SUNS Q1 2019 Update

The following is a quick SUNS Update that was previously provided to subscribers of Premium Reports along with revised target prices, dividend coverage and risk profile rankings, credit issues, earnings/dividend projections, quality of management, fee agreements, and my personal positions on all business development companies (“BDCs”) please see Deep Dive Reports

Summary

  • SUNS hit its base case projections covering its dividend only due to continued fee waivers with realized gains of $0.1 million mostly due to the exit from Genmark Diagnostics.
  • NAV/share increased by 0.6% primarily due to appreciation on its investments in North Mill Capital, Gemino Healthcare and TwentyEighty Investors, partially offset by depreciation in Trident USA Health Services.
  • Trident was added to non-accrual status and accounts for 0.2% of the portfolio and is the only portfolio company with an “Internal Investment Rating 4”.
  • SUNS remain underleveraged with plenty of growth capital and debt-to-equity of 0.80 compared to its target a range of 1.25 to 1.50.
  • North Mill Capital remains around 15% of the total portfolio and the weighted average yield decreased from 17.4% to 13.1% (closer to previous levels).

 

Solar Senior Capital (SUNS) hit its base case projections covering its dividend only due to continued fee waivers. As predicted, its total portfolio declined closer to previous levels and there was a meaningful increase in leverage with a debt-to-equity ratio of 0.80 (previously 0.65). North Mill Capital (“NMC”) remains around 15% of the total portfolio and the weighted average yield from NMC decreased from 17.4% to 13.1%. Net asset value (“NAV”) increased by $0.10 to $16.40 per share and the Board declared a monthly distribution for May of $0.1175 per share payable on June 4, 2019, to stockholders of record on May 23, 2019.

Michael Gross, SUNS Chairman/CEO: “We are pleased with Solar Senior Capital’s first quarter operating performance. Overall, the financial health of our portfolio companies remains sound and over 98% of our portfolio is invested in first lien senior secured loans. With our continued focus on asset-based specialty lending and cash flow investments in defensive, non-cyclical industries, we believe SUNS is positioned to perform well through economic cycles. The Company has ample capital to expand our specialty finance platform while continuing to be highly selective in cash flow lending.”

 

Risk Profile Update

SUNS continues to have mostly “true first-lien” positions, historically stable NAV and low non-accruals. Management has a history of doing the right thing including waiving fees to cover the dividend without the need to “reach for yield” and deploying capital in a prudent manner.

NAV per share increased by 0.6% from $16.30 to $16.40 primarily due to appreciation on its investments in North Mill Capital LLC, Gemino Healthcare Finance LLC and TwentyEighty Investors, LLC, partially offset by depreciation in Trident USA Health Services (cost of $7.0 million, fair value of $0.9 million) that was added to non-accrual status. Trident accounts for 0.2% of portfolio fair value and is the only portfolio company with an “Internal Investment Rating 4” implying that the investment is “performing well below expectations and is no anticipated to be repaid in full.” During Q1 2019, SUNS had net realized gains of $0.1 million primarily related to the exit from its investment in Genmark Diagnostics, Inc.

Liquidity and Capital Resources

As mentioned in previous reports, shareholders approved the reduced asset coverage ratio allowing for higher leverage and the immediate integration of its First Lien Loan Program (“FLLP”). SUNS will target a range of 1.25 to 1.50 debt-to-equity and took on additional debt associated with the FLLP but its debt-to-equity is still only 0.80.

Previously, SUNS announced that it had amended its credit facilities’ leverage covenants to allow for the asset coverage ratio minimum of 150%. At March 31, 2019, SUNS had $88 million of unused borrowing capacity under its revolving credit facilities. However, including NMC and Gemino non-recourse credit facilities, the company had approximately $225 million of unused borrowing capacity under its revolving credit facilities as of March 31, 2019.

 

 

To be a successful BDC investor:

  • As companies report results, closely monitor dividend coverage potential and portfolio credit quality.
  • Identify BDCs that fit your risk profile.
  • Establish appropriate price targets based on relative risk and returns (mostly from regular and potential special dividends).
  • Diversify your BDC portfolio with at least five companies. There are around 50 publicly traded BDCs; please be selective.

For updated SUNS target prices, dividend coverage and risk profile rankings, credit issues, earnings/dividend projections, quality of management, fee agreements, and my personal positions on all BDCs please see Premium Reports.

 

 

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