Fifth Street BDC shows signs of NAV recovery

The BDC, focused on senior floating rate debt, showed a slight bump in net asset value in Q3, but is still down year-on-year.

Fifth Street Senior Floating Rate Corp (FSFR) posted a small increase in its net asset value per share last quarter and closed over $50 million in new investments, according to the business development company’s third-quarter earnings call on Wednesday.

The BDC, which provides senior floating-rate debt to small and mid-market companies, posted a NAV per share of $11.06 as of end of this third quarter, up seven cents from the end of this June.

The firm’s bump in NAV was primarily “driven by spread tightening in the middle market”, Ivelin M. Dimitrov, FSFR's chief executive officer, said during the call.

But the third-quarter NAV marks more than a dollar decrease from the end of third quarter last year when the NAV hit $12.11 per share, according to a filing from the US Securities and Exchange Commission.

The firm declined to comment further on the BDC’s year-on-year dip in NAV.

Dimitrov also said on the call he will step down, making way for Patrick Dalton, who is currently leading Gordon Brothers Finance Company, to assume the chief executive position, effective 2 January. The firm closed $28.2 million of investments in four new portfolio companies and funded $26.2 million across new portfolio companies over the last quarter, with an average debt investment of $8.9 million and an average portfolio company EBITDA of $55.7 million, according to Wednesday’s call. 

Dimitrov said the BDC was less aggressive in the third quarter, given the mid-market’s “overabundance of liquidity” and low number of deals. These factors led to higher leverage and lower yields.

“We do not believe that this is the environment for aggressive capital deployment,” he added.

The weighted average yield on its debt investment portfolio reached 8.6 percent as of 30 September 2016. The BDC had a target leverage range of 0.8x to 0.9x debt-to-equity during the quarter, while the total debt portfolio had a LIBOR floor between 1 percent and 2 percent with a majority of those having a LIBOR floor of 1 percent.

FSFR’s total assets under management stood at $624.9 million by the end of the quarter, compared with $697.7 million at 30 September 2015.