CMFN Inc. CMFN
November 06, 2015 - 1:35pm EST by
shteinb
2015 2016
Price: 10.29 EPS 0 0
Shares Out. (in M): 14M P/E 0 0
Market Cap (in $M): 142 P/FCF 0 0
Net Debt (in $M): 130 EBIT 0 0
TEV ($): 271 TEV/EBIT 0 0

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  • BDC
  • bdcs
  • CEF
 

Description

CMFN

Joining the chorus of “cheap” BDCs that have been written up recently – I am pitching CMFN, which hasn’t been mentioned much. I think it has several interesting characteristics outside of just being valued on a cheap price to book multiple.

  • 1)   Unlike other BDCs, virtually the entire portfolio is easily marked (very limited black box risk)
  • 2)   The company had important positive news post the last 10Q, which was discussed on the call but unlikely to have been properly factored in by investors since the 6/30 Q did not reflect the new info
  • 3)     Not a likely December tax-loss candidate (barely down on the year)
  • 4)     A large discount to book without the usual management / fee structure hair that typically comes with that discount

With a 13% yield, I view as reasonably likely that the fund can trade at 90% of  live NAV (which I estimate at ~$13.50).  So without assuming a bounce in the credit markets, this is a base case 30%+ ROR opportunity over a year with very limited downside risk.

Management Team:

CMFN is the BDC affiliate of Cyrus Capital, a long standing distressed investor that spun from Och Ziff in the late 1990s. The CEO and CIOs are Michael Mauer and Christopher Jansen, whose backgrounds are below. The BDC obviously leverages Cyrus Capital’s team for its investment decisions.

Michael Mauer formerly worked for Icahn Capital where he was a Senior Managing Director and a member of the investment team. In addition, he was in charge of the firm’s Marketing and Investor Relations. Prior to that, Mr. Mauer spent over eight years at Citigroup, where he was a Managing Director.  During that time he led several businesses including roles as the Global Co-Head of Leverage Finance and Global Co-Head of Fixed Income Currency and Commodity Distribution. From 1988 to 2001, Mr. Mauer held several positions at JPMorgan including Head of North American Investment Grade and Leverage Loan Syndicate, Sales and Trading businesses.  Mr. Mauer began his career in 1982 at Price Waterhouse & Co. where he was a Senior Accountant and a C.P.A.  Mr. Mauer received a B.S. from the University of Scranton and an M.B.A. from Columbia University.

Christopher Jansen formerly was a founding Managing Partner and Senior Portfolio Manager for Stanfield Capital Partners from its formation in 1998 through the sale of the Company in 2010. His responsibilities included investment oversight and administration of the investment process and the implementation of portfolio management procedures of the Company’s sub-investment grade/leveraged loan businesses. In addition, as a member of the firm’s Management Committee, Mr. Jansen was involved in planning the strategic direction of the firm. Prior to founding Stanfield, Mr. Jansen was Managing Director and Portfolio Manager at Chancellor Senior Secured Management from 1990 to 1998. From 1983 to 1990, Mr. Jansen held various positions at Manufacturers Hanover Trust Company, served as Vice President in the Bank’s Acquisition Finance Group and LBO Management Group.  Mr. Jansen received a B.A. from Rutgers College and an M.M. from the Kellogg School of Management at Northwestern University

As far as management pedigree goes, they are a step above the average BDC. Additionally, not only does Cyrus own a majority interest in CMFN, but management has purchased shares in the open market on a personal basis multiple times post-earnings when prices were above today’s levels.

Fee Structure:

We have entered into an investment advisory agreement (the “Investment Advisory Agreement”) with CM Investment Partners, as our investment adviser, pursuant to which we pay the Adviser a management fee equal to 1.75% of our gross assets, payable in arrears on a quarterly basis. In addition, pursuant to the Investment Advisory Agreement, we pay the Adviser an Incentive Fee equal to 20.0% of pre-incentive fee net investment income, subject to an annualized hurdle rate of 8.0% with a “catch up” fee for returns between the 8.0% hurdle and 10.0% as well as 20.0% of net capital gains. From February 11, 2014 (the completion of our initial public offering) to December 31, 2014, the Adviser agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by us, to the extent required in order for us to earn a quarterly net investment income to support a minimum dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis). For the periods from January 1, 2015 to December 31, 2015 and from January 1, 2016 to December 31, 2016, the Adviser has agreed to waive its incentive fees, without recourse against or reimbursement by us, to the extent required in order for the Company to earn a quarterly net investment income to support minimum dividend payments on shares of common stock outstanding on the relevant dividend payment dates of 9.25% and 9.375%, respectively (to be paid on a quarterly basis).

 

At 1.75% vs. the standard 2% the headline fee is lower. However it also excludes cash, has a catch-up provision, and a three-year look back feature. While not cheap, this is a best in class fee structure for the industry. CMFN also provided a waiver of its fees to get the dividend stable through 2016 (the waiver is no longer needed since the portfolio is ramped).

 

Portfolio:

The table below provides a listing of all positions, Bloomberg tickers where available, pricing on 6/30 (per the company), and pricing on 9/30 and 11/5 from Bloomberg and dealer runs. The goal is to calculate a “live” NAV. I’ve left the unmarked positions flat to 6/30, except for AAR (which I discuss later), which I’ve taken down 5 pts, and the warrants which I've written to 0. Apologies for the challenged formatting in the table below...

 

First Lien:  Bloomberg Ticker Principal Amount Fair Value (6/30) 30-Jun   30-Sep 5-Nov $P&L through 9/30 $ P&L through 11/5
ASV Not Marked / Brand New $19,750,000 $19,355,000 98.0%   98.0% 98.0% $0 $0
AAR Intermediate Holdings**** Not Marked $18,449,153 $15,681,780 85.0%   80.0% 80.0% ($922,458) ($922,458)
AM General, LLC BL093928 Corp $8,690,025 %7,994,823 92.0%   78.0% 72.0% ($1,216,604) ($1,738,005)
American Gaming Systems, Inc BL118325 Corp $29,737,025 $29,439,655 99.0%   98.3% 96.5% ($223,028) ($743,426)
Butler Burgher Repaid $8,099,265 $8,504,227 105.0%   105.0% 105.0% $0 $0
Crestwood Holdings, LLC Sold $9,490,434 $9,371,804 98.8%   98.8% 98.8% $0 $0
JACPRO 11 1/2 EK499288 Corp $11,750,000 $12,102,500 103.0%   99.5% 99.8% ($411,250) ($381,875)
Lightsquared BL172547 Corp $10,322,384 $10,322,384 100.0%   97.0% 97.5% ($309,672) ($258,060)
Nathans Sold $4,000,000 $4,240,000 106.0%   106.0% 106.00% $0 $0
New Standard Texas Repaid at Par $7,553,718 $6,798,346 90.0%   100.0% 100.0% $755,372 $755,372
PR Wirless BL130746 Corp $16,830,000 $15,567,750 92.5%   94.5% 93.0% $336,600 $84,150
US Well Services Seaport Makes Market $6,552,623 $6,421,571 98.0%   94.5% 91.0% ($229,342) ($458,684)
YRCWorldwide, Inc BL122784 Corp $19,762,342 $19,268,283 97.5%   98.0% 95.0% $98,812 ($494,058)
Second Lien/Bonds:                  
AP NMT Acquisition BL135519 Corp $20,000,000 $19,300,000 96.5%   90.0% 88.5% ($1,300,000) ($1,600,000)
Bird Electric Not Marked $15,000,000 $14,700,000 98.0%   98.0% 98.0% $0 $0
Caelus Energy BL125972 Corp $26,000,000 $21,580,000 83.0%   71.0% 66.5% ($3,120,000) ($4,290,000)
Maxim Crane BL116286 Corp $10,000,000 $10,075,000 100.8%   102.4% 101.9% $162,500 $112,500
North American Lifting Holdings, Inc. BL116372 Corp $16,200,000 $14,904,000 92.0%   90.5% 90.0% ($243,000) ($324,000)
Physiotherapy Associates BL172193 Corp $5,000,000 $4,950,000 99.0%   101.3% 101.4% $112,500 $118,750
RCHP No Ticker $15,000,000 $15,150,000 101.0%   101.0% 101.0% $0 $0
Telecommunications Management, LLC BL096570 Corp $11,539,815 $11,193,621 97.0%   94.9% 95.6% ($245,222) ($158,673)
Telular Corp. BL104641 Corp $7,500,000 $7,481,250 99.8%   98.8% 100.0% ($75,000) $18,750
TNS, Inc. BL090664 Corp $15,725,000 $15,646,375 99.5%   99.3% 99.0% ($39,312) ($78,625)
Trident USA Health Services, Inc. BL106145 Corp $21,878,285 $21,440,720 98.0%   95.0% 97.0% ($656,349) ($218,784)
Nexeo NEXEOS8 ⅜ 03/18 Corp $9,000,000 $8,280,000 92.0%   95.5% 98.1% $315,000 $549,000
Language Line BL174324 Corp         100.0% 99.9%    
Land Holdings Brand New / Not Marked                
                   
Warrants AAR   $300,000         ($300,000) ($300,000)
  PR Wireless   $254,766         ($254,766) ($254,766)
                   
              $ P&L ($7,765,218) ($10,582,891)
**RCHP is a liquid loan that appears in multiple BDCs priced at par. I haven't been able to pull its ticker on Bloomberg.  % Change in NAV -3.94% -5.37%    
                   
              New NAV:  $13.66 $13.45
              Current Price $10.26 $10.26
              Discount to NAV:  75.1% 76.3%
                   
                   
                   
              6/30 NAV:  $14.41  

 

The NAV projection is done as follows:

  1. 1)      Take the $ P&L across the positions (either 6/30-9/30 or 6/30-11/5). Divide by the Net Assets on 6/30 ($196,950,849).
  2. 2)      Take the % change and apply to it to the $14.41 headline NAV on 6/30.
  3. 3)      Subtract out the special dividend that was paid related to capital gains on Virgin Atlantic ($0.43)
  4. 4)      Add an accrued dividend (run rate of 11-12 cents per month, so today would be + $0.24)
  5. 5)      This gets us to a NAV in the $13.40s for today, and a bit higher for 9/30.

The company may have traded these positions (for better or for worse), so there is no guarantee this number is perfect.

 

Oil & Gas Exposure and Downside Risk:

The oil and gas exposure comes from two names (now that the scary sounding New Standard Texas was repaid at par, and Crestwood Pipeline sold in the secondary market).

Caelus Energy: This is a large Apollo backed deal loan, I won’t dive into its merits here, but our credit team has a positive view on it.

AAR Intermediate: This is a lightly levered services business originated in the Fall of last year. The CEO has discussed this position several times and I quote the Q1 2015 conference call:

AAR is a Colorado-based oilfield services company. This is a great example of a dislocation in industry that creates opportunity. There are a lot of bad deals out there in oil and gas space generally and a lot of those should never be done. This is an environment that also causes good deals to struggle. AAR is a good investment and a good deal, where we spent months doing diligent meeting customers, multiple site visits. We are very focused on the structure on top of the health of the company. Our loan is less than two times levered on a run rate. It has significant amortization and strong maintenance covenants. As part of our investment, we received warrants in addition to 15.6% yield on our first lien loan to the company that with a 13% coupon. This investment was a result of our strategic relationship with Stifel.

As a metric of margin of safety – you can set both Caelus and AAR to be worth 0 (I don’t think this is realistic), but you will still see a NAV in the 11 handle.

To get the NAV down to today’s price (giving no credit for the dividends earned over the period it takes to get there), you’d have to write all the energy to 0, and then have NAV decline another 9%

 

 

SBA License:

The company is working towards an SBA license which would allow it access to extremely attractive financing and added portfolio leverage.

 

Catalyst:

The company pays an attractive 13.5% dividend yield, so no immediate re-rating is required. However, the following may help

  • 1)      Earnings release next week will show a much lower headline energy exposure than before. To the extent the team traded out of Caelus as oil sold off in the summer, that would be more upside
  • 2)      Oil prices start to rally
  • 3)      Some bid comes back to the BDC space
  • 4)      Open market share purchases by management or the company

 

Question:

Do the high fees make the discount irrelevant?

While the fees are high, the BDC structure here does provide tangible value:

  1. 1)      Extremely attractive financing terms with no recourse to the BDC investor
  2. 2)      Difficult to access positions
  3. 3)      Real distressed expertise (Cyrus’ funds charge comparable fees, and to my understanding are largely closed).
  4. 4)      The fees for this entity are structurally better than its peers, but the discount is wider both relative to others today, but also in absolute terms historically

 
What is the variant perception? 

I think most investors haven't done the work on the underlying portfolio (and recent changes) and just view this is an illiquid, very oil and gas sensitive lender. Hence the rally in the Spring and subsequent sell-off in late summer. 

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

 Catalyst:

The company pays an attractive 13.5% dividend yield, so no immediate re-rating is required. However, the following may help

  • 1)      Earnings release next week will show a much lower headline energy exposure than before. To the extent the team traded out of Caelus as oil sold off in the summer, that would be more upside
  • 2)      Oil prices start to rally
  • 3)      Some bid comes back to the BDC space
  • 4)      Open market share purchases by management or the company

 

    sort by    

    Description

    CMFN

    Joining the chorus of “cheap” BDCs that have been written up recently – I am pitching CMFN, which hasn’t been mentioned much. I think it has several interesting characteristics outside of just being valued on a cheap price to book multiple.

    With a 13% yield, I view as reasonably likely that the fund can trade at 90% of  live NAV (which I estimate at ~$13.50).  So without assuming a bounce in the credit markets, this is a base case 30%+ ROR opportunity over a year with very limited downside risk.

    Management Team:

    CMFN is the BDC affiliate of Cyrus Capital, a long standing distressed investor that spun from Och Ziff in the late 1990s. The CEO and CIOs are Michael Mauer and Christopher Jansen, whose backgrounds are below. The BDC obviously leverages Cyrus Capital’s team for its investment decisions.

    Michael Mauer formerly worked for Icahn Capital where he was a Senior Managing Director and a member of the investment team. In addition, he was in charge of the firm’s Marketing and Investor Relations. Prior to that, Mr. Mauer spent over eight years at Citigroup, where he was a Managing Director.  During that time he led several businesses including roles as the Global Co-Head of Leverage Finance and Global Co-Head of Fixed Income Currency and Commodity Distribution. From 1988 to 2001, Mr. Mauer held several positions at JPMorgan including Head of North American Investment Grade and Leverage Loan Syndicate, Sales and Trading businesses.  Mr. Mauer began his career in 1982 at Price Waterhouse & Co. where he was a Senior Accountant and a C.P.A.  Mr. Mauer received a B.S. from the University of Scranton and an M.B.A. from Columbia University.

    Christopher Jansen formerly was a founding Managing Partner and Senior Portfolio Manager for Stanfield Capital Partners from its formation in 1998 through the sale of the Company in 2010. His responsibilities included investment oversight and administration of the investment process and the implementation of portfolio management procedures of the Company’s sub-investment grade/leveraged loan businesses. In addition, as a member of the firm’s Management Committee, Mr. Jansen was involved in planning the strategic direction of the firm. Prior to founding Stanfield, Mr. Jansen was Managing Director and Portfolio Manager at Chancellor Senior Secured Management from 1990 to 1998. From 1983 to 1990, Mr. Jansen held various positions at Manufacturers Hanover Trust Company, served as Vice President in the Bank’s Acquisition Finance Group and LBO Management Group.  Mr. Jansen received a B.A. from Rutgers College and an M.M. from the Kellogg School of Management at Northwestern University

    As far as management pedigree goes, they are a step above the average BDC. Additionally, not only does Cyrus own a majority interest in CMFN, but management has purchased shares in the open market on a personal basis multiple times post-earnings when prices were above today’s levels.

    Fee Structure:

    We have entered into an investment advisory agreement (the “Investment Advisory Agreement”) with CM Investment Partners, as our investment adviser, pursuant to which we pay the Adviser a management fee equal to 1.75% of our gross assets, payable in arrears on a quarterly basis. In addition, pursuant to the Investment Advisory Agreement, we pay the Adviser an Incentive Fee equal to 20.0% of pre-incentive fee net investment income, subject to an annualized hurdle rate of 8.0% with a “catch up” fee for returns between the 8.0% hurdle and 10.0% as well as 20.0% of net capital gains. From February 11, 2014 (the completion of our initial public offering) to December 31, 2014, the Adviser agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by us, to the extent required in order for us to earn a quarterly net investment income to support a minimum dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis). For the periods from January 1, 2015 to December 31, 2015 and from January 1, 2016 to December 31, 2016, the Adviser has agreed to waive its incentive fees, without recourse against or reimbursement by us, to the extent required in order for the Company to earn a quarterly net investment income to support minimum dividend payments on shares of common stock outstanding on the relevant dividend payment dates of 9.25% and 9.375%, respectively (to be paid on a quarterly basis).

     

    At 1.75% vs. the standard 2% the headline fee is lower. However it also excludes cash, has a catch-up provision, and a three-year look back feature. While not cheap, this is a best in class fee structure for the industry. CMFN also provided a waiver of its fees to get the dividend stable through 2016 (the waiver is no longer needed since the portfolio is ramped).

     

    Portfolio:

    The table below provides a listing of all positions, Bloomberg tickers where available, pricing on 6/30 (per the company), and pricing on 9/30 and 11/5 from Bloomberg and dealer runs. The goal is to calculate a “live” NAV. I’ve left the unmarked positions flat to 6/30, except for AAR (which I discuss later), which I’ve taken down 5 pts, and the warrants which I've written to 0. Apologies for the challenged formatting in the table below...

     

    First Lien:  Bloomberg Ticker Principal Amount Fair Value (6/30) 30-Jun   30-Sep 5-Nov $P&L through 9/30 $ P&L through 11/5
    ASV Not Marked / Brand New $19,750,000 $19,355,000 98.0%   98.0% 98.0% $0 $0
    AAR Intermediate Holdings**** Not Marked $18,449,153 $15,681,780 85.0%   80.0% 80.0% ($922,458) ($922,458)
    AM General, LLC BL093928 Corp $8,690,025 %7,994,823 92.0%   78.0% 72.0% ($1,216,604) ($1,738,005)
    American Gaming Systems, Inc BL118325 Corp $29,737,025 $29,439,655 99.0%   98.3% 96.5% ($223,028) ($743,426)
    Butler Burgher Repaid $8,099,265 $8,504,227 105.0%   105.0% 105.0% $0 $0
    Crestwood Holdings, LLC Sold $9,490,434 $9,371,804 98.8%   98.8% 98.8% $0 $0
    JACPRO 11 1/2 EK499288 Corp $11,750,000 $12,102,500 103.0%   99.5% 99.8% ($411,250) ($381,875)
    Lightsquared BL172547 Corp $10,322,384 $10,322,384 100.0%   97.0% 97.5% ($309,672) ($258,060)
    Nathans Sold $4,000,000 $4,240,000 106.0%   106.0% 106.00% $0 $0
    New Standard Texas Repaid at Par $7,553,718 $6,798,346 90.0%   100.0% 100.0% $755,372 $755,372
    PR Wirless BL130746 Corp $16,830,000 $15,567,750 92.5%   94.5% 93.0% $336,600 $84,150
    US Well Services Seaport Makes Market $6,552,623 $6,421,571 98.0%   94.5% 91.0% ($229,342) ($458,684)
    YRCWorldwide, Inc BL122784 Corp $19,762,342 $19,268,283 97.5%   98.0% 95.0% $98,812 ($494,058)
    Second Lien/Bonds:                  
    AP NMT Acquisition BL135519 Corp $20,000,000 $19,300,000 96.5%   90.0% 88.5% ($1,300,000) ($1,600,000)
    Bird Electric Not Marked $15,000,000 $14,700,000 98.0%   98.0% 98.0% $0 $0
    Caelus Energy BL125972 Corp $26,000,000 $21,580,000 83.0%   71.0% 66.5% ($3,120,000) ($4,290,000)
    Maxim Crane BL116286 Corp $10,000,000 $10,075,000 100.8%   102.4% 101.9% $162,500 $112,500
    North American Lifting Holdings, Inc. BL116372 Corp $16,200,000 $14,904,000 92.0%   90.5% 90.0% ($243,000) ($324,000)
    Physiotherapy Associates BL172193 Corp $5,000,000 $4,950,000 99.0%   101.3% 101.4% $112,500 $118,750
    RCHP No Ticker $15,000,000 $15,150,000 101.0%   101.0% 101.0% $0 $0
    Telecommunications Management, LLC BL096570 Corp $11,539,815 $11,193,621 97.0%   94.9% 95.6% ($245,222) ($158,673)
    Telular Corp. BL104641 Corp $7,500,000 $7,481,250 99.8%   98.8% 100.0% ($75,000) $18,750
    TNS, Inc. BL090664 Corp $15,725,000 $15,646,375 99.5%   99.3% 99.0% ($39,312) ($78,625)
    Trident USA Health Services, Inc. BL106145 Corp $21,878,285 $21,440,720 98.0%   95.0% 97.0% ($656,349) ($218,784)
    Nexeo NEXEOS8 ⅜ 03/18 Corp $9,000,000 $8,280,000 92.0%   95.5% 98.1% $315,000 $549,000
    Language Line BL174324 Corp         100.0% 99.9%    
    Land Holdings Brand New / Not Marked                
                       
    Warrants AAR   $300,000         ($300,000) ($300,000)
      PR Wireless   $254,766         ($254,766) ($254,766)
                       
                  $ P&L ($7,765,218) ($10,582,891)
    **RCHP is a liquid loan that appears in multiple BDCs priced at par. I haven't been able to pull its ticker on Bloomberg.  % Change in NAV -3.94% -5.37%    
                       
                  New NAV:  $13.66 $13.45
                  Current Price $10.26 $10.26
                  Discount to NAV:  75.1% 76.3%
                       
                       
                       
                  6/30 NAV:  $14.41  

     

    The NAV projection is done as follows:

    1. 1)      Take the $ P&L across the positions (either 6/30-9/30 or 6/30-11/5). Divide by the Net Assets on 6/30 ($196,950,849).
    2. 2)      Take the % change and apply to it to the $14.41 headline NAV on 6/30.
    3. 3)      Subtract out the special dividend that was paid related to capital gains on Virgin Atlantic ($0.43)
    4. 4)      Add an accrued dividend (run rate of 11-12 cents per month, so today would be + $0.24)
    5. 5)      This gets us to a NAV in the $13.40s for today, and a bit higher for 9/30.

    The company may have traded these positions (for better or for worse), so there is no guarantee this number is perfect.

     

    Oil & Gas Exposure and Downside Risk:

    The oil and gas exposure comes from two names (now that the scary sounding New Standard Texas was repaid at par, and Crestwood Pipeline sold in the secondary market).

    Caelus Energy: This is a large Apollo backed deal loan, I won’t dive into its merits here, but our credit team has a positive view on it.

    AAR Intermediate: This is a lightly levered services business originated in the Fall of last year. The CEO has discussed this position several times and I quote the Q1 2015 conference call:

    AAR is a Colorado-based oilfield services company. This is a great example of a dislocation in industry that creates opportunity. There are a lot of bad deals out there in oil and gas space generally and a lot of those should never be done. This is an environment that also causes good deals to struggle. AAR is a good investment and a good deal, where we spent months doing diligent meeting customers, multiple site visits. We are very focused on the structure on top of the health of the company. Our loan is less than two times levered on a run rate. It has significant amortization and strong maintenance covenants. As part of our investment, we received warrants in addition to 15.6% yield on our first lien loan to the company that with a 13% coupon. This investment was a result of our strategic relationship with Stifel.

    As a metric of margin of safety – you can set both Caelus and AAR to be worth 0 (I don’t think this is realistic), but you will still see a NAV in the 11 handle.

    To get the NAV down to today’s price (giving no credit for the dividends earned over the period it takes to get there), you’d have to write all the energy to 0, and then have NAV decline another 9%

     

     

    SBA License:

    The company is working towards an SBA license which would allow it access to extremely attractive financing and added portfolio leverage.

     

    Catalyst:

    The company pays an attractive 13.5% dividend yield, so no immediate re-rating is required. However, the following may help

     

    Question:

    Do the high fees make the discount irrelevant?

    While the fees are high, the BDC structure here does provide tangible value:

    1. 1)      Extremely attractive financing terms with no recourse to the BDC investor
    2. 2)      Difficult to access positions
    3. 3)      Real distressed expertise (Cyrus’ funds charge comparable fees, and to my understanding are largely closed).
    4. 4)      The fees for this entity are structurally better than its peers, but the discount is wider both relative to others today, but also in absolute terms historically

     
    What is the variant perception? 

    I think most investors haven't done the work on the underlying portfolio (and recent changes) and just view this is an illiquid, very oil and gas sensitive lender. Hence the rally in the Spring and subsequent sell-off in late summer. 

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

     Catalyst:

    The company pays an attractive 13.5% dividend yield, so no immediate re-rating is required. However, the following may help

     

    Messages


    SubjectRe: Questions
    Entry11/09/2015 10:52 AM
    Membershteinb

    1) The dividend is well covered. NII last quarter was .47. The fee waiver backstop to the dividend was not utilized.  Even without origination fees, prepayment fees, etc (though there will be some this quarter as well). Dividend is fine. 

    2) Debt is ~1.7x net assets (net assets of 196.9 vs. debt of 133.4). There is some room before they reach the cap in terms of additional leverage. Leverage should be managable given portfolio is fairly liquid. SBA license would be upside in terms of capacity.

    3) No buybacks by the company, but management have been aggressive buyers on dips PA. Given the limited liquidity of the stock, and the relatively short periods where its been depressed, i dont think this is crazy. To the extent the stock trades poorly for a prolonged period I'd expect management to consider a buyback. 


    SubjectRe: Re: Questions
    Entry11/09/2015 04:05 PM
    Membershteinb

    NAV came out in the earnings at $13.65, a penny away from my projection in the write-up.


    SubjectRe: Re: Re: Questions
    Entry11/12/2015 09:09 AM
    Membershteinb

    Quick update, RCHP Inc, which is one of the loans I didn't have a BBG ticker for (it is actually BL126825 Corp) will be repaid (at 102) as it was announced this morning that Apollo is buying the company from Warburg Pincus.


    Subjectupdate
    Entry02/26/2016 09:07 AM
    Membershteinb

    CMFN sold off dramatically in January/February to levels that just dont make sense. In Q4, the company increased their dividend, but saw NAV losses in the portfolio which i think set off the selling. 

    The stock currently prices in that all names in the portfolio trading below 90 (that includes all privates originated more than a quarter ago) are all worth 0. In that list of <90 px, are Endemol, North American Lifting, AM General, YRC Worldwide - all of which trade and have broker indications at least weekly. They all sit in the 70s/l80s today, so to assume they all go to 0 is extreme. I am also writing off AAR, and Bird Electric which are private, and Caelus energy, which is public but trades in the 40s. 

    I see today's NAV in the m11s (a little bit lower than the $12 reported for Q4) based on MTM, primarily in Endemol 2nds and Caelus which have broker indications.The stock is currently trading at $7 with a dividend coming in early March. The major difference between actual Q4 and my NAV projection in early November, was a write-down in Bird Electric which I did not anticipate. 

    If Cyrus' underwriting turns out OK - the portfolio is worth just over $15 at par, and you would be pocketing $1.40 a year in cash dividends. 

    There are alot of BDCs for which i am sure you can make similar arguments, the difference here is that this portfolio has real marks on the vast majority of it and a fee structure for the manager that actually makes sense. 

     


    SubjectUPDATE
    Entry12/20/2016 11:59 AM
    Membershteinb

    Given its been a year since we posted the idea, we wanted to provide an update. The trade has generated a high single digit return since inception, which is dissapointing relative to the stronger performance of the BDC index. That said -  CMFN is currently one of the cheapest, and easiest to underwrite BDC names out there. Unlike most other BDCs, the vast majority of CMFN's portfolio can be priced via dealer runs/Bloomberg. We also think that oil will be a tailwind, rather than a headwind to performance going forward. 

    We see CMFN's NAV as up a little over a point in Q4 to $12.02 vs. its current $9.30 trading level. This would imply its trading at 77.5% of NAV, vs the index which is trading at 98%. 

    Given a recently adjusted dividend, stabilizing oil prices - we think the stock is likely to re-rate into the mh80s as a percentage of NAV, as well as see some NAV appreciation. If we assume the stock trades at 88% of NAV (and assuming no NAV improvement) by the end of next year - the total return would be 25% including the dividend over a year.

    The below table shows where we see line item pricing. Liquidity in these names varies. Names like Endemol, AM General and American Gaming are quoted by multiple dealers several times a week. PR Wireless, TNT and most of the other second liens generally have less price transparency. Often times, the 1st lien in these names has better price transparency. 

    First Lien:  Bloomberg Ticker / Pricing Source Principal Amount Fair Value (09/30) Implied Mark 18-Dec $ P&L % Change
    ASV Not Marked $16,500,000 $15,840,000 96.0% 96.0% $0 0.0%
    AAR Intermediate Holdings Not Marked $4,950,495 $4,950,495        
    AAR Intermediate Holdings Not Marked $10,166,879 $4,392,772 43.2% 43.2% $0 0.0%
    AM General, LLC BL093928 Corp $7,800,000 $7,722,000 99.0% 100.0% $78,000 1.0%
    American Gaming Systems, Inc BL118325 Corp $29,359,652 $28,919,257 98.5% 100.0% $440,395 1.5%
    Dayton Superior BL226894 Corp $10,000,000 $9,700,000 97.0% 101.1% $412,500 4.1%
    Fleetpride BL083265 Corp $9,882,955 $8,627,819 87.3% 95.0% $760,988 7.7%
    JACPRO 11 1/2 Called at 115 in Q4 $13,060,000 $13,843,600 106.0% 115.0% $1,175,400 9.0%
    Land Holdings I, LLC Expected to repay in 6m  $11,750,000 $11,985,000 102.0% 102.0% $0 0.0%
    PR Wirless BL130746 Corp $16,617,500 $15,129,925 91.0% 72.5% ($3,082,238) -18.5%
    Premier Global BL197742 Corp $9,811,235 $9,516,898 97.0% 97.0% ($0) 0.0%
    Redbox BL224222 Corp $10,000,000 $9,700,000 97.0% 97.5% $50,000 0.5%
    School Specialty BL100553 Corp $9,335,313 $9,265,295 99.2% 100.5% $116,695 1.3%
    US Well Services JPM Makes Market -88 jpm on 12/05 $6,189,789 $4,642,342 75.0% 88.0% $804,672 13.0%
    YRCWorldwide, Inc BL122784 Corp $14,575,002 $13,992,002 96.0% 99.0% $437,250 3.0%
    Second Lien/Bonds:             0.0%
    AP NMT Acquisition BL135519 Corp $20,000,000 $16,000,000 80.0% 82.0% $400,000 2.0%
    Bird Electric Not Marked $15,037,500 $7,518,750 50.0% 50.0% $0 0.0%
    Caelus Energy BL125972 Corp $26,000,000 $18,200,000 70.0% 80.0% $2,600,000 10.0%
    North American Lifting Holdings, Inc. BL116372 Corp $16,200,000 $11,340,000 70.0% 51.0% ($3,078,000) -19.0%
    Premier Global Seconds Only firsts marked $10,000,000 $10,000,000 100.0%      
    Telecommunications Management, LLC BL096570 Corp $11,333,096 $11,219,766 99.0% 100.0% $113,330 1.0%
    TNS, Inc. BL090664 Corp $15,092,924 $15,017,459 99.5% 100.0% $75,465 0.5%
    Trident USA Health Services, Inc. BL106145 Corp $21,878,286 $17,940,194 82.0% 86.0% $875,132 4.0%
                   
                   
                   
                   
                   
              $ P&L $2,179,590  
              % Change in NAV 1.34%  
                   
              New NAV:  $12.02  
              Current Price $9.40  
              Discount to NAV:  78.2%  
                   
                   
                   
              9/30 nav $11.86  

    SubjectUpdate
    Entry05/10/2017 04:45 PM
    Membershteinb

    Earnings were released today. I've updated the portfolio and pulled live prices from Bloomberg from most of it. I see NAV up another 2-2.5% since 3/31 (on top of the increase in Q1). So trading at 84% of NAV at today's 10.70 close.

    Two positions were repaid subsequent to quarter end - but wont know which until the call tomorrow. Given last quarter's call would guess Telecommunications Management is one of them. The two new post quarter end investments we wont know until tmrw either.

    Apart from growing NAV, dividend was covered, and they've been able to originate investments without dropping the portfolio yield much (9.72% today vs 9.79% last quarter). 

    CMFN continues to be a unique BDC, with 90%+ of the portfolio that can be marked via BBG/dealer runs. 100% of the portfolio is floating rate.

    One final note - AAR, one of the positions I cant mark, also appears in MCC, and Medley has been marking the position much more aggressively (marking it up into the 90s for Term Loan B this quarter vs CMFN staying at 50). 

     

                 
                 
    First Lien:  Bloomberg Ticker / Pricing Source Principal Amount Fair Value (3/31) Implied Mark BBG Mark Today $ P&L
    AAR   $396,040 $396,040 100.0% 100.00% $0.00
    AAR Intermediate Holdings Not Marked $4,950,495 $4,950,495 100.0% 100.00% $0.00
    AAR Intermediate Holdings Not Marked $10,279,985 $5,139,993 50.0% 50.00% $0.00
    American Gaming Systems, Inc BL118325 Corp $29,208,703 $29,208,703 100.0% 101.75% $511,152.30
    Dayton Superior BL226894 Corp $9,975,000 $9,975,000 100.0% 100.00% $0.00
    Fleetpride BL083265 Corp $9,831,615 $9,241,718 94.0% 97.25% $319,527.59
    Immucor BL093804 Corp $3,758,761 $3,650,696 97.1% 99.75% $98,668.10
    Intermedia BL228425 Corp $1,000,000 $980,000 98.0% 99.38% $0.00
    Montreign Operating BL232903 Corp $8,512,820 $8,512,820 100.0% 101.44% $122,371.79
    PR Wirless BL130746 Corp $16,532,500 $15,540,550 94.0% 97.00% $495,975.00
    Premier Global BL197742 Corp $11,559,018 $11,443,428 99.0% 100.00% $115,590.00
    Redbox BL224222 Corp $8,750,000 $8,662,500 99.0% 100.00% $87,500.00
    School Specialty BL100553 Corp $9,335,313 $9,335,313 100.0% 102.00% $186,706.26
    US Well Services Not Marked $3,850,023 $3,850,023 100.0% 100.00% $0.00
      Not Marked $581,646 $581,646 100.0% 100.00% $0.00
    YRCWorldwide, Inc BL122784 Corp $13,974,371 $13,834,627 99.0% 96.50% ($349,358.99)
    Second Lien/Bonds:           $0.00
    AP NMT Acquisition BL135519 Corp $20,000,000 $15,400,000 77.0% 69.00% ($1,600,000.00)
    Bird Electric Not Marked $15,037,500 $7,518,750 50.0% 50.00% $0.00
    Caelus Energy BL125972 Corp $26,000,000 $22,100,000 85.0% 89.25% $1,105,000.00
    Intermedia BL229354 Corp $5,000,000 $4,900,000 98.0% 97.00% ($50,000.00)
    Lionbridge BL231561 Corp $12,000,000 $11,760,000 98.0% 98.50% $0.00
    North American Lifting Holdings, Inc. BL116372 Corp $16,200,000 $10,854,000 67.0% 80.50% $2,187,000.00
    Premier Global Seconds BL233053 Corp $15,000,000 $14,700,000 98.0% 99.63% $243,750.00
    Telecommunications Management, LLC BL096570 Corp $11,333,096 $11,333,096 100.0% 100.00% $0.00
    TNS, Inc. BL090664 Corp $15,092,924 $15,017,459 99.5% 99.50% $0.38
    Trident USA Health Services, Inc. BL106145 Corp $21,878,286 $18,596,543 85.0% 86.00% $218,782.96
                 
                 
    US Well Common                                  2,519,434 $1,129,745.00      
                                           920,856 $79,573      
                 
              $ P&L $3,692,665
              % Change in NAV 2.19%
                 
              New NAV + 15c accrued dividend:  $12.74
              Current Price $10.70
              Discount to NAV:  84.0%
                 
                 
                 
              3/31 NAV $12.32

    SubjectRe: Update
    Entry05/11/2017 03:01 PM
    Membershteinb

    According to the call, Immucor 1st liens, Intermedia 1st liens, School Specialty 1st liens and Telecommunications Management 2nd liens all repaid or were sold. 

    The two new positions are International Wire Group 10 3/4 bonds and Touchtunes second lien loan; both of which can be marked, however the notionals on the new positions are not known.

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