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Full Circle Capital (NASDAQ:FULL) IPOed on August 31 of 2010 and its NAV has fallen ever since, which has - logically - held back share price appreciation. FULL's quarterly net investment income has covered the dividend in only one of the five quarters it has issued an earnings release. And that is a very bad thing. It outweighs FULL's positive attributes like having a portfolio that is heavy in senior secured loans; a portfolio with a weighted average yield that is a little higher than BDC average; and an income flow that is 100% cash. It has had only one dividend increase since its IPO while other recent IPOs have much better short term records (like FDUS, MCC, NMFC, PFLT, TCRD and SUNS). As a result, it sells at close to a 12% yield and at a small discount to its NAV. The non-cap weighted average yield for my 29 member BDC coverage universe has an average yield of 8.93% and at a 10% premium to its average NAV.

In this article, I will examine the Q4-12 earnings release looking at the important metrics; show the relative valuations of the BDC sector in two spreadsheets; and share my conclusions as to whether FULL is worthy, at the current price, of belonging in your portfolio.

FULL reports NII of $0.2177/share compared to a dividend of $0.231/quarter
What They Earned: Full Circle Capital Corporation reported for calendar Q4-12 [its fiscal Q2] Net Investment Income of $1.466 million [$0.2177/share]. Total Investment Income was $3.100 million [$0.4604/share]. TII was comprised of $2.574 million of interest and dividend income from portfolio investments (which included no PIK interest) and $0.453 million in 'other' income [from structuring fees and other sources]. The Net Increase in Net Assets Resulting from Operations was - $0.428 million [- $0.0636/share] - with the loss being due to Realized losses of $3.186 million. FULL's net asset value per share was $8.03 compared to $8.51 last quarter. A secondary offering on 11-27-12 at a price of $7.90 had the effect of lowering NAV along with the earnings loss.
The Annualized ratio of gross operating expenses to average net assets [for the x months ending 12-31-12] was 11.44%. The Annualized ratio of net operating expenses to average net assets was 11.44%. The Annualized ratio of net investment income to average net assets was 10.26%.

Q4-11 Q1-12 Q2-12 Q3-12 Q4-12

Total Investment Income 2,398,665 2,388,960 2,481,143 2,773,303 3,099,599
Net Investment Income 1,098,640 1,118,574 1,071,947 1,238,245 1,466,650

Total Investments 97,135,000 96,130,000 82,957,000 100,462,000 99,619,000
Share count 6,219,000 6,219,000 6,219,000 6,219,000 7,569,000
Net Asset Value 8.92 8.84 8.59 8.51 8.03

More on the Realized Loss: On December 19, 2012, Ygnition Networks was sold to Access Media 3 and to New Media West. In exchange for its secured interest in the Ygnition assets, FULL received: an equity interest in New Media West, valued at $3.60 million, a $5.80 million five year note due from New Media West bearing interest at 9%, and cash of $0.40 million. At December 19, 2012, immediately prior to these transactions, FULL had $13.00 million of debt outstanding to Ygnition, held at approximately $12.05 million. As a result of the transaction, FULL recognized a loss of $2.25 million, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $0.95 million.

What They Own: At Dec 31, 2012, FULL's portfolio (excluding U.S. Treasury bills and money market funds) included debt investments in 21 portfolio companies [debt in 18 and equity in 9]. The average portfolio company debt investment at Dec 31, 2012 was $4.0 million. The weighted average interest rate on the loan portfolio was 12.55%. At fair value, 88% [$68.2 million] of portfolio investments were first lien loans, 4% [$4.3 million] were second lien loans and 8% [$7.8 million] were equity investments [LLCs and warrants]. Approximately 84% of the debt investment portfolio, at fair value, bore interest at floating rates.

Originations: During Q4-12 FULL originated a $3.9 million new loan facility and additional funding to existing borrowers, excluding regular borrowing under revolvers, of $1.6 million.

What They Owe: With Long-term debt ['line of credit'] of $16.623 million [with an interest rate of LIBOR + 5.50% - the highest rate I have noticed]; $3.404 million of 8% senior unsecured notes [total $20.027 million] and shares outstanding of 7.569 million, the long term Debt/share was $2.6459 and the Debt/NAV ratio was 32.95%. [FULL had a 'debt to broker' of $22.000 million partially offset by $2.250 million of deposits with broker. This was not included in my debt stats, but the debt to the broker - which may be for the T Bills - is an ongoing quarter after quarter. Including this atypical debt with other long term debt results in a debt/share of $5.5525 and a Debt/NAV ratio of 69.15%.]

Portfolio Quality Metrics: Loans to "portfolio companies performing below expectations" was 17.32% of portfolio loans. The loan-to-value ratio on FULL's loans was 59% [each $59 of loan value outstanding is secured by $100 of collateral value] at Dec 31, 2012. There was no mention of non-accruals in the 10-Q or earnings release.

  • FULL has a current dividend of $0.2310/share
  • Total Investment Income $3.100 million [divided by 6.733 million average shares = $0.4604/share]
  • Base Management Fee = - $0.345 million [- $0.0512/share]
  • Incentive Fees = - $0.365 million [- $0.0542/share]
  • Interest Expenses = - $0.439 million [- $0.0652/share]
  • Total Investment Expenses = - $1.634 million [- $0.2427/share]
  • Net Investment Income = $1.466 million [$0.2177/share]
  • Realized gain (loss) on investments = - $3.186 million [- $0.4732/share]
  • Unrealized gain (loss) on investments = $1.293 million [$0.1920/share]
  • Net Increase in Net Assets Resulting from Operations = - $0.428 million [- $0.0636/share]
  • Investments at fair value = $99.619 million [of which $30 million was in US Treasury bills]
  • Cash = $ 0.304 million

Performance and valuation spreadsheets

BDC Stats 02-28
Yields are calculated using the Q4-12 dividend. KED's 'DNOI's is being used for its EPS projection. A covered dividend will have a ratio under 100%.


Share Price ----- 2013 ----- Q3-12 Price Q4-12 Price YTD Percent Change
Company 12-31 02-28 Yield EPS P/E div/eps NAV NAV NAV NAV Price Pr+Div

Am Cap Strat ACAS 12.02 13.98 0.00 1.10 12.71 0.00 17.39 0.80 17.84 0.78 16.31 16.31
Apollo Inv AINV 8.36 8.69 9.21 0.83 10.47 96.39 8.45 1.03 8.14 1.07 3.95 6.34
Ares Capital ARCC 17.50 18.51 8.21 1.66 11.15 91.57 15.74 1.18 16.04 1.15 5.77 5.77
BlackRock BKCC 10.06 10.44 9.96 0.99 10.55 105.05 9.55 1.09 3.78 6.36
Fidus FDUS 16.45 18.00 8.44 1.70 10.59 89.41 15.27 1.18 9.42 9.42
Fifth St FSC 10.42 10.70 10.74 1.13 9.47 101.73 9.92 1.08 9.88 1.08 2.69 4.62
Full Circle FULL 7.43 7.82 11.82 0.81 9.65 114.07 8.51 0.92 8.03 0.97 5.25 7.43
Gladstone Inv GAIN 6.96 7.49 8.01 0.55 13.62 109.09 8.93 0.84 8.65 0.87 7.61 9.05
Golub Cap GBDC 15.98 16.43 7.79 1.28 12.84 100.00 14.60 1.13 14.66 1.12 2.82 2.82
Gladstone Cap GLAD 8.16 9.10 9.23 0.83 10.96 101.20 8.93 1.02 9.19 0.99 11.52 13.24
Horizon Tech HRZN 14.92 14.72 9.37 1.52 9.68 90.79 16.41 0.90 -1.34 -1.34
Hercules Tech HTGC 11.13 12.53 7.66 1.09 11.50 88.07 9.42 1.33 12.58 12.58
KED KED 24.44 27.17 6.33 2.10 12.94 81.90 23.90 1.14 23.74 1.14 11.17 12.93
Kohlberg KCAP 9.19 10.16 9.45 0.99 10.26 96.97 7.82 1.30 10.55 13.17
Main St. MAIN 30.51 31.94 5.45 2.04 15.66 85.29 17.49 1.83 4.69 5.64
Medly MCC 14.56 14.97 9.62 1.49 10.05 96.64 12.60 1.19 12.69 1.18 2.82 2.82
MCG Capital MCGC 4.60 4.50 12.44 0.46 9.78 121.74 5.02 0.90 -2.17 -2.17
New Nountain NMFC 14.90 15.23 8.93 1.36 11.20 100.00 14.10 1.08 2.21 4.50
NGP Capital NGPC 7.22 7.06 9.07 0.78 9.05 82.05 9.70 0.73 -2.22 0.00
Prospect Energy PSEC 10.87 11.15 11.84 1.55 7.19 85.16 10.88 1.02 10.81 1.03 2.58 4.70
Pennant Capital PFLT 12.70 14.18 7.19 1.17 12.12 87.18 13.98 1.01 13.99 1.01 11.65 13.06
Pennant Capital PNNT 10.99 11.60 9.66 1.11 10.45 100.90 10.22 1.14 10.38 1.12 5.55 8.10
Saratoga SAR 15.40 17.02 0.00 1.90 8.96 0.00 27.20 0.63 21.75 0.78 10.52 10.52
Solar SLRC 23.91 24.50 9.80 2.55 9.61 94.12 22.70 1.08 20.70 1.18 2.47 4.98
Solar SUNS 18.66 18.82 7.49 1.44 13.07 97.92 18.60 1.01 18.33 1.03 0.86 2.18
Medallian TAXI 11.74 13.00 6.46 1.06 12.26 79.25 9.96 1.31 10.73 10.73
Triangle CAP TCAP 25.49 30.17 7.03 2.27 13.29 93.39 15.33 1.97 18.36 18.36
THL Credit TCRD 14.79 15.36 8.59 1.43 10.74 92.31 13.21 1.16 3.85 6.09
Tech Investment TICC 10.12 10.33 11.23 1.22 8.47 95.08 9.85 1.05 2.08 2.08

Sector Average 8.31 88.87 1.10 6.07 7.25

With the 10 Treasury at 1.88% and the sector average yield [on Q4-12 Divs] at 8.31% - the spread is 643 basis points.
The cap weighted ETF BDCS is up 4.54% year to date - with dividends it is up 6.41%.
Weeding out non-dividend paying ACAS and SAR - the adjusted sector average yield [on Q4-12 Divs] was 8.93%.
Weeding out ACAS and SAR on div/EPS - that adjusted metric would be 95.50%.

BDC Earnings Growth & P/E Ratios 02-28
Fiscal and calendar years are not always in sync. BDCs that began fiscal 2013 on or before calendar Q3-12 include AINV, FULL, GAIN, GBDC, GLAD, MCC, PSEC, PFLT, and PNNT. The 'range' metric is the high estimate minus the low estimate, with that result dividend by the consensus estimate - and serves as one of several measurements for assessing risk.


Earnings / Share Earn. Growth P/E Ratios 13 EPS Range
Co. 2008 2009 2010 2011 2012 2013 10-11 11-12 12-13 2011 2012 2013 High Low Range

ACAS 242 61 62 126 116 110 103.23% -7.94% -5.17% 11.10 12.05 12.71 124 82 38.18%
AINV 180 148 126 99 88 83 -21.43% -11.11% -5.68% 8.78 9.88 10.47 85 79 7.23%
ARCC 142 128 132 156 165 166 18.18% 5.77% 0.61% 11.87 11.22 11.15 188 157 18.67%
BKCC 176 139 101 100 100 99 -0.99% 0.00% -1.00% 10.44 10.44 10.55 105 96 9.09%
FDUS 0 0 0 163 153 170 na -6.13% 11.11% 11.04 11.76 10.59 175 163 7.06%
FSC 130 127 95 101 107 113 6.32% 5.94% 5.61% 10.59 10.00 9.47 122 105 15.04%
FULL 0 0 0 84 78 81 na -7.14% 3.85% 9.31 10.03 9.65 81 81 0.00%
GAIN 79 62 48 73 62 55 52.08% -15.07% -11.29% 10.26 12.08 13.62 62 22 72.73%
GBDC 0 0 0 116 115 128 na -0.86% 11.30% 14.16 14.29 12.84 129 127 1.56%
GLAD 135 100 84 88 91 83 4.76% 3.41% -8.79% 10.34 10.00 10.96 86 78 9.64%
HRZN 0 0 0 150 141 152 na -6.00% 7.80% 9.81 10.44 9.68 168 144 15.79%
HTGC 123 125 80 91 96 109 13.75% 5.49% 13.54% 13.77 13.05 11.50 121 100 19.27%
KED 135 127 125 136 189 210 8.80% 38.97% 11.11% 19.98 14.38 12.94 210 210 0.00%
KCAP 150 104 53 70 86 99 32.08% 22.86% 15.12% 14.51 11.81 10.26 100 97 3.03%
MAIN 115 90 100 169 194 204 69.00% 14.79% 5.15% 18.90 16.46 15.66 214 195 9.31%
MCC 0 0 0 56 125 149 na 123.21% 19.20% 26.73 11.98 10.05 160 139 14.09%
MCGC 93 60 60 53 25 46 -11.67% -52.83% 84.00% 8.49 18.00 9.78 48 42 13.04%
NMFC 0 0 0 56 134 136 na 139.29% 1.49% 27.20 11.37 11.20 140 134 4.41%
NGPC 79 57 54 73 59 78 35.19% -19.18% 32.20% 9.67 11.97 9.05 83 75 10.26%
PSEC 191 187 109 109 163 155 0.00% 49.54% -4.91% 10.23 6.84 7.19 159 145 9.03%
PFLT 0 0 0 5 101 117 na 1920.00% 15.84% 283.60 14.04 12.12 122 111 9.40%
PNNT 88 109 109 125 108 111 14.68% -13.60% 2.78% 9.28 10.74 10.45 115 103 10.81%
SAR 1300 1640 457 215 186 190 -52.95% -13.49% 2.15% 7.92 9.15 8.96 186 186 0.00%
SLRC 0 200 208 225 220 255 8.17% -2.22% 15.91% 10.89 11.14 9.61 270 247 9.02%
SUNS 0 0 0 63 131 144 na 107.94% 9.92% 29.87 14.37 13.07 156 140 11.11%
TAXI 86 56 64 101 112 106 57.81% 10.89% -5.36% 12.87 11.61 12.26 112 99 12.26%
TCAP 154 161 158 206 214 227 30.38% 3.88% 6.07% 14.65 14.10 13.29 238 215 10.13%
TCRD 0 0 0 104 135 143 na 29.81% 5.93% 14.77 11.38 10.74 151 137 9.79%
TICC 91 49 89 94 116 122 5.62% 23.40% 5.17% 10.99 8.91 8.47 132 114 14.75%

BDC Average 18.65 81.02 8.40 22.83 11.84 10.98

With a P/E of 9.65 based on its consensus 2013 EPS projection, FULL sells at a discount to the BDC sector average of 10.98. But earnings that are growing should sell at higher P/Es than earnings that are stagnant or shrinking. So I believe that the discount is merited. Add to that the fact that FULL has investments in non-granular 21 portfolio companies, and I have a desire for an even greater discount before I am tempted by FULL.

The trend of a falling NAV/share scares me. I want to be highly compensated when I am scared. With a dividend higher than NAV, the dividend does not currently look safe. A dividend cut to its current NII/share level would make the dividend $0.22/share/quarter - and that would make the current yield 11.25%. That is an attractive yield.

With a debt/NAV of 32.95%, FULL can leverage up and grow its portfolio without issuing more shares. So there is the potential to grow net investment income per share. A growing NII would be just the cure for FULL's problems. But other BDCs had an active Q4-12 in originations, while FULL's portfolio growth was anemic. FULL has the potential for a turnaround, but it is not turning yet.

I want to own BDCs with a growing NAV and growing dividends - and that is not what FULL offers. I want a dividend that is covered by NII/share - and that is not what FULL offers. I want the added safety of a granular portfolio - and that is not what FULL offers. So my suggestion is to pass on buying FULL and wait for evidence of the turnaround which it has the potential to make.

Source: Full Circle Capital's Q4-12 Earnings And Valuations: Does It Belong In Your Portfolio?