Hercules Technology Growth (HTGC +1.5%) is one of the stocks working on a down day after an upgrade to Buy at Sandler O'Neill.
The stock had been punished throughout March after management's sluggish guidance, but last week's update on Q1 activity showed better-than-expected originations - whether that's a good or bad thing amid frothy conditions remains to be seen.
Hercules (HTGC) originated $153.7M of debt and equity commitments to new and existing portfolio companies in Q1. The company received about $131M in principal repayments during the quarter, roughly $87M of which were unscheduled early repayments.
Eight portfolio companies announced or completed liquidity events, such as an IPO or merger/acquisition.
"We do not like some of the underwriting parameters or pricing that we're seeing in our marketplace today," says CEO Manuel Henriquez on the earnings call (transcript), guiding for Q1 results to be down $0.02-$0.04 per share as the company has been slow to put money to work this year (NII was $0.31 in Q4).
Management expects the portfolio to "lighten down" by $50M in Q1. "There are certain industry sectors that we are divesting ourselves from and certain stages of the companies that we're purposely avoiding for the time being."
"We continue to see frothiness in the market. We're seeing banks being overly aggressive on transactions and we're beginning to see some signs of yield compression in the marketplace. We're seeing weaker underwriting standards being applied in the market and with that, we have chosen to wait out this current frothiness and not follow suit and doing marginal quality underwriting transactions."
WIth business development companies getting the boot from S&P indices, will the Russell follow suit? It's a significant issue as investors are far more heavily invested in BDCs though the Russell indices than through S&P, writes Brendan Conway. He notes ownership of BDCs by Russell-tracking index funds are as high as 38 days worth of trading volume, and Wells Fargo estimates there are 24 BDCs where 10 or more days of average volume would be required to unload them.
Wells, however, does not see Russell following S&P's lead, with item #1 being Russell's desire to "represent small cap reality." "Russell Indices receive acclaim because they are willing to provide investors access to the true investable small cap universe. To the extent BDCs are excluded, this would deprive investors the opportunity to invest in what has become a very large/growing industry."
The following list is those BDCs with 10 or more days of average volume in index funds tracking Russell indices.
"After consulting with clients concerned with certain reporting requirements, expenses, and investment restrictions relating to business development companies (BDCs), S&P Dow Jones has decided to remove all identified BDCs from its U.S. Indices.
Earlier: Prospect Capital (PSEC -2.7%) is removed from the S&P 600 SmallCap Index and Apollo Investment (AINV -7.3%) is removed from the S&P 400 MidCap Index.
Prospect's market cap is $3.4B, Apollo's $1.9B. Other BDCs with market caps over $1B: Fifth Street (FSC -0.8%), Ares Capital (ARCC -1.5%), American Capital (ACAS -1.7%), Main Street (MAIN -1.7%), Hercules Technology (HTGC -2%). Close enough to $1B for an argument: Solar Capital (SLRC -1.8%) and Golub Capital (GBDC -0.2%).
The sell-off over the last month after one of its portfolio companies declared bankruptcy has created a buying opportunity in Hercules Technology Growth Capital (HTGC), says analyst Merrill Ross, upgrading the stock to a Buy.
The $18 price target is based on premium 1.6x forward estimated NAV - "We think this premium multiple is justified by the company's track record of capturing value from its equity and warrant positions in portfolio companies."
Hercules Technology Growth Capital (HTGC -2.6%) originated about $121.3M of debt and equity commitments to new and existing portfolio companies through Dec. 19, while reminding not all commitments may necessarily be drawn upon.
The company received about $108M in principal repayments thus far this quarter, of which about $71M were unscheduled early repayments.
There have been 8 "liquidity events" so far in Q4, and one of Hercules' portfolio companies completed an IPO - ADMA Biologics (ADMA). Hercules currently has warrant positions in 4 more portfolio companies in registration for a potential IPO.
Celsion (CLSN +7.9%) rallies after announcing a new strategic loan facility with Hercules Growth Capital (HTGC).
Under the deal, CLSN can tap up to $20M in multiple tranches — the first tranche ($5M) was drawn yesterday.
CLSN used ~$4M to payoff an existing loan agreement.
"Our current cash position, $45.5M as of September 30, is expected to provide resources sufficient to fund current operations well into the second half of 2016," CEO Michael Tardugno says, adding that this time frame should include "expenses associated with [the] planned pivotal Phase 3 HCC trial." (PR)
Hercules Technology Growth Capital, Inc., is a specialty finance company which provides debt & equity growth capital to technology-related companies at all stages, development from seed & emerging growth to expansion & established stages of development.