- Newly formed specialty finance company focused on lower level junk bonds.
- Assuming Formation Transactions were consummated on April 22, 2014, ABDC would hold a portfolio of debt investments with a weighted average gross yield as of that date.
- Most closed-end business development corporations trade down from their initial IPO price. The rating on ABDC is avoid.
Based in New York, NY, Alcentra Capital Corporation (NASDAQ:ABDC) scheduled a $100 million IPO on the Nasdaq with a market capitalization of $192 million at a price range midpoint of $15 for Friday, May 9, 2014.
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Manager, Joint managers: Raymond James, Robert W. Baird, Keefe, Bruyette & Woods
Co-Managers: Oppenheimer, Stephens, BNY Mellon Capital Markets
End of lockup (180 days): Wednesday, November 5, 2014
End of 25-day quiet period: Tuesday, June 3, 2014
ABDC is a newly formed specialty finance company.
ABDC focuses on lower level junk bonds, which ABDC defines as companies "having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million."
Assuming that the Formation Transactions were consummated on April 22, 2014, ABDC would hold a portfolio of debt investments with a weighted average gross yield as of that date of 12.6% and a cash yield of 10.3%.
Alcentra Capital Corp (ABDC)
Most closed-end business development corporations trade down from their initial IPO price. The rating on ABDC is avoid.
To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.
ABDC is a newly formed specialty finance company. ABDC will operate as a non-diversified, closed-end management investment company and file an election to be regulated as a BDC under the Investment Company Act of 1940, as amended, which ABDC refers to as the 1940 Act.
In addition, ABDC intends to elect for U.S. federal income tax purposes to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended, which ABDC refers to as the Code.
ABDC intends to provide customized debt and equity financing solutions to lower middle-market companies, which ABDC defines as companies having annual earnings, before interest, taxes, depreciation and amortization, or EBITDA, of between $5 million and $15 million, and/or revenues of between $10 million and $100 million, although ABDC may opportunistically make investments in larger or smaller companies.
ABDC's investments will typically range in size from $5 million to $15 million. In connection with its initial public offering, ABDC will acquire a portfolio of $155.8 million in debt and equity investments, which consists of all of the investment assets of BNY Mellon-Alcentra Mezzanine III, L.P., which ABDC refers to as Fund III, except for its equity investment and warrants in GTT Communications.
ABDC refers collectively to the portfolio investments that ABDC is acquiring from Fund III as the Fund III Acquired Assets. ABDC will also acquire $29 million of debt and equity investments, which consist of assets held by its affiliate, BNY Alcentra Group Holdings, Inc., that were purchased under a warehouse facility in anticipation of its initial public offering, that ABDC refers to as the Warehouse Portfolio. Alcentra NY, LLC, which ABDC refers to as Alcentra NY, or its Adviser, serves as its investment adviser and is the U.S. affiliate of Alcentra, Ltd., which ABDC refers to as Alcentra, an asset management platform focused on below-investment grade credit.
Both Alcentra NY and Alcentra are subsidiaries of BNY Alcentra Group Holdings, Inc., which ABDC refers to as the Alcentra Group. The investment professionals of its Adviser who work in the direct debt and equity division of its Adviser, which ABDC refers to as Alcentra Mezzanine, have worked together for more than 8 years and have invested more than $500 million in lower middle-market companies.
Alcentra Mezzanine combines significant credit analysis, structuring capability and transactional experience within the larger credit investment platform of Alcentra.
To the extent that ABDC has income available, ABDC intends to make quarterly distributions to its stockholders. ABDC's quarterly stockholder distributions, if any, will be determined by its board of directors.
Any distribution to ABDC stockholders will be declared out of assets legally available for distribution. ABDC intends to declare its first stockholder distribution during the quarter following the completion of this offering.
ABDC's primary competitors in providing financing to middle-market companies include public and private funds, other BDCs, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds.
Pre-IPO 5% stockholders
BNY Mellon-Alcentra Mezzanine III, L.P. 48%
Use of proceeds
ABDC expects to net $96 million from its IPO. Proceeds are allocated as follows:
to repay in full the outstanding indebtedness under the Bridge Facility, which ABDC will incur in connection with the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. The remainder of the net proceeds from this offering will be used to make future investments in portfolio companies consistent with ABDC's investment guidelines and underwriting standards and for general corporate purposes.
Disclaimer: This ABDC IPO report is based on a reading and analysis of ABDC's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.