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THL Credit Reports Q4/15

|Includes: THL Credit (TCRD)

TCRD Reports NII of $0.3628/share compared to a Dividend of $0.34/quarter
What They Earned THL Credit reported for Q4-15 Total Investment Income of $23.565 million ($0.7070/share). Net Investment Income was $12.079 million ($0.3628/share). The NII/TII ratio was 51.3%. The Net Increase in Net Assets Resulting from Operations was - $3.998 million [- $0.11990/share]. TCRD had net realized and unrealized losses on portfolio investments of $8 million during Q4-15. TCRD's net asset value per share was $12.58 compared to $13.03 at the end of Q3-15.

Stats from Yahoo Finance earnings history

Earnings History Mar 15 Jun 15 Sep 15 Dec 15
EPS Est 0.35 0.35 0.35 0.35
EPS Actual 0.35 0.35 0.35 0.36
Difference 0.00 0.00 0.00 0.01
Surprise % 0.00% 0.00% 0.00% 2.90%

News from AP: TCRD "posted revenue of $23.6 million in the period, also beating Street forecasts. Four analysts surveyed by Zacks expected $23.2 million."

My TCRD spreadsheets

  Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13 Q3-13 Q2-13 Q1-13

Realized & Unrealized Gains -16.077 - 9.055 2.125 3.652 -7.663 -0.272 -3.424 -0.609 x -3.531 2.101 1.699
Realized & Unrealized Gains/share -0.4823 -0.2702 0.0629 0.1077 -0.2260 -0.0080 -0.0841 -0.0180 x -0.1041 0.0781 0.0646

  Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13

Total investment income 23.565 23.117 23.751 23.762 24.100 23.145 23.745 20.895 18.500
Net investment income 12.079 11.649 11.934 11.910 12.400 12.223 12.887 10.981 9.100
Investments @ fair value 0.754 0.748 0.792 0.748 0.784 0.718 0.742 0.739 0.649
Wt Av Share Count 33.333 33.507 33.810 33.905 33.905 33.905 33.905 33.905 33.905
TII/share $0.7070 $0.6899 $0.7025 $0.7008 $0.7108 $0.6826 $0.7003 $0.6163 $0.5456
NII/share $0.3628 $0.3476 $0.3530 $0.3513 $0.3657 $0.3608 $0.3801 $0.3239 $0.2684
NAV/share $12.58 $13.03 $13.29 $13.20 $13.08 $13.29 $13.28 $13.34 $13.36
Wt Av Yield 11.2% 11.7% 11.8% 11.7% 11.7% 11.3% 11.1% 11.0% 11.7%
NII/TII ratio 51.3% 50.4% 50.2% 50.1% 51.5% 52.8% 54.3% 52.6% 49.2%

In Q2-15 TCRD repurchased $3.8 million of common stock at an average price of $12.38 - approx. 307 thousand shares

Summary: (1) TCRD had negative portfolio changes in 7 out of the last 11 quarters where I have the data. That performance is around sector average. (2) TCRD had anemic dividend coverage in this - and in most quarters. That is around sector average. (3) TCRD has a very good record when it comes to NII consistency - but (4) there is no growth trend in the numbers. (5) Non-accrual loans jumped to 3.3% of the portfolio at cost from 0.6% in the prior quarter. TCRD had a higher percentage in Q1 and Q2 of 2014 - and worked through that problem with only minor decrements to NAV. (Saving the most important to last) (6) Energy/utility loans were 9.96% of the TCRD portfolio - which is much higher than sector average.

As of 3-04-16, TCRD sold at a price that resulted in an 80% (right at sector average) price to NAV ratio. TCRD sold at slightly above the sector average yield. Historical performance indicates that TCRD should sell at slightly above sector average on valuation metrics. But the high energy exposure strongly indicates that TCRD should sell well below sector average valuations.

Given the high energy weighting, the non-accrual percentage looks on the "too good to be true" side of things. It would be overly cautious to call all energy loans "trash". But in this environment, I would suggest that most investors should want to err on the side of being overly cautious. Buy the baby bonds (TCRX and TCRZ) and avoid the equity. Current valuations do not reflect the potential risk that is in TCRD.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.