Is Fifth Street In The Wrong Neighborhood? [View article]
For both safety and growth, buy a BDC that has a covered dividend. The first valuation spreadsheet was provided so that everyone would have that information.
PennantPark Has A Q1 Earnings Shortfall [View article]
[1] Not all BDCs report their portfolio company debt/EBIDA metrics. Less than half do. I gather that data in my text write-up, but I do not put it in my data base. [1b] There are benefits to having a small data base. For example, each stock split done by an MLP requires about 8 hours of base base adjustments. That is a big pain. Pain is an efficient teacher. [2] I do 30-something different spreadsheets. I have the impression that there is no way the English majors they hire for editors are going to approve an article that is so data intensive. [3] There is a collective effort for BDC data gathering on my favorite message board. It is hard to recruit volunteers for that effort. I need to have a carrot that helps stimulate participation. The volunteers for that effort receive that unpublished data. [4] The compensation for writing for SA depends on the readership of each specific article. For this sector (BDCs), the number of readers can be low. I can be motivated by money to share the data. But I can not be motivated by this small amount of money. I am best served reserving that data to stimulate the volunteer effort. I also want - for psychological reasons - to have an audience with which I can share my occasional "ah-ha" moments and which understand the content. [5] Despite not sharing the full data set in each article, the SA reader does receive the benefit of me knowing more than I am displaying. I would rather receive "instruction" from someone who knows more than he is telling me - as opposed to someone who is telling me more than he knows.
Sorry if I provided more information that you needed with that reply.
PennantPark Has A Q1 Earnings Shortfall [View article]
In the same section as the FSC investment ratings are the debt/EBITDA metrics for their portfolio companies. And that metric is an important factor in risk assessment. FSC does provide the portfolio average stats in that section.
FSC provides the metric evidence to justify their ratings. Other BDCs do not. And when there is no evidence that delivers the justification - then I ignore the ratings.
BTW - I am currently expecting that I will have an update of FSC submitted to SA on Thursday morning. But there is some probability that the editors will give me a hard time with this one.
For example; I write "There should be some correlation between your level of due diligence in a given sector and your portfolio allocation to that sector." I then go on to spell out just who would not be smart enough to own a BDC. I strongly believe that such content would qualify as needed advice. But did I deliver the edification without insulting the readers? It is hard to do one without the other. And I may lack the writing skills or the diplomatic tone.
I hope this prompt response has created some lasting good will that will result in an under-informed reader offering some supportive feedback if that first draft gets approved [grin]. Or maybe you should wait to read that content before making a commitment.
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
Robin's reply was 95% correct. In general, BDC dividends are not qualified for the lower tax treatment. But some BDCs do pay a portion of income tax on their retained earnings when they fail to meet the 90% of taxable earnings payout requirement. I have the impression that causes a portion of the dividend to be qualified. Some portion of BDC earnings will occasionally be in the form of capital gains - and I believe that tax treatment is past along to the shareholders. And for some BDCs, some of their payout will qualify for "return of capital" tax treatment. Each BDC has its own history - and that history can be a misleading guide to next year's tax treatment.
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
PFLT had unrealized appreciation in Q1-13 and unrealized depreciation in Q4-12. How do you have that and not "mark to market"? And if you are already doing that - how do you get authorization to stop? Given that evidence, I find it hard to buy your statement that PFLT is not marking to market. I would need a link to a reputable site that had a document that offered an explanation.
I am sorry about being so skeptical when you are trying to be so helpful.
And speaking of links, I would like to know how Penn is structuring PFLT differently to achieve less risk. Telling me that it is in an "early SEC filing" does not narrow the search parameters.
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
From the 10-Q: "During the period to and including May 14, 2016, or the revolving period, the Credit Facility bears interest at LIBOR plus 200 basis points and, after the revolving period, the rate sets to LIBOR plus 425 basis points for the remaining two years, maturing in May 2018."
I am not a "credit facility" expert. I began tracking the cost of credit facilities for the BDCs with the Q3-12 earning releases when I noticed significant differences in the rates. And the rates varied - quite logically - with the risk of the BDC. So it was a good metric to assist in the quantification of a risk metric. And it is a risk attribute I use in my updates posted at SA.
I would expect PFLT to be able to renegotiate a new contract once the period of LIBOR + 2.0% ends. But if there is another credit freeze, the odds of that new agreement goes significantly down. PFLT's credit costs more than doubles. And PFLT is in some trouble.
So I do not agree with your assessment that the longer credit facility life adds safety to PFLT. I still think that PFLT needs SBA debt. But I am no where close to being a CFO - and I am not a credit facility expert. I could be wrong. I will keep an open mind on the issue - and hope that you have another good response.
PennantPark Has A Q1 Earnings Shortfall [View article]
I am metric focused. I have, since 2009, leaned only on the numbers to form my assessments. I am 100% free of the influence of borrowed opinions when it comes to BDCs. But I can do my own BDC NII projections. In the sectors where I can not do earning projections, I do used consensus analyst earning projections and CAGR projections. But an analyst can still make a good or strong EPS projection and form the opinion that a stock is over valued. Even in sectors where I use analyst earning projections, I do not use their headline buy or sell assessments.
Brucejfern wrote ". . . many of us paid a very high price in 2008 when we found out established BDCs like ACAS and Allied who were supposed to have a strong and experienced management teams led their shareholders on a path of destruction . . "
When I read that, it sounds to me like you heavily leaned on borrowed opinions. Even before the credit crisis - ACAS had a problem with non-accruals. Even before the credit crisis, ACAS was high in having non-recurring income as a big component in NII. The danger signals were there. It appears the lesson you learned for 2008 is to not trust BDCs. One of the many lessons I learned from 2008 [with the key on being to use debt metrics in equity valuations] is to not trust borrowed opinions.
Brucejfern wrote "" . . I am not so sure that investing in a BDC for a growth kicker makes a lot of sense."
In consumer staples, a good div/EPS ratio leads to superior dividend growth. For REITs, a good div/AFFO ratio leads to superior dividend growth. For MLPs, a good distribution/DCF ratio leads to superior dividend growth. And the same rules work with BDCs. I provided an additional list of metric attributes that a BDC needs for superior dividend growth in some past, current or upcoming article. I believe what the numbers tell me. I believe we live in a "yield plus CAGR" world, And my advanced valuation spreadsheets has led me to believe CAGRs sell at a discount.
I believe what Brucejfern wrote is the opinion of the average retail investor. Most retail investors are in the range of "CAGRs are unpredictable" thinkers to those who are CAGR agnostics. I believe that there are Biblical directed principles of investing. One of those directives is to do your own metric intensive due diligence. Part of that diligence would be listening to the lessons found in those numbers. The numbers tell me to believe in CAGRs. The historical returns on my portfolio tell me to believe in CAGRs.
Brucejfern also wrote that he is a PIK agnostic. I have a more nuance view. But I have not generated the stats to produce a strong amount of confidence in that view. I reluctantly accept the PIK numbers for BDCs that are growing their NAV. But for BDCs that are not growing the NAV, I am also an agnostic. I have seen PIK go into NII and then get written down in unrealized depreciation in the same quarter! I have a bias towards BDCs where PIK is a lower component of TII. But I am not letting that view stand in the way of buying BDCs who have (the negative) higher PIK component - but at the same time posses a lot of favorable attributes.
PennantPark Has A Q1 Earnings Shortfall [View article]
TCPC is tracked in a separate set of spreadsheets for newbies. It is too new to show trends. It is internally managed - which should mean lower fees. But I want to have two quarters of data when it is also charging management fees before I fell good about its NII/TII ratio. I almost purchases shares in TCPC because it makes a good first impression. But . . . . [1] There was info in the 10-Q that scared me: "The Company’s portfolio currently includes distressed debt investments and the Company is authorized to continue to invest in the securities and other obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. As of December 31, 2012, none of the Operating Company’s debt investments were in non-accrual status. TCPC does not anticipate distressed debt to be a significant part of its ongoing investment strategy." That scared me. [2] Their IR failed to respond to my e-mailed questions about some of their metrics. I do not like being ignored. And if a company does not care enough about potential shareholders to take care of them, then management has shown the potential to make other decisions to hurt existing shareholders. I will wait till the Q2-13 earnings release to refresh my current negative opinion. I really like great NII/TII ratios. So this internally managed newbie shows promise due to that attribute alone.
PennantPark Has A Q1 Earnings Shortfall [View article]
FSC is a BDC with average portfolio risk and with close to zero prospects for dividend growth. The only thing attractive about FSC is its yield. I would also give it points for NII/share consistency - but the NII is almost consistently below its dividend. And I do not like low growth BDCs with uncovered dividends. PNNT should have a covered dividend going forward. And there is not that big a difference in yield.
There is nothing wrong with owning some FSC if you have a portfolio that has a good dividend CAGR. But if you do not know your portfolio CAGR, then you should not be buying FSC. Dang! If you do not know your portfolio CAGR - you also should not be buying PNNT.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
I am stretched too thin covering BDCs, MLPs, REITs, consumer staples, dividend paying tech and regional banks too add one more sector. The growth in new BDCs and MLPs alone is increasing a heavy work load. I could easily be missing some great opportunities in other sectors. It would be my expectation that private equity would be another due diligence intensive sector.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
The BDCs are releasing earnings and 10-Qs faster than I can read them. I spend a few hours on each BDC. So I have yet to study the new set of info on PSEC. But the PSEC NAV fell. And there was only $0.26/share of NII in Q1-13 compared to a dividend just over $0.33/share. Those are two real ugly numbers. So my opinion of PSEC could be turning negative again. I never liked their high non-accruals. I want to have a small weighting in BDCs with high weighted average portfolio yields. To accomplish that goal - I would need to sell some TCAP. And I do not want to do that.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
An investor's portfolio has to fit their temperament. I am a "yield plus dividend or distribution Compound Annual Growth Rate projection" investor. WmHilger1 wrote "I have more dividend income than I can comfortably spend". And one can invest their excess dividends to growth their portfolio - and thus next year's earnings.
I want to be a tax efficient investor. If I had "more dividend income than I can comfortably spend", then I would have more taxable income than I would want to generate.
It is also my perception that CAGRs sell at a discount. I want to buy at a discount.
I also know my portfolio CAGR. I have a conservative projection of around 6% per year in dividend and distribution growth from my total income producing portfolio. Most of that is in "qualified" or lower tax dividends and tax deferred MLP distributions.
Your portfolio yield is bigger than mine. My portfolio CAGR is bigger than yours. My portfolio dividend to EPS ratio is also probably lower than yours. So I should probably have more protection if another 2008 type year comes along. My portfolio is probably better prepped for hyper-inflation than yours.
Let's call those last two attributes - the 2008 insured and 1970s prepped - a form of insurance. Let's call your "more dividend than you can comfortably spend" another kind of insurance. If the dividends are cut - you can comfortably live with those consequences. Current year "excess" dividend are insurance for the lean years.We are both insured - just in different ways.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
My goal - as described in this and other messages - is to maximized the "yield plus dividend or distribution Compound Annual Growth Rate projection" while having a portfolio that is heavily weighted in lower risk investments. If I were buying today, I would buy PSEC and SLRC for the yield, PFLT for low risk, and MAIN and TCAP for growth. I would also keep my BDC portfolio allocation at about 5%. But that list could change with the news in the earning releases that are currently coming out..
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
The other "good" BDCs regularly report their portfolio company Debt to EBITDA ratios and interest coverage ratios. TCAP does not. I really like TCAP's NII/TII ratio. I love the dividend growth and NAV growth. I am not selling just because TCAP fails this major transparency test. But I would like it to change its evil ways on this issue. So I would list some of the reasons I love them, and then ask "Why is such a good BDC continuing to fail a majority transparency test?" My suspicion is that TCAP fails to report those metrics because their numbers are ugly. But this investor wants to know the size of the ugliness.
Is Fifth Street In The Wrong Neighborhood? [View article]
PennantPark Has A Q1 Earnings Shortfall [View article]
[1b] There are benefits to having a small data base. For example, each stock split done by an MLP requires about 8 hours of base base adjustments. That is a big pain. Pain is an efficient teacher.
[2] I do 30-something different spreadsheets. I have the impression that there is no way the English majors they hire for editors are going to approve an article that is so data intensive.
[3] There is a collective effort for BDC data gathering on my favorite message board. It is hard to recruit volunteers for that effort. I need to have a carrot that helps stimulate participation. The volunteers for that effort receive that unpublished data.
[4] The compensation for writing for SA depends on the readership of each specific article. For this sector (BDCs), the number of readers can be low. I can be motivated by money to share the data. But I can not be motivated by this small amount of money. I am best served reserving that data to stimulate the volunteer effort. I also want - for psychological reasons - to have an audience with which I can share my occasional "ah-ha" moments and which understand the content.
[5] Despite not sharing the full data set in each article, the SA reader does receive the benefit of me knowing more than I am displaying. I would rather receive "instruction" from someone who knows more than he is telling me - as opposed to someone who is telling me more than he knows.
Sorry if I provided more information that you needed with that reply.
PennantPark Has A Q1 Earnings Shortfall [View article]
PennantPark Has A Q1 Earnings Shortfall [View article]
FSC provides the metric evidence to justify their ratings. Other BDCs do not. And when there is no evidence that delivers the justification - then I ignore the ratings.
BTW - I am currently expecting that I will have an update of FSC submitted to SA on Thursday morning. But there is some probability that the editors will give me a hard time with this one.
For example; I write "There should be some correlation between your level of due diligence in a given sector and your portfolio allocation to that sector." I then go on to spell out just who would not be smart enough to own a BDC. I strongly believe that such content would qualify as needed advice. But did I deliver the edification without insulting the readers? It is hard to do one without the other. And I may lack the writing skills or the diplomatic tone.
I hope this prompt response has created some lasting good will that will result in an under-informed reader offering some supportive feedback if that first draft gets approved [grin]. Or maybe you should wait to read that content before making a commitment.
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
I am sorry about being so skeptical when you are trying to be so helpful.
And speaking of links, I would like to know how Penn is structuring PFLT differently to achieve less risk. Telling me that it is in an "early SEC filing" does not narrow the search parameters.
Why Lower Yielding PennantPark Floating Rate Capital Could Be The BDC For You [View article]
I am not a "credit facility" expert. I began tracking the cost of credit facilities for the BDCs with the Q3-12 earning releases when I noticed significant differences in the rates. And the rates varied - quite logically - with the risk of the BDC. So it was a good metric to assist in the quantification of a risk metric. And it is a risk attribute I use in my updates posted at SA.
I would expect PFLT to be able to renegotiate a new contract once the period of LIBOR + 2.0% ends. But if there is another credit freeze, the odds of that new agreement goes significantly down. PFLT's credit costs more than doubles. And PFLT is in some trouble.
So I do not agree with your assessment that the longer credit facility life adds safety to PFLT. I still think that PFLT needs SBA debt. But I am no where close to being a CFO - and I am not a credit facility expert. I could be wrong. I will keep an open mind on the issue - and hope that you have another good response.
PennantPark Has A Q1 Earnings Shortfall [View article]
Brucejfern wrote ". . . many of us paid a very high price in 2008 when we found out established BDCs like ACAS and Allied who were supposed to have a strong and experienced management teams led their shareholders on a path of destruction . . "
When I read that, it sounds to me like you heavily leaned on borrowed opinions. Even before the credit crisis - ACAS had a problem with non-accruals. Even before the credit crisis, ACAS was high in having non-recurring income as a big component in NII. The danger signals were there. It appears the lesson you learned for 2008 is to not trust BDCs. One of the many lessons I learned from 2008 [with the key on being to use debt metrics in equity valuations] is to not trust borrowed opinions.
Brucejfern wrote "" . . I am not so sure that investing in a BDC for a growth kicker makes a lot of sense."
In consumer staples, a good div/EPS ratio leads to superior dividend growth. For REITs, a good div/AFFO ratio leads to superior dividend growth. For MLPs, a good distribution/DCF ratio leads to superior dividend growth. And the same rules work with BDCs. I provided an additional list of metric attributes that a BDC needs for superior dividend growth in some past, current or upcoming article. I believe what the numbers tell me. I believe we live in a "yield plus CAGR" world, And my advanced valuation spreadsheets has led me to believe CAGRs sell at a discount.
I believe what Brucejfern wrote is the opinion of the average retail investor. Most retail investors are in the range of "CAGRs are unpredictable" thinkers to those who are CAGR agnostics. I believe that there are Biblical directed principles of investing. One of those directives is to do your own metric intensive due diligence. Part of that diligence would be listening to the lessons found in those numbers. The numbers tell me to believe in CAGRs. The historical returns on my portfolio tell me to believe in CAGRs.
Brucejfern also wrote that he is a PIK agnostic. I have a more nuance view. But I have not generated the stats to produce a strong amount of confidence in that view. I reluctantly accept the PIK numbers for BDCs that are growing their NAV. But for BDCs that are not growing the NAV, I am also an agnostic. I have seen PIK go into NII and then get written down in unrealized depreciation in the same quarter! I have a bias towards BDCs where PIK is a lower component of TII. But I am not letting that view stand in the way of buying BDCs who have (the negative) higher PIK component - but at the same time posses a lot of favorable attributes.
PennantPark Has A Q1 Earnings Shortfall [View article]
[1] There was info in the 10-Q that scared me:
"The Company’s portfolio currently includes distressed debt investments and the Company is authorized to continue to invest in the securities and other obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. As of December 31, 2012, none of the Operating Company’s debt investments were in non-accrual status. TCPC does not anticipate distressed debt to be a significant part of its ongoing investment strategy." That scared me.
[2] Their IR failed to respond to my e-mailed questions about some of their metrics. I do not like being ignored. And if a company does not care enough about potential shareholders to take care of them, then management has shown the potential to make other decisions to hurt existing shareholders.
I will wait till the Q2-13 earnings release to refresh my current negative opinion. I really like great NII/TII ratios. So this internally managed newbie shows promise due to that attribute alone.
PennantPark Has A Q1 Earnings Shortfall [View article]
There is nothing wrong with owning some FSC if you have a portfolio that has a good dividend CAGR. But if you do not know your portfolio CAGR, then you should not be buying FSC. Dang! If you do not know your portfolio CAGR - you also should not be buying PNNT.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
I want to be a tax efficient investor. If I had "more dividend income than I can comfortably spend", then I would have more taxable income than I would want to generate.
It is also my perception that CAGRs sell at a discount. I want to buy at a discount.
I also know my portfolio CAGR. I have a conservative projection of around 6% per year in dividend and distribution growth from my total income producing portfolio. Most of that is in "qualified" or lower tax dividends and tax deferred MLP distributions.
Your portfolio yield is bigger than mine. My portfolio CAGR is bigger than yours. My portfolio dividend to EPS ratio is also probably lower than yours. So I should probably have more protection if another 2008 type year comes along. My portfolio is probably better prepped for hyper-inflation than yours.
Let's call those last two attributes - the 2008 insured and 1970s prepped - a form of insurance. Let's call your "more dividend than you can comfortably spend" another kind of insurance. If the dividends are cut - you can comfortably live with those consequences. Current year "excess" dividend are insurance for the lean years.We are both insured - just in different ways.
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
If I were buying today, I would buy PSEC and SLRC for the yield, PFLT for low risk, and MAIN and TCAP for growth. I would also keep my BDC portfolio allocation at about 5%. But that list could change with the news in the earning releases that are currently coming out..
Is Dividend Growth Inertia Dead At Medley Capital? [View article]
So I would list some of the reasons I love them, and then ask "Why is such a good BDC continuing to fail a majority transparency test?" My suspicion is that TCAP fails to report those metrics because their numbers are ugly. But this investor wants to know the size of the ugliness.