The following information was previously provided to subscribers of Premium BDC Reports along with:
- MAIN target prices/buying points
- MAIN risk profile, potential credit issues, and overall rankings
- MAIN dividend coverage projections and worst-case scenarios
As mentioned earlier this week in the “Updated BDC Dividend Coverage Levels”, most dividend coverage measures for BDCs use net investment income (“NII”) which is basically a measure of earnings. However, some BDCs achieve incremental returns typically with equity investments that are sold for realized gains often used to pay supplemental/special dividends. These BDCs include MAIN, GAIN, CSWC, PNNT, TPVG, HTGC, and TSLX.
Yesterday, MAIN announced that it recently exited its equity investment in American Trailer Rental Group (“ATRG”) which is a leading provider of trailer rental solutions to manufacturing, distribution, and third-party logistics (3PL) customers. MAIN realized a gain of $17.0 million on the exit of its equity investment in ATRG, with this realized value representing an increase of $7.8 million above MAIN’s fair market value for this investment as of March 31, 2021:
On a cumulative basis since Main Street’s initial investment in ATRG in June 2017, Main Street realized an internal rate of return of 60.9% and a 3.0 times money invested return on its equity investments in ATRG. On a cumulative basis including both Main Street’s debt and equity investments, Main Street realized an annual internal rate of return of 28.1% and a 1.7 times money invested return on its aggregate debt and equity investments in ATRG.
There will be around $0.25 per share of realized gains as well as a slight increase in NAV per share of around 0.5% related to the exit of ATRG. Management was expecting distributable net investment income of $0.59 to $0.62 per share for Q2 2021 compared to the regular dividends of $0.615 so this should be considered good news. However, the market did not respond to the news, and MAIN’s stock was down slightly (by 0.4%) yesterday likely due to the previous net realized losses that need to be taken into account including $15.7 million during Q1 2021. Also, the company does not typically does not announce exits that include losses so we need to wait and see the full quarter results. I will be updating the MAIN Projections & Pricing report later this month taking into account all changes to portfolio credit quality and expected dividend coverage which should continue to improve as discussed in the MAIN Q1 2021 Quick Update from last month as well as management on the recent call:
Based upon our results for the first quarter and the positive developments we have seen in our existing portfolio companies, coupled with the future benefits of our growing asset management business, the attractive new investment opportunities we are seeing in our lower middle market and private loan strategies, our efficient operating structure and strong liquidity position, we remain confident with our expectations for continued improvement in our DNII per share in 2021 and our expectation to resume consistently generating DNII in excess of our monthly dividends later this year, followed by the eventual growth of our monthly dividends, consistent with our long-term historical practices prior to the onset of the pandemic.”
Full BDC Reports
This information was previously made available to subscribers of Premium BDC Reports. BDCs trade within a wide range of multiples driving higher and lower yields mostly related to portfolio credit quality and dividend coverage potential (not necessarily historical coverage). This means investors need to do their due diligence before buying.
