The trend on all ratings is Stable. DBRS Morningstar also assigned an Intrinsic Assessment (IA) of BBB to SUNS and a Support Assessment of SA3, resulting in SUNS' final ratings to be positioned in line with its IA.
KEY RATING CONSIDERATIONS
The ratings and Stable trend reflect the Company's sound franchise lending to
While the Company has multiple bank facilities to fund originations across its cash flow and asset-based lending businesses, the funding profile is considered narrow and a constraint on the ratings. Further, as a business development company (BDC), the Company's inability to retain its organic capital to support balance sheet growth is also a ratings constraint. The Stable trend reflects that while
RATING DRIVERS
Diversification of SUNS' funding profile that results in greater unencumbrance of the balance sheet could have positive implications for the ratings. Furthermore, continued strong earnings generation, low levels of nonaccruals and disciplined balance sheet leverage could benefit the ratings.
An increase in the Company's risk appetite or a deficiency in risk management that results in asset performance to weaken materially from historically strong performance could result in negative pressure on the ratings. A sustained and notable increase in leverage that exceeds the current leverage targets would likely have negative implications for the ratings.
RATING RATIONALE
SUNS' franchise is viewed as sound. It benefits from SUNS' relationship with SCP. The Company also benefits from access to SCP's well-established and seasoned management team, origination platform, investing expertise, and underwriting and investment monitoring capabilities. At
SUNS has received co-investment exemptive relief from the
SUNS has four investment strategies, including traditional cash flow lending to upper middle market companies. The other three investment strategies are unique to peers and utilize the non-qualified asset basket. As of
SUNS' investment in
SUNS' investment in
In 3Q19, SUNS began to report its Life Sciences portfolio as a separate unit. The Life Sciences portfolio is modest but is expected to grow over time given SCP's established presence in the market. At
Credit performance at SUNS has been strong and better than the peer average demonstrating SCP's disciplined and conservative investment strategy combined with underwriting that has been tested through several business and economic cycles. The Company's comprehensive portfolio is primarily first lien senior secured loans across a wide range of industries and generally avoids cyclical industries. The comprehensive portfolio totaled approximately
SUNS' earnings generation has been consistent with the Company reporting an annual profit each year since inception in 2011. Revenues are predominately from interest income and largely recurring in nature, with dividend income a larger component of revenue than at peers. While DBRS Morningstar generally views dividend income as potentially a more volatile source of income, DBRS Morningstar notes that most of SUNS' dividend income comes from Gemino and North Mill, which are essentially pass-through entities that upstream their earnings quarterly to SUNS and thus are a more reliable source of income. Through 9M19, annualized net investment income as a percentage of the average investment portfolio at cost during the year continues to be solid at 4.86%, and has averaged 5.1% since 2013, which is consistent with the ratings per DBRS Morningstar methodology. DBRS Morningstar expects the Company's net investment income generation to continue to strengthen as SUNS invests available capital into its four core investment strategies and gradually increases leverage towards its target range.
Balance sheet leverage (debt-to-equity) is well-managed and is currently in line with the DBRS industry peer average. At
SUNS is reliant on bank facilities for financing. As such, DBRS Morningstar considers the funding profile as narrow and a ratings constraint. However, the bank facilities are considered adequately diversified to fund both the cash flow lending as well as the asset-based lending businesses. Liquidity is managed appropriately. SUNS had approximately
Notes:
All figures are in
The principal methodology is Global Methodology for Rating Non-Bank Financial Institutions (
The primary sources of information used for this rating include Company Documents and
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
For more information on this credit or on this industry, visit www.dbrs.com.
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
11-Dec-19 Long-Term Issuer Rating New Rating BBB Stb US
11-Dec-19 Long-Term Senior Debt New Rating BBB Stb US
ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.
(C) 2019 Electronic News Publishing, source