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Solar Senior Capital: 9% Covered Yield With A 14% Discount To NAV (NASDAQ:SUNS)

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The BDC sector remains a challenge from a shareholder return standpoint. As seen below, the VanEck Vectors BDC Income ETF (BIZD) has largely underperformed the S&P 500 (SPY), with a 29% decline since the start of the year.

(Source: YCharts)

While this may entice bargain hunters to start buying, I believe one should limit selections to high-quality BDCs with an adequate margin of safety. In this article, I’m focused on Solar Senior Capital (SUNS), which I believe is one such BDC. I evaluate what makes it attractive at the present valuation; so let’s get started.

A Look Into Solar Senior Capital

Solar Senior Capital is externally-managed by Solar Capital Partners and invests primarily in senior secured loans of private, middle-market companies. Its loan portfolio currently consists of 215 companies across 115 industries, with a portfolio fair value of $532M. I like the fact that 99% of the investment portfolio is invested in first-lien loans, which helps to shield against losses, as it is the last tranche of debt that a borrower would default against. It also helps to ensure recoverability in the event of a default.

As with most BDCs, the current operating environment has been challenging for Solar Senior Capital. This was evidenced by the 11% QoQ drop in NAV/share that the company saw in Q1. I’m encouraged, however, to see that NAV/share recovered somewhat in Q2, with a 6.6% sequential increase.

While the most recent quarter’s results point to an upswing, I also want to see what Solar’s long-term track record has been. As seen below, I pulled Solar’s NAV/share at Q4 of each year since 2015, along with that of Q1 and Q2 of this year. From the looks of it, it appears that management has done an adequate job of more or less preserving a steady NAV over the years, before the pandemic set in.

(Source: Created by author based on company press releases)

In addition, management has done a good job of preserving the net investment income over this same time period. From Q4 ’15 to Q4 ’19, the quarterly NII has been $0.35 for every quarter with the exception of two, in which it was $0.36 and $0.37.

Looking forward to Q3 results, I expect to see steady NII performance. This is supported by the resilient portfolio, in which 100% of the investments were performing at the end of Q2, and the fact that 82% of the loans have LIBOR floors, thereby capping the downside. In addition, I like the fact that mission-critical sectors of healthcare providers and insurance brokers represent some of the biggest industry exposures that Solar has.

Furthermore, the vast majority of the portfolio companies are deemed by management as essential businesses, in non-cyclical sectors. Lastly, the life sciences segment of the portfolio provides additional stability, as management noted on the last conference call:

“Now, let me turn to Life Science lending. Overall, our portfolio is largely insulated from short-term market and economic dislocations given the long-dated equity investment periods and product development cycles. The impact of COVID has had a de-minimis impact on the underlying Life Science portfolio. 100% of our loans are performing and we continue to expect to incur no losses in this segment.

As a reminder, we have never realized a loss in our Life Science investments. Currently, 100% of our Life Science portfolio have more than 12 months of cash runway. This is largely a result of our investment focus on public and venture capital backed late-stage pharmaceutical and medical device companies that are close to or entering commercialization.”

Meanwhile, Solar maintains plenty of liquidity, with $135M of cash and cash equivalents. The net debt to equity ratio is just 0.68 with no near-term debt maturities. I see this as being a big plus, as it enables Solar to make opportune investments and take advantage of market dislocations wherever they may arise.

I find the shares to be attractively valued at the current price of $13.37, which represents a 14% discount to NAV. This compares favorably to the 8% premium to NAV that the shares traded at on 12/31/19, based on the then price of $17.60 and the then NAV/share of $16.31.

In addition, the 9% dividend yield appears to be attractive in the current low-yield environment, and is currently covered by NII, at the newly set dividend rate of $0.10 per month.

I also like the fact that senior management has significant skin in the game, by owning 6% of the common shares outstanding. In addition, the CEO expressed confidence in the company by making two open market purchases within the last two months at the average price of $13.15, thereby increasing his stake in the company by 4%.

(Source: Open Insider)

Analysts seem to agree that the shares are undervalued, with a consensus Strong Buy rating (score of 4.7 out of 5), and an average price target of $15.67.

Investor Takeaway

As with most BDCs, Solar Senior Capital has seen a drop in its NAV/share and portfolio NII due to the headwinds from COVID. However, I see the portfolio as being largely protected by the 99% senior loan structure, which helps to shield against losses, as it is the last tranche of debt that a borrower would default against. I’m encouraged to see that 100% of the loan portfolio was performing at the end of Q2, and expect to see steady NII performance in the upcoming Q3 results. Lastly, Solar maintains a strong balance sheet with plenty of liquidity, which should help it to take advantage of market dislocations wherever they may arise.

I find the shares to be attractively priced at the current price of $13.37, which represents a 14% discount to NAV. In addition, the 9% dividend is covered by current NII, and appears to be attractive in the current low-yield environment. For the reasons stated above, I see upside potential for the shares.

Thanks for reading! If you enjoyed this piece, then please click “Follow” next to my name at the top to receive my future articles. All the best.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is for informational purposes and does not constitute as financial advice. Readers are encouraged and expected to perform due diligence and draw their own conclusions prior to making any investment decisions.





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AMC to reopen more theaters in the United States By Reuters

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© Reuters. FILE PHOTO: The outbreak of the coronavirus disease (COVID-19) in Burbank

(Reuters) – AMC Entertainment Holdings Inc (N:), the world’s largest theater chain, said on Monday it plans to open more cinemas in the United States this week, offering some hope to an industry hammered by pandemic restrictions and sending its shares up 24%.

The company said it will reopen about a dozen locations in New York state starting Oct. 23, following guidance from Governor Andrew Cuomo over the weekend, and plans to have more than 530 theaters open in the country by the end of the month.

While big theater chains such as AMC Entertainment, Cineworld Group (L:) and others have reopened many locations, audiences have been thin due to virus fears and delays in major releases by studios. Small and mid-sized theater companies have said they may not survive the impact of the pandemic.

AMC’s shares have slumped nearly 60% this year and last week Chief Executive Officer Adam Aron told Reuters the company may need to raise additional capital either entirely or mostly through equity.

The company last week said it continued to explore sources of additional liquidity, as it sees its cash resources largely depleted by the end of 2020 or the start of 2021 at its existing cash-burn rate.

Earlier this month, AMC had said more than 80% of its theaters in the country would remain open.

The number of people visiting AMC’s cinemas has slumped 85% compared to last year, since they reopened after lockdowns were eased, the company said.

Cineworld, the world’s second-biggest cinema operator, said earlier this month it would close all its screens in the United States and Britain after studios delayed major releases including the latest James Bond film.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Disneyland unions tell California governor resort can be reopened safely By Reuters

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© Reuters. A general view of the entrance of Disneyland theme park in Anaheim

By Helen Coster

(Reuters) – Unions representing over 10,000 Disney theme park workers have told California Governor Gavin Newsom that the Disneyland Resort in Anaheim, California, can safely reopen when its location moves into the state’s “orange tier” of COVID-19 test positivity and adjusted case rate.

“We wrote you in June 2020 to tell you that we were not yet convinced that it was safe to reopen the parks on Disney’s timetable,” the unions wrote in a letter dated Oct. 17. “Since then, Disney has taken safety measures we advocated, and engaged with their workers’ representatives, (such that) our original position has changed.”

The unions urged Newsom to direct the state’s task force in charge of theme park reopening to meet with them as part of the reopening process.

Walt Disney (NYSE:) Co closed Disneyland in March in an effort to slow the spread of the coronavirus. The company had announced it would reopen the resort on July 17 but later delayed the move indefinitely, saying it had to wait for the state’s guidance.

Disney has reopened all of its other theme parks, including Walt Disney World in Florida, with limited attendance, mask requirements and other safety measures.

Disney executives have urged California to let them reopen Disneyland. On Sept. 29 the company announced it would lay off roughly 28,000 employees, mostly at its U.S. theme parks.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Verizon signs up Microsoft, Nokia to help clients build private 5G networks By Reuters

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© Reuters. A man stands next to the logo of Verizon at the Mobile World Congress in Barcelona

By Supantha Mukherjee and Kenneth Li

STOCKHOLM/NEW YORK (Reuters) – Verizon (N:) said on Monday it has struck deals with Microsoft (O:) and Nokia (HE:) to improve the telecoms giant’s ability to target business customers by offering clients the ability to automate factory floors, lower costs and speed up data traffic through private 5G networks.

Private 5G networks remove the need for businesses to jostle for speed with others on a public network and help enable data-intensive applications that use computer vision, augmented reality and machine learning to increase productivity.

Azure, Microsoft’s cloud computing business, will run on top of Verizon’s 5G network to processes the data generated by machines at the local facility and use artificial intelligence to automate operations. Microsoft launched the new service late last month directed at telecom operators.

U.S.-based logistics company Ice Mobility is the first customer for the new partnership, allowing it to track employees packing the products into the right boxes to skip quality control. (https://wdrv.it/a28ae7c12)

“This is about creating a new business opportunity for everyone,” Verizon’s Chief Strategy Officer Rima Qureshi said. She declined to disclose how the revenue would be shared between Verizon and Microsoft.

While 4G helped create multi-billion dollar businesses ranging from music and video streaming to cab hailing and food delivery, telecom operators seldom got a share of that growth.

Verizon is now keen on taking a share in new businesses that 5G might enable, either by partnering with bigger companies or by buying stakes in smaller ones such as virtual reality company 8i to Swiftmile, which makes charging systems for electric scooters.

In international markets, where Verizon doesn’t have its own network, it is working with Nokia to build private networks for manufacturing and logistics companies.

“Next year will be all about deploying private 5G and not about commercial success and we will start seeing early monetization from 2022 onwards,” Sowmyanarayan Sampath, president of Verizon’s global enterprise business, told Reuters.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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