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Darren McCammon
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Darren owns ProActive Financial LLC. He manages private family and individual accounts as well as the yield focused, 50+ Portfolio. He has a Bachelors in Economics, an MBA and a Certificate in Financial Planning. Darren is most proud of having successfully managed income producing portfolio's... More
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  • A Comparison Of FULL To PSEC

    I originally started following Full Circle Capital (NASDAQ:FULL) when it made a sweetheart deal with Advanced Cannabis Solutions (OTC:CANN) and wrote about it here:

    That thesis did not work out. When CANN got de-listed by the SEC, I sold FULL for a small gain. I continued to follow the stock however and recently decided to repurchase shares. The way I see it, FULL has issues but is trading below book and is actively taking steps to solve those issues. Furthermore, it still has some longshot upsides in CANN and other investments.

    Maybe a comparison between FULL and one of the most owned BDC's, Prospect Capital PSEC, would be informative. These two BDC's both have a fundamental issue, according to this article, they have the two highest operating expenses as a % of income in the BDC universe:

    PSECs operating expense as a % of income is 40.6%, FULL 40.3%. Both are very high, limit the dividend coverage and are a significant reason why the stocks have not done well. PSEC however is one of the largest BDC's while FULL is one of the smallest. To give you an idea of scale, PSEC seems to need 57 times the management fee of FULL in order to run and fairly compensate management. So perhaps FULL suffers somewhat from a lack of scale, but this is not a valid excuse for PSEC.

    More importantly, FULL seems to recognize it has a problem and is doing something about it. They have recently indicated they were capping fee's (1.5% in 2015, 1.75% in 2016) and would not be making dilutive share issuance's below NAV.

    "As previously announced, Full Circle Advisors has agreed to bear any annual operating expenses of Full Circle Capital above 1.50% of Net Asset Value in fiscal 2015 and above 1.75% of Net Asset Value in fiscal 2016 and beyond."

    "we view a primary share issuance as unattractive at current trading levels."

    Are you seeing anything from PSEC about reducing there 2% management fee and /or not issuing shares below NAV?

    FULL also clearly outlined the actions they have and are taking to cover the dividend:

    "we restructured the Blackstrap Broadcasting, LLC loan facility and the loan returned to performing status as of September 22, 2014. Given the timing of this event at the very end of the quarter, there was no material benefit to the first quarter's earnings. "

    "We are pleased with the robust origination activity that continued in the first quarter resulting in new investments of $37.9 million"

    "Our pipeline remains strong, with significant investment opportunities, including in our newer healthcare and real estate strategies."

    "...we proactively sold certain of our more liquid investment positions in favor of some higher return opportunities in our pipeline. We will consider recycling other portfolio positions..."

    "We expect that these expense initiatives combined with our current level of investment will allow Full Circle to cover the current stockholder distribution rate on a sustainable basis, an important goal of management and the Board of Directors."

    I expect FULL will, finally, cover their dividend this quarter. PSEC not so much.

    So you got to ask yourself, which would you rather own, large PSEC which seems designed primarily to enrich management and is unlikely to cover their dividend, or much smaller FULL which has taken shareholder friendly actions and probably will cover their dividend? Certainly there are other BDC choices out there one may prefer to either of these two; however, between these two, it is clear to me which is the better choice.

    Disclosure: The author is long FULL, CANN.

    Additional disclosure: This blog is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any equities mentioned or recommended.

    Tags: FULL, PSEC, CANN, dividends
    Nov 18 1:24 PM | Link | 3 Comments
  • Why QRE Shareholders Should Vote Against The Merger With BBEP

    QR Energy (NYSE:QRE) shareholders should vote against the merger with Breitburn Energy (NASDAQ:BBEP). QRE shares are worth more alone than what they are receiving in the merger.

    QRE's distributable cash flow (DCF) was 55¢ in Q3, a 13% DCF yield on current price. BBEP's distributable cash flow was .435¢, a 10% DCF yield on current price. By merging with BBEP, QRE shareholders are significantly reducing their DCF. The DCF is what funds your dividend. By merging with BBEP you are reducing your dividend coverage and potential. Arguably, BBEP is under paying for QRE by about 30%.

    Additionally, QRE is significantly better hedged than BBEP and therefore the risk to the dividend is much less. QRE has 91% of it's oil and 97% of it's natural gas hedged for the rest of 2014 vs. 84% for BBEP. QRE has 75% of it's oil and 79% of it's natural gas hedged in 2015 vs. 76% for BBEP, and these hedges are at meaningfully higher prices than BBEP's. QRE has 70% of it's oil hedged and 72% of it's natural gas hedged in 2016 vs. 60% for BBEP. When you take this into consideration with the recent decline in oil prices, QRE is clearly much better positioned to maintain it's dividend over the next few years than BBEP.

    BBEP underpaid for QRE in the first place. Now that oil prices have fallen precipitously, the under payment is glaring. I encourage QRE shareholders to vote against the merger.

    Disclosure: The author is long QRE.

    Additional disclosure: I have voted against the QRE merger. This blog is my opinion presented for education purposes, readers should due there own due diligence.

    Nov 05 5:55 PM | Link | 8 Comments
  • Arlington Asset Investment Corporations (AI) Q3 Highlights:

    " …. have done what they coode,
    They can but bringe horse to the water brinke,
    But horse may choose whether that horse will drinke."

    - A Twelfe Night merriment

    AI's non-GAAP core operating income was $1.36 per share; that's an impressive 20% run rate and growing. I say growing because funds raised in the $26.94 equity issuance last quarter were leveraged and put to work as were funds realized from the private label assets. AI remains at roughly the same 4:1 debt to equity as last quarter. I wonder why they don't issue a preferred?

    Agency assets remain fully hedged ($3.2 billion in agency assets with $3.2 billion in combined eurodollar future and interest rate swap hedges). To get an idea why this matters, compare it to NLY's hedging and then look at what happened to NLY vs. AI in Q2 2013. Private label assets were $293 million, held at 75¢ on the dollar. AI can only hope these private label mortgage owners choose to refinance as when they do, AI collects $1 for every 75¢ on the books.

    AI prepayment rates went up slightly from 6% to 7% this quarter. This is an indicator that maybe HTS, which reports soon, will also have not seen much of an increase in prepayments. In my opinion we need to start paying attention to prepayments again now that mortgage rates are getting down closer to recent lows.

    The dividend of $0.875 per share for the third quarter 2014 was well covered by $1.36 in earnings. That's an annualized dividend yield of 13%, 17% on a tax adjusted basis (good enough but again the most important thing is the operating earnings run rate of 20%).

    AI is currently trading at an 11% discount to their Q3 GAAP book value per share of $30.43. That is a buy in my opinion and it remains one of my and the 50+ funds largest holdings. (It used to be the largest but I recently loaded up on CPLP: ). The book value contains about $6.43 in value of tax loss carry-forwards. In my and FASBs opinion (accounting board which makes recommendations for GAAP) it is appropriate to include the tax loss carry forwards value in AI's book value as AI is making money, has been making money, and will likely continue to make money for the foreseeable future. Therefore they are likely to be able to continue to utilize the carry-forwards. More importantly, it's the indirect reason I get to pay a favorable tax rate on those dividends.

    In my opinion, AI remains a buy.

    Note: the quote which led this article is meant as a not so subtle hint. My first blog post on AI is located here: (I actually owned it years before that but didn't write about it). Since that blog post, the stock is up $6.06 in price and has paid $6.13 in dividends, for a total return of about 58% (in less than a year).

    Disclosure: The author is long AI.

    Additional disclosure: I am long AI in client accounts, personal accounts, and the 50+ portfolio which I manage. You should therefore assume I am biased. Moreover, I don't know who you are much less your particular situation; so how can I recommend this equity or for that matter any investment to you? Do your own due diligence.

    Tags: AI, NLY, CPLP, mREIT, dividend
    Oct 27 6:42 PM | Link | 5 Comments
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