BC’s credit platform makes another BDC play with OHAI purchase

BC Partners, which launched a credit arm more than two years ago, has made its second BDC purchase in less than a year.

BC Partners is building out its Portman Ridge Finance Corporation business development company with the purchase of OHA Investment Corporation, which will create a $372 million mid-market lender.

The selling party’s shareholders will receive consideration of approximately 108 percent of OHAI’s net asset value. The consideration will be a mix of cash and stock; the shares will be swapped at their respective net asset value per share and Portman Ridge will make a cash payment of at least $8 million, or $0.40 a share.

“For the space, rolling up sub-scale names is a clear positive,” one BDC analyst said.

As part of the transaction, BC’s New York-based credit platform has pledged to cut the management fee from 1.75 percent to 1.5 percent and the incentive fee from 20 percent to 17.5 percent.

Portman Ridge has pledged to begin a $10 million share buyback program if the BDC trades below 0.75x. OHAI stock shot up on the announcement, with shares rising more than 18 percent in intraday trade to $1.22 as of 12:41 pm.

BC gained a foothold in the public BDC space with its purchase of KCAP Financial, acquiring the management contract for $25 million and agreeing to contribute any fees necessary to achieve a $0.40-a-share net investment income in the 12 months following the purchase. The firm also pledged to use up to $10 million of incentive fees to purchase stock at book value over the first two years. In addition, BC runs a private BDC, BC Partners Lending Corporation.

“We want to use KCAP as a platform for growth,” Portman Ridge chief executive Ted Goldthorpe told Private Debt Investor. “We think we could increase the yields of the [OHAI] portfolio. The idea is that as their book rolls off, we replace those assets with originated assets from the BC platform. It’s trading liquid credits for less liquid credits.”

In addition, Goldthorpe cited Portman Ridge’s cheaper financing, which will result in roughly $500,000 less in interest expense annually, as a benefit for the OHAI shareholders. The seller’s credit facility will be paid off in full at the closing of the transaction.

Portman Ridge stockholders’ approval is not required for the merger, and OHAI manager Oak Hill Advisors plans to vote its shares in favour of the transaction.