Blog Coverage Main Streets Makes a Profitable Exit from Travis

LONDON, UK / ACCESSWIRE / October 7, 2016 / Active Wall St. blog coverage looks at the headline from Main Street Capital Corp. (NYSE: MAIN) as the company announced on October 06th, 2016, that it recently fully exited its debt and equity investments in Travis Acquisition LLC, the parent company of Travis Body and Trailer, Inc., with the successful sale of Travis to a private equity-backed strategic acquirer. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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The Deal

Main Street realized a gain of approximately $17.9 million from the exit of its equity investment in Travis. On a cumulative basis, since Main Street’s initial investment in Travis in August of 2013, the company realized a total internal rate of return of 56.7% and a 3.9 times money invested return on its equity investment in Travis. The exit of Main Street’s equity investment in Travis represents realized value of $4.6 million above Main Street’s fair market value of its equity investment as of June 30th, 2016.

Main Street partnered with Travis’ management team and a group of third party investors in August 2013 to facilitate the acquisition of Travis. Main Street’s investment in Travis comprised of a $9.2 million first lien, senior secured debt investment and a $7.1 million direct equity investment. On a cumulative basis, including both Main Street’s debt and equity investments in Travis, Main Street realized a total internal rate of return of 42.1% and a 2.9 times money invested return.

The BDC Model

Main Street Capital as a business development company (BDC) has one of the most impressive records in its industry, rewarding investors with high dividend yields and capital gains. The working of the BDC are explained below.

A BDC is an organization that invests in and helps small- and medium-size developing companies in their early developmental stage or putting up investments in firms that are financially distressed, which are deemed too risky for banks to touch. The BDC Company’s utilise the profit made from such investment to pay dividend yields to their investors which can raise upto double digits. The BDC’s were created by the US Congress in 1980 to support emerging US businesses.

An Attractive Investment Option

Through investment in BDCs investors get exposure to debt and equity investments in predominantly private companies. As BDCs are regulated investment companies, they must distribute over 90% of their profits to shareholders. BDCs like Main Street invest in these company’s at a high interest rates. However, these are risky investment and chances of them not working out are quite high. As per its Q2 2016 results announced in August 2016, Main Street had eight investments on non-accrual, meaning that it’s no longer recognizing income from these investments.

The Spread Game

In its Q2 2016 earnings results, Main Street noted that it received approval for a third Small Business Investment Company (SBIC) license from the U.S Small Business Administration that will enable the company to borrow at very low interest rates, and the company can use this to make investment in small US organizations. At the end of Q2 2016, Main Street’s investments in similarly small companies were generating a weighted average cash yield of 10.5%, allowing generating significant spreads by borrowing inexpensively and lending at higher rates.

Stock Performance

Main Street Capital’s share price finished yesterday’s trading session at $34.51, marginally advancing 0.20%. A total volume of 256.69 thousand shares exchanged hands, which was higher than the 3 months average volume of 241.51 thousand shares. The stock has advanced 5.83% and 12.23% in the last three months and past six months, respectively. Furthermore, since the start of the year, shares of the company have gained 18.67%. The stock is trading at a PE ratio of 23.05 and has a dividend yield of 6.43%.

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