Kcap Financial, Inc. (NASDAQ:KCAP)

Kohlberg Capital is an internally managed, closed-end investment company. Its investment objective is to generate current income and capital appreciation from the investments made by its middle market business in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle market companies. But it may also invest up to 30% of its capital in other investments, such as loans to publicly-traded companies, high-yield bonds, distressed debt securities and securities issued by collateralized debt obligation. Currently it has approximately $1.6 billion of assets under management.

The company runs the risk of no operating history and no experience to manage a business development company. Moreover it operates in a highly competitive market for investment opportunities and hence if it is unable to source investments effectively then it may be unable to achieve our investment objective. But management believes it successfully competes with other providers of capital in the markets as the company is internally managed and has experienced skilled management. Besides it has multiple sources of loans, like mezzanine investments and equity investments & disciplined investment process which includes rigorous credit review as well as due diligence. Also Katonah Debt Advisors will serve as a source of direct investment opportunities and cash flow.

Company recently acquired Katonah Debt Advisors which will add to its portfolio more business and larger customer base. In December 2006, it completed an IPO and used the net proceeds of the offering to acquire a portfolio of approximately $185 million in aggregate principal amount of senior secured loans that were originated during 2006 by Katonah Debt Advisor’s middle market lending group. Company recently declared a cash dividend of $0.29 per share payable in April and the new dividend reinvestment plan provides for reinvestment of the dividends on behalf of the stockholders, unless a stockholder elects to receive cash. Hence looking at the recent developments the business of the company seems potentially strong.