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Solar Capital Ltd. Message Board

  • jan814_1999 jan814_1999 Mar 20, 2013 4:20 PM Flag

    Response Pt 2

    So let's look forward to what the quarterly NII might be. During the CC, SLRC did NOT say that the Q1 NII per share would cover the $.60 dividend. But that might be because there were costs associated with the January 8th large stock offering (not to mention the share increase from the offering) and this non-recurring cost may impact Q1 earnings as did the financing costs in Q2 of last year.. But we can get an idea of the current NII earnings run rate possibilities using the recent historical performance of the Company and excluding the non-recurring costs. Using that criteria, in the four quarters of 2012, SLRC brought to "net investment income", 2.02%, 2.03%(excluding financing costs), 1.86%, and 2.07% (average 1.995%) of the fair value of the portfolio at the beginning of each quarter, respectively. Those four numbers are fairly consistent, so let's say they will again return 2.00% in Q1 of 2013. The adjusted fair value of the portfolio going into Q1 is $1078 million, and I arrive at that by taking the actual portfolio value of $1396 million and subtracting the carrying value of Crystal ($275 million) and the $43 million fair value of Rug Doctor which is now on non-accrual status. So 2.00% of $1078 million is $21.56 million. To add the contribution of Crystal, we then first determine what the % of Crystals' portfolio value can be brought to NII (taking into consideration the lower yield of the Crystal portfolio) and that lower yield comes out to 1.7%. So 1.7% of the $400 million portfolio value of Crystal gives us $6.8 million. The NII for Q1 will then total $28.36 million for the whole Company or $.63 per share on the 44.7 million shares to be out. Recognizing that the actual NII per share may come in less than $.63 because of the non-recurring Q1 financing costs, the $.63 is still a pretty good forward run rate especially when Q2, Q3, and Q4 should come in higher in the absence of non-recurring costs and the expectation that both portfolios will grow as we proceed through the year, thus increasing NII per share.
    Now we don't know if it will play out this way as there are a lot of variables out there. But if the NII progression is close to the projections above, that will certainly lay the groundwork for one or more dividend increases, and that is the name of the game. And with the dividend yield now over 10% (actually 10.11%), SLRC appears to be one of the more comfortable investments in the BDC world.

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