THL Credit Continues to Grow Loan Portfolio: Earnings Will Reveal More

| About: THL Credit (TCRD)

One of the newer Business Development Companies ("BDC") , THL Credit (NASDAQ:TCRD) has just announced a new loan investment: a recapitalization of Pomeroy IT Solutions. Copying shamelessly from the press release, we can tell you the following about TCRD's latest portfolio add-on:

Headquartered in Hebron, KY, Pomeroy is a leading IT services and solutions provider serving Fortune 2000 companies, state and local government agencies and middle market clients.

We also know the investment is in the form of junior debt. Otherwise, we don't know much about the terms of this deal or the other two new loans booked a couple of weeks ago: Charming Charlie and Purple Communications. TCRD is squeamish about releasing the amounts of its loans or any pricing details. Still, we do know that all three new deals are recapitalizations, rather than new buy-outs.


Because we don't know the amounts of the new business or what existing loans may have been repaid, it's hard to determine with complete certainty if TCRD's loan book is continuing to grow. The circumstantial evidence, though, is favorable.

We can report that the level of activity in 2001 is already ahead of the last quarter for which we have results, which ended in September 2010. In that quarter, TCRD added 2 new deals with an aggregate cost of $20mn. At least 3 deals were booked in the fourth quarter, worth $36mn, according to the comments in the press release November 9, 2010.

The company has already announced a 15 cent dividend for the quarter ended December 2010 (the announcement was made early to pay the dividend in time to avoid excise tax, which is also a good sign of growing profitability). TCRD has the money sitting around to make these loans: $161mn in cash at quarter end and an SBIC loan application in the works.

Recent loans made by TCRD have been mostly subordinated debt and have been at very high rates, even in this space: 16.5% in aggregate as of the last earnings report. We'll be interested to see if these new deals can maintain those levels of return at a time when there is considerable margin tightening in the leveraged loan space.

All will be revealed when the company's earnings are released March 14, 2011. Total loans in portfolio may be up by 55% or more in number since September 2011, when there were just nine loans on TCRD's books.


The market seems to be confident about TCRD's ultimate investment ramp up as the stock is trading at $13.1, just about at NAV, and at a level suggesting investors are expecting normalized net investment income per share of $1.0-$1.2, compared to just $0.36, if we annualize the earnings of the quarter ended September 2010. TCRD trades just 3% off its 52 week high.

Disclosure: I am long TCRD.