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September 6, 2011 Investment Company Weekly • Over this past week, BDCs as a group

September 6, 2011

Investment Company Weekly

September 6, 2011 Investment Company Weekly • Over this past week, BDCs as a group dropped

• Over this past week, BDCs as a group dropped 1.85% in price versus a 0.3% gain in the SNL REIT Index and a 0.24% decline in the S&P 500. Over the last twelve months, BDCs as a group have had a total return of 6.7% in comparison to a return of 9.9% and 8.8% in the S&P 500 and the SNL REIT Index respectively. Stocks of the SNL Investment Company group were down 1.81% in the past week; the dividend yield stands at 13.1% from the previous weekly reading of 12.9%

Specialty Finance

Robert Dodd, PhD

901.579.4560

robert.dodd

@morgankeegan.com

Robert Ladyman

901.531.3331

 

bo.ladyman

• The MK BDC Index mean dividend yield is currently 9.6% (10.6% for dividend paying BDCs), vs. 9.4% (10.4% for dividend paying BDCs) from last week and the 8.3% yield of

@morgankeegan.com

Dixon Braden

a

year ago; The spread between mean BDC dividend yields and 5-yr treasuries is now

901.579.4511

7.84%; The current yield spread is 64% higher than the long-term median of 4.79% (vs.

5-yr treasury); Relative to the comparable corporate bond, the Baa 5-yr Industrial spread

dixon.braden

@morgankeegan.com

is

currently 183 bps (versus 166 bps last week) compared to the historical median spread

of 153 bps since 2001; Baa Bank spread multiple is currently higher (about 1.9 times the historical median) due to higher perceived risk in the banking sector

• Headlines from last week in the Morgan Keegan BDC coverage universe: Prospect Capital (PSEC – M/S) reported earnings, increased total commitments to the credit facility by $25 million to $400 million, and filed a $750 million shelf registration; and Triangle Capital (TCAP – O/S) declared a quarterly cash dividend of $0.44/share.

– O/S) declared a quarterly cash dividend of $0.44/share. Morgan Keegan & Co., Inc. does and

Morgan Keegan & Co., Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Please see Disclosure and Certification Statement beginning on page 14 of this report.

investment decision. Please see Disclosure and Certification Statement beginning on page 14 of this report. Page

Page 1 of 15

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance
Morgan Keegan & Co., Inc. Specialty Finance Investment Company Weekly Update - Tuesday, September 06, 2011

Investment Company Weekly Update -

Tuesday, September 06, 2011

Robert J. Dodd, Ph.D.

Morgan Keegan Rated Companies:

 

Robert.Dodd@MorganKeegan.com

Compass Diversified Holdings Fifth Street Finance Corp. Fidus Investment Corporation Horizon Technology Finance Corp. Main Street Capital Prospect Capital Corporation Triangle Capital Corporation

CODI

PT = $19.00

Outperform

Speculative

901-579-4560

FSC

PT =

$10.50

Outperform

Speculative

FDUS

PT = $16.00

Outperform

Speculative

Bo Ladyman

HRZN

PT =

$18.50

Outperform

Speculative

Bo.Ladyman@MorganKeegan.com

MAIN

PT = $19.50

Outperform

Speculative

901-531-3331

PSEC

PT =

$8.25

Marketperfom

Speculative

TCAP

PT = $20.00

Outperform

Market Risk

Dixon Braden

Dixon.Braden@MorganKeegan.com

901-579-4511

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Summary Tables For All BDC's / Investment Companies

Dividend Yield

Tax- Adjusted Dividend Yield

Dividend Payout Ratio

Price / NAV

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

0.0%

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

0.0%

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

NMF

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

0.61

13.1%

8.7%

113%

0.87

9.7%

6.3%

103%

0.94

12.6%

8.2%

114%

0.84

11.3%

9.6%

84%

0.00

13.7%

8.9%

124%

0.87

11.1%

7.2%

97%

0.74

9.3%

6.1%

78%

0.71

0.0%

0.0%

NMF

0.73

9.9%

6.5%

95%

0.92

10.4%

6.7%

107%

0.89

7.6%

6.5%

94%

0.87

11.1%

7.2%

100%

0.71

9.0%

6.2%

105%

1.26

15.7%

10.7%

119%

0.63

4.5%

3.1%

800%

0.62

10.8%

7.0%

94%

0.69

11.2%

7.3%

89%

0.87

14.7%

10.6%

107%

0.80

11.2%

7.3%

103%

0.91

4.9%

4.1%

49%

0.77

10.3%

7.4%

91%

1.24

Mean

9.6%

Mean

6.6%

Mean

133%

Mean

0.79

Median

10.6%

Median

7.1%

Median

101%

Median

0.82

High

15.7%

High

10.7%

High

800%

High

1.26

Low

0.0%

Low

0.0%

Low

49%

Low

0.00

Debt/Equity (Most Recent Quarter)

Market Capitalization ($MM)

% Change From Previous Week

52 Week Return

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp.

36%

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

2,838

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

-1.6%

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

49%

65%

1,673

0.6%

-6%

52%

2,954

-1.0%

2%

38%

606

-1.2%

-16%

19%

593

-2.0%

-14%

39%

675

-2.7%

1%

Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation

43%

160

-4.2%

-24%

20%

142

-3.2%

11%

2%

122

-4.4%

-1%

61%

388

-1.0%

2%

56%

118

-1.0%

NA

28%

206

-0.4%

43%

31%

138

-4.2%

27%

Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

(3)

(3)

78%

417

-1.5%

30%

96%

334

-4.4%

-17%

12%

257

-4.5%

-14%

34%

144

-7.1%

-12%

46%

441

-1.1%

4%

36%

902

-6.2%

-2%

0%

292

-0.4%

3%

0%

75

1.4%

55%

87%

386

-0.5%

15%

Mean

40%

Mean

630

Mean

-2.3%

Mean

6%

Median

37%

Median

360

Median

-1.6%

Median

2%

High

96%

High

2,954

High

1.4%

High

55%

Low

0%

Low

75

Low

-7.1%

Low

-24%

(1) Dividend Payout Ratio is calculated by dividing the annualized dividend of the current dividend payment by the First Call mean EPS estimate (2) YTD Return calculates the total return with the addition of paid dividends to the current closing stock price (3) TCAP, MAIN, & FSC debt is total. Both have zero debt for BDC regulatory purposes - debt in this table is SBA and subject to separate regulatory caps Source: SNL Financial (quarterly data) and company tax reports

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Balance Sheet Charts For All BDCs / Investment Companies

Price / NAV 1.4 1.30 1.26 1.24 1.2 1.0 0.94 0.91 0.87 0.87 0.92 0.89
Price / NAV
1.4
1.30
1.26
1.24
1.2
1.0
0.94
0.91
0.87
0.87
0.92 0.89 0.87
0.87
0.84
0.80
0.77
0.8
0.74 0.71 0.73
0.71
0.69
0.63 0.62
0.61
0.6
0.4
0.2
0.0
Recurring Return on Equity - NII / NAV 16% 14.1% 14% 12% 10.9% 10.9% 11.0%
Recurring Return on Equity - NII / NAV
16%
14.1%
14%
12%
10.9%
10.9% 11.0%
10.1%
9.8%
9.6%
10%
8.9% 9.3% 9.6%
8.6%
8.4% 8.5%
8.2%
7.9%
8.0%
7.6%
8%
7.1%
6.3%
6%
4%
2%
0.3%
0%
Market Capitalization ($MM) $3,500 2,954 $3,000 2,838 $2,500 $2,000 1,673 $1,500 902 $1,000 606 593
Market Capitalization ($MM)
$3,500
2,954
$3,000
2,838
$2,500
$2,000
1,673
$1,500
902
$1,000
606 593 675
441
388
386
$500
417 334
292
160
142 122
118 206
138
257 144
75
$0

Source: SNL Financial and SEC filings

Debt / Equity 100% 96% 87% 90% 78% 80% 70% 65% 61% 60% 56% 52%
Debt / Equity
100%
96%
87%
90%
78%
80%
70%
65%
61%
60%
56%
52%
50%
46%
43%
38%
39%
36%
40%
34%
28% 31%
30%
19%
20%
20%
12%
10%
2%
0%
0%
0%
36%

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Income & Expense Charts For All BDCs

Gross Investment Income as a % of Total Assets 18% 16.7% 15.7% 16% 14.9% 14.6%
Gross Investment Income as a % of Total Assets
18%
16.7%
15.7%
16%
14.9%
14.6%
14.6%
13.8%
14%
12.9%
12.8%
12.3%
11.8%
11.7%
12%
9.4%
10%
9.2%
8.9%
7.9%
7.7%
8%
6%
3.9%
3.6%
4%
1.9%
2%
0.4%
NA
0%
Interest Expense as a % of Total Assets 3.5% 2.9% 3.0% 2.7% 2.6% 2.5% 2.0%
Interest Expense as a % of Total Assets
3.5%
2.9%
3.0%
2.7%
2.6%
2.5%
2.0%
2.0%
1.9%
2.0%
1.8% 1.7%
1.7%
1.4%
1.5%
1.3%
1.1%
1.0%
0.8%
0.7%
0.6% 0.7%
0.5%
0.2%
0.0%
0.0% 0.0%
0.0%
Management Fees as a % of Total Assets 7% 6.2% 6.0% 5.9% 6% 5% 4.7%
Management Fees as a % of Total Assets
7%
6.2%
6.0%
5.9%
6%
5%
4.7%
4.9% 4.7%
4.6%
4.6%
3.8%
4%
3.6%
3.5%
3.1%
3.0%
2.9%
3%
2.6%
2.3%
2.4% 2.2%
1.9%
2%
1%
NA
0%
Net Investment Income as a % of Total Assets 12% 9.5% 10% 9.1% 8.7% 7.8%
Net Investment Income as a % of Total Assets
12%
9.5%
10%
9.1%
8.7%
7.8%
8%
7.1%
7.0%
6.9%
6.5%
6.1%
6.2% 5.9%
5.7%
5.6%
6%
4.5%
4.3%
4.0%
4%
2%
1.1%
NA
0%

(1) Gross Investment Income, Interest Expense, Management Fees, & Net Investment Income values are calculated on a TTM basis; Total Assets are calculated by averaging the quarter ending asset values over the same period (2) BDC's with a negative Net Invetsment Income are not included in chart 4 (3) Income & Expense charts do not include Compass Diversified Source: SNL Financial and SEC filings

Morgan Keegan & Co., Inc.

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Morgan Keegan & Co., Inc. Specialty Finance

Yield / Dividend Charts For All BDC's / Investment Companies

Current Dividend Yield 18% 15.7% 16% 14.7% 13.7% 14% 13.1% 12.6% 11.3% 12% 11.2% 11.1%
Current Dividend Yield
18%
15.7%
16%
14.7%
13.7%
14%
13.1%
12.6%
11.3%
12%
11.2%
11.1%
11.1%
10.8% 11.2%
9.9% 10.4%
10.3%
9.7%
9.3%
10%
9.0%
7.6%
8%
6%
4.9%
4.5%
4%
2%
0.0%
0.0%
0%
Tax-Adjusted Dividend Yield 12% 10.7% 10.6% 9.6% 10% 8.9% 8.7% 8.2% 8% 7.4% 7.2% 7.2%
Tax-Adjusted Dividend Yield
12%
10.7%
10.6%
9.6%
10%
8.9%
8.7%
8.2%
8%
7.4%
7.2%
7.2%
7.3%
7.0% 7.3%
6.5% 6.7% 6.5%
6.3%
6.2%
6.1%
6%
4.1%
4%
3.1%
2%
0.0%
0.0%
0%
Dividend Payout Ratio 900% 800% 800% 700% 600% 500% 400% 300% 200% 113% 103% 114%
Dividend Payout Ratio
900%
800%
800%
700%
600%
500%
400%
300%
200%
113% 103% 114% 84% 124% 97% 78%
95% 107% 94% 100% 105% 119%
94% 89% 107% 103%
91%
100%
49%
0%
0%
0%

Source: SNL Financial and SEC filings

52-Week Total Return 60% 55% 49% 50% 43% 40% 30% 27% 20% 15% 11% 10%
52-Week Total Return
60%
55%
49%
50%
43%
40%
30%
27%
20%
15%
11%
10%
4%
3%
2%
2%
1%
0%
0%
-1%
-2%
-10%
-6%
-14%
-20%
-17% -14% -12%
-24%
-30%

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Competitive Yield Charts For BDC Industry

2001-2010 BDC Dividend Yield vs. 10 Year & 5 Year Note (%) 35 30 25
2001-2010 BDC Dividend Yield vs. 10 Year & 5 Year Note (%)
35
30
25
20
15
10
5
0
BDCs
5 Year
10 Year
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
1 Year BDC Dividend Yield vs. 10 Year & 5 Year Note (%) 10 9
1 Year BDC Dividend Yield vs. 10 Year & 5 Year Note (%)
10
9
8
7
6
5
4
3
2
1
0
BDCs
5 Year
10 Year
9/2/2010
9/16/2010
9/30/2010
10/14/2010
10/28/2010
11/11/2010
11/25/2010
12/9/2010
12/23/2010
1/6/2011
1/20/2011
2/3/2011
2/17/2011
3/3/2011
3/17/2011
3/31/2011
4/14/2011
4/28/2011
5/12/2011
5/26/2011
6/9/2011
6/23/2011
7/7/2011
7/21/2011
8/4/2011
8/18/2011
9/1/2011
2001-2010 BDC Dividend Yield vs. U.S. REIT Yield (%) 35 30 25 20 15 10
2001-2010 BDC Dividend Yield vs. U.S. REIT Yield (%)
35
30
25
20
15
10
5
0
REITs
BDCs
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11

Source: SNL Financial and SEC filings

1 Year BDC Dividend Yield vs. U.S. REIT Yield (%) 10 9 8 7 6
1 Year BDC Dividend Yield vs. U.S. REIT Yield (%)
10
9
8
7
6
5
4
3
2
1
0
REITs
BDCs
Sep-10
Sep-10
Sep-10
Oct-10
Oct-10
Nov-10
Nov-10
Dec-10
Dec-10
Jan-11
Jan-11
Feb-11
Feb-11
Mar-11
Mar-11
Mar-11
Apr-11
Apr-11
May-11
May-11
Jun-11
Jun-11
Jul-11
Jul-11
Aug-11
Aug-11
Sep-11

Morgan Keegan & Co., Inc.

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Morgan Keegan & Co., Inc. Specialty Finance

Yield Spread Charts For BDC Industry

2001-2010 BDC Dividend Yield Spread over 10 Year & 5 Year Note (%) 35 30
2001-2010 BDC Dividend Yield Spread over 10 Year & 5 Year Note (%)
35
30
25
20
15
10
5
0
-5
vs. 5 year
vs. 10 Year
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
1 Year BDC Dividend Yield Spread over 10 Year & 5 Year Note (%) 9
1 Year BDC Dividend Yield Spread over 10 Year & 5 Year Note (%)
9
8
7
6
5
4
3
2
1
0
vs. 5 year
vs. 10 Year
9/2/10
9/15/10
9/28/10
10/11/10
10/24/10
11/6/10
11/19/10
12/2/10
12/15/10
12/28/10
1/10/11
1/23/11
2/5/11
2/18/11
3/3/11
3/16/11
3/29/11
4/11/11
4/24/11
5/7/11
5/20/11
6/2/11
6/15/11
6/28/11
7/11/11
7/24/11
8/6/11
8/19/11
9/1/11
2001-2010 BDC Dividend Yield Spread over U.S. REIT Yield (%) 25 20 15 10 5
2001-2010 BDC Dividend Yield Spread over U.S. REIT Yield (%)
25
20
15
10
5
0
-5
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11

Source: SNL Financial and SEC filings

1 Year BDC Dividend Yield Spread over U.S. REIT Yield (%) 6 5 4 3
1 Year BDC Dividend Yield Spread over U.S. REIT Yield (%)
6
5
4
3
2
1
0
9/2/10
9/16/10
9/30/10
10/14/10
10/28/10
11/11/10
11/25/10
12/9/10
12/23/10
1/6/11
1/20/11
2/3/11
2/17/11
3/3/11
3/17/11
3/31/11
4/14/11
4/28/11
5/12/11
5/26/11
6/9/11
6/23/11
7/7/11
7/21/11
8/4/11
8/18/11
9/1/11

Morgan Keegan & Co., Inc.

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Morgan Keegan & Co., Inc. Specialty Finance

Stock Performance Charts For BDC Industry

2001-2010 BDC Index Performance vs. S&P 500 & REIT Index (%) 200 150 100 50
2001-2010 BDC Index Performance vs. S&P 500 & REIT Index (%)
200
150
100
50
0
-50
-100
REITs
S&P 500
BDCs
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
1 Year BDC Index Performance vs. S&P 500 & REIT Index (%) 35 30 25
1 Year BDC Index Performance vs. S&P 500 & REIT Index (%)
35
30
25
20
15
10
5
0
-5
-10
-15
REITs
S&P 500
BDCs
9/2/10
9/16/10
9/30/10
10/14/10
10/28/10
11/11/10
11/25/10
12/9/10
12/23/10
1/6/11
1/20/11
2/3/11
2/17/11
3/3/11
3/17/11
3/31/11
4/14/11
4/28/11
5/12/11
5/26/11
6/9/11
6/23/11
7/7/11
7/21/11
8/4/11
8/18/11
9/1/11
2001-2010 BDC Index Total Return vs. S&P 500 & REIT Index (%) 300 250 200
2001-2010 BDC Index Total Return vs. S&P 500 & REIT Index (%)
300
250
200
150
100
50
0
-50
-100
REITs
S&P 500
BDCs
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11

Source: SNL Financial and SEC filings

1 Year BDC Index Total Return vs. S&P 500 & REIT Index (%) 40 35
1 Year BDC Index Total Return vs. S&P 500 & REIT Index (%)
40
35
30
25
20
15
10
5
0
-5
-10
REITs
S&P 500
BDCs
9/2/10
9/16/10
9/30/10
10/14/10
10/28/10
11/11/10
11/25/10
12/9/10
12/23/10
1/6/11
1/20/11
2/3/11
2/17/11
3/3/11
3/17/11
3/31/11
4/14/11
4/28/11
5/12/11
5/26/11
6/9/11
6/23/11
7/7/11
7/21/11
8/4/11
8/18/11
9/1/11

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Yield Spread Comparison Charts for BDC, Banking, & Industrial Industry

2001-2010 Yield Spread over 5 Year Note - BDC's, Industrials, Banks 3,000 2,500 2,000 1,500
2001-2010 Yield Spread over 5 Year Note - BDC's, Industrials, Banks
3,000
2,500
2,000
1,500
1,000
500
0
5yr Bank
5yr Industrial
BDCs
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
1 Year Yield Spread over 5 Year Note - BDC's, Industrials, Banks 900 800 700
1 Year Yield Spread over 5 Year Note - BDC's, Industrials, Banks
900
800
700
600
500
400
300
200
100
0
5yr Bank
5yr Industrial
BDCs
9/3/10
9/17/10
10/1/10
10/15/10
10/29/10
11/12/10
11/26/10
12/10/10
12/24/10
1/7/11
1/21/11
2/4/11
2/18/11
3/4/11
3/18/11
4/1/11
4/15/11
4/29/11
5/13/11
5/27/11
6/10/11
6/24/11
7/8/11
7/22/11
8/5/11
8/19/11
9/2/11
2001-2010 Yield Spread over 10 Year Note - BDC's, Industrials, Banks 3,000 2,500 2,000 1,500
2001-2010 Yield Spread over 10 Year Note - BDC's, Industrials, Banks
3,000
2,500
2,000
1,500
1,000
500
0
-500
10yr Bank
10yr Industrial
BDCs
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10

Source: SNL Financial and SEC filings

1 Year Yield Spread over 10 Year Note - BDC's, Industrials, Banks 800 700 600
1 Year Yield Spread over 10 Year Note - BDC's, Industrials, Banks
800
700
600
500
400
300
200
100
0
10yr Bank
10yr Industrial
BDCs
9/3/10
9/17/10
10/1/10
10/15/10
10/29/10
11/12/10
11/26/10
12/10/10
12/24/10
1/7/11
1/21/11
2/4/11
2/18/11
3/4/11
3/18/11
4/1/11
4/15/11
4/29/11
5/13/11
5/27/11
6/10/11
6/24/11
7/8/11
7/22/11
8/5/11
8/19/11
9/2/11

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Select Financial Data

 

Management

Balance Sheet Information ($000)

Debt to

Shares

Market

Company

Ticker

Structure

IPO

Assets

Inv.

Debt

Equity

Capital

Out

Value ($mm)

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

ACAS

Internal

9/4/1997

6,333,000

5,917,000

1,642,000

4,541,000

27%

353,824,055

2837.67

AINV

External

4/6/2004

3,259,302

3,123,260

1,249,203

1,911,232

40%

196,392,758

1673.27

ARCC

External

10/5/2004

4,911,531

4,643,163

1,620,142

3,134,281

34%

205,129,966

2953.87

BKCC

External

6/26/2007

1,032,523

947,656

275,000

717,617

28%

73,215,936

606.23

CODI

External

5/10/2006

976,368

976,368

88,000

454,905

16%

134,449

1.71

FSC

External

6/18/2008

1,093,768

1,053,479

302,000

775,649

28%

72,375,832

674.54

GLAD

External

8/27/2001

314,130

299,279

92,700

217,536

30%

21,039,242

159.90

GAIN

External

6/22/2005

242,132

165,295

40,000

200,035

17%

22,080,133

141.98

TINY

Internal

8/23/1988

173,384

164,086

2,550

168,426

1%

31,000,601

122.14

HTGC

Internal

6/10/2005

691,253

475,193

258,562

423,901

38%

43,856,062

388.13

KED

External

9/20/06

331,719

322,290

67,000

235,443

22%

10,302,464

205.84

KCAP

External

12/12/2006

260,779

254,266

60,000

194,592

24%

22,599,304

137.86

MAIN

Internal

10/4/2007

617,253

592,028

260,637

334,627

44%

23,197,465

416.86

MCGC

Internal

11/29/2001

1,066,056

849,101

511,210

534,033

49%

77,035,877

334.34

MVC

External

3/28/2000

488,659

414,590

50,000

414,337

11%

23,916,982

257.11

NGPC

External

11/10/2004

289,906

230,298

70,000

208,287

25%

21,628,202

143.83

PNNT

External

4/19/2007

817,593

778,944

230,650

504,939

31%

45,689,781

440.91

PSEC

External

7/28/2004

1,549,317

1,463,010

406,700

1,114,357

27%

109,316,449

901.86

TICC

External

11/24/2003

329,552

308,773

0

321,776

0%

32,671,485

291.76

TTO

External

2/2/2007

99,512

97,619

0

97,633

0%

9,164,865

75.15

TCAP

Internal

2/14/2007

486,732

409,400

224,150

256,800

47%

22,650,238

385.96

 

Low

0.0%

$1.7

Mean

25.6%

$614.1

Median

26.7%

$346.6

High

48.9%

$2,953.9

Source: SNL Financial and SEC filings

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Expense Data

 

Gross Inv.

Interest

Management

Net Inv.

Values As a Percentage of Total Assets

Company

Ticker

Assets

Income (GII)

Expense (IE)

Fees (ME)

Income (NII)

GII

IE

ME

NII

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings

 

ACAS

6,258,500

586,000

113,000

193,000

280,000

9.36%

1.81%

3.08%

4.47%

AINV

3,211,195

375,123

54,082

123,034

198,007

11.68%

1.68%

3.83%

6.17%

ARCC

3,861,944

575,472

102,636

237,680

226,334

14.90%

2.66%

6.15%

5.86%

BKCC

871,002

112,128

11,106

40,941

59,783

12.87%

1.28%

4.70%

6.86%

CODI

976,368

306,692

11,060

13,979

34,536

31.41%

1.13%

1.43%

3.54%

Fifth Street Finance Corp.

FSC

638,188

106,836

10,724

38,213

57,899

16.74%

1.68%

5.99%

9.07%

Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Company Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

GLAD

285,310

33,788

2,144

13,164

18,480

11.84%

0.75%

4.61%

6.48%

GAIN

269,830

24,115

559

8,054

15,502

8.94%

0.21%

2.98%

5.75%

TINY

142,784

609

14

7,679

-7,088

0.43%

0.01%

5.38%

-4.96%

HTGC

523,482

72,424

9,868

25,494

37,062

13.84%

1.89%

4.87%

7.08%

HRZN

167,917

21,575

3,405

7,879

10,291

12.85%

2.03%

4.69%

6.13%

KED

250,061

8,878

1,777

6,485

-41,387

3.55%

0.71%

2.59%

-16.55%

KCAP

348,131

26,670

3,715

8,003

14,952

7.66%

1.07%

2.30%

4.29%

MAIN

377,357

55,130

11,119

10,761

29,568

14.61%

2.95%

2.85%

7.84%

MCGC

1,155,948

91,566

15,853

28,196

45,883

7.92%

1.37%

2.44%

3.97%

MVC

501,698

19,455

3,053

10,951

5,465

3.88%

0.61%

2.18%

1.09%

NGPC

304,760

27,976

1,409

10,871

17,105

9.18%

NA

3.57%

5.61%

PNNT

667,060

82,281

4,604

30,975

46,508

12.33%

0.69%

4.64%

6.97%

PSEC

882,479

169,492

17,598

57,657

NA

NA

1.99%

NA

NA

TICC

267,512

39,114

0

15,763

23,351

14.62%

0.00%

5.89%

8.73%

TTO

88,926

1,666

0

1,694

-4,921

1.87%

0.00%

1.90%

-5.53%

TCAP

314,746

49,437

8,303

10,993

30,040

15.71%

2.64%

3.49%

9.54%

 

Low

0.43%

0.00%

1.43%

-16.55%

Mean

11.25%

1.29%

3.79%

3.92%

Median

11.84%

1.28%

3.57%

5.86%

High

31.41%

2.95%

6.15%

9.54%

(1) Gross Investment Income, Interest Expense, Management Fees, & Net Investment Income values are calculated on a TTM basis; Total Assets are calculated by averaging the quarter ending asset values over the same period Source: SNL Financial and SEC filings

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

Current Pricing Summary

 

52 week

Dividend

Effective

Tax-Adjusted

Avg. Div.

52 Week Actual Div. ($)

52-Week

Week

NAV/

Price/

Company

Ticker

9/6/2011

High

Low

Yield

Tax Rate

Div. Yield

Payout Ratio

Return

Return

Share ($)

NAV

American Capital Strategies, Limited Apollo Investment Corporation Ares Capital Corporation Blackrock Kelso Capital Corp. Compass Diversified Holdings Fifth Street Finance Corp. Gladstone Capital Corporation Gladstone Investment Corporation Harris & Harris Group, Inc. Hercules Technology Growth Capital, Inc. Horizon Technology Finance Corp. Kayne Anderson Energy Development Compan Kohlberg Capital Corporation Main Street Capital Corporation MCG Capital Corporation MVC Capital, Inc. NGP Capital Resources Co. PennantPark Investment Corporation Prospect Capital Corporation TICC Capital Corp. Tortoise Capital Resources Corp. Triangle Capital Corporation

ACAS

$8.02

10.85

7.10

0.00%

33.3%

0.00%

0.0%

0.00

48.52%

-1.60%

13.16

0.61

AINV

$8.52

12.46

7.32

13.15%

34.2%

8.65%

113.1%

1.12

-6.32%

0.59%

9.76

0.87

ARCC

$14.40

17.97

12.75

9.72%

34.8%

6.34%

102.9%

1.40

1.64%

-0.96%

15.28

0.94

BKCC

$8.28

12.97

7.05

12.56%

34.9%

8.17%

114.3%

1.04

-16.09%

-1.19%

9.83

0.84

CODI

$12.70

18.50

11.46

11.34%

15.0%

9.64%

84.3%

1.40

-13.84%

-2.01%

9.74

1.30

FSC

$9.32

13.95

8.38

13.73%

35.0%

8.92%

124.2%

1.28

0.60%

-2.68%

10.72

0.87

GLAD

$7.60

12.17

7.23

11.05%

34.9%

7.20%

96.6%

0.84

-24.16%

-4.16%

10.34

0.74

GAIN

$6.43

8.55

6.22

9.33%

35.0%

6.07%

77.9%

0.60

10.86%

-3.16%

9.06

0.71

TINY

$3.94

6.30

3.85

0.00%

15.0%

0.00%

0.0%

0.00

-1.01%

-4.37%

5.43

0.73

HTGC

$8.85

11.55

8.12

9.94%

35.0%

6.46%

94.6%

0.88

1.99%

-1.01%

9.67

0.92

HRZN

$15.44

16.45

12.24

10.36%

35.0%

6.74%

107.4%

1.60

NA

-0.96%

17.40

0.89

KED

$19.98

21.42

17.25

7.61%

15.0%

6.47%

93.8%

1.52

42.81%

-0.40%

22.85

0.87

KCAP

$6.10

8.71

3.42

11.15%

35.0%

7.25%

100.0%

0.68

26.55%

-4.24%

8.61

0.71

MAIN

$17.97

19.98

15.98

9.02%

31.3%

6.20%

104.5%

1.62

29.96%

-1.53%

14.24

1.26

MCGC

$4.34

7.62

3.50

15.67%

31.5%

10.74%

119.3%

0.68

-16.81%

-4.41%

6.93

0.63

MVC

$10.75

15.18

10.60

4.47%

30.1%

3.12%

800.0%

0.48

-14.32%

-4.53%

17.32

0.62

NGPC

$6.65

10.89

6.21

10.83%

35.0%

7.04%

93.5%

0.72

-11.51%

-7.12%

9.63

0.69

PNNT

$9.65

13.19

8.79

11.19%

34.9%

7.28%

89.3%

1.08

3.61%

-1.13%

11.08

0.87

PSEC

$8.25

12.38

7.41

14.74%

27.9%

10.62%

106.7%

1.22

-1.93%

-6.17%

10.36

0.80

TICC

$8.93

13.11

7.71

11.20%

35.0%

7.28%

103.1%

1.00

3.15%

-0.45%

9.85

0.91

TTO

$8.20

9.27

7.25

4.88%

15.0%

4.15%

49.4%

0.40

55.09%

1.36%

10.66

0.77

TCAP

$17.04

20.97

15.01

10.33%

27.9%

7.44%

90.7%

1.76

14.89%

-0.53%

13.79

1.24

 

Low

 

0.00%

15.00%

0.00%

0.00%

$0.00

-24.2%

-7.12%

0.61

Mean

9.65%

30.03%

6.63%

121.17%

$0.97

6.4%

-2.30%

0.85

Median

10.59%

34.47%

7.12%

98.28%

$1.02

1.6%

-1.56%

0.86

High

 

15.67%

35.00%

10.74%

800.00%

$1.76

55.1%

1.36%

1.30

Source: SNL Financial and SEC filings

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST IMPORTANT DISCLOSURES

The research analyst responsible for the preparation of this report does not hold investment positions of any nature in the securities of this issuer. The research analyst responsible for the preparation of this report is compensated in part on the firm's investment banking revenue but is not compensated based upon specific investment banking services transactions.

As of the date of this report, Morgan Keegan & Co., Inc. makes a market in CODI, FDUS, HRZN, MAIN, PSEC and TCAP. Morgan Keegan & Co., Inc. has received compensation for investment banking services from CODI, FDUS, HRZN, MAIN and TCAP in the past 12 months. Morgan Keegan & Co., Inc. expects to receive or intends to seek compensation for investment banking services from CODI, HRZN, MAIN, PSEC and TCAP in the next 3 months. Morgan Keegan & Co., Inc. managed or co-managed a public offering for CODI, FDUS, HRZN, MAIN and TCAP in the past 12 months.

MK Performance Ratings:

O

= Outperform (Expected to outperform the S & P 500* over the next 12 months)

M

= Market Perform (Expected to perform in line with the S & P 500* over the next 12 months)

U= Underperform (Expected to underperform the S & P 500* over the next 12 months) *REITs' performance benchmark is total return relative to the NAREIT Equity Index.

For regulatory purposes, our ratings of Outperform, Market Perform and Underperform most closely correspond to Buy, Hold and Sell, respectively. MK Suitability Ratings:

S

= Speculative (Business or balance sheet risk materially above that of the average U.S. public company)

M

= Market Risk (Business or balance sheet risk not materially different from the average U.S. public company)

C

= Conservative (Business or balance sheet risk materially below that of the average U.S. public company)

Morgan Keegan Companies Rated:

Investment Banking Clients within last 12 months:

Outperform / Buy Market Perform / Hold Underperform / Sell Not Rated

55%

Outperform / Buy Market Perform / Hold Underperform / Sell Not Rated

16%

33%

9%

1%

50%

11%

2%

For purposes of the NYSE and NASDAQ, rating distribution disclosure requirements, our rating of Outperform, Market Perform and Underperform closely correspond to Buy, Hold and Sell, respectively.

ANALYST CERTIFICATION

The research analyst responsible for the preparation of this research report certifies that; (a) the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the subject security(ies) and issuer(s), and (b) no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report.

Twelve-month price targets for securities under coverage may be based upon various valuation metrics including without limitation: price/earnings ratios, price/sales ratios, discounted cash flow (DCF), relative multiples, sum of the parts, etc. Price targets are, as of the date of the report in which they appear, subject to change, and imply no guarantee of performance.

Research reports may contain a short-term trading idea which highlights near-term catalysts or events affecting the company, its competitors or the market that should have a short-term price effect on the company's shares. Short-term trading ideas are not related to a stock's performance rating, which focuses both on a longer-term return and attractiveness for investment relative to the relevant benchmark. Short-term trading ideas are different from performance ratings and, by their very nature, will be more positive or more negative than the performance rating. Research reports are not intended to provide personal investment advice and do not take into account the specific investment objectives, financial situation, or particular needs of any specific person. No security or investment strategy can suit all investors. Investors should seek financial advice regarding the appropriateness of their investing in any security or implementing any investment strategy discussed in a report and should understand that any statement in a report regarding future prospects may not be realized.

This research report is not intended to provide personal investment objectives, financial situation, or particular needs of any specific person. No security or investment strategy can suit all investors. Investors should seek financial advice

Morgan Keegan & Co., Inc.

Specialty Finance

Morgan Keegan & Co., Inc. Specialty Finance regarding the appropriateness of their investing in any security

regarding the appropriateness of their investing in any security or implementing any investment strategy discussed in this report and should understand that any statement in this report regarding future prospects may not be realized.

ADDITIONAL DISCLOSURES: The information contained in this report is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed.The opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Morgan Keegan & Co., Inc., a subsidiary of Regions Financial Corporation, and its officers, directors, shareholders and employees, and affiliates and members of their families may have positions in these securities and may, as principal or agent, buy and sell such securities before, after or concurrently with the publication of this report. Morgan Keegan & Co., Inc., member FINRA, SIPC, is a registered broker-dealer subsidiary of Regions Financial Corporation. Investments are NOT FDIC INSURED, NOT BANK GUARANTEED and MAY LOSE VALUE. For more information about Morgan Keegan disclosures, please go to https://mk.bluematrix.com/sellside/Disclosures.action To obtain a copy of the most recent disclosure information regarding the individual securities mentioned in this compendium report, please write to us at the following address:

Equity Research Department Attn: Director of Research Morgan Keegan & Co., Inc. 50 N. Front Street - 13th floor Memphis, TN 38103