TICC cuts fees to appease shareholders

The BDC’s management also defended its decision to keep the current investment advisor intact, despite the underperforming vehicle being the subject of several takeover bids.

TICC Capital Corp’s managers have cut fees in an effort to appease shareholders in the underperforming business development company (BDC).

TICC cut management fees to 1.5 percent from 2 percent, said chief executive Jonathan Cohen on the firm’s fourth quarter earnings call, and will also waive fees on new capital raises until the money is invested.  

In addition, the firm is implementing a new high-water mark for incentive fees. The investment manager will have to hit a total return requirement which will include a net increase in assets from operations as measured over the past three years.

The BDC, which is invested mainly in CLO equity and debt, continued to post weak financials in the fourth quarter.  

The firm reported net realised capital losses of about $4.2 million and net unrealised depreciation of $67.6 million. 

“Our CLO positions suffered significant price declines in the quarter, with $43.9 million of that net unrealised depreciation associated with our CLO investments,” TICC said.  

The firm saw a net decrease in net assets of about $67.3 million or $1.14 per share in the fourth quarter. Net investment income for the whole year stood at $38.6 million, down from $65.5 million in 2014. 

TICC tried to sell its investment advisor to Benefit Street Partners (BSP) last year, but failed to gain shareholder approval. Two competing bids, from TPG Specialty Lending and Highland Capital Management, were also dismissed and management decided to keep the current investment advisor in place. 

Answering questions from Wells Fargo senior analyst Jonathan Bock on the decision to keep the underperforming manager, Cohen said current market conditions were a better backdrop for TICC’s strategy. 

“The market has moved from one where scale was more important in terms of sourcing transactions to a market where, we believe, competitive advantage is being defined by other factors,” Cohen said.  

“This is a market that is significantly dislocated. This is a market where positions cannot be exited at par values… This is a dislocated market that we’ve historically tended to perform well in.” 

Bock remained unconvinced. “We believe the market has doubts as to the infinitesimal fee cut that remains, in our view, a highly expensive liquid loan portfolio strategy,” he said. 

He added that, “the path that likely realises the most shareholder value for investors rests in either a sale to another BDC and/or a full blown liquidation and return of capital”.