Identifying Risk In BDCs - KCAP Financial

| About: KCAP Financial (KCAP)
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Summary

KCAP is a serial dividend-cutting BDC.

The company has a last three-year NAV change of 32.55% - the second biggest loss in the sector.

If my valuation system fails to raise so many red flags on this BDC that you are afraid to buy at any price - then my system is defective.

The purpose of this series on Business Development Companies, or BDCs, is to help you avoid the dividend-declining companies while capturing some much-needed income. The intro article in the series was "How To Identify Risk In BDCs." This article is on KCAP Financial (NASDAQ:KCAP), also known as Kohlberg Capital Corporation. This BDC sells at a 401 bps higher than average yield. KCAP lacks 2017 dividend coverage based on projected NII, or net investment income. Is the higher yield correctly correlated to higher risks? Should the fall of total investment income per share indicate the dividend is in danger? I will take you through the last several earnings releases, show the 24-point red flag checklist of assessing the quality of KCAP's income, show the relative valuations for the sector, and present my assessment of KCAP Financial.

Before I show the Q1-17 numbers, I want to show the analyst projections.

Earnings Estimates from Yahoo Finance from before the earnings release:

Current Qtr. (Mar 2017) Next Qtr. (Jun 2017) Current Year Next Year
No. of Analysts 3 3 3 3
Avg. Estimate 0.10 0.10 0.41 0.40
Low Estimate 0.10 0.10 0.39 0.38
High Estimate 0.11 0.11 0.42 0.43
Year Ago EPS 0.13 0.14 0.50 0.41
Revenue Estimate Current Qtr. (Mar 2017) Next Qtr. (Jun 2017) Current Year Next Year
No. of Analysts 3 3 3 2
Avg. Estimate 8.23M 8.28M 32.95M 31.75M
Low Estimate 7.60M 7.70M 30.50M 30.00M
High Estimate 8.96M 8.96M 35.85M 33.50M
Year Ago Sales 9.51M 9.58M 36.20M 32.95M

The Q1-17 actual Net Investment Income, or NII, was $0.0865/share. Total Investment Income, or TII, was $7.774 million. Five of the six income components are falling and one is MIA. The Net Asset Value fell another 10 cents per share. Since the earnings release, the 2017 consensus projection has fallen to $0.39 and the 2017 average TII projection to $32.16 million.

My spreadsheets with the current and historical earnings metrics:

Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14
Realized & Unrealized Gains -2.877 -4.088 -1.806 -2.029 -11.607 -0.445 -22.449 -4.599 1.165 -0.748 2.719
Realized & Unrealized Gains/share -0.0773 -0.1100 -0.0486 -0.0547 -0.3128 -0.012 -0.6060 -0.1247 0.0316 -0.0205 0.0678

KCAP has had negative portfolio gains in 9 of the last 11 quarters and that is putting the history in the best light. KCAP has had negative gains in 8 out of the last 8. Some of the losses are severe. Since the beginning of 2012, KCAP's NAV has fallen 31.46%. Only one other BDC has done worse. This series has already done updates on "nest egg eating" Fifth Street Finance Corp. (FSC) and Medley Capital Corporation (NYSE:MCC). KCAP's performance on NAV is significant worse than those two.

Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15
Interest income from debt 4,555,178 4,722,263 5,186,745 5,214,331 5,705,577 5,720,722 6,302,777 5,879,930 6,197,828
Interest income from cash 15,906 7.862 7,168 6,981 7,372 3,155 2,726 3,657 701
CLO income - affiliates 2,974,558 3,029,103 3,307,950 3,235,756 3,051,816 3,066,784 3,684,802 3,599,699 4,340,143
CLO inc - non-affiliates 118,111 127,289 195,182 155,859 152,317 187,592 196,965 396,398 227,679
Asset Manager dividends 850,000 550,000 1,152,071 1,547,069 1,235,439 1,413,975
Structuring service fees 110,644 187,071 321,744 116,473 43,239 103,784 45,009 56,263 161,803
Total_investment_income 7,774,397 8.092,000 9,018,789 9,579,400 9,510,321 10,235,000 11,779,000 11,171,386 12,342,129

Let me tell the slightly complex asset manager story from text directly from the 10-Q. Katonah Debt Advisors and Trimaran Advisors are the two asset manager affiliates that (should) produce dividend income to KCAP. They had approximately $2.8 billion of par value assets under management at the end of Q1-17.

The asset manager affiliates are each managed independently from KCAP by a separate management team. At the same time, certain of KCAP's executive officers also act in similar capacities for one or both of the asset manager affiliates.

The asset manager affiliates provide investment management services to CLO funds, but they do not have any investments in the CLO funds they manage. However, KCAP holds investments in a portion of the securities issued by the CLO funds managed by the asset manager affiliates.

The $53 million KCAP has invested in CLO funds are predominantly in the Katonah and Trimaran funds. Because of the services these advisors perform, these funds generate income from their existence alone - and that income causes them to have a valuation. The dividend income KCAP receives is derived from the income these funds generate. Those dividends have disappeared. And the value of KCAP's investment in those funds has fallen.

Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Total_investment_income 7.774 8.092 9.019 9.579 9.510 10.235 11.779 11.171 12.342 10.601 10.835 9.774 9.995 10.337
Net investment income 3.218 4.094 4.523 5.108 4.765 5.303 6.541 5.832 6.507 5.540 5.517 4.596 4.467 5.201
Investments @ fair value 0.355 0.366 0.372 0.373 0.378 0.410 0.437 0.474 0.488 0.480 0.442 0.437 0.429 0.441
Wt Av Share Count 37.203 37.149 37.152 37.164 37.110 37.136 37.047 36.892 36.843 36.475 40.126 39.723 33.350 33.612
TII/share $0.2090 $0.2178 $0.2428 $0.2577 $0.2563 $0.2756 $0.3179 $0.3028 $0.3350 $0.2906 $0.2700 $0.2460 $0.2997 $0.3075
NII/share $0.0865 $0.1102 $0.1217 $0.1374 $0.1284 $0.1428 $0.1766 $0.1581 $0.1766 $0.1519 $0.1375 $0.1157 $0.1339 $0.1547
NII Yahoo $0.09 $0.11 $0.12 $0.14 $0.13 $0.14 $0.18 $0.16 $0.18 -$0.11 $0.23 $0.24 $0.24
NAV/share $5.14 $5.24 $5.38 $5.45 $5.50 $5.82 $6.33 $6.96 $7.16 $6.94 $7.67 $7.67 $7.62
Reported Wt Av Yield 7.0% 7.0% 7.1% 7.2% 7.3% 7.4% 7.4% 7.3% 7.3% 7.3%
TII/Portfolio Yield 8.75% 8.84% 9.70% 10.27% 10.06% 9.98% 10.78% 9.43% 10.12% 8.83% 9.80% 8.95% 9.32% 9.38%
NII/TII Ratio 43.19% 50.59% 50.15% 53.32% 50.11% 51.81% 55.53% 52.21% 52.72% 52.26% 50.92% 47.02% 44.69% 50.31%
My NII 2014 numbers sum, to $0.5390 - Yahoo Finance numbers sum to $0.60. My 2015 = .6541 & Yahoo = .66. My 2016 = .3875 & Yahoo = .50

TII, NII and NAV are all falling. The only visible good news is that the NII/TII ratio has a history of being close to sector average.

Some Port $ by line Q1-2017 Q4-2016 Q3-2016 Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014 Q4-2013
Senior Secured loans 196,553,708 200,322,152 200,021,049 194,066,823 193,931,052 194,123,223 204,189,144 217,535,523 217,219,634 218,329,860 168,920,608 153,304,076 152,797,023
Senior Secured @ cost 202,900,985 207,701,078 207,336,757 202,023,215 205,077,628 203,819,074 211,411,566 220,875,385 218,339,421 220,965,922 170,002,011 159,600,198 159,596,442
Senior Secured value/cost ratio 96.87% 96.45% 96.47% 96.06% 94.56% 95.24% 96.58% 98.49% 99.49% 98.81% 99.36% 96.06% 95.74%
CLO Securities @ fair value 52,999,028 54,174,350 45,126,919 46,180,067 49,358,283 55,872,382 66,720,782 78,448,455 85,853,478 77,541,901 87,382,253 91,730,898 77,747,524
CLO Securities @ cost 76,994,975 76,851,317 66,714,991 66,637,934 73,610,853 83,214,947 86,288,448 97,601,049 99,812,887 90,889,190 119,453,082 113,748,903 101,169,147
CLO Securities value/cost ratio 68.86% 70.49% 67.64% 69.30% 67.05% 67.14% 77.32% 80.38% 86.01% 85.31% 73.15% 80.64% 76.85%
NAV/share $5.14 $5.24 $5.38 $5.45 $5.50 $5.82 $6.33 $6.96 $7.16 $6.94 $7.67 $7.67 $7.62
Equity Securities 4,902,794 5,056,355 4,392,696 9,231,202 10,927,901 11,036,373 6,936,653 7,542,085 8,063,558 8,119,681 11,140,167 8,758,971 8,212,286
Equity Securities @ cost 10,389,008 10,389,077 10,208,846 10,467,787 10,467,787 10,467,787 8,514,478 8,514,487 8,828,812 8,828,812 17,454,438 16,289,233 16,289,233
Equity value/cost ratio 47.19% 48.67% 43.03% 88.18% 104.39% 105.43% 81.48% 88.58% 91.33% 91.97% 63.82% 53.77% 50.41%
Total Assets @ fair value 355,176,313 366,471,304 372,213,564 372,830,119 378,303,694 409,570,495 437,408,599 474,100,660 487,641,106 479,706,494 442,415,046 437,425,888 428,959,411
Total Assets @ cost 412,382,593 420,801,057 422,664,283 416,914,597 423,240,979 450,712,189 461,951,090 482,425,123 491,339,972 484,498,354 486,451,459 483,480,724 479,294,183
Total Assets value/cost ratio 86.13% 87.09% 88.06% 89.43% 89.38% 90.87% 94.69% 98.27% 99.25% 99.01% 90.95% 90.47% 89.50%
KCAP had $54.691 million (cost - 36.942 Fair Value) in one asset manager (investing in CLOs) in Q1-17 that failed to generate income while causing $2.606 million in portfolio markdowns

All three asset types (secured debt, CLOs and equity) began 2014 at close to widely varying ratios of fair value to cost. The secured debt loans had a fair value that oscillated in the high 90s. Equity began at 50% - bounced to over 100% - and then fell back. The level of volatility is extremely high. CLOs have a fair value that oscillated between 67% and 86%. That level of valuation volatility is moderate.

The CLO portfolio had a fair value that was (76,994,975-52,999,028) $24 million below cost. The CLO-related asset manager had a fair value that is just under $18 million below cost. Let's add those two together to get $42 million. While the total portfolio has a fair value that is $57 million below cost, roughly (42/57) 75% of that fall in fair value is CLO related.

Before we move away from the current and historical numbers, let's look at the liability side of things.

Liabilities Q1-2017 Q4-2016 Q3-2016 Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014
Total Debt 175.957 175.584 175.680 180.217 182.197 181.826 219.337 224.185 224.034 223.885 192.921 192.811 192.701
Debt/share 4.7296 4.7265 4.7287 4.8492 4.9096 4.8962 5.9205 6.0768 6.0808 6.1380 4.8079 4.8538 5.7781
Debt/NAV 92.02% 90.20% 87.89% 88.98% 87.27% 84.13% 93.53% 87.31% 84.93% 88.44% 62.68% 63.28% 75.83%
Interest Expense 2.181 2.151 2.122 2.265 2.573 2.763 3.007 2.991 2.967 2.762 2.892 2.894 2.990
Interest/share .0586 .0579 .0571 .0609 .0693 .0744 .0817 .0811 .0805 .0757 .0721 .0728 .0897
Interest/TII 28.05% 26.58% 23.53% 23.64% 27.05% 27.00% 25.53% 26.77% 24.04% 26.05% 26.69% 29.61% 29.91%
An Int Exp/Debt 4.96% 4.90% 4.83% 5.03% 5.65% 6.08% 5.48% 5.34% 5.30% 4.93% 6.00% 6.00% 6.21%

The average BDC has a debt to NAV ratio around 80%. KCAP uses slightly higher than average leverage while the cost is slightly below sector average.

The Red Flag Check List For KCAP - Where a fail is worse than average; a double fail is close to the worst in the sector; and all fails on the first two points merit double fails.

(1) Has a well-covered dividend - KCAP has a 2017 NII projection of $0.39 compared to a dividend of $0.48. Double fail.

(2) Has a rising LTM NAV - KCAP is a double fail with a -6.55% LTM NAV change.

(3) Has a lower than sector average PWAY, or Portfolio (Company) Weighted Average Yield - KCAP has a PWAY of 7.0%. Due to a high CLO allocation, this PWAY fails to adequately indicate portfolio risk.

(4) Has higher than average income projection accuracy for its annual NII numbers. KCAP has had more than 10% NII shortfalls in 8 of the last 10 years. Fail.

(5) Has lower revenue volatility for its quarterly TII numbers. Any volatility comes from surprises - not disappointments. KCAP had 3 TII in the last four quarters - with declines of 5.78%, 10.30% and 4.04%. Fail.

(6) Has an average cost of debt that is below 5%. KCAP's cost of debt in Q1-17 was 4.97%. Pass.

(7) Has a run rate NII based on "Portfolio times PWAY + Average Fee Income" that supports the NII projection. Project earnings are under run rate earnings. Pass.

(8) Has a dividend/NAV ratio that is 200 bps lower than the PWAY for BDCs with PWAYs over 10. KCAP's div/NAV in Q1-17 was 9.3%. Fail.

(9) Has more than 50 portfolio company investments. The Q1-17 number of portfolio companies in which KCAP had investments was 75. Pass.

(10) Has a debt/NAV ratio that is lower than 80%. The Q1-17 ratio was 92.02%. The ratio has been above 80% for the last 10 quarters. Fail.

(11) Has a NII/TII ratio over 50%. The ratio was 43.19% in Q1-17, but above 50% in 11 of the last 14 quarters. KCAP is "internally managed". Pass.

(12) Has a better than sector average trend in "portfolio gains". KCAP has had losses in 9 of the last 11 quarters. Fail.

(13) Has less than 5% in structured products (a.k.a. CLOs). The ratio was (53/355) 14.9% in Q1-17 in direct investments. Adding asset managers (90/355), the ratio was 25.4%. Fail.

(14) Has less than 5% in income that comes from PIK ("payment in kind") income. KCAP has zero in PIK income the last two quarters due to two PIK loans being on non-accrual. Pass.

(15) Has less than 5% of the portfolio in energy loans. The Q1-17 ratio was 2%. Pass.

(16) Has an acceptable market cap (or liquidity) that results in a "beta" under 1.0. Beta was 0.83 at MarketWatch. Pass.

Valuation Comparisons to BDCs with similar attributes:

(17) Has a yield that is OK compared to BDCs with close to the same PWAY. Other BDCs with a PWAY under 9% have a yield of 7.73%. Pass.

(18) Has a yield that is OK compared to BDCs with close to the same dividend coverage. Other BDC lacking dividend coverage on 2017 and 2018 projections have an average yield of 11.75% compared to KCAP's 13.87%. Pass.

(19) Has a yield that is OK compared to BDCs with close to the same NAV trend. Pass.

Transparency - The wanted quality of the earnings release or supplemental reports:

(20) Reports weighted average Debt/EBITDA and weighted average interest coverage ratio numbers for its portfolio companies. Fail.

(21) Has transparency on the amount of accelerated amortization of upfront fees and prepayments - so TII jumps or declines are explained. Fail.

(22) Has never had a secondary offering below NAV and will not in the future. Pass.

(23) Reports Q4 numbers. Fail.

KCAP fails on (1, 1, 2, 2, 4, 5, 8, 10, 12, 13, 20, 21, 23) 13 of the 23 points. Bad BDCs have fails or red flags in the mid teens. Good BDCs in the low single digits. I believe my valuation system should have produced a larger number of red flags for KCAP. Point 13 on the CLO weighting probably merits a double or triple fail. Getting a pass on a low percentage of PIK income due to PIK loans being non-accruals probably merits a double fail. KCAP is much worse than average and it is priced that way.

Showing the math on point 7

Total_Investment_Income_Calculation
Metric Fee_Income ----------Interest_Income---------- Totals
Formula average for last 4 quarters portfolio times yield / 4 Sum of components
Numbers 181 355 million times .0864 / 4 7.849
The Q1-17 TII - fees = 6.664 million. That number times four divided by a portfolio of 355 million results in an adjusted TII/portfolio ratio of 8.63%.
Net_Investment_Income_Calculation
Metric NII/TII Ratio NII NII/share Result
Formula average for last year TII times NII/TII NII/ share count
Numbers 50% .50 times 7.849 3.9245 / 37.203 $0.1055/share
The consensus analyst 2017 TII projection is (32.160 / 4) 8.040 and NII projection is ($0.39 / 4) $0.0975/share/quarter.

Showing the numbers on point 8

------- 2012 ------- ------- 2013 ------- ------- 2014 ------- ------- 2015 ------- ------- 2016 ------- ---- 2017 ----
KCAP Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17
Dividend 0.18 0.18 0.24 0.24 0.28 0.28 0.28 0.25 0.25 0.25 0.25 0.25 0.25 0.21 0.21 0.21 0.15 0.15 0.15 0.12 0.12 0.12
NII/share 0.15 0.23 0.27 0.28 0.24 0.17 0.23 0.15 0.14 0.12 0.14 0.15 0.18 0.16 0.18 0.14 0.13 0.14 0.12 0.11 0.09
NAV 7.78 7.66 7.82 7.85 8.33 8.24 8.02 7.51 7.62 7.67 7.67 6.94 7.16 6.96 6.33 5.82 5.50 5.45 5.38 5.24 5.14
Dividend/NAV 9.3 9.4 12.3 12.2 13.4 13.6 14.0 13.3 13.1 13.0 13.0 14.4 14.0 12.1 13.3 14.4 10.9 11.0 11.2 9.2 9.3
Port.Wt.Av.Yield 13.0 11.3 9.3 13.0 9.4 13.0 13.0 13.0 13.0 10.1 9.4 10.8 10.0 10.1 10.3 9.7 8.8 8.8
TII/Portfolio 9.3 8.9 9.8 8.8 10.1 9.4 10.8 10.0 10.1 10.3 9.9 8.8 8.8

Back in 2014, when the NAV was in the 7s, KCAP was producing NII/share in the mid to low teens, which would be enough to support the current dividend. But since that time, NAV has fallen another $2 or 30%. We can see trigger thresholds where KCAP has cut the dividend (when the dividend/NAV ratio hits 14%), but all those thresholds have been way too late, which is a partial cause of the next dividend cut.

I stopped having faith in the KCAP calculated PWAY in Q1-15. I have used the TII/Portfolio number as a substitute since that time. With a TII/Portfolio ratio of 8.8%, a safe paying ratio would be close to 6.5%. That would imply a dividend of $0.33/year or $0.0825/quarter.

Add to that, the dividend would only be safe if the NAV stops falling. There is no indication that such a thing is about to happen.

Let me show the year to date numbers based on prices as of the market's close on 6-16-17:

BDCs 06-16-17

Yield in the spreadsheet below is based on the Q2-17 "regular" dividend. Spreadsheet header abbreviations: Div = dividend; EPS = earnings per share; LTM = last twelve months; NAV = Net Asset Value; PWAY = Portfolio Weighted Average Yield (or the yield on the investments that they own); YTD = year to date. The dividend to EPS ratio is a measure of dividend safety. Due to calendar and fiscal years failing to overlap, I also include a dividend to the sum of the last four quarters of NII - in the Div/NIIltm column. After the Price/NAV ratio, the next column displays the percent change in price YTD. The next display price change plus YTD dividends accrued on the payment date - not the earned date. For the last four columns - the first measures the percentage change in the 2017 EPS projection since the beginning of the year; the second measures the change in the price target since the beginning of the year; the third measures the change in the Q2-17 dividend from the Q2-16 dividend; and the last measures the change in NAV between Q1-17 and Q1-16. Special dividends are not included in this data. ARCC, FDUS, MAIN and TCPC have paid special dividends on a near regular schedule.

Share Price Div/ Div/ Div/ Div/ Q1-17 Price YTD Percent Change LTM % LTM % Last3yr Last 3Yr
___The_Company_name_and_stock_ticker___ 1-01 06-16 Yield PWAY EPS17 EPS18 NIIltm NAV NAV NAV Price Pr+Div EPS Target DivChng NAVChng DivChng NAVChng
Alcentra Capital Corporation (NASDAQ:ABDC) 11.97 13.28 10.24 11.70 95.8 91.3 85.6 10.1 13.43 0.99 10.94 16.62 -4.70 1.79 0.00 -6.80 0.00 -9.01
American Capital Senior Floating (NASDAQ:ACSF) 11.90 12.55 9.24 6.71 99.1 99.1 96.6 8.5 13.66 0.92 5.46 7.90 0.00 7.17 0.00 16.55 3.57 -9.60
Apollo Investment Corporation (NASDAQ:AINV) 5.86 6.46 9.29 10.90 95.2 93.8 90.0 8.7 6.86 0.94 10.24 15.36 -4.55 0.16 -25.00 -5.77 -25.00 -20.88
Ares Capital Corporation ARCC 16.49 16.30 9.33 9.30 102.7 91.6 104.1 9.2 16.50 0.99 -1.15 1.15 -8.07 9.53 0.00 0.00 0.00 0.49
BlackRock Capital Investment (NASDAQ:BKCC) 6.96 7.46 9.65 11.70 86.7 81.8 76.3 8.8 8.22 0.91 7.18 12.36 -3.49 1.38 -14.29 -14.73 -14.29 -14.29
CM Finance Inc (NASDAQ:CMFN) 9.30 10.20 9.80 9.72 87.7 93.5 81.6 8.1 12.32 0.83 9.68 15.05 -2.56 0.00 -27.95 3.01 -26.04 -15.90
Capitala Finance Corp. (NASDAQ:CPTA) 12.93 13.66 11.42 13.20 99.4 96.3 88.8 9.9 15.71 0.87 5.65 8.66 -2.48 0.92 -17.02 -3.56 -17.02 -22.73
Fidus Investment Corporation FDUS 15.73 17.08 9.13 12.90 101.3 96.3 113.6 9.9 15.80 1.08 8.58 11.06 -4.94 3.80 0.00 3.61 2.63 3.81
Fifth Street Finance Corp. 5.37 3.98 12.56 10.40 87.7 83.3 74.4 6.9 7.23 0.55 -25.88 -23.56 -24.00 -23.73 -30.56 -13.21 -49.98 -26.30
Fifth Street Senior Floating Rate (FSFR) 8.71 7.44 10.22 8.10 102.7 100.0 95.4 7.0 10.83 0.69 -14.58 -12.40 -18.68 -10.53 -15.56 -3.13 -29.63 -28.42
Franklin Square Investment Corp (NYSE:FSIC) 10.30 9.30 9.59 9.20 103.7 107.5 103.4 9.4 9.45 0.98 -9.71 -5.38 -1.15 3.02 0.00 7.14 0.00 -8.07
Gladstone Investment Corporation (NASDAQ:GAIN) 8.46 9.45 8.13 12.70 103.8 108.2 105.1 7.8 9.82 0.96 11.70 13.97 0.00 10.51 2.40 6.51 28.00 17.75
Garrison Capital Inc. (NASDAQ:GARS) 9.35 8.36 13.40 10.80 100.9 110.9 103.5 9.4 11.90 0.70 -10.59 -7.59 -9.02 -9.42 -20.00 -11.85 -20.00 -22.98
Golub Capital BDC, Inc. (NASDAQ:GBDC) 18.39 19.30 6.63 7.70 102.4 100.0 103.5 8.1 15.88 1.22 4.95 6.69 -4.58 5.43 0.00 0.19 0.00 3.05
Gladstone Capital Corporation (NASDAQ:GLAD) 9.39 9.94 8.45 11.40 100.0 98.8 100.0 9.8 8.53 1.17 5.86 8.09 -2.33 15.35 0.00 7.70 0.00 -12.87
Goldman Sachs BDC (NYSE:GSBD) 23.52 22.64 7.95 11.80 91.8 89.1 89.6 9.9 18.26 1.24 -3.74 0.09 -3.92 9.67 0.00 -2.20 9.76 -8.61
Harvest Capital Credit (NASDAQ:HCAP) 13.75 13.16 10.26 14.80 99.3 97.1 87.5 9.7 13.89 0.95 -4.29 -1.10 -4.90 1.75 0.00 -0.07 0.00 -4.07
Horizon Technology Finance Corp (NASDAQ:HRZN) 10.53 11.24 10.68 15.50 104.3 101.7 86.2 9.9 12.11 0.93 6.74 9.59 -4.17 -3.49 -13.04 -11.09 -13.04 -15.43
Share Price Div/ Div/ Div/ Div/ Q1-17 Price YTD Percent Change LTM % LTM % Last3yr Last 3Yr
___The_Company_name_and_stock_ticker___ 1-01 06-16 Yield PWAY EPS17 EPS18 NIIltm NAV NAV NAV Price Pr+Div EPS Target DivChng NAVChng DivChng NAVChng
Hercules Capital (NASDAQ:HTGC) 14.11 13.28 9.34 13.40 99.2 88.6 91.7 12.7 9.76 1.36 -5.88 -3.69 -5.30 2.22 0.00 -0.51 0.00 -7.75
KCAP Financial, Inc. 3.98 3.46 13.87 8.75 123.1 120.0 105.3 9.3 5.14 0.67 -13.07 -10.05 -20.41 -10.53 -20.00 -6.55 -52.00 -32.55
Main Street Capital Corporation MAIN 36.77 38.99 5.69 9.68 99.1 96.5 98.5 9.9 22.44 1.74 6.04 7.55 -2.61 10.19 2.78 5.95 12.12 11.42
Medley Capital Corporation 7.51 6.38 13.79 11.60 122.2 114.3 115.8 9.8 8.94 0.71 -15.05 -12.12 -12.20 -8.32 -26.67 -8.78 -40.54 -29.55
Monroe Capital Corporation (NASDAQ:MRCC) 15.38 15.16 9.23 9.50 95.9 88.6 94.0 9.8 14.34 1.06 -1.43 0.85 -8.18 2.88 0.00 -0.76 2.94 2.50
New Mountain Finance Corp (NYSE:NMFC) 14.10 14.40 9.44 11.10 100.0 97.1 100.3 10.0 13.56 1.06 2.13 4.54 -1.45 5.61 0.00 5.36 0.00 -6.68
OFS Capital Corporation (NASDAQ:OFS) 13.76 14.07 9.67 12.03 100.7 91.9 95.3 9.1 14.98 0.94 2.25 4.72 -9.40 10.43 0.00 2.25 0.00 3.67
Oak Hill Advisors (NASDAQ:OHAI) 1.73 1.22 6.56 12.20 21.6 18.6 23.4 2.0 3.99 0.31 -29.48 -28.32 -13.95 0.00 -66.67 -17.73 -87.50 -54.30
Prospect Capital Corporation (NASDAQ:PSEC) 8.35 8.06 12.41 12.30 113.6 114.9 109.2 10.6 9.43 0.85 -3.47 0.42 -5.38 -3.81 0.00 -1.87 -24.81 -11.70
PennantPark Floating Rate Capital (NASDAQ:PFLT) 14.11 14.00 8.14 7.90 103.6 96.6 104.7 8.1 14.05 1.00 -0.78 1.24 -4.35 2.00 0.00 3.77 5.56 -2.84
PennantPark Investment Corp (NASDAQ:PNNT) 7.66 7.48 9.63 11.90 84.7 88.9 79.7 7.9 9.09 0.82 -2.35 0.00 -1.16 7.82 -35.71 2.94 -35.71 -18.33
Saratoga Investment Corp. (NYSE:SAR) 20.61 21.20 8.68 10.80 105.7 105.7 88.0 8.3 22.21 0.95 2.86 7.33 -18.31 9.48 12.20 0.68 Infinity 3.98
Stellus Capital Investment (NYSE:SCM) 12.06 13.66 9.96 11.30 104.6 97.1 97.8 9.8 13.84 0.99 13.27 16.09 -4.41 11.96 0.00 5.97 0.00 -4.49
Solar Capital Ltd. (NASDAQ:SLRC) 20.82 21.78 7.35 10.20 95.8 87.9 95.9 7.4 21.75 1.00 4.61 8.45 -7.73 4.61 0.00 3.18 0.00 -3.03
Solar Senior Capital Ltd. (NASDAQ:SUNS) 16.44 16.76 8.41 8.00 100.0 98.6 99.0 8.4 16.81 1.00 1.95 4.09 -0.70 7.52 0.00 0.66 0.00 -6.82
Triangle Capital Corp (NYSE:TCAP) 18.34 17.66 10.19 11.50 102.9 95.2 103.3 11.8 15.29 1.16 -3.71 -1.25 -7.41 1.72 0.00 1.80 -16.67 -2.74
TCP Capital Corp. TCPC 16.90 16.77 8.59 11.10 94.1 91.1 96.2 9.7 14.92 1.12 -0.77 1.36 -2.55 3.53 0.00 1.77 0.00 -2.61
THL Credit, Inc. (NASDAQ:TCRD) 10.01 9.86 10.95 11.40 96.4 93.9 87.2 9.2 11.71 0.84 -1.50 1.20 -6.67 -2.76 -20.59 -4.33 -20.59 -12.22
TICC Capital Corp. (TICC) 6.61 7.03 11.38 14.00 127.0 148.1 148.0 10.6 7.53 0.93 6.35 9.38 -3.08 1.45 -31.03 27.84 -31.03 -23.01
TriplePoint Venture Growth (NYSE:TPVG) 11.78 13.40 10.75 10.10 94.1 97.3 96.8 10.8 13.38 1.00 13.75 19.86 1.32 7.84 0.00 -0.15 20.00 -8.23
TPG Specialty Lending (NYSE:TSLX) 18.68 20.48 7.62 10.50 86.7 87.6 82.5 9.7 16.04 1.28 9.64 13.81 2.27 10.72 0.00 6.15 2.63 3.42
WhiteHorse Finance (NASDAQ:WHF) 12.17 14.35 9.90 11.80 96.6 97.9 97.7 10.3 13.80 1.04 17.91 23.75 1.38 18.85 0.00 3.92 0.00 -9.39
Sector Average 9.86 10.99 98.3 9.1 0.97 0.51 3.64 -5.84 2.92 0.10
With the 10 Treasury at 2.15% and sector average yield on Q2 dividends at 9.86% - the spread is 771 bps.
The cap weighted ETN BDCS has a price change of -0.62% year to date - with dividends its total return is 3.29%.
SPY or S&P 500 ETF is 8.55% year to date. - and with unreinvested dividends is 9.01% year to date.

My assessment of KCAP:

KCAP's price is down 13.07% in a sector (using numbers from my coverage universe); that is up 0.51% year to date in 2017. KCAP's price was down 2.21% in a sector that was up 6.58% in 2016. KCAP was down 40.32% in a sector that was down 12.90% in 2015. KCAP was down 15.49% in a sector that was down 15.53% in 2014.

This losing record on price changes is a logical reaction to the terrible record on operating and financial metrics. KCAP is not overdue in having a good year due to those losses. All of those losses were merited.

I believe a fair current price for KCAP would result in a 9% yield (due to its TII/Portfolio ratio) based on a $0.33/year dividend. That would put the dividend slightly below the NII/share. That price would be $3.67. And that price would only be fair as long as the NAV becomes stable. Given that there is no sign that NAV stability will happen, KCAP is - basically - unsafe at any price or any yield for all conservative investors.

Disclosure: I am/we are long AINV, ARCC, FDUS, MRCC, PFLT, PNNT, TCPC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.