BDC Investors Take Note: This Midcap's Credit Quality Is Deteriorating

Cantor Fitzgerald's David J. Chiaverini downgraded the rating on Garrison Capital Inc (NASDAQ: GARS) to Hold, while lowering the price target from $16 to $12.

The company reported its 4Q NOI at $0.41 per share, ahead of the estimate and the consensus and driven by lower-than-expected management fees.

However, Chiaverini viewed the quarterly negatively, mainly due to the continuing deterioration in Garrison Capital's credit quality.

In addition, the analyst mentioned that although he had expected book value to decline, the 6 percent decline "marks the sixth consecutive quarter of a declining book value, and we fear this trend may continue."

Related Link: Cantor Downgrades Garrison To Hold, Lowers PT To $12

The analyst also believes that Garrison Capital's focus on "lower middle-market portfolio companies presents increased risk since these companies tend to have less financial flexibility during difficult economic environments than larger portfolio companies."

According to the Cantor Fitzgerald report, the company bought "transitory assets" worth $25 million during the quarter, along with core investments worth $29 million.

"We believe the company utilizes low yielding transitory assets to generate income in interim periods while core assets work their way through the origination process," the report said.

The NOI estimate for 2016 has been lowered from $1.60 to $1.50 to reflect lower net interest margins, as well as lower other income.