22 BDCs - The Good, The Bad And The Maybe? Part 18: Solar Senior Capital

| About: Solar Senior (SUNS)

This article focuses on Solar Senior Capital (NASDAQ:SUNS) and compares it to the 21 BDCs covered in my previous articles.


  • March 18 - Golub Capital (NASDAQ:GBDC) decreased the size of its senior secured revolving credit facility with Wells Fargo Bank, N.A. from $150 million to $100 million.
  • March 18 - TICC Capital (NASDAQ:TICC) announced today that it has commenced a public offering of 3,000,000 shares of its common stock.
  • March 13 - BlackRock Kelso Capital (NASDAQ:BKCC) announced that it entered into a four year $350 million revolving credit facility with a maturity date of March 13, 2017, and represents an increase of $75 million in revolving commitments.

Business Development Companies (BDCs) lend to small and mid-sized businesses, with limited financial leverage, paying out most of their income to investors and paying little to no corporate tax.

These are the five general criteria I use to evaluate BDCs:

  • Profitability (EPS to cover dividends, growth)
  • Risk (diversification, volatility, leverage)
  • Payout (sustainable, consistent, growing)
  • Analyst Opinions
  • Valuation (P/E, PEG, NAV)

For more information about BDCs, how I evaluate them, and my BDC investment philosophy, please see this article.

Below is an oversimplified table evaluating the companies I have reviewed among a universe of 30 BDCs giving them a relative score between 0 and 10 (10 being the best). In reality I use different weightings for almost 100 data points on each company and my personal rankings (based on my risk/return comfort) are close to these but far from exact. In future articles I will add the new companies to this table as well as update info.

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Solar Senior Capital

  • Market Cap: $221 million
  • Div Yield: 7.3%
  • Div/EPS: 98%
  • P/E: 14.6
  • Price/NAV: 1.05
  • Debt/Equity: 0.22

Recent Developments

  • January 16 - closed a follow-on public equity offering of 2.0 million shares of common stock at $18.85 per share raising approximately $37.2 million in net proceeds.


SUNS is one of the newer BDCs but has the same President and CEO as Solar Capital (NASDAQ:SLRC), Michael S. Gross. He is also is Director of Saks, Inc. (NYSE:SKS) and served as President and CEO of Apollo Investment (NASDAQ:AINV) from 2004 to 2006. SUNS and SLRC occasionally invest in the exact same security at the same time and leverage the historical knowledge of that business and invest a little bit in both platforms.

In Q4 2012 SUNS had net investment income of $0.36 per share and exceeded dividends paid of $0.35 per share. Excluding the one-time expenses of approximately $0.10 per share related to the amendment and extension of its credit facility, SUNS investment income was actually $0.45 per share, aided by prepayment income from the high level of repayments. For the full year, it generated $1.32 per share of net investment income, which exceeded dividends declared of $1.29. SUNS generated cash flow earnings that will help cushion net investment income dividend coverage while it deploys available capital over the next several quarters. Its balance sheet is set with sufficient available capital to build a larger, more diversified portfolio with approximately $100 million available to invest in new opportunities to reach its target leverage of 0.8 times debt to equity.


As of December 31, 2012, its portfolio consisted of 31 companies and was invested 97% in senior secured loans and 3% in unsecured loans, 98% in floating rate investments and better than average industry diversification (see chart below).

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SUNS has one of the lowest debt to equity ratios at 0.22, with other BDCs like THL Credit (NASDAQ:TCRD) at 0.14 and Full Circle Capital (FULL) at 0.33, having similar leverage levels. Since SUNS is one of the newer BDCs, determining volatility ratios and down market performance is difficult.


The current dividend yield of 7.3% is much lower than the average, but with the recent history of increases in monthly dividends there is a good chance of growth as they continue to deploy capital and grow net investment income with the portfolio.


Most analysts rate SUNS between a "Hold" and an "Outperform" with an average target price between $18.50 and $19.50.


SUNS is currently trading at a 5% premium to book value which lower than average, but a P/E of 14.6 which is among the highest.


SUNS has one of the better risk profiles with 97% of the portfolio in senior secured loans and good industry diversification, as well as low leverage and the ability to grow the portfolio with minimal share dilution. The current dividend yield is low and valuation is high, but with the growth potential that comes with 'newer' BDCs I would consider SUNS a 'Maybe' until yield increase and multiples come down.

Previous articles:

Disclosure: I am long TCPC, MCC, TCRD, MAIN, PFLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.