San Francisco based business development company SuRo Capital (SSSS) has announced they will be selling a new issue of $25 notes with a maturity date in 2026.
A quick review shows the company has carried NO leverage up to this point.
SuRo has been paying huge dividends to their common shareholders as a number of the companies they held equity in have gone public via SPAC transactions.
Being a BDC the company must have a 200% asset coverage ratio (the lower BDC limit is 150%, but the company’s board has not approved the lower bound).
The preliminary prospectus can be found here.
EarlyBird was right on top of this a suggests a 6% coupon and BB+ rating from Egan Jones.
11 thoughts on “BDC SuRo Capital to Sell Baby Bonds”
I see where this issue did come at 6% and closed on 12/17. It is trading as SSSSL. Has anyone gotten into this one? It seems to have fallen thru the cracks. 25.53-67 is the current quote.
Final prospectus on $70 mil issue = https://www.sec.gov/Archives/edgar/data/0001509470/000110465921148684/tm2135120d1_424b2.htm
Yes, I got in on SSSSL early on at $25.20. Your note that Not only has SSSS not approved the lower BDC coverage ratio of 150%, they have covenanted they will not do so as long as this new issue is outstanding made it interesting to me
I was able to get in when it immediately started trading at 24.90. It was a small position hoping to get more shares lower but never got the opportunity to add as it quickly moved higher.
SSSS is really a tiny company—-$350M market cap. With its type of investments, a down market could be dangerous for its viability as an ongoing concern. At least, it appears that way to me.
That to me is the problem with Baby Bonds, many are micro cap and even a billionaire can have a bad hair day and sneeze the wrong way tumbling tiny little companies sideways or down under. But where else to get a descent yield higher up on the debt ladder?
$300M Market Cap
Dividend Payout ratio approx. 66%
$118m free cash flow
Total debt $512K
Not only has SSSS not approved the lower BDC coverage ratio of 150%, they have covenanted they will not do so as long as this new issue is outstanding –
Section 18(a)(1)(B) as modified by Section 61(a) of the 1940 Act generally prohibits a BDC from declaring any cash dividend or distribution upon any class of its capital stock, or purchasing any such capital stock if its asset coverage, as defined in the 1940 Act, were below 200% (or 150% if certain requirements are met) at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution, or purchase. Under this covenant, we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a) of the 1940 Act or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the Code. Notwithstanding the foregoing, for the period of time during which the Notes are outstanding, we will not seek the requisite approval under the 1940 Act of our board of directors or our shareholders to reduce our asset coverage below 200%;
2wr–You are correct–which makes this one interesting to me.
They have been paying their common dividend the past 3 quarters in a combination of cash and common shares. If one does not elect to receive the cash, they will receive the total dividend in the form of shares. If you elect cash, you still receive some of the dividend in the form of shares.
I’m trying to determine how this affects the asset coverage ratio. They are not selling shares, so no new capital – they are just increasing the share count. Wouldn’t this cause the coverage ratio to decline? Or is coverage ratio independent of share count?
I guess I should do some reading up on this as I am not very familiar with BDC’s.
Also, it appears they may be planning to cover the dividend on the BB’s with some sort of cash / share combo.
Who knew they operate as a BDC? Could be interesting…. this has been a favorite of SA author Chris DeMuth
6% seems like a decent coupon, any thoughts? will have to do some DD on them, haven’t heard of this BDC before