BC Partners to take over KCAP management contract

BC Partners is set to become the advisor to KCAP Financial after purchasing the management contract for $25 million consideration, the two firms said in a statement.

The London-based buyer, which runs its credit arm out of New York, will externalise KCAP’s management, as the New York-based business development company is internally managed.

In addition to the cash payment, which amounted to $0.67 per share, BC will contribute a portion – or all – of its incentive fees to ensure the vehicle achieves a $0.40-a-share net investment income for the first year after the transaction closes. In 2017, the firm reported a $0.30-a-share NII. For the first nine months of this year, that figure was $0.21 per share.

Representatives for BC Partners and KCAP were not immediately available for comment.

BC Partners will use up to $10 million of the incentive fees to purchase KCAP common stock at its net asset value per share at the time of the purchases. KCAP’s NAV per share, which stood at $4.66 as of 30 September, has been tumbling for years. At the same time in 2017 and 2016, that figure stood at $4.95 and $5.38, respectively.

KCAP stock, which had been trading near historic lows and closed at $2.96 on Friday, popped on the announcement, trading up 8.14 percent to $3.19 as of 1:34 pm on Monday.

Earlier this year, KCAP sold its collateralised loan obligation management businesses – Katonah Debt and Trimaran Advisors – for $37.9 million to LibreMax Capital, which will take a minority stake in the advisory company through which BC Partners will manage the KCAP BDC.

BC Partners has already filed paperwork with US regulators to launch a BDC: BC Partners Lending Corporation. It is not clear what will become of that vehicle.

The firm has been building out the credit arm it launched in February 2017 this year, and it also closed on $159.32 million for its initial friends-and-family opportunistic vehicle – BCP Special Opportunities Fund I – according to a Securities and Exchange Commission filing.

BC Partners also snapped up Canadian natural resources lender Marret Resources and rebranded it into Mount Logan Capital, a sponsor finance-focused mid-market lender that is publicly listed on the Toronto-based NEO Exchange. Mount Logan committed $10 million to a unitranche program alongside BC Partners.