Great Elm Capital (NASDAQ:GECC) said on Dec. 27 it will begin regular monthly distributions in Jan. 2017.
GECC is a recently formed business development company that completed its merger with Full Circle Capital Corporation (“Full Circle”) on Nov. 3.
The initial distribution will commence at a 7% annual yield on NAV per share of $14.41, which equates to a monthly distribution of $0.083 per share. In addition to the regular monthly distribution, an incremental distribution of $0.166 per share, representing the estimated net investment income generated from the merger closing through year-end 2016, will be paid to stockholders of record as of December 30, 2016 on January 16, 2017.
CEO Peter A. Reed reiterated his commitment to grow GECC’s distribution to an annual 9% yield once the portfolio is fully invested.
The initial distribution yield of 7% is driven predominantly by a faster than anticipated conversion of the acquired Full Circle portfolio to cash, which Mr. Reed and the team view as a long-term positive for GECC, albeit a short-term hindrance to the generation of net interest income.
The sector has been a big beneficiary of the rates lower-for-longer thesis, the bounce in oil and the related major move higher in high-yield.
All three of those themes have been called into question since Labor Day. SA author BDC Buzz reminds not all BDCs are created equal, and says the higher risk ones will likely be underperformers in a correction ... Think Prospect Capital (PSEC -4%), TICC Capital (TICC -1%) and KCAP Financial (KCAP -2.7%). Fifth Street Finance (FSC -2%), Medley Capital (MCC -2.6%) and Full Circle Capital (FULL -0.4%) also fit the bill, and PennantPark (PNNT -1.5%), Gladstone (GLAD -3.4%), and Apollo Investment (AINV -1.2%) have the highest amount of oil exposure.
Those BDCs with "true" first-lien assets and stable NAV will be the outperformers: New Mountain Finance (NMFC -1.8%), Solar Senior (SUNS -0.1%), Goldman Sachs BDC (GSBD -0.7%), Golub Capital (GBDC -0.5%), FS Investment (FSIC -1.7%), Monroe Capital (MRCC -0.1%), TPG (TSLX -0.6%), Main Street (MAIN -0.1%), PennatPark Floating Rate (PFLT -0.1%), Hercules (HTGC -1.4%), Horizon (HRZN -1.8%), and TCP Capital (TCPC -0.7%) are worth a look.
The merger with Great Elm Capital will more than double AUM, and the company will be renamed Great Elm Capital Corp., with plans to trade on the Nasdaq under the symbol GECC.
Full Circle (NASDAQ:FULL) for purposed of the merger will be valued at 100% of its roughly $81M NAV. Following the close, a special cash dividend of $0.22 ($5M total) will be declared.
The annualized distribution rate following the merger should be about 9% of NAV. A $15M buyback plan will be started afer closing. The management fee will be 1.5% vs. the 1.75% currently paid by Full Circle.
Alongside FQ2 results - NII of $0.11 per share vs. $0.19 one year ago - the Full Circle Capital (NASDAQ:FULL) board has formed a special committee to consider strategic alternatives.
The company notes it's been a tough stretch for BDCs and it doesn't expect conditions to ease anytime soon. With the stock trading at a big discount to NAV, management doesn't have the ability to raise the capital with which it could expand operations, so it may be time to close up shop.
FQ1 portfolio investments totaled about $10M, representing two new investments, and one additional purchase of a note by an existing portfolio company. Additionally, FULL received proceeds from full and partial realizations of $13M.
In August, the board authorized the addition of another 1M shares to its buyback program, bringing the total to 2M. In the quarter ended Sept. 30, Full Circle repurchased 472K shares at a weighted-average price of $3.19 each.
Full Circle Capital (FULL +0.6%) gets a small late-session pop after Phil Goldstein's Bulldog Investors discloses a 5.69% stake in the company, along with its intention to maybe get in touch with management about ways to boost the stock price.