New York, NY, Garrison Capital (GARS) scheduled an $80 million IPO with a market capitalization of $254 million at a price range mid-point of $16, for Thursday, October 11. 2012.
Ten IPOs are scheduled for the week of October 8. Full IPO calendar available here.
N-2A filed October 1, 2012
GARS is a Business Development Corp (BDC) treated as a Regulated Investment Company (RIC).
GARS expects to pay a annualized dividend rate of 7.75% of the price range mid-point of $16.
However, there are other BDC's that pay a higher rate, including the following:
|COMPARE YIELDS|| |
|Garrison Capital || |
|THL Credit, Inc.(TCRD)|| |
|Apollo Investment (AINV)|| |
|Gladstone Investment (GAIN)|| |
Source: GARS N-2A, Google Finance
Pass on the GARS IPO. If an investor is interested in the BDC category there are established, seasoned category competitors that pay higher rates.
GARS expects to pay a distribution of $0.31 per share, payable at or near the end of the fourth calendar quarter of 2012. On an annualized basis that's an return of 7.75%
GARS is a newly-organized, externally managed, non-diversified, closed-end management investment company that intends to file an election to be treated as a business development company under the 1940 Act.
In addition, for tax purposes GARS intends to elect to be treated as a RIC under Subchapter M of the Code.
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.
GARS goal is to generate attractive risk-adjusted returns by assembling a broad portfolio of investments.
The 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,
GARS defines its target companies as those having annual earnings before interest, taxes and depreciation, or EBITDA, of between $5 million and $30 million.
As of June 30, 2012, GARS held investments in 54 portfolio companies with a fair value of $249.5 million, including investments in 50 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 June 30, 2012 consisted of senior secured loans fair valued at $215.7 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 $264.4 million.
As of June 30, 2012, GARS' portfolio had an average investment size of approximately $4.4 million, a weighted average yield of 8.94% and a weighted average maturity of 46 months.
Garrison Capital Advisers was organized in November 2010 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act. Garrison Capital Advisers is an affiliate of Garrison Investment Group
Garrison Investment Group is an alternative investment and asset management firm founded in March 2007 by Steven Stuart and Joseph Tansey. As of June 30, 2012, Garrison Investment Group had $3.1 billion of committed and invested capital under management and a team of 62 employees, including 38 investment professionals.
On November 5, 2010, GF 2010-1 completed a $300 million debt securitization, or Debt Securitization.
In December 2010 completed an $80 million private placement, the proceeds of which were used to invest in U.S. middle-market companies in accordance with the GARS investment strategy.
On May 21, 2012, GF 2012-1, GARS' wholly-owned indirect subsidiary formed on April 19, 2012, entered into a $150 million credit facility, or, as amended on June 18, 2012 and August 6, 2012, the Credit Facility, with the lenders party thereto, Natixis, New York Branch, as administrative agent, and Deutsche Bank Trust Company Americas, as collateral agent and custodian
Through February 20, 2013, term loans and revolving loans under the Credit Facility will bear interest at an annual rate equal to a cost of funds rate plus 2.75% or 3.25%, depending on the credit quality of the loans securing the Credit Facility. The cost of funds rate is capped at LIBOR plus 0.50%.
As a business development company, GARS is permitted under the 1940 Act to borrow funds to finance a portion of investments. As of June 30, 2012, GARS had $125.0 million of debt outstanding under the Credit Facility.
INCENTIVE FEE STRUCTURE
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not.
The first component, which is income-based and payable quarterly in arrears, will equal 20% of the amount, if any, that GARS "Pre-Incentive Fee Net Investment Income" exceeds a 2.00% quarterly (8.00% annualized) Hurdle Rate subject to a "catch-up" feature
The second component, which is capital gains-based, will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of GARS' cumulative aggregate realized capital gains from January 1, 2013 through the end of such year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such calendar year, less the aggregate amount of any previously paid capital gains incentive fees. The second component of the incentive fee is not subject to any minimum return to stockholders
TRADE AT A DISCOUNT
Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value.
USE OF PROCEEDS
GARS expects to net $76 million from its IPO and concurrent private placement.
GARS anticipates that substantially all of the net proceeds of this offering 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
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.