Alcentra Capital (NASDAQ:ABDC) reported it Q3 2019, which we expect is its last quarter as a public company. It is in the process of being purchased by Crescent Capital BDC for $11.02 per share (the portfolio’s Q2 NAV). After the closing of the merger, Crescent Capital Maryland BDC is expected to apply to have its common stock listed on Nasdaq under the symbol "CCAP.” The transaction was expected to close in the December quarter, but it is now expected to be completed in Q1 2020.
‣ As of September 30, the company’s $218 million portfolio was composed of 29 investments, comprised of 28 companies, and one rated CLO debt instrument. It was invested 93% in debt and 7% in equity.
‣ Only one portfolio company, Southern Technical Institute, is on non-accrual. Aegis and HCAT were added to the watch list so there are now ten others on the watch list in addition to Southern Technical: Aegis, Alarm Capital, Battery Solutions, Conisus, Envocore, HCAT, IGT, Impact, Palmetto Moon, and XGS. The weighted average yield on the company s debt portfolio was 10.6% this quarter, down from 10.7% last quarter as higher yielding investments were repaid.
‣ At $9.02, the shares trade at a 17.8% discount to the company’s $10.98 NAV (net asset value) per share and below the Crescent Capital offer price of $11.02. At its current price, Alcentra’s dividend yield, not including the special dividend is 8.0%, still below the average of 9.7%. Management plans to facilitate a dividend policy designed to over-earn a quarterly $0.41 dividend per share for the merged company.
Q3 2019 Earnings
For the third quarter of 2019, the company reported total investment income of $5.3 million versus $6.6 million last year, a decline of 14%. Management blamed the decline on the rotation of legacy investments to investments more senior in the capital structure of its portfolio companies, and the associated decrease in weighted-average yields.
Net investment income was $1.7 million, or $0.13 per share versus $3.0 million and $0.22 per share last year. NAV decreased to $10.98 from $11.02 in Q2.
Of the 28 portfolio companies, there were five write-downs this quarter totaling $0.8 million:
• Aegis Toxicology – debt valuation adjusted lower based upon mark to market ($0.04 million)
• Healthcare Associates of Texas – debt valuation was adjusted lower due to financial performance ($0.52 million)
• Impact Group – debt valuation adjusted lower due to financial performance ($0.12 million)
• Metal Powder Products – equity valuation adjusted lower based upon financial performance ($0.06 million)
• Goldentree Loan Management (CLO) – mark to market of CLO debt ($0.04 million)
Seven positions were written up this quarter, totaling $1.0 million:
• Aperio – based on financial performance ($0.04 million)
• Battery Solutions – based on financial performance ($0.20 million)
• Carlton Group – based on expected prepayment premium ($0.11 million)
• Clanwilliam – based on financial performance ($0.18 million)
• Conisus – based on improving financial performance ($0.44 million)
• Perforce Software – based upon mark to market ($0.02 million)
• WeddingWire – based on financial performance ($0.05 million)
The portfolio value increased to $218 million from $219 million in Q2 2019. Net asset value (NAV) was $10.98 per share as of September 30, 2019 versus $11.08 per share, on September 30, 2018.
During Q3 the company did no investing in accordance with the merger agreement and received proceeds from repayments, loan dispositions and amortization on investments of approximately $2.8 million.
On July 3, 2019, the company paid a quarterly dividend of $0.18 per share and a special dividend of $0.15 per share to stockholders of record as of June 28, 2019.
On August 5, 2019, the board approved the 2019 third quarter dividend of $0.18 per share for stockholders of record as of September 26, 2019, payable on October 3, 2019.
On October 3, 2019, the company paid a quarterly dividend of $0.18 per share to stockholders of record as of September 26, 2019.
On October 11, 2019, the board approved a 2019 fourth quarter dividend of $0.18 per share payable on December 15, 2019 to stockholders of record as of November 30, 2019.
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