RayJay Drops Bearish THL Credit Stance As Company Cuts Dividend, Management Fees

THL Credit, Inc. TCRD has announced a 22-percent dividend cut as well as its intention to permanently lower base management and incentive fees.

The stock is unlikely to garner much support until the business stabilizes and begins to grow net asset value again, according to Raymond James.

The Analyst

Analyst Robert Dodd upgraded THL Credit from Underperform to Market Perform.

The Thesis

The alternative credit manager reported fourth-quarter net investment income of 22 cents per share, missing the consensus estimate of 25 cents.

The company achieved this by completely relinquishing incentive fees yet again, Dodd said in the Monday upgrade note. 

THL Credit’s NAV per share slid 9.4 percent sequentially to $9.15 due in part to spread widening in late 2018, the analyst said. Although the company said there’s been a rebound in 2019, much of the NAV decline was on account of continued portfolio issues, he said. 

THL Credit cut its annual dividend to 84 cents per share; while the dividend cut was imminent, it came much sooner than expected, Dodd said. 

Apart from proposing a reduction in management fees, THL Credit is seeking shareholder permission to increase its leverage cap to 2x debt-to-equity.

The current portfolio should not be leveraged beyond 1x “until management has proven the stability of their new strategy," the analyst said. 

Price Action

THL Credit shares were up 2.12 percent to $6.75 at the time of publication Monday. 

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