SBA decision to reject second SBIC seems like a pretty big deal. Firm has repeatedly described its future funding strategy as SBIC focused. No loans in the quarter and a blow up on the primary funding strategy leaves the question - what is the plan?
actually on 11/8 it states that they withdrew their application - not that they were rejected.
and i hear you on how they plan to fund but they still have cap in their first sbic
Before considering any potential implications of a second SBIC license, we anticipate that we will originate or advance the majority of our available capital by late 2014 or the first half of 2015. Depending on the level of monetizations, and assuming we can fully deploy our available capital by December 31, 2014, we expect to end calendar year 2014 with approximately $450.0 million to $500.0 million of total investments and $475.0 million to $525.0 million of total assets. We also anticipate paying off our 2006-1 Trust by December 31, 2014.
At September 30, 2013, we had $96.4 million of cash and cash equivalents available for general corporate purposes, as well as $36.8 million of cash in restricted accounts related to our SBIC that we may use to fund new investments in the SBIC and $1.6 million of restricted cash held in escrow. In addition, we had $7.8 million of cash in securitization accounts, that may only be used to make interest and principal payments on our securitized borrowings or distributions to MCG in accordance with the indenture agreement of the 2006-1 Trust.
so they were not rejected. - they plan on monetizingg more and yes that will put them in the whole on the divi but they have been paying 75% from earnings all along so this is already known.
If you look at the 8K on sec.gov edgar site you will see that it was not voluntary - basically SBA said no and MCG withdrew. The real question is why? Given all the energy that was put into the process and the importance they have attached to it as recently as the last call - why did SBA pull the plug? Is there something wrong in the current SBIC that the market doesn't know?
Concerning first SBIC, you are mistaken. They have no additional debt capacity in the existing SBIC - it is fully leveraged at $150 mm. And as indicated in the quote above - they will be deleveraging over the next year. They do have cash but the BDC model is hard to make work without leverage - this company cannot earn its dividend and if history is a teacher - a dividend cut is prudent and inevitable.