THL Credit has marked its quarterly dividend down for the next quarter as the firm continues its push towards reducing its exposure to second lien debt in favour of more secured investments, the firm’s senior executives reported on the recent third-quarter earnings call.
Dividend levels were reduced to $0.27 per share, down from the target of $0.34 for the fourth quarter as the firm adjusts to a contraction in yields for first lien loans in the lower mid-market space. “While it is possible to find higher yields,” said Sam Tillinghast, co-chief executive of the firm, “we believe those loans often come with a greater risk of principal loss”.
“Maintaining the dividend at the prior level ($0.34) would require us to invest in higher risk assets, however asset selection and portfolio composition should not be driven by an effort to maintain the dividend,” he added.
As of 30 September, the firm’s overall exposure to junior debt was 7 percent of the portfolio. The firm began shifting focus to first lien loans in 2014, where exposure had stood at 20 percent mid-way through the year.
Across the third quarter, THL completed $33 million worth of loans. These included a $15.5 million investment in Mercial, a manufacturer of vitamins and minerals; a $5.5 million loan to It’s Just Lunch International, a match-making services firm and an $8.9 million loan to Tri-Starr, an employment agency. The rest of the capital was put in debt and equity investments in existing companies in the portfolio.
Senior executives also discussed other developments at the firm with the opening of a Dallas office a key highlight. Both Darren Felfeli and Eric Pearson will move to the new office from Houston. Explaining the shift of personnel, Flynn said that Dallas “has been a beneficiary of businesses fleeing the higher tax regulation states” with a number of technology and finance companies making the move. Kirk Layden has moved to Chicago to work with the firm’s direct lending team.