Taking a Second Look at TICC Capital
Nicholas Marshi submits:
We’ve been worried about the sustainability of TICC Capital’s (TICC) 15 cents a quarter dividend for several months. The company is a Business Development Company (BDC) which mostly focuses on middle market technology lending, and whose most notable feature is having no debt and no bank line, a result of drastic de-leveraging at the very beginning of the Great Recession. Of course, during the intervening time the Company has announced a new distribution of 15 cents, earned 1 cent more in Net Investment Income in the fourth quarter of 2009 than in the prior period, and seen its stock price jump up to nearly $7, just 16% off NAV. So we thought the issuance of the 10-K would be a good time to revisit our analysis of the Company. Please read on, but in brief: we came away with a warmer feeling about TICC’s 2010 prospects, but continue to question the ability of TICC to maintain earnings per share above $0.60 a year should more credit problems develop.
Let’s start by pointing out that the Company does not have a stellar credit underwriting record. In each of the last 3 years the Company has recognized major Realized Losses (notwithstanding a few Realized Gains) which have totaled $32mn. That’s 10% of initial capital. Plus, another $61mn in assets still on the books have been written down, which means that TICC’s assets at FMV are being carried at 77% of cost, and that’s despite the Company recirculating a substantial portion of its assets in the past year. We used to be a major proponent of the Company back in the go-go days but we lost our religion when the Company announced several bad debts back in 2007-2008. Of course all companies have problem credits. The issue with TICC is that, from an investor’s point of view, many of its loans went from performing to valueless very quickly. On paper the Company was principally a senior secured lender but when troubles occurred at portfolio companies, the underlying assets often had no or little value.
Investing, Long Term Investment, stock market | admin March 19, 2010
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