Monday, March 22, 2010

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.

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