Thursday, January 9, 2014

TICC: January 2014 Report




TICC Capital (TICC) is a component in my ‘High-Yield’ BDC portfolio and is one of the older BDCs that I follow.  It has been near the average of my rankings for a while with a riskier than average profile and higher than average returns.  TICC has one key advantage over the other BDCs which is its income incentive fee structure that is very favorable to investors in a rising rate environment and is based on U.S. Treasury rates that rose by year end.  This will reduce the fees paid by the company starting in 2014 and I believe these cost savings have not been factored into projected EPS or pricing.  Most of its investments are at variable rates and once rates rise higher than 100 basis points TICC should begin to see higher income.

I believe its CLO investments along with higher than average use of leverage makes it one of the riskier BDCs and it should be priced accordingly. 

The company will most likely issue new shares this quarter and there is a possibility of increased dividends later in the year as it benefits from reduced fees and full quarter of benefit from CLO investments. 

I have included a new section called “Optimal Leverage & Dividend Potential” that looks at an ideal scenario with target leverage ratios and a full quarter of benefit from the portfolio to determine the maximum dividend payable from recurring income. This is optimal but not very likely because there will always be some turnover in the portfolio and management will most likely continue to grow using debt and equity.  It does provide an indicator to dividend potential and I will continue to measure this in reports going forward.

This article discusses the pros and cons of investing in TICC along with earnings projections, dividend sustainability and growth potential over the coming quarters including best and worst case scenarios as well as key risk considerations, updated rankings/pricing compared to the other 25 BDCs that I follow.

Also included:
  • Interest rate sensitivity analysis
  • Timing for future share issuances
  • Projected total returns compared to the other BDCs
  • Price target based on expected total returns
  • Pricing based on multiples of NAV and projected earnings
  • Overall rankings and recommendations
This report is not publicly available, will not be published on Seeking Alpha. If you would like to become a premium subscriber please visit “Premium Subscriber”.

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