January 18, 2013: Two days ago, mezzanine-focused BDC THL Credit (NASDAQ:TCRD) announced it's decision to withdraw it's "application for a license from the Small Business Administration to operate a subsidiary as a small business investment company".
Management explained that the Company was doing very well raising term money and new equity capital and increasing it's Revolver limits.
Still, the application had been submitted back in the spring of 2011. That begs the question why the SBIC had not come through in over 18 months for TCRD while seemingly approving other licenses for new and existing BDC applicants (and others) left, right and center. Admittedly during the last 18 months the parent company of the BDC has expanded it's asset management footprint and may have been focused elsewhere than the time consuming SBIC process. The press release does not really tell us what happened here.
Looking at the big picture, we have mixed feelings: On the one hand, we were never convinced that the SBIC program, with it's requirement that loans be directed to smaller borrower entities, was a perfect fit for TCRD. On the other hand, this still means the Company has one less string on it's financing bow. That will not have any impact on results in the short or medium term. Longer term,though, the SBIC borrowing rates are so low (as low as 3%), and so favorable from a repayment standpoint (ten year money !) and the assets do not even count (in most cases) against the 200% asset coverage test, that we can't help feeling the Company may have let an opportunity slip.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.