TRIANGLE TUMBLE: Heirs of iconic Raleigh families, Garland Tucker III and Ashton Poole split over the direction of their much-lauded financing business.

• Author: Dykes, David

In 2013, Garland Tucker III, with inside-the-beltway credentials to match anyone in North Carolina's capital city, had a good thing going at Raleigh-based lender Triangle Capital Corp. He was on his way to earning more than $2 million a year, his dividend-rich company was producing market-leading returns and he'd gained a reputation as an innovator in the "business development company," or BDC, industry. Baltimore-based money manager Bill Miller IV, son of famed investor Bill Miller, bought a significant stake in the company, citing a "spotless" loan portfolio.

Inside the company's offices near the Carolina Country Club, however, there was a simmering debate.

Some Triangle investment managers warned that the strategy of financing businesses with revenues of $20 million to $300 million, in return for relatively high-cost loans, was becoming less attractive. With recession fears fading, money was flooding into the financial markets, enabling lesser-capitalized businesses in virtually every industry to receive loans at more attractive rates. For BDCs like Triangle, investment opportunities were tightening, suggesting more risk for lower returns.

Tucker joined in the debate with senior colleagues including President Ashton Poole, a Raleigh native who had joined the company that year after nearly two decades as a Wall Street investment banker; Chief Investment Officer Brent Burgess, who co-founded Triangle with Tucker; and Steve Lilly, the company's chief financial officer since 2005. At issue was how Triangle could keep growing in a more competitive lending market.

None of the four executives will discuss the deliberations, but Triangle's financial reports reflected a continuation of the strategy that had made Triangle one of the more profitable, highly rated BDCs. Over the next two years, Triangle invested heavily in so-called "mezzanine" debt, which is lower in priority for repayment than more senior loans. Mezzanine financing is a hybrid of debt or equity considered riskier--and often more lucrative--than bank loans secured by assets or owners' personal guarantees. In the case of a default, mezzanine investors such as Triangle may convert their stake into a bigger ownership position. However, senior lenders typically must be paid back first.

Publicly, Poole praised the approach. "We are the most active mezzanine platform in the country, one office based in Raleigh, North Carolina," he told WRAL in February 2016, the day he succeeded Tucker as Triangle's CEO. "When you have that position in the marketplace--and our business is nationwide and not just Southeast-based--when you have that kind of flow and that kind of capital, it's the perfect intersection."

Nearly two years later, in a contentious conference call with analysts, Poole offered a different historical view. "Unfortunately, the strategic decision was made not to move off balance sheet in a meaningful way," Poole said, referring to the company's 2014-15 loan portfolio that included several troubled credits. "In the process of doing so, we added incremental exposure to a number of riskier credits, many of which are now underperforming."

Poole made the comments in November after...