SWK Holdings Offers Attractive 9% Baby Bond

seekingalpha04-10

SWK Holdings offers a 9% coupon baby bond, which is currently trading close to par, making it a good choice for income investors.Despite a decline in revenues, SWK managed to increase its net profit ...

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The company provides financing and invests in intellectual property licensing through royalties. Recently, SWK announced the offering of a 9% coupon baby bond, SWK Holdings Corporation NT 27 (NASDAQ:SWKHL), which is callable in September 2025 and matures in January 2027. The baby bond is currently trading close to par, and I believe it is a good choice for income investors. Quantum Online SWK's income statement highlights the challenges and triumphs of the organization in 2023. Despite a 10% drop in revenues related to less earnings from finance receivables, the company managed to increase its net profit by $2 million. While the company saw a decrease in fair value expense, it also saw decreases in cash-based expenses like R&D and general and administrative expenses. Overall, expenses have remained under control. SEC 10-K SWK's balance sheet tells us more about the capital structure of the company. At the end of 2022, the company had virtually no debt, with only $2.5 million drawn on a revolving credit facility. SWK did draw an additional $40 million in debt during 2023 and essentially used those proceeds to increase its finance receivables. Despite the jump in borrowing, SWK's shareholder equity remained stable at $280 million in 2023. SEC 10-K From a cash flow standpoint, SWK does not have capital expenditures, so it only needs to generate positive cash flow from operations to sustain its debt service. The company grew its cash flow from operations to $14 million in 2023. The company used cash flow from operations, along with principal received on its loans and proceeds from its new debt, to reinvest back into its loans receivable. Overall, SWK is generating a healthy amount of cash to support its interest payments. SEC 10-K Investors need to be mindful of the risks to SWK prior to investing. First and foremost, while SWK does its best to protect itself by entering into first lien secured loans with its customers, the company does finance a space where companies are prone to boom-and-bust cycles. Secondly, the royalty purchases are worth keeping an eye on as their non-accrual status jumped to over 25% of the total royalty portfolio and overtook term loans despite being less than one-third of its size. SEC 10-K SEC 10-K  I do not see an imminent threat to SWK that would compromise the company's baby bonds. While SWK is investing in a risky industry with its royalty business underperforming, these are good reasons to avoid the common shares. The baby bonds would need to experience a default to be impaired. Because of this, the company's 9% yielding baby bonds are an attractive investment and source of income for investors.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426355146"}