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Nicholas Marshi
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Nicholas Marshi is the Chief Investment Officer of Southland Capital Management (SCM). The Company is a Registered Investment Adviser ("RIA") in Santa Monica, California. SCM's principal expertise is in the area of leveraged finance to U.S. private companies, with a focus on the... More
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  • TICC Capital Gives Us A Preview Of IVQ 2012 Results 1 comment
    Jan 24, 2013 10:20 AM | about stocks: TICC

    Yesterday, TICC Capital ("TICC") issued a press release announcing a few "preliminary" key metrics for the fourth quarter of 2012. Why TICC does this is a bit of a mystery to us. Very few BDCs have a pre-release policy, though a number do like to provide portfolio purchase updates.

    Anyway, here are the highlights and some thoughts on the implications.

    1. The Company estimates that GAAP Net Investment Income will be in a range of $0.20 to $0.24. When incentive fees are removed from the mix, what TICC calls "core net investment income", the range is $0.24-$0.26. Given that the "core" earnings were $0.235 last quarter, this suggests TICC's performance will be on a modest uptick. No surprise there. The analysts are predicting $0.27, according to Yahoo Finance (9 analysts).

    2. "In addition, the Company currently estimates its net asset value per share as of December 31, 2012 to be in the range of $9.80 to $9.95". That would see NAV basically unchanged on the quarter. At September 30, TICC was at $9.85.

    3. The big news here (in a relative sense) is : "The Company also announced today that during the fourth quarter of 2012, it completed the sale of 12 CLO BB assets for aggregate proceeds of approximately $40.7 million, resulting in realized gains of approximately $12.0 million. As of September 30, 2012, those assets had a combined fair value of approximately $38.7 million. As a result of those realization transactions and other investment activities, the Company currently estimates that it will incur a capital gains incentive fee payable to its investment adviser with respect to its 2012 fiscal year of up to approximately $1.7 million."

    First of all, any $12mn gain is noteworthy. That will roll back the Company's Realized Losses account by nearly 20%, which is not too shabby.

    Second, TICC's Advisor will be booking a "nothing-to-sneeze-at" Realized Capital Gain fee for the year of $1.7mn.

    Third, everything else being equal, we should expect lower earnings out of TICC in future quarters. The Company is selling 45% of it's CLO debt investments, accumulated over several years when these assets were selling at a discount, and which generate double digit yields. Just re-investing the net proceeds in today's lower yield environment is unlikely to make up for the interest income lost. You've got to know when to hold 'em and when to fold 'em, and TICC knows the CLO market very well, so we're not double guessing their decision to sell out (and the bulk of their CLO income still comes from the equity portions), but there's no escaping that gross income will be impacted. However, the Company has a decent amount of unspent capital so earnings will probably be recouped from a larger asset base.

    4. "During the fourth quarter of 2012 the Company deployed approximately $247.1 million in new investments. The Company also received total repayments and proceeds from the disposition of portfolio investments of approximately $126.9 million (including the proceeds referred to above) during the quarter." We would only point out that TICC is booking loans at a breakneck pace. If you remember that non CLO loans on the books were around $365mn, these metrics suggest that in 3 months TICC added loans equal to 68% of what was on the books at September 30th.

    Many other BDCs are adding loans at this rapid pace (Prospect Capital and Fifth Street Finance come to mind). We just hope that a year from now we won't be looking back wisely, with the benefit of hindsight, and remarking how all this frenetic deal doing was one of the warning signs for the Great Crash of 2013. (At least the sale of the CLO debt by TICC will seem prescient).

    Disclosure: I am long TICC.

    Additional disclosure: Passing mention of Prospect Capital (NASDAQ:PSEC) and Fifth Street Finance (NYSE:FSC)> We are Long both stocks as well.

    Stocks: TICC
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  • trekking1999
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    Thanks as usual for your excellent work.
    24 Jan 2013, 12:42 PM Reply Like
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