BDC Review: Part 6 - BDC Wrap Up

by: Philip Mause

In this piece, I will hopefully cover the remaining Business Development Companies (BDCs) not covered so far. I have researched the issue and I believe I will have covered them all after this article but if any reader finds one that I haven't hit, feel free to submit a comment because I would like to create a resource where a reader can find the universe of BDCs all in one place. I must apologize to my readers again because I have discovered some more newbies that should have been covered in Part 1. I guess it goes to show that there has been an influx of capital into this sector and we should feel good about that, but this means it has also become a little bit difficult to keep track of certain developments.

As in prior posts, after the name of each company I will provide the symbol, the price as of Thursday's close, the current yield and the price-to-net-asset-value (NYSE:NAV) ratio.

THC Credit (NASDAQ:TCRD): (11.37), (9.4), (.88) - This should have been included in newbies. TCRD currently has no net debt but they have a credit facility which they plan to use so that they will be deploying more money and hopefully increasing earnings.

New Mountain Financial (NYSE:NMFC):(12.58), (9.2), (.90) - NMFC has an asset base consisting of nearly 70% of first lien loans. This is another one which should have been included in newbies. There was a fair amount of insider buying in early August. At this discount to NAV and given the nature of the asset base, the valuation looks attractive.

Tortoise Capital (TTO): (8.14), (5.0), (.77) - TTO is a specialty BDC which invests in energy infrastructure(the kinds of things MLPs focus on). It has no net debt. Its holdings are heavily in the form of equity securities and the difficulty of valuing such holdings may account for the large discount to NAV.

Equus Total Return (NYSE:EQS): (2.23),(0), (.57) - This is a small BDC which has stubbed its toe on some equity investments over the years. I believe that there was some controversy over management about a year ago. It has roughly $17 million or $1.60 a share net cash on its balance sheet, so you are getting the rest of the assets at an enormous discount to book value, but because they are largely in the form of equity in small companies it is very hard to determine their value. Its size is clearly suboptimal and will probably result in relatively high expense ratios.

MACC Private Equity (OTCPK:MACC): (.95), (0), (.34) - A very small BDC that has had problems. It has roughly $9 million in gross assets. I would not recommend this kind of thing for retail investors but a big player might come in, do due diligence on the assets and pick it up below book value.

Waterside Capital (OTCPK:WSCC): (.15), (0), (.09) - I am not sure of the numbers because it has been a long time since these guys have filed financials. This one really is a Black Hole because of the lack of reporting and I would not recommend it for retail investors.

When I started this series, I was not fully aware of how many BDCs are out there. There are a bunch of new ones and, although there are certainly some improvements that could be made to the BDC model (e.g., allowing BDCs to retain earnings in order to come into ratio compliance or to resolve matters with lenders), the model can't be too bad if so many new companies are entering the sector. I will be doing another piece shortly on alternative ways to invest in the BDC sector.

Disclosure: I am long EQS.