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TCAP- Red Flag- Significant Premium To NAV

|Includes: Triangle Capital (TCAP-OLD)

The recent sell-off in the BDC sector prompted a revisiting of the sector. The first valuation screen I use is simply the market price to NAV. As most of the return of a loan/debt focused BDC is interest and fee income, any significant premium to NAV is a red-flag to me. Triangle Capital Corp, TCAP, is currently trading at roughly 150% of NAV, one of the higher valuations in the BDC sector. The total current enterprise value is $1182mm (equity market cap + debt)

As of 6/30/14, pro forma for the recent equity raise, total assets are approximately $926mm implying $256mm of excess market cap premium (nearly $8 per share).

Proforma Assets

$612mm of debt investments

$124mm of equity related investments

$190mm of cash

As TCAP is currently marking their debt investments at slightly below cost, it is reasonable to assume that the equity related investments (currently $124mm) will have to appreciate by the $256mm, or nearly triple, to justify today's price premium to NAV. As such , TCAP, despite the robust dividend yield, is not on my buy list until it much closer to NAV.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.