Main Street Capital's Harvey Exposure

8/30/17

By Jordan Wathen, MotleyFool

Main Street Capital (NYSE:MAIN) operates out of the eighth floor of an otherwise nondescript building in Houston, Texas. As a small-business financier that provides debt and equity financing to companies in the surrounding areas, many of its portfolio companies are in its own backyard.

I calculate that approximately $89 million of its investments, which amount to 7.2% of the company's last reported book value, are in companies with headquarters or operations in Houston and the surrounding areas that have been hard hit by Harvey.

Company

Headquarters

Fair Value (in Thousands of Dollars)

American Shooting CentersHouston, TX$4,320
BBB Tank ServicesBaytown, TX$5,591
GMI GroupHumble, TX$11,247
Gulf Publishing CompanyHouston, TX$17,022
Harrison Hydra-GenHouston, TX$2,800
Hawthorne GlobalHouston, TX$2,320
Houston Plating & CoatingsHouston, TX$7,980
PPL RVsHouston, TX$29,780
River AggregatesConroe, TX$7,586
Rocaceia Energy ServicesVictoria, TX$250
Total$88,896
DATA SOURCE: COMPANY FILINGS, MAIN STREET CAPITAL IR, COMPANY WEBSITES. CHART BY AUTHOR.At this point in time, it's still too early to know just how much Harvey will impact the local economy and how these impacts will flow through to Main Street Capital's own profit and loss statement.

BBB Tank Services, which provides "maintenance, repair, and construction services to the above-ground storage tank market" is likely to be particularly busy as Houston recovers from Harvey. On the other hand, a trip to American Shooting Centers' gun range is an unlikely priority for people dealing with flooding in their homes and workplaces.

Main Street Capital Corporation Logo

IMAGE SOURCE: MAIN STREET CAPITAL.

Descriptions of each company appear in Main Street Capital's quarterly filings and are reproduced below.

Company

Description

American Shooting CentersRecreational and educational shooting facility
BBB Tank ServicesMaintenance, repair and construction services to the above-ground storage tank market
GMI GroupManufacturer of specialty fabricated industrial piping products
Gulf Publishing CompanyEnergy industry-focused media and publishing
Harrison Hydra-GenManufacturer of hydraulic generators
Hawthorne GlobalFacilitator of import logistics, brokerage, and warehousing
Houston Plating & CoatingsProvider of plating and industrial coating services
PPL RVsRecreational vehicle dealer
River AggregatesProcessor of construction aggregates
Rocaceia Energy ServicesProvider of rigsite accommodation unit rentals and related services

DATA SOURCE: MAIN STREET CAPITAL'S MOST RECENT 10-Q FILING. CHART BY AUTHOR.

PPL RVs -- by far Main Street Capital's biggest exposure -- notified its customers via Facebookthat there is "no damage at PPL to the building or any of the units. However, there is also no way to get onto the lot. It's an island. We will know more [Monday] morning about opening and keep everyone updated." The company was closed on Monday because of Hurricane Harvey, according to its website. PPL RVs is a recreational vehicle dealer that sells RVs on consignment, which is at least 50% owned by Main Street Capital, according to a presentation at its annual meeting.

Quantifying the impact

The Dallas Morning News summed up the potential losses from Harvey succinctly. Southeast Texas has at least $400 billion of residential property at risk from flood waters. The publication wrote the following in a blog post:

Harvey is likely to be one of the most expensive storms ever. Based on Census 2015 data (most recent available), the value of residential property in the eight counties of the Houston metro area exceeds $353 billion. The coastal counties from Beaumont to Corpus Christi add an additional $39 billion in residential value. This brings the value of residential property alone that is at risk from this storm to nearly $400 billion. The number grows when you consider the property within those structures, commercial property, and vehicles.

Disasters have knock-on effects that go far beyond damaged property -- from job losses to displaced people who choose to pack up their lives and move far away from the coasts after devastating losses.

It's likely that Main Street Capital will have a number of opportunities to put money to work locally when the floods die down, as businesses seek out capital to rebuild after the storm.

Of course, we wish the best for Houston and the fine people who call it home. But given Main Street Capital's outsize exposure to the area, investors who rely on its monthly dividends for income should be cognizant of its outsize exposure to investments in and around the Gulf Coast of Texas.

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