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Solar Senior Capital: 9% Covered Yield With A 14% Discount To NAV

Published Sat, 17 Oct 2020 16:27:26 -0400 on Seeking Alpha

Seeking AlphaDividend Ideas | Financials Solar Senior Capital: 9% Covered Yield With A 14% Discount To NAVOct. 17, 2020 4:27 PM ET|| About: Solar Senior Capital (SUNS)by: Gen AlphaGen Alpha Long Only, Value, Growth, Growth At Reasonable PriceSummarySolar Senior Capital has had some headwinds in this recession, but has seen a partial recovery.
The senior loan structure helps to protect against losses, and 100% of the loans were performing at the end of Q2.
I expect to see steady performance for Q3, and find the shares to be undervalued, with an attractive 9% dividend yield.
The BDC sector remains a challenge from a shareholder return standpoint. As seen below, the VanEck Vectors BDC Income ETF (BIZD) has largely underperformed the S&P 500 (SPY), with a 29% decline since the start of the year.

(Source: YCharts)
While this may entice bargain hunters to start buying, I believe one should limit selections to high-quality BDCs with an adequate margin of safety. In this article, I’m focused on Solar Senior Capital (SUNS), which I believe is one such BDC. I evaluate what makes it attractive at the present valuation; so let’s get started.
A Look Into Solar Senior Capital
Solar Senior Capital is externally-managed by Solar Capital Partners and invests primarily in senior secured loans of private, middle-market companies. Its loan portfolio currently consists of 215 companies across 115 industries, with a portfolio fair value of $532M. I like the fact that 99% of the investment portfolio is invested in first-lien loans, which helps to shield against losses, as it is the last tranche of debt that a borrower would default against. It also helps to ensure recoverability in the event of a default.
As with most BDCs, the current operating environment has been challenging for Solar Senior Capital. This was evidenced by the 11% QoQ drop in NAV/share that the company saw in Q1. I’m encouraged, however, to see that NAV/share recovered somewhat in Q2,... Read more