First Eagle Alternative Capital BDC, Inc. (FCRX) is a direct lender to middle market companies, primarily investing in first lien senior secured loans, including unitranche investments. The company has a diversified portfolio across various industries, with a focus on healthcare, business services, and technology sectors. Over the years, First Eagle Alternative Capital BDC has demonstrated its ability to navigate the dynamic middle market landscape, drawing on its extensive experience and specialized expertise.
Company History and Evolution First Eagle Alternative Capital BDC, Inc. was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. The company commenced principal operations on April 21, 2010 after completing its initial public offering. The company's investment activities are managed by First Eagle Alternative Credit, LLC and supervised by its board of directors.
The company's investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of middle market companies. Since April 2010, the company has been responsible for making over $2.6 billion in aggregate commitments into 182 separate portfolio companies through a combination of initial and follow-on investments. During this time, the company and its managed funds have received $2 billion of gross proceeds from the realization of investments.
Over the years, the company has faced some challenges. In 2021, the company redeemed its 2022 Notes and 2023 Notes, recognizing a loss on the extinguishment of debt. The company has also had to manage a portfolio of unsponsored investments, which it has worked to restructure and ultimately exit. Additionally, the company has had to navigate the uncertainty caused by the COVID-19 pandemic and its impact on its portfolio companies.
Despite these challenges, the company has continued to actively manage its investment portfolio. As of September 30, 2022, the company had $363.2 million of portfolio investments at fair value, diversified across various industries. The company's investment portfolio is primarily comprised of first lien senior secured debt investments, with floating rate loans making up 96.7% of the debt investments based on fair value.
Financial Performance and Ratios As of September 30, 2022, First Eagle Alternative Capital BDC had a total investment portfolio of $363.2 million at fair value, a decrease from $392.1 million as of December 31, 2021. This decline was primarily attributable to a decrease in the fair value of the company's controlled portfolio investments, as well as a decrease in the fair value of its investment in Matilda Jane, a non-controlled portfolio company.
The company's portfolio is diversified across various industries, with the largest exposures in healthcare pharmaceuticals (22.6% of the total portfolio), investment funds and vehicles (13.3%), and business services (16.2%). Geographically, the portfolio is concentrated in the Northeast (48.6%), Midwest (14.8%), and Southeast (32.5%) regions of the United States.
As of September 30, 2022, the weighted average yield on the company's debt investments, including the Logan JV, was 8.2%, compared to 6.5% as of December 31, 2021. This increase was primarily driven by rising benchmark interest rates and the expansion of the company's portfolio. Excluding restructured loans, the weighted average yield on debt investments was 8.7% as of September 30, 2022.
For the most recent quarter, FCRX reported revenue of $49 million and net income of $20.4 million. The company's first lien senior secured debt investments, which comprised 84.4% of the total portfolio at fair value as of September 30, 2022, had a weighted average yield of 9.2%, up from 6.8% as of December 31, 2021. This increase was primarily due to rising benchmark interest rates.
Second lien debt investments made up 1.9% of the total portfolio at fair value as of September 30, 2022, down from 3.3% as of December 31, 2021. The weighted average yield on these second lien debt investments was 0.0% as of September 30, 2022, as the company did not hold any non-restructured second lien debt at that time.
Equity investments represented 0.4% of FCRX's total portfolio at fair value as of September 30, 2022, down from 0.8% as of December 31, 2021. The company's objective is to continue reducing its non-income producing equity investments in 2022 and beyond.
Liquidity and Solvency First Eagle Alternative Capital BDC maintains a diversified funding structure, including a revolving credit facility and public note offerings. As of September 30, 2022, the company had $222.3 million in total borrowings outstanding, with a weighted average interest rate of 5.22%. The company's asset coverage ratio, a measure of leverage, stood at 168% as of September 30, 2022, well above the regulatory minimum of 150% required for business development companies.
The company's liquidity position remains strong, with $5.7 million in cash and access to $64.3 million in available borrowing capacity under its revolving credit facility as of September 30, 2022. The company's cash flow from operations, combined with its borrowing capacity, provides ample liquidity to fund its investment pipeline and meet its obligations.
Investment Strategy and Portfolio Composition FCRX's investment in the Logan JV, a joint venture that invests primarily in senior secured first lien term loans, represented 12.5% of its total portfolio at fair value as of September 30, 2022, down from 18.6% as of December 31, 2021. This decrease was due to both a decline in the fair value of the investment, as well as a $12.8 million return of capital received in July 2022.
The company's portfolio has seen a shift towards a higher concentration in first lien senior secured debt investments, which now make up a larger portion of the total portfolio. This strategic shift, along with the company's focus on reducing its non-income producing equity investments and managing its exposure to the Logan JV, suggests an effort to reposition the portfolio towards its core income-generating assets.
Navigating Market Challenges First Eagle Alternative Capital BDC has demonstrated its ability to navigate various market conditions and challenges over the years. During the COVID-19 pandemic, the company proactively worked with its portfolio companies to provide necessary support and maintain portfolio resilience. The company's diversified industry exposure and focus on senior secured lending have helped mitigate the impact of economic disruptions.
More recently, the company has been navigating the challenges posed by rising interest rates and inflationary pressures. The majority of the company's debt investments (96.7% as of September 30, 2022) are floating-rate, which has helped offset the increase in borrowing costs. Furthermore, the company's disciplined underwriting and active portfolio monitoring have allowed it to identify and address any potential issues arising from the current economic environment.
Outlook and Future Prospects Looking ahead, First Eagle Alternative Capital BDC remains focused on executing its investment strategy and continuing to build a diversified portfolio of middle market companies. The company's experienced management team and specialized expertise in the direct lending space position it well to identify attractive investment opportunities and manage risk effectively.
The company's recent amendment to its revolving credit facility, which increased the size of the facility and extended the maturity date, further enhances its financial flexibility and liquidity to support its ongoing investment activities. Additionally, the company's focus on first lien senior secured loans and its conservative leverage profile provide a solid foundation for navigating potential market volatility.
Conclusion First Eagle Alternative Capital BDC has established itself as a prominent player in the middle market lending landscape, leveraging its specialized expertise and disciplined investment approach to navigate various market conditions. The company's diversified portfolio, strong liquidity position, and proactive risk management strategies have enabled it to weather economic challenges and position itself for continued growth and success. As the middle market landscape continues to evolve, First Eagle Alternative Capital BDC remains well-equipped to identify and capitalize on emerging opportunities while maintaining a prudent and risk-aware investment philosophy.