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  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    AINV and PNNT are low percentage holdings which have done poorly since Q3-14 due to having too high a percentage in 'energy loans'. I have a 25% weighting in MLPs. I invest in BDCs for diversification. So AINV and PNNT are exactly the wrong kind of BDCs for me to be holding.

    I should be selling them, but I am not. Early this year, I cut my portfolio weighted average yield by investing in MLPX, PSXP, TLLP and SHLX - four of the high growth 'refinery logistic' MLPs. I sold higher yielding assets to buy lower yielding assets. For 2014, I generated more income from my portfolio that I needed. Then 2015 began to happen. My taxes went up (a heck of a lot) and my health insurance went up (more than a heck of a lot). I may generate in 2015 less income than I need.

    As a result, I may end up holding on to some high yield investments that I would normally sell. My prior thinking - why generate more income than you need if that higher income is going to potentially generate higher taxes. My current thinking - you need to prep for unpleasant financial surprises - because you can count on those kind of surprises.
    Aug 3, 2015. 01:06 PM | 2 Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Since 2010 MAIN (five full years plus 2015 YTD) has had 4 years where NII fell below beginning of the year projections (they were all small declines) and 2 years where NII rose (and both were big increases). In some sectors, that is a poor record. In BDCs, it is almost as good as it gets. Only NMFC and PFLT have done better on the 'historical earnings projection accuracy' attribute.
    Aug 3, 2015. 12:02 PM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Hello Rolrod Hello - I track metrics which help me answer lots of questions. But the questions you asked can not be answered by those metrics.
    Aug 2, 2015. 07:36 AM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    BartAtTheRanch wondered how HTGC got into such a mess.

    BDCs do a very poor job at parsing TII - there is a lack of transparency of the role of fee income that is caused by transaction volume. HTGC is at a 'low tide' point in fee income. This (most likely) is temporary. In my opinion, HTGC became valued as if the 'high tide' income was a 'run rate' income. It is now becoming valued as if the 'low tide' income is a 'run rate' income.
    Aug 2, 2015. 07:34 AM | 1 Like Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Hello Rolrod Hello wrote: "third all bdc have had a bad year and in the wake of higher interstate rates".

    This borders on a 'nitpick', but . . . . All BDCs are not having a bad year - it is BDCs with falling NII projections and BDCs with falling LTM NAV changes that are having a bad year. Here is the data from market's close of 7-28-15 on NII or EPS changes:

    The following companies had 2015 EPS projections that increased since the beginning of the year: ABDC, ACSF, CMFN, GAIN, GARS, OFS, PFLT, SAR, SUNS, TCRD and WHF. Their mean price gain for the year is 1.9%. Their mean total return for the year is 7.33% - and 10 of the 11 beat the sector median yearly price gain. Their mean accuracy rating is 2.28.
    The following companies had 2015 EPS projections that have not changed since the beginning of the year: OHAI. Its mean price gain for the year is 10.66%. Its mean total return for the year is 18.34% - and 1 of the 1 beat the sector median yearly price gain. Its mean accuracy rating is 5. (OHAI is getting a dead cat bounce after a terrible 2014.)
    The following companies had 2015 EPS projections that fell since the beginning of the year: AINV, ARCC, BKCC, CPTA, FDUS, FSC, FSFR, FSIC, FULL, GBDC, GLAD, HRZN, HTGC, KCAP, MAIN, MCC, MRCC, NMFC, PSEC, PNNT, SLRC, TAXI, TCAP, TCPC, TICC, TPVG and TSLX. Their mean price gain for the year is -9.78%. Their mean total return for the year is -4.38% - and 10 of the 27 beat the sector median yearly price gain. Their mean accuracy rating is 2.64.

    I also expect that HTGC will report a bad NII number for Q2-15. It will take until the Q3-15 numbers are reported before NII turns a corner - and that will happen in calendar Q4-15.
    Jul 31, 2015. 07:13 PM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Robin Heiderscheit wrote "the market thinks HTGC is in the process of flushing money down the toilet in the form of salaries and under performing loans".

    Anyone looking at HTGC would want to find reasons for the rising yield, the falling Price/NII ratios and falling Price/NAV ratios. I see a falling NII/share and an uncovered dividend - and find those to be reasons for the fall.

    There is no data (from the 10-Qs or earnings releases) to support the assessment that HTGC has a portfolio of under performing loans.
    From the last 10-Q: "At March 31, 2015, we had four debt investments on non-accrual with a cumulative cost and fair value of approximately $34.0 million and $12.0 million." With a total loans at fair value being $1.035 billion, non-accrual loans at fair value are 1.16%.
    In the nine quarters since the beginning of 2013, HTGC has only had two quarters where "Realized and Unrealized" portfolio gains were negative.
    Both of those metrics fail to support the assessment that the loan portfolio is under performing.

    In my opinion, HTGC - like a large majority of fellow BDCs - reports their NII and portfolio weighted yield in a distorted and less than transparent method. HTGC needs loan portfolio churn caused by early loan terminations to generate dollars to pump up the NII and weighted average yields. One should get the impression from the numbers - and from management remarks in the conference call. I suppose one could say that the HTGC portfolio is under performing because it has a falling portfolio yield generating substantially less NII. That condition is most likely temporary.

    We are in agreement that management compensation (salaries plus incentive compensation) is too dang high. But that is true for a majority of BDCs.

    Robin Heiderscheit and I are drawing different conclusions because we are probably looking at different sets of data. Those things happen.
    Jul 31, 2015. 10:48 AM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    TomSable wrote "BKCC strategy to invest in smaller companies is paying off and investors bid the price up today on the results."

    BKCC has a history of hitting its income statement with super high incentive fee expenses in the fourth quarter. This had been consistently done to such a degree that NII can sometimes turn negative for that quarter. The result is that NII numbers for a given quarter are meaningless. Q1 through Q3 have inflated NII/share numbers. There is some chance that the exit of 'Kelso' from BKCC will change this habit going forward. I want to see the Q4-15 numbers before I really believe that.

    Add to that, NII was assisted by a negative charge for "incentive management fee" expense in Q2-15. It is weird (or counter intuitive) that this happened in a quarter where there were big cap gains on two exits in equity investments. Even with those two large gains and the reversal of prior period incentive fees, NAV fell.

    BKCC was up 4.22% on a day where the BDCS (the BDC index ETF) was up 0.19%. IMHO, BKCC rose based on the production of earnings metrics that the market should not believe. Today's BKCC stock price performance may be evidence that "you can fool some of the people all of the time". Or it could be that BKCC had a good quarter. I will not know that until I see the Q4-15 numbers.
    Jul 30, 2015. 08:08 PM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    RoseNose - This was not a simple article. I think you may be acclimating to the complexity (grin).
    Jul 30, 2015. 07:30 PM | 2 Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Spacecon - Many companies with a variable dividend policy have a significant number of ups and downs in the dividend amount. HTGC has had nothing but gains since the major dividend cut of 2009 - 2010. HTGC has paid a $0.31/share dividend the last seven quarters. It is my perception that the variation in the HTGC dividend is no different than that for a BDC that lacks a policy statement on whether the dividend is variable.
    Spacecon - Thanks for your comment. I submitted an edit to alter the original wording.
    Jul 30, 2015. 03:28 PM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Huthutho - The historical premium that HTGC had compared to other BDCs was merited due to the NII/TII, the dividend coverage and the historical dividend growth. The lack of a current premium is merited due to a bad NII/TII ratio, the lack of dividend coverage, and the lower confidence in the NII projection.

    Everything is so dang 'context sensitive'! So . . . (perhaps putting words in your mouth that you did not intend) an observation that "HTGC's high price/NAV ratio in the past kept me from investing, but the current ratio had me interested" -- THAT would be an observation I would have problems with.

    Thanks for your kind comments. I do hope you procrastinate on any decision on HTGC until after the Q2-15 earnings release. The news in that Q2 release will probably cause a need to wait until after the Q3-15 release.
    Jul 30, 2015. 10:55 AM | Likes Like |Link to Comment
  • BDCs And 'The One Thing' [View article]
    AFAHM - I expect that the problems with the Schwab dividend coverage ratio is caused by Schwab - not TCPC. TCPC had a history of reporting a headline NII number that needed adjustment (it failed to subtract dividend payments on preferred shares from NII. I think of dividend payments on preferred shares as de facto debt payments that should be subtracted from NII). It has corrected that.
    Jul 30, 2015. 10:36 AM | Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Dividend Sleuth - MAIN and PFLT combine to make up 59% of my BDC holdings. It appears we are on the same 'valuation assessment' wave length if they are large holdings in yours.

    I failed to note in the first comment that - if you have been buying HTGC 'on the dips', you should have negative short term capital gains. I am not highly skilled when it comes to taxes. I hate publicly posting 'tax avoidance suggestions'. And I hate market timing. On the other hand, it strongly appears that HTGC is not headed for a positive short term bounce. I think the idea of 'harvesting a loss' should be something that is on your radar.
    Jul 30, 2015. 09:10 AM | 2 Likes Like |Link to Comment
  • The Unfinished Story Of Hercules Technology Growth Capital [View article]
    Dividend Sleuth - As I wrote, I am not touching HTGC until I see better operating metrics. I also have a strong preference for investing in BDCs that report 'portfolio company' debit/EBITDA ratios. 'Venture capital' HTGC is unlikely to report that metric due to loaning to start-ups that are not currently generating EBITDAs (their ratio would look ugly).

    For those who hold HTGC, the allocation decision is a difficult one. There is a lot of potential reward - and there is more than a fair amount of risk. I mitigate risk via diversification when it comes to the very high CAGR companies I own - so I do not view those collective investments a 'binary outcomes'. There are no good venture capital BDCs to also invest. So a HTGC investment becomes a binary outcome. That attribute makes HTGC a BDC where I would least want to be over weight.

    I also want to keep my BDC allocation well under 10%. So an investment in HTGC eliminates an investment in another (or different) BDC option.

    I do not care that the dividend is covered by spill-over income. With the dividend so much greater than NII, the NAV will be hurt. And NAV is 'the one thing' that matters most in BDC total returns.
    Jul 30, 2015. 08:23 AM | 3 Likes Like |Link to Comment
  • Retired Investors Don't Buy Bonds Until? [View article]
    The author wrote "Both stocks and bonds fluctuate in price as a direct consequence of the liquidity they provide investors." I wish some historical stats were provided to back that logical statement.
    The author wrote "I support investing in bonds when they possess the characteristics of providing higher income than I can get on a dividend stock." This is another case where the statement is logical - but I would like data to support that conclusion.
    In a good article with a boat load of data - I still want more data. I am probably atypical.
    Jul 29, 2015. 10:07 AM | 4 Likes Like |Link to Comment
  • BDCs And 'The One Thing' [View article]
    AFAHM - (1) TCPC has a annualized dividend of (4 times 36) $1.44 and a 2015 NII projection of $1.56. A realistic dividend/NII ratio should be (144/156) 92.31%. Compared to other BDCs - that is a decent ratio. Compared to other stocks - the ratio is terrible. I have no context in which to assess the Schwab number. On the surface it looks like a phony baloney number.

    (2) The surprise was on NII - not NAV.

    (3) TCPC, like the majority of BDCs, fails to report NII with adequate transparency. You do not learn much from a raw NII number - I am way out of the consensus on that opinion (and that issue should not fall in the category of 'opinions' - I am right and the market is wrong). One needs to know how much OID discounts and accelerated amortizations went into the significantly higher NII. Were there other one time fees?

    Going by lots of history - there were big 'one time events' that moved the NII. Odds are the run rate NII has not moved.

    Right after posting the 11:30 AM update - TCPC jumped to a 3% gain for the day. It is back to a 2.68% gain as I write this.

    The correct decision for the intelligent investor is to do nothing. The correct action is to think "shame on TCPC for pre-releasing a number with zero context concerning one time events that contributed to the surprise". While that IMHO is the correct reaction, it is not what I anticipated as the market's reaction. I expected a 4% jump today - and that jump to be mostly erased as the rest of the month played out.
    Jul 28, 2015. 01:30 PM | Likes Like |Link to Comment
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