IPO Report: Alcentra Capital Corporation (ABDC)

Francis Gaskins |

Alcentra Capital Corporation ($ABDC) is a newly formed specialty finance company headquartered in New York, NY.

Eight other companies are scheduled for the week of May 5, 2014.  The complete IPO calendar is available at IPOpremium.

The manager and joint managers are Raymond James, Robert W. Baird, Keefe, and Bruyette & Woods.  The co-managers are Oppenheimer, Stephens, and BNY Mellon Capital Markets.

ABDC scheduled a $100 million IPO on the Nasdaq with a market capitalization of $192 million at a price range midpoint of $15 for Friday, May 9, 2014.

SEC Filings

Overview

ABDC is a newly formed specialty finance company.

ABDC focuses on lower level junk bonds, which ABDC defines as companies "having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million."

Assuming that the Formation Transactions were consummated on April 22, 2014, ABCD would hold a portfolio of debt investments with a weighted average gross yield as of that date of 12.6% and a cash yield of 10.3%.

Valuation

Glossary

Valuation Ratios

Mrkt

   

Price /

Price /

% offered

 

Cap (mm)

   

BkVlue

TanBV

in IPO

Alcentra Capital Corp (ABDC)

$192

   

1.02

1.02

53%

             

Conclusion

Most closed-end business development corporations trade down from their initial IPO price. The rating on ABDC is avoid.

Business

ABDC is a newly formed specialty finance company. ABDC will operate as a non-diversified, closed-end management investment company and file an election to be regulated as a BDC under the Investment Company Act of 1940, as amended, which ABDC refers to as the 1940 Act.

In addition, ABDC intends to elect for U.S. federal income tax purposes to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended, which ABDC refers to as the Code.

ABDC intends to provide customized debt and equity financing solutions to lower middle-market companies, which ABDC defines as companies having annual earnings, before interest, taxes, depreciation and amortization, or EBITDA, of between $5 million and $15 million, and/or revenues of between $10 million and $100 million, although ABDC may opportunistically make investments in larger or smaller companies.

ABDC’s investments will typically range in size from $5 million to $15 million. In connection with its initial public offering, ABDC will acquire a portfolio of $155.8 million in debt and equity investments, which consists of all of the investment assets of BNY Mellon-Alcentra Mezzanine III, L.P., which ABDC refers to as Fund III, except for its equity investment and warrants in GTT Communications.

ABDC refers collectively to the portfolio investments that ABDC is acquiring from Fund III as the Fund III Acquired Assets. ABDC will also acquire $29 million of debt and equity investments, which consist of assets held by its affiliate, BNY Alcentra Group Holdings, Inc., that were purchased under a warehouse facility in anticipation of its initial public offering, that ABDC refers to as the Warehouse Portfolio. Alcentra NY, LLC, which ABDC refers to as Alcentra NY, or its Adviser, serves as its investment adviser and is the U.S. affiliate of Alcentra, Ltd., which ABDC refers to as Alcentra, an asset management platform focused on below-investment grade credit.

Both Alcentra NY and Alcentra are subsidiaries of BNY Alcentra Group Holdings, Inc., which ABDC refers to as the Alcentra Group. The investment professionals of its Adviser who work in the direct debt and equity division of its Adviser, which ABDC refers to as Alcentra Mezzanine, have worked together for more than 8 years and have invested more than $500 million in lower middle-market companies.

Alcentra Mezzanine combines significant credit analysis, structuring capability and transactional experience within the larger credit investment platform of Alcentra.

Dividend Policy

To the extent that ABDC has income available, ABDC intends to make quarterly distributions to its stockholders. ABDC’s quarterly stockholder distributions, if any, will be determined by its board of directors.

Any distribution to ABDC stockholders will be declared out of assets legally available for distribution. ABDC intends to declare its first stockholder distribution during the quarter following the completion of this offering.

Competition

ABDC’s primary competitors in providing financing to middle-market companies include public and private funds, other BDCs, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds.

Pre-IPO 5% stockholders

BNY Mellon-Alcentra Mezzanine III, L.P. 48%

Use of proceeds

ABDC expects to net $96 million from its IPO. Proceeds are allocated as follows:

to repay in full the outstanding indebtedness under the Bridge Facility, which ABDC will incur in connection with the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. The remainder of the net proceeds from this offering will be used to make future investments in portfolio companies consistent with ABDC’s investment guidelines and underwriting standards and for general corporate purposes.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ABDC Alcentra Capital Corp. 11.51 -0.01 -0.09 28,465
DLINF D-LINK CORP ORD n/a n/a n/a 0

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