THL Credit and Horizon Technology Finance putting out new N-2's

THL Credit

THL Credit has uploaded its second revised form N-2/A with a bunch of changes that make it non-comparable to previous filings. Most notably the management fee structure has changed from being (1.5% Base + 15% xs of 8% with a catch up) calculated quarterly with no cap, to being 1.5% + 20% xs of 8% with a catch up, but also being subject to cumulative total return hurdle. Most importantly under the new scheme, PIK (paid in kind) interest is excluded from the calculation of the incentive fee.

In addition, THL Credit Advisors will not be paid the pro-rata portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) until we actually receive such interest in cash

Very notable and hopefully this is the start of new trend in externally managed BDC's, which shows an attempt to reduce the incentive for management to be focus on maximising quarterly results, rather than long term results. It never made sense to me that management would be paid an incentive fee for "earning" PIK interest. The rest of the changes to the N-2/A relate to pre-IPO schedule for the roll up of the existing THL Credit fund into the new public BDC.

Horizon Technology Finance Corporation

Horizon Technology Finance Corporation has filed a prospectus describing a new BDC that intends to "invest in development-stage companies in the technology, life science, healthcare information and services, and cleantech industries." My initial impression is that this will be an high cost externally managed version of Hercules Technology Growth Capital. The management fee is 2/20 with a catch-up on a 7% hurdle rate measured quarterly.

Ellington Financial files 7'th S-11/A

Ellington Financial has filed a new S-11/A with the SEC. Thi filing removes the aspect that I think lead the previous IPO attempt to fail. Viz, that the company inteded to pay out only 50% of taxable income as cash dividends, while shareholders would be paying cash taxes on 100% of the companies income. This implied a very high effective tax rate on any cash distributions.

As of March 17th 2010:

Our present intention is to pay quarterly and special dividends to our common shareholders so that approximately 100% of our net income attributable to our common shares each calendar year, beginning with the 2010 calendar year, has been distributed prior to April of the subsequent calendar year, subject to potential adjustments for changes in common shares outstanding. In setting our dividends, our board of directors takes into account, among other things, our earnings, our financial condition, our working capital needs and new investment opportunities.

New prospectisii?

Couple of new S-11's/N-2's out there.

Plainfield Direct

A Plainfield Direct is is an externally managed business development Company with a 2/20 (7% hurdle + catch up) management fee structure. CEO is Max Holmes is ex-DE Shaw/Drexel Burnham Lambert etc. Interestingly Since 1993, he has taught “Bankruptcy and Reorganization” at New York University Stern Graduate School of Business, where he remains an Adjunct Professor of Finance. Another member of the board of directors is also an adjunct professor of finance at the University of Chicago Graduate School of Business. This looks like a smart crew, but does the market really need any more 2/20 BDC's?

Welsh property trust

• Vertically integrated real estate company with in house management abilitity, (Owned portfolio of 9.2 Million Sf, while providing services to another 17 million+ sf of externally owned real estate)
• Targeting Office and Industrial properties.
• Initial formation will involve the exchange of interests in various property investment funds for OP units of the new REIT. Shades of Douglas Emmet's pre-IPO drama. "We did not conduct arm’s-length negotiations with our principals with respect to all of the terms of the formation transactions. In the course of structuring the formation transactions, our principals had the ability to influence the type and level of benefits that they and our other officers will receive from us. In addition, we have not obtained any recent third-party appraisals of the properties and other assets to be acquired by us in connection with the formation transactions. As a result, the price to be paid by us to the prior investors, including our principals and certain of our executive officers, for the acquisition of the assets in the formation transactions may exceed the fair market value of those assets."
• Industrial portfolio is in the central US rust belt "Our industrial properties are primarily located in the central United States. In our existing portfolio, approximately 8.6 million leasable square feet, or 93.1% of the total portfolio square footage, is within eight contiguous central U.S. states: Minnesota, Wisconsin, Iowa, Missouri, Michigan, Ohio, Indiana and Illinois." These are exactly the locations that the new Terreno REIT intends to avoid.
• This is kind of an odd IPO, in that existing portfolio is in an unpopular part of an unpopular sector. The real estate services business is interesting. I really have no clue what the public valuation for this might be.