AINV has resided in the bottom half of my rankings since I began coverage but recently was upgraded from a ‘Sell’ due to its continued progression to realign its portfolio to maximize its risk vs. return to shareholders.

On the most recent earnings call management stated “Since early 2012, we have been focused on investing in secured debt, which we believe continues to offer the most attractive risk-adjusted returns. Accordingly, 63% of investments made during the period were secured debt. And at the end of December, secured debt accounted for 51% of the portfolio, up from 32% when we started to reposition the portfolio.”

I believe this is the right move and have adjusted my risk rankings to reflect these continued changes. AINV is outspoken about its willingness to take on more leverage both in its portfolio companies and as a company. This makes it riskier than other BDCs but hopefully with higher returns. Management is focused on creating value through monetizing some of its higher risk assets as well as equity positions in many of the portfolio companies. These efforts have grown its NAV per share 5% over the last two quarters, more than most BDCs (see page 9) and is a key reason for upgrading the stock. These increases in value along with its 9% dividend yield provide for higher than average returns.

Some of my key concerns are the amount of leverage within its portfolio companies currently at 5.2 times EBITDA and higher than most BDCs. I believe leverage of over five times cash flow increases the risk of non-payment especially during an economic downturn. The company has stated this as a key differentiator and a willingness to invest in highly levered companies to increase returns to shareholders. This, along with 7% of the portfolio in ‘structured products’ increases the amount of risk to shareholders.

Also included:

Interest rate sensitivity analysis

Timing for future share issuances

Projected total returns compared to the other BDCs

Price target based on expected total returns

Pricing based on multiples of NAV and projected earnings

Overall rankings and recommendations

Here are the other reports currently available:

PSEC: February 2014 Report

TCRD: January 2014 Report

NMFC: January 2014 Report

TCAP: January 2014 Report

TICC: January 2014 Report

TCPC: January 2014 Report

ARCC: December 2013 Report

MCC Update: Projections, Returns, Pricing and Recommendations

GBDC Update: Projections, Pricing, Recommendations

PSEC: Sustainable High-Yields?

FSC: Time to Buy or to Sell?

Main Street Capital: The BDC BDC?

Sample Views

(reports are usually 10 to 15 pages)

This article discusses the pros and cons of investing in ARCC along with earnings projections, dividend sustainability and growth potential over the coming quarters including best and worst case scenarios as well as key risk considerations, updated rankings/pricing compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis

Timing for future share issuances

Projected total returns compared to the other BDCs

Price target based on expected total returns

Pricing based on multiples of NAV and projected earnings

Overall rankings and recommendations

This article is not publicly available and will not be published on Seeking Alpha. There is a minimum donation of $5 for this article or if you would like to become a premium subscriber and receive this article plus 19 more (20 total) for $50, please visit "Premium Subscriber".
Here are the other reports currently available:

AINV: February 2014 Report

PSEC: February 2014 Report

TCRD: January 2014 Report

NMFC: January 2014 Report

TCAP: January 2014 Report

TICC: January 2014 Report

TCPC: January 2014 Report

MCC Update: Projections, Returns, Pricing and Recommendations

GBDC Update: Projections, Pricing, Recommendations

PSEC: Sustainable High-Yields?

FSC: Time to Buy or to Sell?

Main Street Capital: The BDC BDC?

Hercules Technology Growth Capital (HTGC) is a component in both of my suggested‘total return’ BDC portfolios due to its higher than average historical and projected total returns. After putting this report together I have upgraded its risk profile which has a direct impact on implied pricing. The price has fallen over 10% in less than two weeks and I now consider it a ‘Buy’. Personally I will be looking for resistance and buying momentum (that could be this morning) and then start a position for my personal BDC portfolio.

The reason for upgrading its risk profile is the willingness of management to make long-term decisions in the best interest of the shareholders instead of trying to temporarily cover dividends by quickly growing the portfolio and potentially sacrificing credit quality and/or portfolio yields. This means that over the next two quarters I anticipate a lack of dividend coverage from net investment income (“NII”). Management has stated this is not the immediate concern and will continue to selectively grow the portfolio as well as sell marginalized assets in this ‘frothy’ lending environment in an effort to improve credit quality and maintain higher than average yields.

HTGC is an internally managed BDC with a lower operating cost than most BDCs that allows it to sit on cash without paying a base management fee and no incentive fees to potentially drive decisions that are not in the best interest of shareholders. HTGC has a large amount of growth capital with future debt and equity at a lower cost than most and is potentially the most well positioned BDC for rising interest rates with over 99% of debt investments at variable rates (and low floors) and 100% of borrowings at fixed rates.

Its net asset value (“NAV”) growth over the last 12 months is the second highest in the industry and a result of its investment approach with currently 113 warrant holdings and 37 equity positions. HTGC focuses on venture capital backed growth oriented companies in the technology and life sciences sectors that are pre-IPO or M&A. In the first two months of 2014, HTGC has already completed four IPOs with another five companies in IPO registration today.

Also included:

Interest rate sensitivity analysis

Timing for future share issuances

Projected total returns compared to the other BDCs

Price target based on expected total returns

Pricing based on multiples of NAV and projected earnings

Overall rankings and recommendations

Summary and Recommendations

Fidus Investment (FDUS) is part of my suggested ‘total return’ portfolio that is considered the portfolio for more savvy type BDC investors focused on more than just regular dividend yield. I consider FDUS a ‘Hold’ only due to its current pricing but in the long run I believe it will outperform many of the other BDCs with higher return.

There are many things that set FDUS apart from the other BDCs including its slower and selective approach to picking portfolio companies. One of the key focuses of management is industry diversification and choosing investments that will outperform in a challenging economic environment. Many externally managed BDCs are growing much faster driving higher fees to the Investment Advisor and may not be acting in the best interest of shareholders.

One of the key advantages of FDUS is its ability to increase its net asset value (“NAV”) per share more than most BDCs (see page 12) while paying regular and special dividends. After taking into account all of these returns I expect FDUS to return 11.5% to 13.5% to investors over the next 12 months. Currently the company has over $16 million in spillover income that could be used to pay future special dividends or grow the portfolio. This is almost $1.20 per share and equivalent to 9 months of regular dividends. Both the recent NAV growth and special dividends are due to FDUS’s approach to selective investments with equity positions in 85% of its portfolio companies with an average fully diluted equity ownership of 8%. This is more of a partner approach to investing with skin in the game.

FDUS is the only BDC with 100% of its borrowings in SBA debentures at 10-year fixed rates, interest only and are excluded from debt-to-equity regulations for BDCs. The company has been prudent about raising equity and diluting shareholders, usually waiting for optimal leverage points to maximize returns before issuing shares. I believe this shows tremendous restraint on the part of management and is probably another reason investors are willing to pay a premium.

Some of my key concerns are its overall investment mix with 71% of investments in subordinated notes and a higher than average portfolio yield. However after taking into account having no loans on non-accrual, its growing NAV and considerably lower portfolio company leverage metrics (see page 10) I believe FDUS has safer investments than other BDCs.

This article discusses the pros and cons of investing in AINV along with earnings projections, dividend sustainability and growth potential over the coming quarters including best and worst case scenarios as well as key risk considerations, updated rankings/pricing compared to the other 25 BDCs that I follow.

This article discusses the pros and cons of investing in AINV along with earnings projections, dividend sustainability and growth potential over the coming quarters including best and worst case scenarios as well as key risk considerations, updated rankings/pricing compared to the other 25 BDCs that I follow.

Also included:

Interest rate sensitivity analysis

Timing for future share issuances

Projected total returns compared to the other BDCs

Price target based on expected total returns

Pricing based on multiples of NAV and projected earnings

Overall rankings and recommendations

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