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Triangle Capital still smiling: Strong portfolio built on midsize companies
(News & Observer, The (Raleigh, NC) (KRT) Via Acquire Media NewsEdge) Jun. 18--RALEIGH -- Although its stock price is languishing, Triangle Capital Corp. believes it is the rare financial firm that will benefit from the current credit crunch.
That's because it now has fewer competitors providing financing to midsize companies.
"We have said before that you hate to be the one guy who is happy when other guys are sad," said Chief Financial Officer Steven Lilly. "[But] it's true we can negotiate better terms for our shareholders with these companies, because they have fewer alternatives than they had a year ago. This is actually a pretty good time for a company like Triangle."
Still, tough times in the financial sector have taken a toll on the Raleigh-based company's stock price. Shares of Triangle Capital, which went public at $15 a share early last year, have been trading below $13 since February. On Tuesday, shares closed at $11.24, down 16 cents.
"It's getting caught up with all the other financial stocks that are cratering right now, even though it has nothing to do with mortgages or anything like that," said Avondale Partners analyst P. Sean Jackson. "That's why you see the stock go down."
Jackson and the other two analysts who regularly follow Triangle Capital actually rate the stock a "buy" or its equivalent.
"Their portfolio is performing very well," said BB&T Capital Markets analyst Vernon Plack. Plack's target for the stock is $16.
Triangle Capital, which has eight investment professionals and a staff of 13 employees, raised $65 million by going public 16 months ago. That gave the company an investment hoard of more than $150 million. Triangle Capital also was eligible to borrow about $90 million from the Small Business Administration at attractive rates.
Triangle Capital typically provides loans in the $5 million to $15 million range to midsize businesses -- those with $10 million to $100 million in annual revenue -- that have a history of positive cash flow and a proven management team. The company also takes a minority ownership stake in its portfolio businesses.
Triangle Capital has committed $165 million to 33 companies.
With about $50 million available for future investments, Triangle last week positioned itself for the long term by seeking approval from the Securities and Exchange Commission to issue up to $300 million in new shares on an as-needed basis.
The company's plan is to issue stock in comparatively small amounts -- $30 million or less -- to minimize dilution. In addition, Lilly said the company would like to see its stock price rise before issuing new shares.
Rapid investing
Evaluating Triangle Capital's portfolio requires more than merely eyeballing the company's net investment income. You would expect that number to be growing -- and it is -- because the company has been making investments at a rapid clip, including seven so far in 2008.
But analysts, as well as company executives, say Triangle Capital's portfolio also looks strong by other key measures. They include:
--Higher interest rates. The average interest rate on the loans Triangle Capital makes to portfolio companies is 13.7 percent, versus the industry average of 11.9 percent.
The company's market niche -- investments in midsize companies -- has fewer competitors, and the credit crunch has thinned the competition further, in part because hedge funds have been taking it on the chin.
"We tend to be able to negotiate better terms because there is less competition," Lilly said.
--Increasing dividends. As a business development company, Triangle Capital doesn't have to pay income tax as long as it distributes 90 percent of its income to shareholders. The company has raised its dividend every quarter since it went public, and analysts expect that trend to continue.
"Due to its recent investment activity and strong outlook for additional opportunities caused by the credit crunch, there is a clear pathway for the dividend to rise over the next several quarters," Jackson wrote last month after Triangle Capital issued its first-quarter earnings.
--Minimizing problem loans. To date, just one of the businesses Triangle Capital has loaned money to has halted interest payments, and that loan is a small one that represents less than one percent of the total portfolio. The industry average is 7.7 percent, according to Triangle Capital.
"Operationally, we couldn't be more pleased with the benchmarks we have hit," said CEO Garland Tucker III.
The company's diversified portfolio minimizes its risks. Its 33 investments so far have been in 21 different industries.
"We honestly don't believe we are smart enough to pick the industries that are going to go through the roof," Tucker said. "There are going to be industries in favor and out of favor."
david.ranii@newsobserver.com or (919) 829-4877
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Copyright (c) 2008, The News & Observer, Raleigh, N.C.
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