April 05, 2013 - 12:27pm EST by
2013 2014
Price: 24.72 EPS NMF NMF
Shares Out. (in M): 4 P/E NMF -
Market Cap (in $M): 100 P/FCF - -
Net Debt (in $M): 500 EBIT 125 125
TEV (in $M): 1,500 TEV/EBIT 12.0x 12.0x

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  • BDC


SLRC Preferred – 6.8% YTM (2042). Price 24.72


Paul118’s writeup on the TY Preferred’s also reminded me of other attractive preferreds (and I generally agree with his analysis), so I decided to do this quick writeup to share an attractive one.  However, I do like a bit more yield.  Right now I think the SLRC recently issued 6.75% Preferreds (trading a bit below par) are attractive.  It trades around  $500k- $1mm/day (though only $100mm issued).  They are actually sr unsecured notes, so more security than typical preferred (but without the QDI feature, for whatever that will be worth post tax law changes in a few years). They also mature in 2042, so less interest rate risk than a typical preferred.

  • SLRC is a BDC.  Out of $1.5bn in total cap, $1bn is equity (NAV) and $500mm is debt (the $100mm of preferreds being below the other debt in terms of security)
  • SLRC is roughly invested in 1/3 equity, 1/3 senior debt and 1/3 subordinated debt
  • Preferred are rated BBB-.  Per Bloomberg, the 30 year BBB domestic curve yields about 4.75%.  So, you pick up 200bps on the BBB curve (and 360bps on the UST).  For individual investors, it is also nice to actually be able to buy / sell the preferreds easily on the exchange
  • They are callable starting 11/2017 at $25 (so trading at a slight discount to call price)
  • You are essentially making a LTV at 33% ($500mm / $1.5bn) yielding almost 7% with call protection, which I find attractive – especially given the alternatives out there in fixed income space

From friends of mine that work in credit hedge funds, they have said that management of SLRC is solid, which makes me feel comfortable that they won’t do anything stupid in terms of blowing up the book.  They also are not afraid of issuing shares and have access to capital markets - they issued $150mm in equity in January, which helps limit downside.  In addition, the capital they have is ‘permanent’

I also find the preferred risk adjusted ‘safer’ than the BDC.  The BDC dividend is a 10% yield; however, given reinvestment risk + more credit risk + position in cap structure + market risk, I’m happy with nearly 7% on the debt side.

The effective leverage of the BDC (looking at leverage on the leverage – ie sr debt ahead of the sub / equity) is around 4x debt / EBITDA.  Though I would highlight SLRC $500mm in sr secured debt and the assets are diversified.   SLRC has the capacity to issue more debt from their debt facilities, which would bring up the LTV, but this is a risk I am comfortable with.

So, net/net – if you are looking for an attractive yield play with asset coverage and a solid management team, I think this is a nice one for the p.a. (that is actually liquid enough to buy)

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


none- just buy and hold
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