KBW Downgrades THL Credit, Blackrock Capital Investment

Keefe, Bruyette & Woods’ Ryan Lynch said that the BDC group is currently trading at a substantial discount to book value, and appears undervalued in case the sluggish to flat growth projections continue for the US. He added, however, that there could be additional pressure on shares in case the US heads into a recession.

Blackrock Capital Investment

Analyst Ryan Lynch downgraded the rating for Blackrock Capital Investment Corp BKCC from Outperform to Market Perform, while reducing the price target from $10.50 to $9.50.

Blackrock Capital Investment’s shares are currently trading at 100 percent of their historical price/book multiple, which represents a premium valuation compared to others in the BDC sector. Although the company’s fundamental performance over the past year has been healthy, this has boosted the share price to a level that no longer justifies an Outperform rating, Lynch believes.

Blackrock Capital Investment has higher exposure to the energy sector of 10 percent, which translates to a higher probability of writedowns and/or credit issue in the future, the analyst mentioned.

THL Credit

Lynch upgraded the rating for THL Credit, Inc. TCRD from Market Perform to Outperform, while reducing the price target from $13.50 to $12.

THL Credit’s shares are currently trading at 80 percent of their historical price/book multiple, which represents a discounted valuation compared to their historical valuation. “Additionally, TCRD has a strong management team, a great fee structure, and solid historical credit quality,” the Keefe, Bruyette & Woods report noted.

Lynch believes that THL Credit presents “the most compelling valuation from our burn-down analysis outside of those BDCs with significant exposure to weaker credits or an investor perception of below-average management running the BDC.”