Identifying Risk In BDCs - TICC Capital

| About: TICC Capital (TICC)

Summary

The purpose of doing an assessment of TICC is to have another chapter in the BDC story about CLO exposure.

For much of TICC's history, the influence of CLOs on TICC's NAV has been extremely negative. That has not been the case over the last twelve months.

TICC has had a recent dividend cut to $0.20 quarter - but current earnings and forward projections suggest the current dividend is not safe.

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 TICC Capital (NASDAQ:TICC). This BDC sells at a 152 bps higher than average yield. TICC lacks 2017 dividend coverage based on projected NII, or net investment income. Is the higher yield correctly correlated to higher risks? Should the recent fall of dividend (from 29 cents per quarter to 20 cents) indicate the current dividend is not in danger? I will take you through the last several earnings releases, show the 24-point red flag checklist of assessing the quality of TICC's income, show the relative valuations for the sector, and present my assessment of TICC Capital.

I want to briefly note that TPG Specialty Lending launched a take-over effort for TICC in 2016 - and that effort was defeated in votes by the directors and the shareholders. That effort (or threat) is probably responsible for a change in direction in TICC's performance.

This is the third BDC in a row in this series which has had a higher than average weighting in CLOs or collateralized loan obligations. While the experience with CLOs by Prospect Capital Corporation (NASDAQ:PSEC) and by Apollo Investment Corporation (NASDAQ:AINV) have predominantly been positive, I have detailed where the experience with American Capital Senior Floating (NASDAQ:ACSF), KCAP Financial (NASDAQ:KCAP) and now with TICC where it has been significantly negative. You can click on a link here to find data on two other BDCs - Eagle Point Credit Company Inc and Oxford Lane Capital - where the experience has been negative - or at least extremely volatile.

CLOs are not consistently and unquestionably bad. They are nebulously and inconsistently bad. We fail to receive adequate transparency for the metrics in the earnings releases, earnings supplements and 10-Qs for almost every BDC. This is specifically true for information on CLOs. CLOs can vary significantly on unreported metrics like the portfolio Debt/EBITDAs and interest coverage ratios. Even two CLOs with identical metrics can have differences in the standard deviation on those metrics -- and that strongly matters when CLO returns are "tranched". We will never get that kind of detail from BDCs. My suggestion to conservative investors is to presume that CLO exposure in a BDC is bad until there is evidence to strongly support the opposite.

Before I show the Q1-17 numbers, I want to show the current analyst projections. (Note: In prior articles I have shown the projections prior to the earnings release. I did not gather that information on this stock. That information was available before the May 8th earnings release.)

Earnings Estimate Current Qtr. (Jun 2017) Next Qtr. (Sep 2017) Current Year (2017) Next Year (2018)
No. of Analysts 3 3 3 2
Avg. Estimate 0.15 0.16 0.63 0.54
Low Estimate 0.14 0.14 0.58 0.53
High Estimate 0.16 0.17 0.7 0.55
Year Ago EPS 0.13 0.11 0.46 0.63
Revenue Estimate Current Qtr. (Jun 2017) Next Qtr. (Sep 2017) Current Year (2017) Next Year (2018)
No. of Analysts 3 3 3 2
Avg. Estimate 15.05M 14.86M 60.97M 54.07M
Low Estimate 14.6M 13.8M 58.2M 50.5M
High Estimate 15.5M 16M 63.9M 57.65M
Year Ago Sales 17.05M 18.1M 69.28M 60.97M
Earnings History 6/29/2016 9/29/2016 12/30/2016 3/30/2017
EPS Est. 0.14 0.13 0.13 0.14
EPS Actual 0.13 0.11 0.14 0.15
Difference -0.01 -0.02 0.01 0.01
Surprise % -7.10% -15.40% 7.70% 7.10%
EPS Trend Current Qtr. (Jun 2017) Next Qtr. (Sep 2017) Current Year (2017) Next Year (2018)
Current Estimate 0.15 0.16 0.63 0.54
7 Days Ago 0.15 0.16 0.63 0.54
30 Days Ago 0.15 0.17 0.66 0.52

Prior to the earnings release, the Net Investment Income or NII projection for the quarter was $0.14 compared to the $0.1529 actual. That earnings surprise along the NAV growth has lead to a change in the 2017 earnings projection from $0.52 to the current $0.54. A growing earnings projection is a good thing. It is partially responsible for TICC having a sector beating performance on price appreciation in 2017.

What follows is my presentation of the historical and Q1-17 operating and performance metrics:

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 Q4-2013
Realized & Unrealized Gains 4.179 29.021 37.022 41.5 -21.2 -71.8 -40.610 -0.9 8.5 -41.3 -18.8 -4.3 -4.5 -3.9
Realized & Unrealized Gains/share 0.08 0.56 0.72 0.81 -0.40 -1.22 -0.67 -0.01 0.14 -0.68 -0.31 -0.07 -0.09 -0.08
NAV/share $7.53 $7.50 $7.08 $6.54 $5.89 $6.40 $7.81 $8.60 $8.72 $8.64 $9.40 $9.71 $9.78 $9.85

TICC looks less than terrible on the count of positive quarters. There were 5 positive in the last 14 quarters. But some of the negative quarters had sever drops. Over the last three years, TICC has had a NAV fall of 23.01% compared to a sector average fall of 10.13%. There are six other BDCs in my coverage universe of 40 that have done worse.

On the other hand, TICC's last twelve month NAV change is a positive 27.84% compared to a sector average change of a positive 0.10%. No other BDC is anywhere close to such a good and positive performance.

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
Non-affiliated_interest_income 7.072 8.243 8.570 8.370 8.466 9.531 13.720 12.484 12.821 12.506 12.728 12.964 12.658
CLO + Equity income 8.570 9.965 8.636 7.981 5.921 8.506 8.617 9.616 8.163 14.470 15.171 14.825 15.051
Fee + other income .741 .574 .805 .390 .460 .348 .373 1.240 .372 1.183 1.877 1.785 .606
Controll/Affil investment income .082 .085 .085 .307 .421 .427 .423 .437 .386 4.343 .400 .361 .347
Total investment income 16.465 18.869 18.096 17.047 15.268 18.800 23.134 23.777 21.743 28.577 30.176 29.935 28.657

Where there is a TII story, I want to have a specific spreadsheet that tells that story. That is the case with TICC. I will use this data when discussing the next spreadsheet.

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 Q4-2013
Total_investment_income 16.465 18.869 18.096 17.047 15.268 18.800 23.100 23.340 21.743 28.577 30.176 29.935 28.657 30.488
Net investment income 7.875 7.285 5.891 6.799 4.044 4.500 10.900 10.892 12.304 12.762 17.521 17.417 17.758 16.947
Investments @ fair value 0.497 0.590 0.590 0.630 0.620 0.657 0.927 0.956 0.991 0.984 0.943 0.985 0.960 0.932
Wt Av Share Count 51.500 51.500 51.500 51.500 53.000 59.000 60.000 60.000 60.000 60.400 60.300 60.200 54.400 55.599
TII/share $0.3197 $0.3663 $0.3514 $0.3310 $0.2881 $0.3186 $0.3850 $0.3890 $0.3624 $0.4731 $0.5004 $0.4972 $0.5268 $0.5483
NII/share $0.1529 $0.1414 $0.1143 $0.1320 $0.0763 $0.0763 $0.1817 $0.1815 $0.2051 $0.2113 $0.2905 $0.2893 $0.3264 $0.3048
Reported NII/share $0.15 $0.14 $0.11 $0.13 $0.08 $0.08 $0.18 $0.18 $0.21 $0.21 $0.29 $0.29 $0.33 $0.32
Core NII share $0.20 $0.22 $0.30 $0.32 $0.29 $0.26 $0.34 $0.32 $0.38 $0.21 $0.28 $0.28 $0.29 $0.30
Div/Share $0.20 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.27 $0.29 $0.29 $0.29 $0.29 $0.29
NAV/share $7.53 $7.50 $7.08 $6.54 $5.89 $6.40 $7.81 $8.60 $8.72 $8.64 $9.40 $9.71 $9.71 $9.85
Wt Av Yield - Debt 8.4% 8.3% 8.0% 7.5% 7.1% 7.1% 7.2% 7.6% 7.8% 7.8% 8.1% 8.2% 8.4% 8.7%
Wt Av Yield - CLO 17.3% 17.0% 14.0% 12.8% 8.5% 11.3% 11.3% 12.6% 11.4%
Wt Av cash distribution yield-CLO 24.4% 23.8% 28.9% 25.8% 24.7% 27.4% 25.4% 25.4% 26.1% 23.3% 23.3% 22.7% 25.6% 26.3%
Wt Av Yield - income producing 14.0% 14.0% 15.4% 14.1% 13.3% 13.6% 12.2% 12.4% 12.5% 11.8% 12.6% 12.2% 12.9% 13.2%
TII/Portfolio ratio 13.25% 12.79% 12.27% 10.82% 9.85% 11.45% 9.97% 9.77% 8.78% 11.62% 12.80% 12.16% 11.94% 13.08%
NII/TII ratio 47.83% 38.61% 32.55% 39.88% 26.49% 23.94% 47.19% 46.67% 56.59% 44.66% 58.06% 58.18% 61.97% 55.59%
# of portfolio companies 68 76 84 94 90 89 98 96 103 109 121 119

Due to selling well below NAV in 2015 and early 2016, TICC had a series of share buy backs. The TICC portfolio had a high point of $991 million in Q1-15. It has fallen with the share buy-backs and prior year portfolio losses to the current $497 million.

A smaller portfolio results in smaller income. TII has been falling dramatically, and doing to in all four components of the TII. NII has been falling to the same degree till Q2-16, where a bounced back has occurred.

The current dividend is covered by "core" NII. Core net investment income represents NII adjusted for additional cash distributions received, or entitled to be received, on TICC's CLO equity investments and also excludes any capital gains incentive fees we recognize but have no obligation to pay in any period. TICC did not recognize any capital gains incentive fees in Q1-17.

Given that the huge difference between NII and core NII is CLO related, the person with an admitted anti-CLO bias lacks faith and confidence in the core NII number.

A more detailed look at the influence of CLOs on NAV:

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
CLO_Portfolio_Cost_10-Q 184.556 228.591 240.359 273.047 269.383 280.384 296.703 303.514 302.522 289.429 282.343 269.366 274.473
CLO Port Fair Value 10-Q 158.669 200.824 191.775 199.274 158.449 178.961 237.233 276.510 275.102 259.814 271.028 264.605 269.675
CLO Value/Cost Ratio 10-Q 86.0% 87.9% 79.8% 73.0% 58.8% 63.8% 79.9% 91.1% 91.1% 89.8% 96.0% 98.2% 98.3%
NAV/share $7.53 $7.50 $7.08 $6.54 $5.89 $6.40 $7.81 $8.60 $8.72 $8.64 $9.40 $9.71 $9.71
Total Portfolio Cost 521.563 624.040 655.106 736.234 775.402 791.438 994.319 982.024 1,012.360 1,020.502 945.032 971.932 950.308
Total Port Fair Value 497.094 589.923 590.902 629.696 620.071 656.716 927.181 955.902 991.204 984.157 942.630 984.852 959.758
Total Value/Cost Ratio 95.3% 94.5% 90.2% 85.5% 80.0% 83.0% 93.2% 97.3% 97.9% 96.4% 99.7% 101.3% 101.0%

As the fair value of CLOs fell, the NAV fell. As the fair value of CLOs rose, the NAV rose. CLOs are the tail that wags the dog.

And now for the liability side of the balance sheet:

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
Total Debt 196.137 219.971 313.400 348.500 348.100 351.500 501.400 501.300 501.200 501.100 451.100 451.000 450.800
Debt/share 3.8085 4.2713 6.0854 6.7670 6.5679 5.9576 8.3567 8.3550 8.3533 8.2964 7.4793 7.4917 8.2868
Debt/share to NAV 50.58% 56.95% 85.95% 103.47% 111.51% 93.09% 107.00% 97.15% 95.80% 96.02% 79.57% 77.15% 85.34%
Interest expense 3.714 6.114 5.055 4.434 4.359 6.000 5.031 4.996 4.900 8.100 5.000 4.900 4.900
Interest expense/share .0721 .1187 .0981 .0861 .0822 .1000 .0839 .0833 .0817 .1341 .0829 .0814 .0901
Interest expense/TII 22.56% 32.56% 27.93% 26.01% 28.55% 31.91% 21.78% 21.28% 22.54% 28.34% 16.57% 16.37% 16.93%
Annualized Int exp/Debt 7.57% 11.12% 6.45% 5.09% 5.01% 6.83% 4.01% 3.99% 3.91% 6.47% 4.43% 4.34% 4.35%
Average_stated_rate_of_Debt 5.97% 5.56% 4.94% 4.59% 4.57% 4.41% 3.60% 3.57% 3.56% 3.54% 3.90% 3.89% 3.90%

TICC has been one of the larger market capped BDCs and had benefited from that status with a lower than average cost of debt. The degree of leverage has oscillated significantly due to NAV volatility. The degree of leverage has fallen significantly in recent quarters. That is a difficult thing to accomplish along with share buy-backs. Even with that accomplishment, the cost of debt has risen.

The Red Flag Check-list For TICC - where a fail is worse than average and a double fail is close to the worst in the sector.

(1) Has a well covered dividend - TICC has a 2017 NII projection of $0.63 compared to a dividend of $0.80. Double Fail.

(2) Has a rising LTM NAV - TICC is a pass with a 27.84% LTM NAV change.

(3) Has a lower than sector average PWAY or Portfolio (Company) Weighted Average Yield - TICC has a PWAY of 14.0%. Fail.

(4) Has higher than average income projection accuracy for their annual NII numbers. TICC has had more than 10% NII shortfalls in 5 of the last 10 years. Fail.

(5) Has lower revenue volatility for their quarterly TII numbers. Any volatility comes from surprises - not disappointments. TICC has had one TII decline in the last 4 quarters - but it was for 12.72%. Pass

(6) Has an average cost of debt that is below 5%. TICC's weighted average cost of debt is 7.57%. Fail.

(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. TICC's Q1-17 dividend/NAV ratio was 10.6% compared to a 14.0% PWAY. Pass.

(9) Has more than 50 portfolio company investments. TICC has investments in 68. Pass.

(10) Has a debt/NAV ratio that is lower than 80%. Q1-17 ratio was 50.58%. When TICC was dropping NAV, the ratio was over 100%. Pass.

(11) Has a NII/TII ratio over 50%. TICC's ratio is terrible - was below 40% in 5 of the last 6 quarters. Double Fail.

(12) Has a better than sector average trend in "portfolio gains". TICC looks less than terrible on the count of positive quarters. There were 5 positive in the last 14 quarters. But some of the negative quarters had sever drops. Fail.

(13) Has less than 5% in structured products (a.k.a. CLOs). The ratio is (158.669/497.094) 31.9% in Q1-17. Double Fail.

(14) Has less than 5% in income that comes from PIK ("payment in kind") income. TICC has two loans generating a tiny amount of PIK interest. Pass.

(15) Has less than 5% of the portfolio in energy loans. TICC does not report any loans under energy or oil and gas. Pass.

(16) Has an acceptable market cap (or liquidity) that results in a "beta" under 1.0. Beta was 0.67 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 over 12% have a yield of 10.27%. 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 TICC's 11.38%. Fail.

(19) Has a yield that is OK compared to BDCs with close to the same NAV trend. TICC's NAV trend is great - thus the yield looks attractive on that comparison.

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. Prepayment fees are reported. Pass.

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

(23) Reports Q4 numbers. Pass.

TICC fails or double fails on (1, 1, 3, 4, 6, 11, 11, 12, 13, 13, 18, 20) 12 of the 23 points. The degree of TICC's shortcomings on some metrics probably merits a triple fail. I would want a valuation system that generated even more red flags for TICC. Bad BDCs have fails or red flags in the mid teens. Good BDCs in the low single digits. TICC is worse than average and it is priced that way.

Showing the math for 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 0.627 497 million times .1265 / 4 16.345
The PWAY has consistently been over TII/Portfolio ratio (it should be under) - so I believe an adjusted PWAY is needed to produce a good forecast.
The Q1-17 TII minus fees = 15.724. 15.724 times 4 divided by a portfolio of 497 million results in an adjusted PWAY of 12.65%.
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 40% .40 times 16.345 6.538 / 51.500 $0.1270/share
The consensus analyst 2017 TII projection is (60.970 / 4) 15.2425 per quarter and NII projection is ($0.63 / 4) $0.1575/share/quarter.

Showing the math for point 8:

2010 2011 2012 2013 2014 2015 2016 2017
Co. Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 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
TICC
Div 0.15 0.20 0.22 0.24 0.24 0.24 0.25 0.25 0.27 0.27 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.27 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.20 0.20
NII/share 0.17 0.24 0.25 0.24 0.02 0.29 0.36 0.25 0.24 0.40 0.12 0.23 0.23 0.30 0.23 0.30 0.33 0.29 0.29 0.21 0.21 0.18 0.18 0.08 0.08 0.13 0.11 0.14 0.15
NAV 8.87 9.03 9.27 9.85 9.97 9.85 9.34 9.30 9.50 9.47 9.85 9.88 10.02 9.75 9.90 9.85 9.78 9.71 9.40 8.64 8.72 8.60 7.81 6.40 5.89 6.54 7.08 7.50 7.53
Div/NAV 6.8 8.9 9.5 9.7 9.6 9.7 10.7 10.8 11.4 11.4 11.8 11.7 11.6 11.9 11.7 11.8 11.9 11.9 12.3 13.4 12.4 13.5 14.9 18.1 19.7 17.7 16.4 15.5 10.6
WtAvYld 9.4 0.0 13.0 13.0 13.2 12.9 12.2 12.6 11.8 12.5 12.4 12.2 13.6 13.3 14.1 15.4 14.0 14.0

Back when the dividend was safe and growing prior to 2013, the dividend/NAV ratio well under 12%. The current cute is the 10.6%. Such a good number suggests the current dividend is sustainable, while the trend in NII suggests the opposite.

NII was not consistently above the dividend, even back in the good times. I strongly suspect the weighting in CLOs was a factor in that. I like having clues well ahead of upcoming dividend cuts. One can receive such a clue from NII trend when NII is mostly consistent.

In this case, NII shortfalls have historically been due to the occasional CLO related "hick-ups" in NII.

One can receive a clue about dividend endangerment from NAV trends. Once again, CLO related hick-ups have created head fakes in the NAV trends.

Here are the year-to-date numbers and valuations used to make my assessment of TICC:

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. On 8-05 AINV cut its dividend. On 8-09 MCC cuts its dividend. On 9-22 CPTA cut. On 11-02 HRZN cut. On 11-09 TCRD cut. On 11-09 CMFN cut. On 11-09 GARS cut. On 11-21 PNNT cut. On 12-08 OHAI cut. On 12-14 KCAP cut.

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 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 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 (NASDAQ: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 (NASDAQ: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. (NYSE:FSC) 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 (NASDAQ: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 (NYSE: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 (NYSE:MCC) 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 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. (NASDAQ: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. 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 -10.13
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%.
The SPY or S&P 500 EFT is 8.55% year to date. - and with unreinvested dividends is 9.01% year to date.

TICC's price is up 6.35% in a sector (using numbers from my coverage universe) that is up 0.51% year to date in 2017. TICC's price was up 8.72% in a sector that was up 6.58% in 2016. This is where the good news stops. TICC was down 19.26% in a sector that was down 12.90% in 2015. TICC's price was down 27.18% in a sector that was down 15.53% in 2014.

This "prior to 2015" losing record on price changes is a logical reaction to the terrible record on operating and financial metrics. TICC was not overdue in having a good year due to those losses. All of those losses were merited. The recent superior performance is justified by the NAV turn around.

My assessment of TICC:

This article has noted that TICC has a large number of negative attributes that merit the BDC selling at a very low valuation. TICC sells at a1 11.38% yield compared with a 14% PWAY. This is a spread of 262 bps compared to the sector average spread of (10.99 - 9.86) 113 bps. This suggests TICC is over valued. TICC sells at a 93% Price to NAV ratio compared to a sector average ratio of 97%. The average stock has dividend coverage, while TICC does not. The raw Price to NAV suggests that TICC is under valued while a context sensitive view of that metric suggests that TICC is over valued.

The degree of NAV volatility is extreme. In the perspective of this conservative investor, this makes TICC more of a speculative stock than an income stock. One can not with any degree of confidence depend on the current dividend due to NAV volatility and the lack of NII coverage of the dividend.

Projecting where TICC's NAV will be in twelve months requires a skill well above my pay grade. And the NAV location will determine whether TICC is a good investment or not over that time span.

I believe that conservative investors should view TICC as unsafe at any yield. I also believe that TICC's experience with CLOs can be used to justify an anti-CLO bias when choosing a BDC despite that fact that TICC's CLO holdings have been a key reason for TICC's out performance in 2017.

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.

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