Posted on by BDC Buzz

GAIN & GLAD: Q4 2023 Updates

The following information was previously provided to subscribers of BDC Buzz Premium Reports along with:

  • GAIN and GLAD target prices, buying points, and suggested limit orders (used during market volatility).
  • GAIN and GLAD risk profile, potential credit issues, changes in NAV, and overall rankings. Please see BDC Risk Profiles for additional details.
  • GAIN and GLAD dividend coverage projections (base, best, worst-case scenarios). Please see BDC Dividend Coverage Levels for additional details.

GAIN Quick Quarterly Update (December 31, 2023)

  • Earnings: Reported between its base and best-case projections due to success fee income of $1.4 million related to the exit of Counsel Press and ‘adviser fee credits’ driving lower ‘Other G & A’ partially offset another quarter of no dividend income. There are still no loans with a PIK interest component.
  • Realized Gains: Around $43.5 million or $1.27 per share during Q4 2023 due to the exit of Counsel Press, as discussed in previous reports/updates.
  • Leverage: Remains among the lowest in the sector with a debt-to-equity of 0.91 (net of cash) partially due to shares sold through its ATM program.
  • Dividends: Recently reaffirmed its monthly dividend of $0.08 per share.
  • Shares Issued: 1,456,279 shares under its ATM program at a weighted average price of $14.51 per share (compared to the previous NAV per share of $14.03).
  • NAV Per Share: Decreased by $1.02 or 7.3% (from $14.03 to $13.01) due to supplemental dividends of $1.00 per share and changes in the value of equity/debt positions that will be discussed in the updated GAIN Deep Dive Projection report. Please note that NAV per share has increased by over 17% over the last 12 quarters.
  • Credit Quality: No new non-accruals which remain 3.4% of the portfolio at fair value. However, its watch list investments in B+T Group and PSI Molded Plastics were marked lower again (shown below) and could be added to non-accrual status.
  • Subsequent Events: Issued another 538,206 shares at a weighted average price of $14.53 per share raising $7.7 million in net proceeds and increased the size of its credit facility from $135 million to $200 million.
  • One of my primary concerns is the amount of concentration risk in the portfolio with its top five investments (SEFG, Nocturne Luxury Villas, Old World Christmas, Dema/Mai Holdings, and Brunswick Bowling Products) accounting for $381 million, or 42% of the total investment portfolio at fair value as of December 31, 2023. However, this is partially due to being under-leveraged.
  • This information will be discussed in the updated GAIN Deep Dive Projection report, along with its overall risk profile, full dividend, and financial projections, taking into account discussions with management on the upcoming earnings call.

‘Core NII’ takes into account incentive fees related to capital gains:

 

GLAD Quick Quarterly Update (December 31, 2023)

  • Earnings: Reported slightly below its base case projections due to continued lower fee and dividend income partially offset by higher fee credits covering its monthly dividends by 111% with a slight increase in its portfolio yield from 13.8% to 13.9%. The amount of PIK interest income increased from 3.9% to 6.1% of total income.
  • Shares Issued: None due to only having $0.4 million of remaining capacity (but increased on January 17, 2024).
  • Leverage: Among the lowest debt-to-equity in the sector, currently 0.81 net of cash.
  • Dividends: Recently announced that it is maintaining its regular monthly dividend of $0.0825 per share for Q1 2024.
  • Credit Quality: Only its watch list investment in Edge Adhesives remains on non-accrual status and accounts for 0.4% of the portfolio fair value.
  • NAV Per Share: Increased by another $0.22 or 2.3% mostly due to realized/unrealized portfolio appreciation of $0.19 per share plus overearning the dividends by $0.03 per share. NAV per share has increased by almost 26% over the last three years.
  • This information will be discussed in the updated GLAD Deep Dive Projection report, along with its overall risk profile, full dividend, and financial projections, taking into account discussions with management on the upcoming earnings call.

 

Subsequent events that will be taken into account with the updated projections:

  • Portfolio Activity: In January 2024, its investment in CHA Holdings, Inc. paid off at par for net cash proceeds of $3.0 million.
  • Registration Statement: New shelf registration statement was declared effective on January 17, 2024, and permits the company to issue up to an aggregate of $700 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock or preferred stock.

GLAD recently announced that it is maintaining its regular monthly dividend of $0.0825 per share for Q1 2024:

The largest markups during the quarter were its positions in Antenna Research, MCG Energy Solutions, Engineering Manufacturing Technologies, and Lonestar EMS partially offset by marking down FES Resources, B+T Group, and NeoGraf Solutions. It is important to note that GAIN also has an investment in B+T that remains on its watch list and will likely be marked lower in Q4 2023 and could be added to non-accrual over the coming quarters.

What Can I Expect Each Week With a Paid Subscription?

Each week we provide a balance between easy-to-digest general information to make timely trading decisions supported by the detail in the Deep Dive Projection reports (for each BDC) for subscribers that are building larger BDC portfolios.

  • Monday Morning Update – Before the markets open each Monday morning, we provide quick updates for the sector, including significant events for each BDC along with upcoming earnings, reporting, and ex-dividend dates. Also, we provide a list of the best-priced opportunities along with oversold/overbought conditions, and what to look for in the coming week.
  • Deep Dive Projection Reports – Detailed reports on individual BDCs each week prioritized by focusing on buying opportunities and potential issues such as changes in portfolio credit quality and/or dividend coverage (usually related). This should help subscribers put together a shopping list ready for the next general market pullback.
  • Weekly General Updates or Comparison Reports – A series of updates discussing ‘Building a BDC Portfolio’, suggested pricing and limit orders, expense/return ratios, interest rates, leverage, BDC Investment Grade Notes/Baby Bonds, portfolio mix, and potential impacts on dividend coverage and risk.