Financial Services


Jonathan C. Rich

Executive Vice President, Head of Investment Banking

A 20 year veteran of Wall Street, Mr. Rich is the Head of Investment Banking and an Executive Vice President at National Securities since 2009. Mr. Rich worked for First Colonial Securities Group, a 13 office, 150 employee regional firm based out of Florida and New Jersey, first as a Senior Vice President and then as Managing Director in its Corporate Finance Department. Since his tenure at National, the team at National has been responsible for successfully sourcing, structuring and completing capital markets transactions within the healthcare, technology, energy and financial services sectors for emerging growth issuers with total transaction volume in excess of $3 billion. Mr. Rich received his M.B.A. from Fordham University Gabelli School of Business and his B.A. from Tulane University. Mr. Rich holds his Series 4, 7, 24, 53, 63 and 79 licenses.

Financial Services Sector Expertise

The Financial Services sector is a key vertical for National, with a team of banking professionals highly regarded for their deep industry expertise and relationships. Our investment banking activity in this sector mainly includes privately held and publicly traded BDCs, specialty lenders, mortgage REIT’s, investment funds and SPVs focused on equity and debt investments providing competitive yields in a low interest rate environment.

In the past six years, National has led or participated in 100+ transactions including private placements, IPOs, Follow-Ons, CMPOs, RDOs, PIPEs, M&A, and financial advisory.

Completed Transactions


Christopher Testa

Managing Director, Head of Research

Christopher Testa joined National Securities in September 2014 as an equity research analyst covering Business Development Companies (BDC's). Prior to joining National, Chris worked in equity research at Sidoti & Company, LLC covering mortgage and specialty finance. His career began at Boston Provident, LP, a long/short hedge fund specializing in financial services companies where Chris focused primarily on banks, mortgage servicers, and REITs (both equity & mortgage). Chris holds an M.S. in Finance from Pace University, Lubin School of Business and a B.S. from Pace University.

    Financial Services Sector Coverage

    National has a robust and diverse coverage of financial institutions companies with a particular focus on Business Development Companies (BDCs) and Registered Investment Companies (RICs).

    BDCs in particular have grown in number, size, and popularity as US banks have come under increasing regulatory pressure that has curtailed their lending activities and permitted non-bank lenders to thrive in their place. We believe that through independent portfolio analysis, manager selection, assessment of accounting practices, and an examination of capital management policies, investors can continue to find attractive opportunities in the space.

    Apollo Investment Corp. (AINV: Neutral, $6 PT)

    November 1, 2018–  For fiscal 2Q19, Apollo earned $0.15/share of NII, matching our estimate as well as the quarterly dividend. NAV/share was flat on the quarter with realized losses of $8.1 million partially offset by $3.9 million of realized gains.

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    Ares Capital Corp. (ARCC: Buy, $19 PT)

    November 1, 2018–  ARCC posted a very strong $0.45/share of core NII in 3Q18, four cents above our $0.41 estimate. The beat was largely due to capital structuring service fees from non-affiliate investments which we modeled to be $23.8 million for the quarter but came in at $39.0 million.

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    Barings BDC Inc. (BBDC: Neutral, $13 PT)

    August 6, 2018– Barings officially took over TCAP with the ticker and name change now official. The company announced the date of the distribution to be paid for the management contract and also filed for redemption of notes outstanding. As previously stated, we think Barings has a significant advantage with getting a clean slate BDC to invest with from the start. The company will begin to invest in liquid credits initially in the ramp up phase before recycling those assets into direct originations, which is the point at which we think it is likely the BDC’s shares improve where they trade on a NAV-basis.

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    Capital Southwest Corp. (CSWC: Buy, $23 PT)

    August 13, 2018–  For fiscal 1Q19 CSWC earned core NII/share of $0.31, matching our estimate and exceeding the base dividend by $0.02/share. The company declared a $0.60/special dividend for the quarter pertaining to the sale of Titan Liner for which the company realized a gain of $18.6 million or $1.15 per diluted share.

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    Eagle Point Credit Company (ECC: Buy, $24 PT)

    August 16, 2018– For 2Q18 ECC earned NII+realized gains (earnings) per share of $0.34 versus our estimate of$0.35. The earnings were lower due to the $0.20/share impact of the issuance of the ECCX notes (with debt issuance costs being recognized up-front as opposed to amortized over the expected life) as well as the costs associated with the redemption of ECCZ notes.

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    FS Investment Corp. (FSIC: Buy, $11 PT)

    August 13, 2018– FSIC posted adjusted NII/share of $0.19 for 2Q18, two cents shy of our estimate and in-line with the quarterly dividend. The portfolio at cost shrank by $66.6 million Q/Q to $3.66 billion from $3.73 billion. Additionally, despite the portfolio shrinking, prepayment-related income (acceleration of unamortized OID and fees) was minimal during the quarter which also had a negative impact on earnings.

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    Garrison Capital Inc. (GARS: Buy, $11 PT)

    August 13, 2018– Garrison earned adjusted NII/share of $0.27, a penny shy of the quarterly dividend and 3 cents below our estimate. The company is expected to resume earning its incentive fee in 4Q18 which would likely induce a dividend cut.

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    Gladstone Capital Corp. (GLAD: Neutral, $7 PT)

    November 6, 2018–  Gladstone offered five-year, 6.125% unsecured notes with a base amount of $50.0 million. Underwriters were granted a $7.5 million (15%) overallotment option which we anticipate will be exercised in full. We think this is a good means for GLAD to further term out its liabilities, given it is currently funded with a revolver, term preferred maturing in 6/2021, and term preferred maturing in 9/2024. The biggest news, and the reason for our downgrade and reduced price target, is Francis Drilling Fluids. Francis previously had its debt investments marked at 76.2% of cost and 75.9% of cost at 6/30/18.

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    Goldman Sachs, BDC, Inc. (GSBD: Buy, $23 PT)

    November 5, 2018–   For 3Q18, GSBD posted $0.54/share of NII, three cents above our estimate and comfortably above the $0.45/share quarterly dividend. Sales and repayments totaled $111.1 million on the quarter, up from $78.8 million Q/Q and we expect that this increased prepayment activity drove acceleration of unamortized OID and the earnings beat.

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    Golub Capital BDC. Inc. (GBDC: Buy, $21 PT)

    August 13, 2018–  For fiscal 3Q18 Golub earned core NII/share of $0.32, matching both our estimate and the quarterly dividend. We expect that earnings will be generally flat through fiscal 2019 as the company remains very disciplined in its approach to credit and funding costs are not low enough for current and expected yields on investments to improve NII/share meaningfully, as we see it.

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    Horizon Technology Finance Corp. (HRZN: Neutral, $11 PT)

    November 2, 2018– Horizon posted NII/share of $0.30 for 3Q18, matching both our estimate as well as the quarterly dividend. The company had $24.2 million of originations versus sales and repayments of $11.9 million.

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    Main Street Capital Corp. (MAIN: Neutral, $38 PT)

    November 5, 2018– Main Street posted NII/share of $0.63 for 3Q18, matching our estimate and comfortably ahead of the$0.57/share regular quarterly dividend. The company guided towards DNII/share (NII + share-based compensation) of $0.63-$0.65 for 4Q18, which we think is a roughly $0.04/share difference from NII (NII/share likely $0.59-$0.61).

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    Medley Capital Corp. (MCC: Neutral, $3 PT)

    August 15, 2018– MCC earned $0.02/share of NII, drastically below our estimate of $0.13 and the dividend of $0.10. The company still declared a $0.10/share dividend going forward, although we do not expect that earnings would be above $0.05/share if MCC were to remain a standalone entity.

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    Monroe Capital Corp. (MRCC: Neutral, $13 PT)

    November 9, 2018–   Monroe earned adjusted NII/share of $0.38 for 3Q18, two cents above our estimate and three cents above the quarterly dividend. However, the earnings beat came from the incentive fee not being earned at all during the quarter, which we model to have positively impacted earnings by $0.07/share.

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    Oaktree Specialty Lending Corp. (OCSL: Neutral, $5 PT)

    August 13, 2018–  Oaktree earned $0.10 for the 6/30/18 quarter versus our estimate of $0.11 and the quarterly dividend of $0.095/share which was held flat with the quarter prior. The company continues to rotate out of legacy Fifth street assets at a brisk pace with $536.0 million in non-core assets exited at par or above marks. Of this total $179.0 million was sold alone in fiscal 3Q18 with $42.0 million of the total being non-interest bearing, with $135.0 million of non-interest-bearing assets remaining.

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    OFS Capital Corp. (OFS: Buy, $15 PT)

    November 5, 2018–  OFS earned $0.35 of NII/share for 3Q18, matching our estimate and exceeding the quarterly dividend by a penny. We think that earnings will be up a couple cents in 4Q18 as a result of OID acceleration before further portfolio growth and balance sheet leverage increasing through 2019 drive further earnings growth.

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    Oxford Square Capital Corp. (OXSQ: Sell, $5 PT)

    November 5, 2018–  For 3Q18, OXSQ posted estimated core NII/share of $0.20 versus our estimate of $0.19. Core numbers were not provided during the quarter in both the 8-K as well as the presentation and we are not sure why. However, we added back the $1.2 million in CLO equity reductions to cost in order to approximate estimated additional taxable income (EATI) and arrive at our core figures. This is unusual as OXSQ has reported this number consistently and dividend payout requirements for ’40 Act companies is based upon taxable income, not GAAP earnings or NII.

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    Prospect Capital Corp. (PSEC: Sell, $4 PT)

    August 31, 2018–  PSEC earned NII/share of $0.22 for fiscal 4Q18 versus our estimate of $0.19 and the dividend of$0.18. Interest income from control investments jumped to $56.1 million from $45.9 million sequentially Q/Q and CLO equity income increased to $34.7 million from $31.3 million Q/Q. While we can understand that resets and refinances in prior quarters drove increased GAAP effective yield on CLO equity and thus more income, we think a quarterly increase of 22% in interest income from controlled investments is worthy of significant skepticism.

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    Saratoga Investment Corp. (SAR: Neutral, $24 PT)

    October 15, 2018–  Saratoga posted adjusted NII/share of $0.69 for fiscal 2Q19, significantly above our estimate of$0.51 and consensus estimates of $0.54. The company recognizes 100 bps of the traditional 200 bps origination fees up-front, which is primarily why “other income” increased to $566K from$280K Q/Q.

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    Solar Capital Ltd. (SRLC: Buy, $25 PT)

    November 6, 2018–  Solar posted $0.44/share of NII for 3Q18, above the $0.41/share quarterly dividend but short of our $0.46/share estimate.  The portfolio at fair value was up modestly on the quarter to $1.41 billion from $1.40 billion Q/Q. The company has been and we expect will likely continue to be one of the most disciplined underwriters in the BDC sector.

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    StoneCastle Financial Corp. (BANX: Buy, $25)

    November 5, 2018–   BANX posted NII/share of $0.40 for 3Q18, 2 cents per share shy of our estimate but comfortably above the $0.40/share quarterly dividend. The earnings were below our expectations due to the portfolio being flat on the quarter.

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    TCP Capital Corp. (TCPC: Buy, $19 PT)

    August 13, 2018– For 2Q18, TCPC earned NII/share of $0.41, a penny above our estimate and well above the$0.36/share quarterly dividend. TCP has not earned less than $0.37/share since 2Q13. We regard the dividend policy as too conservative, but nonetheless respect TCP avoiding a situation where the dividend might have to potentially be cut. As a result, we don’t expect a base dividend increase unless credit spreads widen materially and for a sustained period of time.

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    THL Credit, Inc. (TCRD: Neutral, $10 PT)

    August 14, 2018–  TCRD earned NII/share of $0.31 for 2Q18, above our estimate of $0.28 and the quarterly dividend of $0.27. The beat was primarily driven by prepayment-related income as accretion of discounts and other fees increased to $1.2 million from $700,000 Q/Q and prepayment premiums increased to $300,000 from $100,00.

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    TPG Specialty Lending, Inc. (TSLX: Buy, $21 PT)

    August 6, 2018–  TPG earned $0.56/share of NII versus our estimate of $0.46 as a result of the prepayment of the iHeart Communications ABL which we had previously modeled to prepay in 3Q18. The company will likely earn less prepayment-related income such as fees and accelerated unamortized OID in 2H18, in our opinion, as we expect prepayments to slow down.

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    XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT: Buy, $13 PT)

    October 29, 2018–  We are initiating coverage on XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) with a BUY rating and $13 price target. The company is sub-advised by Octagon Credit, a leading CLO and credit investor in the US. Despite the small size of XFLT, it is worth noting that Octagon Credit has just over $20 billion of AUM and is thus able to leverage its extensive knowledge of credit markets for the benefit of XFLT shareholders. Octagon has been a top five CLO issuer since the financial crisis.

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