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Based in New York, NY, Garrison Capital (NASDAQ:GARS) scheduled an $80 million IPO with a market capitalization of $240 at a price range mid-point of $15 for Wednesday, March 27, 2013.

Three other companies scheduled IPOs for this week. The full IPO calendar is here.

N2-A filed March 18, 2013

Manager, Joint Managers: Baird/ Oppenheimer
Co Managers: William Blair/ Janney Montgomery Scott/ Stephens/ Wunderlich Securities/ J.J.B. Hilliard, W.L. Lyons/ Ladenburg Thalmann/ National Securities/ Capital One Southcoast/ Natixis Securities Americas

SUMMARY
This is a Business Development retread that was originally scheduled for October 11, 2011. Then it was scheduled to yield 7.75%. Based on the new SEC filing, its indicated payout is 7.55% maximum- based on recent financials.

Just as it was in October, 2011, GARS's indicated yield is on the low side compared to others in the segment.

VALUATION

IPO Mrkt

Price /

Price /

% offered

Cap (MM)

BookValue

TangibleBV

in IPO

Garrison Capital (GARS

$240

1.0

1.0

33%

Glossary

COMPARE YIELDS

Yield

Garrison Capital

7.55%

THL Credit, Inc. (NASDAQ:TCRD)

8.57%

Apollo Investment (NASDAQ:AINV)

9.36%

Gladstone Investment (NASDAQ:GAIN)

8.06%

CONCLUSION
Pass again on the GARS IPO.

BUSINESS
GARS is a newly formed RIC (registered investment company) or BDIC, business development company.

GARS' investment objective is to generate current income and capital appreciation by making investments generally in the range of $10 million to $25 million primarily in debt securities and loans of U.S. based middle-market companies, defined as those having annual earnings before interest, taxes and depreciation, or EBITDA, of between $5 million and $30 million.

JUNK BONDS
GARS invests in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) "one-stop" senior secured or "unitranche" loans, (4) subordinated or mezzanine loans and (5) to a lesser extent, selected equity co-investments in middle-market companies.

PORTFOLIO
As of December 31, 2012, GARS held investments in 49 portfolio companies with a fair value of $220.1 million, including investments in 45 portfolio companies held through Garrison Funding 2012-1 LLC, a wholly-owned indirect subsidiary, or GF 2012-1.

The investments held by GF 2012-1 as of December 31, 2012 consisted of senior secured loans fair valued at $202.5 million and related indebtedness of $125.0 million. As of that date, the loans held by GF 2012-1 (held at fair value), together with cash and other assets held by GF 2012-1, equaled approximately $276.2 million.

As of December 31, 2012, GARS portfolio had an average investment size of approximately $4.3 million, a weighted average yield of 9.62% and a weighted average maturity of 46 months.

SPONSOR/PARENT
Garrison Investment Group is an alternative investment and asset management firm founded in March 2007 by Steven Stuart and Joseph Tansey. As of December 31, 2012, Garrison Investment Group had approximately $3.1 billion of committed and invested capital under management and a team of 62 employees, including 36 investment professionals.

FEES
Management fees
1.75% of gross assets, including borrowings.

Incentive fees
Twenty percent of the amount, that GARS' "Pre-Incentive Fee Net Investment Income" exceeds a 2.00% quarterly (8.00% annualized) Hurdle Rate subject to a "catch-up"

Note: the incentive fee is more reasonable than some RIC/BDIC companies which take 100% of a gap amount from, for example, 8-10%.

YIELD
If the weighted average yield is 9.62% (see 'portfolio' above) then the total fees would be 2.07%, leaving the investor with a return of 7.55%

PRIVATE PLACEMENT TO OFFICERS
Immediately prior to the closing of this offering, GARS expects to sell 126,901 shares of common stock to directors, officers and the employees and affiliates of the investment adviser and its affiliates at the initial public offering price per share in a private placement.

This is always a good PR gesture, but it usually doesn't mean anything.

USE OF PROCEEDS
GARS expects to net $76 million from its IPO. GARS anticipates that substantially all of the net proceeds of the IPO and the Concurrent Private Placement will be invested within six to 12 months of the closing of this offering, in accordance with GARS' investment objective and strategies.

Disclaimer: This GARS IPO report is based on a reading and analysis of GARS's N2-A filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Garrison Capital