After months of pursing a strategic review looking for alternatives to increase the company’s value, management has struck a deal to sell it. Today Crescent Capital BDC and Alcentra Capital (NASDAQ:ABDC) announced that they have entered into a definitive merger agreement under which Crescent BDC will acquire Alcentra Capital for $11.02 per share (the portfolio’s current NAV). This will be by a combination of $3.18 in cash, and stock in the new public company to be formed by the merger.
In detail, in exchange for approximately 12.9 million shares of Alcentra Capital common stock, Alcentra Capital’s stockholders will receive approximately (i) $19.3 million in cash, or $1.50 per share, from Crescent BDC; (ii) 5.2 million shares of Crescent BDC common stock; and (iii) $21.6 million in cash, or $1.68 per share, from CBDC Advisors, LLC, Crescent BDC’s investment adviser. Any final dividend that Alcentra Capital must pay in connection with the closing of the transaction to comply with applicable tax requirements that is in excess of Alcentra Capital’s regular quarterly dividends will reduce the cash consideration to be paid by Crescent BDC on a dollar-for-dollar basis. The total cash and stock consideration to be received at closing is currently estimated to be approximately $141.9 million after taking into account certain post-closing adjustments.
The transaction is expected to close in the December quarter. The Committee of Independent Directors, the independent directors of Crescent BDC, and the boards of directors of both companies, have all unanimously approved it.
The combination should create a top-15, externally managed, publicly traded BDC with significantly increased market presence, and improved economies of scale. The merged company is estimated to have over $500 million of net assets and a portfolio in excess of $900 million. There will be enhanced portfolio diversification consistent with Crescent BDC’s and Alcentra Capital’s strategy of maintaining a senior secured first lien-focused portfolio. Management plans to facilitate a dividend policy designed to over-earn a quarterly $0.41 dividend per share, further strengthen Crescent BDC’s balance sheet, and augment access to growth capital.
It will be run under best-in-class fee structure with reduced base management fee rates and increased hurdle rates:
• Annual base management fee rate reduced from 1.50% to 1.25%;
• Six quarters of base management fee waivers, so that only 0.75% will be charged for such time period;
• Annualized incentive fee hurdle increased from 6% to 7% while maintaining a 17.5% income incentive fee;
• Six quarters of full waivers of the income-based portion of the incentive fee.
Crescent BDC and Alcentra Capital will be holding a joint conference call to discuss the transaction today, August 13, 2019, at 4:15 p.m. ET.
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