http://kerrfinancial.com.c1.previewmysite.com/wp-content/uploads/2017/12/kerr-logo.jpg 0 0 spowell http://kerrfinancial.com.c1.previewmysite.com/wp-content/uploads/2017/12/kerr-logo.jpg spowell2016-08-12 16:59:512017-12-18 17:00:31Solar Capital Ltd.
Solar Capital Ltd.
Solar Capital Ltd., despite its name, has nothing to do with the solar industry. It is a business development company (BDC). BDC’s are similar to a bank as they invest and lend to small and medium size organizations. The difference is that many of these companies are young and growing quickly. Often they lack the collateral that traditional banks look for. BDC’s step in to meet the demand for capital.
The BDC stocks had a very difficult 2015. Worries over higher interest rates together with uncertain economic growth provided headwinds. Also, the drop in crude oil played a role. Some BDC’s had loans to energy related companies and the drop in oil and gas increased the risk that these loans would be repaid. 2016 has seen a recovery in BDC stocks especially those without energy exposure.
Solar Capital employs a value-oriented, fundamental credit underwriting approach to make investments primarily in senior secured loans and subordinated debt of private, middle market companies. They were one of the few BDC’s that increased their book value last year. One of the reasons for this is that they have no energy exposure. Further, 99% of their portfolio is performing with a weighted average yield of 10.5%.
SLRC’s stock is currently priced below its book value and has a dividend yield of 7.9%. In their recently released quarterly report, the company grew earnings through expanding the loan portfolio and contributions from loan prepayments. Looking forward, the company will look to continue to enlarge the investment portfolio which could increase earnings.
Solar Capital invests and lends to small and medium size companies. Obviously, this is riskier than traditional commercial lending. However, SLRC’s low valuation and above average dividend yield offsets some of these risks. I think that Solar Capital is a good risk – reward opportunity for investors with a longer time horizon.
Please contact me if you would like further information.
Jeffrey J. Kerr, CFA
Jeffrey Kerr is a Registered Representative of and securities are offered through LaSalle St. Securities LLC, member FINRA/SIPC. Mr. Kerr is an Investment Advisor Representative of and advisory services are offered through Kildare Asset Management, a Registered Investment Advisor. Kerr Financial Group and Kildare Asset Management are not affiliated with LaSalle St. Securities LLC.
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