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Maxim, National Securities downgrade THL Credit on Q4'17 results

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Maxim, National Securities downgrade THL Credit on Q4'17 results

Maxim Group analyst Michael Diana has downgraded THL Credit Inc. to "hold" from "buy," citing unanticipated levels of fourth-quarter 2017 losses in its transition toward senior secured loans and away from more junior debt.

The analyst told investors that the company's move to first-lien senior secured loans to private equity-sponsored companies and away from more junior positions in unsponsored companies has resulted in unexpected losses.

The company reported net investment income of 27 cents per share in the fourth quarter of 2017 and core net investment income of 31 cents, alongside a GAAP EPS net loss of 57 cents, due to net unrealized losses or write-downs on noncore assets.

Diana said further losses would not surprise him, given the company's most recent results. The analyst removed his price target on the company, which was previously $11.50. However, Diana expects THL Credit to maintain its dividend at the current level of 27 cents per quarter through 2018.

Separately, National Securities analyst Christopher Testa downgraded THL Credit to "neutral" from "buy," citing the company's poor fourth-quarter 2017 results. THL Credit's net asset value per share dropped 7.3% quarter over quarter, he wrote.

The analyst said the company's financial results were affected by a one-time expense of 4 cents per share related to ending a term loan facility. He added that although management's shareholder-friendly action will have some positive impact going forward, those measures are not enough to support a "buy" rating on THL Credit's shares.

Testa revised his 2018 net investment income estimate to $1.24 per share from $1.11 per share and set his 2019 net investment income estimate at $1.00 per share. He also lowered his price target to $10 from $11.