Smaller business development companies like Triangle Capital (TCAP), Medley Capital (MCC) and THL Credit (THL) play to the lower end of the middle market and obtain a better risk/reward relative to their BDC peers in the upper end of the middle market, says Greg Mason, CFA, Managing Director & Senior Equity Analyst at Stifel, Nicolaus & Co., Inc.
“Triangle’s main focus is on companies that have EBITDA between $5 million and $15 million, which we think is a sweet spot for the lower end of the middle market,” Mason says. TCAP has a sucessful track record, capital to invest and a lower expense ratio than many of its peers, and Mason expects meaningul earnings growth.
He also says Medley and THL, besides playing to the lower end of the middle market, are interesting because of the potential for a SBIC license. He says the process is nearing its end, and once the process is finished, the companies are small enough for this catalyst to be meaningful for their earnings and ability to grow the dividend.
“We think both of those companies with the combination of good management teams focused on the lower end of the middle market with the potential of the SBIC catalyst for earnings and dividends creates a pretty compelling story as well,” Mason said.
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