I'm not sure Triangle Capital Corporation's (NYSE:TCAP) recent earnings numbers could have been any worse. Really.

It reported net investment income of $0.51 per share against a $0.54 quarterly dividend rate in the third quarter. But that says nothing about the underlying losses. Triangle Capital reported that it experienced net unrealized depreciation (writedowns on its investments) of more than $29 million, or roughly $0.88 per share.

What's going on?
Triangle's woes are focused in a handful of its portfolio companies. Four portfolio companies experienced significant depreciation as a percentage of cost from last quarter.

Portfolio Company Name

FV as Percentage of Cost Last Quarter

FV as a Percentage of Cost This Quarter

Tomich Brothers






PowerDirect Marketing



CRS Reprocessing



In total, these four companies have a fair market value that is $26.5 million lower than last quarter, making up substantially all of the company's reported unrealized depreciation.

Where's the problem?
To be fair, Triangle Capital's management team was more than forthright on the conference call, providing as much information as they could to analysts.

  • CRS Reprocessing lost its largest customer as that customer suspended operations to restructure. Triangle hopes the restructuring will bring back this key customer.
  • PowerDirect Marketing had single customer exposure to a large utility firm. The Ohio legislature passed a law that eliminated one of the company's marketing programs, and thus a key source of revenue. While it has other customers, Triangle noted that its full recovery wouldn't come unless the law was reversed, which appears unlikely.
  • PartsNow implemented a new ERP system, which didn't go over well. The private equity firm that backed its buyout does not plan to support the company going forward. Triangle Capital believes it is a good company, however, and is committing new money to preferred equity in the business.
  • Tomich Brothers is a commercial fishing company that experienced "catch and refrigeration issues." Gross. The company believes there was a rather substantial impairment, given its massive unrealized depreciation this quarter.

What's concerning is that these issues emerged largely from a single source: customer concentration. CRS Reprocessing and PowerDirect lost their biggest customers. PartsNow and Tomich Brothers were backed by the same private equity sponsor, and thus backed by the same customer of Triangle Capital.

The company noted that customer concentration issues were not a systemic problem with its portfolio. And its management team also pointed out that it didn't have any other investments sourced from the same private equity sponsor, which is good, given the executive team lambasted the sponsor's lack of communication about material problems developing at both portfolio companies.

What's the future look like?
It's tough to make a forward projection, especially with 8.3% of assets at cost on non-accrual. However, bad news does tend to cluster. When you know you're going to miss earnings, it makes sense to be ultra conservative, take the losses now, and hope to revise the losses upward in the following quarter.

Though it's tough to dismiss this as just a bad quarter, it really was a bad quarter. Historically, Triangle Capital's gains easily exceed its losses. Including the losses this quarter, Triangle Capital has generated $80 million in realized gains, against roughly $30 million in unrealized losses. It's still ahead overall, but it shouldn't go without some additional scrutiny from investors going forward.