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Daniel R Moore

 
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  • PennantPark Investment - An Irrational Reach For Yield [View article]
    My point is the risk of the equity, not that it is good or bad. In a rational world, you expect a greater return when you own equity, not less...unfortunately when you oversupply a shadow banking market with cash from people who are moving money from risk free accounts into these type of company's in hope of finding a magical return on capital, markets get distorted. So, in a sense, 100% equity in the situation that is brewing, will not be a good place to be. That is the warning I am giving to income investors.
    Apr 6 09:49 AM | Likes Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    I commented on / analyzed WHZ in a recent article:

    http://seekingalpha.co...

    I have not done an in-depth review of WHX - it is very close to end of life, so you have to run the numbers carefully to see if you will get back what you invest, plus a return.

    The Whiting Trusts are pretty simple. You are essentially taking a position in oil at an expected price level over a set time horizon. The WHZ trust today at $13.50 is trading today at an implied 10% return at approximately $87 bbl oil through the end of life of the trust - Dec 2021. The current price decline trend is reflecting the deflation expectations that I see building right now, and the resulting declines in the oil future price forecasts this past week. Any positions taken at this point would need to match your expectations about oil prices the next 5-10 years.
    Apr 5 11:10 AM | 1 Like Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    Yes, I am aware of what is said in earning calls. As long as the company can talk up its stock value and keep selling shares at a premium to fund more loans, covering past sins (such as the noted re-structures last quarter) is easy. It doesn't change the real world challenges faced in lending money and expecting to get it back 5 years from now in this market right now with all of the competition for deals. That is what investors are entrusting these money managers to do, and the odds are definitely not in favor of superior results at the present time if low quality loans are made at ever lower interest rates.
    Apr 4 04:32 PM | Likes Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    I think I agree with you on rate increase risk presently. Interest rate risk is not the leverage / structural credit risk I see in the BDCs that investors need to be more concerned with right now. In fact, I think BDCs / junk bonds will do okay in a rate increase world, if rates were to rise due to growth and / or inflation driven scenario. The bigger concern with BDC leverage is a deflation scenario where asset prices fall. The loans being extended by PennantPark are currently priced at a premium thanks in part to Fed policy, and any re-valuation caused by the Fed withdrawing QE or raising rates (slightly less likely right now) can potentially cause the company to run up against structural credit limitations - and eventual margin calls. This is the real danger of a highly leveraged BDC, particularly since they hold illiquid debt and equity investments. At this point in the business cycle, I look for a much bigger cushion in the leverage of these companies.
    Apr 4 04:23 PM | Likes Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    Statement has been update - a BBB- rating reflects investment grade, but with caution. The caution in the case of PNNT is due to the weak recovery position unsecure creditors to PNNT have behind secure major bank creditor positions which are expandable, and the SBA facility which does not have to be counted in the asset coverage ratio. It also, in my opinion, reflects on the history that PNNT has in over extending its leverage.
    Apr 4 02:33 PM | Likes Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    A good time to buy low and sell high. The 5 year share price rates of return, however, are not sustainable. I am well aware that share performance over this time period caused by the market tanking in 2008 created major upside potential for shareholders who bought at the bottom. However, what I wanted to point out in the article, analytically, is that the true underlying value of the assets owned by the company over the same time period performed quite differently. Accounting for actual losses in net asset value due to loan performance, and then taking into consideration the distributions, the return you can expect from a finance company BDC will usually be something in the order of Current Yield minus Bad debts minus share dilution (or plus if the shares can be sold at a premium). It is just how the math works. If the shares ever do tank to well below net asset value again - by all means I advise investors to jump right in when the "blood is on the street" to use an overused term. I am not currently predicting such an event - but you never know with the current world banking shenanigans.
    Apr 4 02:21 PM | 1 Like Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    I appreciate your dilemma about what to do with shares now owned. One rule I use is make sure any changes in positions that were established in a particular asset class are made into a (hopefully) better position. If you are in a particular BDCs today and are uncomfortable with one company's performance and they seem expensive - move to the less expensive play. If you don't like BDCs any longer, then reallocate. My article is advising to avoid any new positions that are established above net asset value at a minimum in this asset class due to the overheated nature in the lending market. This is because you are essentially supplying money at a premium to BDCs who are investing it in assets that are likely to depreciate in value near-term. Seems irrational to me.
    Apr 4 02:04 PM | 1 Like Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    Point taken - it is not rated by S&P or Moody's. I will update to show the Fitch BBB- rating since the offering.
    Apr 4 01:15 PM | Likes Like |Link to Comment
  • PennantPark Investment - An Irrational Reach For Yield [View article]
    I find that most BDCs that do SBA lending apply for and receive the exemption. FSC which is referenced in the article, has the exemption. PSEC does not have an SBA subsidiary. I personally agree with the "seems insane" comment.
    Apr 4 01:09 PM | Likes Like |Link to Comment
  • ECA Marcellus Trust Is An Expensive Natural Gas Play - Income Investors Beware [View article]
    Possible - I do not have enough data to say. But the comment stream shows there are definitely early shareholders that have damages.
    Mar 22 10:58 AM | Likes Like |Link to Comment
  • SandRidge Mississippian Trust I - Dramatic Decrease In Well Performance Shown In Reserve Report [View article]
    What I am saying is maybe a little different - PER is currently doing a very good job of meeting its distribution targets, and I see very little data that says this will change near term. The distribution forecast, however, has an embedded price curve which take the gas and oil price realized up to $7 gas, and $120 oil. The PV-10 is a static model based on the current production curve and price levels in the report. Buying the Trust on such a low price ratio to PV-10 means you have a good bargain regardless of whether energy prices go up or not (your only risk is downward prices). The implied return on the PV-10 is about 1% below 10%, which equates to many of the E&P MLPs in the market. If energy prices do rise on the implied curve, the returns will go up and match the distribution targets in the future. Currently, each Trust has hedged a large portion of their oil production through 2015 (see my article). In the case of PER, the distributions should track pretty closely near-term regardless of market price changes.
    Mar 22 10:51 AM | 1 Like Like |Link to Comment
  • SandRidge Mississippian Trust I - Dramatic Decrease In Well Performance Shown In Reserve Report [View article]
    Good point on the changes in PER. I don't have an article planned at this point because the first article written which included PER, already reflected the December 31, 2012 PV-10. So I don't have a material change in view - so I would probably get a nothing new back from the editor if I wrote it.

    Two quick points about PER. There current track record on meeting distribution targets as put forward in the IPO prospectus have been the best of all the Trusts. I actually show them ahead on a cumulative basis - $3.43 projected at IPO, $3.65 paid through the 12/31/2012 production distribution (being paid this month). The oil rich mix is a big support.

    The second point is that they made an adjustment in the last PV-10 on quantities, but the total revisions since the Trust IPO has been far less than the other Trusts (-8%), The big thing in the numbers is that they have moved production for any natural gas in their mix to NGL, which on a per BOE basis is an over 5% benefit to the Trust relative to IPO pricing. So the net is, the target distribution model at PER still looks intact at this point. Buying this property at a 1.13x PV-10 is a relative bargain in my analysis.

    Hope this helps.
    Mar 22 09:04 AM | 2 Likes Like |Link to Comment
  • SandRidge Mississippian Trust II - Good News Buried In Proven Reserve Report [View article]
    My recommendation is take the distribution and determine if the Trust is valued appropriately, then re-invest. Given that 25% of your distribution is a return of capital, it is smart to at least re-invest this portion through time. However, as is clear in the trading pattern of these Trusts, the price level can quickly move into irrational territory.

    You should probably not re-invest at a price level that is higher than your entry price minus your return of capital unless oil & gas prices rise substantially and appear permanent, or you just bought the trust at a bargain and its risk profile / pricing have improved since you invested initially. By the end of life of the Trust, it the final distribution will likely be as estimated at IPO at <$2-3 or $0. So, averaging up in unit basis would essentially be lowering your return to maturity.
    Mar 21 11:44 AM | Likes Like |Link to Comment
  • SandRidge Mississippian Trust II - Good News Buried In Proven Reserve Report [View article]
    Hard to project that it could get much worse for either SDR or SDT as long as you believe that management did get as much of the "bad news out" that they know at this time. SDT is virtually finished drilling, so revisions going forward should be within a +/- 2% boundary in my mind. SDR still has one year of drilling, and proven reserves are suppose to be in the 90% probable zone. So the confidence interval on the remaining 40% is +/-10% * 40% = +/- 4%. They could still convert more probable reserves, but at this point I am not willing to venture into this probability of upside, but it appears to still exist.
    Mar 21 11:35 AM | Likes Like |Link to Comment
  • ECA Marcellus Trust Is An Expensive Natural Gas Play - Income Investors Beware [View article]
    If gross misrepresentation can be proven, then there is a lawsuit that could be initiated. In the case of ECT, the reserve revisions due to quantity are currently 13.8% per the PV-10. Proven reserves at the IPO are suppose to be 90% plus. So, it would probably be argued that everyone is still "in-bounds" on the reserves, but definitely riding the line on not being what was advertised by the underwriters. Currently the big ECT valuation issue I see is the production curve. I am finding evidence in the numbers that the initial gas production on a horizontal drilled well is large, and tapers off faster than the curve which was used at IPO, This is causing a large amount of reserves to be sold in the early years; in this case at very low prices. Maybe this is the reason for such oversupply in 2012. Now the trust has a steady supply through the end of life, but alot lower than expected / sold at IPO to initial investors. I cannot assess whether the sellers at the IPO knew this would be the case - but if they did....
    Mar 21 11:21 AM | 1 Like Like |Link to Comment
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