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  • Packaging Update 11-14-14 [View instapost]
    (1) The beginning price target is the average price target one finds at Yahoo Finance.

    (2) RRRs are always heavily based on bond ratings. For sectors where I can "earnings projection accuracy" stats for five or more years, those numbers can result in adjustments to my RRRs. There is almost always a very high correlation between those two metrics. And there is 'fundamental' information (like the percentage of fee based income for MLPs) that go into a risk assessment.

    I do not factor in items like those with PAA and SEP on "DCF available to the limited partners" into a RRR assessment. I lack the accounting skills to quickly judge each company on their earnings presentations. Given the size of my coverage universe in so many sectors, that task would eat up all of my time.

    (3) There is no single source of MLP DCFs. I edit out brain farts to make an average number from the projections made by eleven brokerages. This is a labor intensive task no-one else is attempting. The distribution to DCF ratio is such a meaningful number (in the generation of a CAGR projection) that the labor is worth the effort.

    I like and heavily use Yahoo Finance as a source for metrics - but the Yahoo CAGR projections for MLPs are garbage. I am amazed by the stats collected by David Fish in the CCC list. The CAGR projections that he does in non-MLP sectors is a major input into my CAGR projections in non-MLP sectors. But the CAGR projections for MLPs in the CCC list are garbage. The CCC list CAGR projections for EEP, EXLP, GEL, HEP and NGLS are off by a mile -- and in some cases off by a factor of ten.

    One can find a ton of articles on dividend growth investing. On the other hand, most of those articles do not even make an attempt to size the amount of dividend growth. It is hard to find articles on dividend CAGR assessment. It is rare to find articles with good CAGR assessments.

    Mentions of earnings projection accuracy are almost impossible to find. How can you do a CAGR assessment based on earnings projections with variable levels of accuracy? You have to have a RRR assessment to do that! How can you determine the level of goodness that is priced into a stock without a RRR? You can't!

    Given those two conditions, readers are not prepped by prior articles from other sources that relate to anything that I am writing about. On the other hand, one needs to be prepped to understand what I am writing about. One can be prepped if they have read about dividend discount models. And one is prepped if we share the same intuitive perceptions.

    Everything I am writing about is intuitive. There are only two general forces influencing the valuations of equity income investments: growth and risk. Everyone knows that growth is a number. But risk can be nebulous - while at the same time, risk can be binary. Almost everyone gets uncomfortable hanging a specific number on risk.

    I am using a different language (CAGRs and RRRs) to make my valuation assessments. I expect that it is the 'difference' that makes my writings difficult to understand.
    Nov 18, 2014. 05:39 AM | Likes Like |Link to Comment
  • Transportation Sector Update 11-01-14 [View instapost]
    Warren Buffett said in the 90s, ‘Stay away from the airline industry’. He shuns the airline industry in general, as it is a high fixed cost and highly competitive industry that has on the whole made negative returns for its investors.

    That perception is probably no longer true. But I grew up (as an investor) with an anti-airline bias based on that old Buffett perception. I have self-generated biases against mortgage REITs, propane MLPs and "retail".

    There is a huge emotional component to investing. One can see the right thing to do and still have trouble pulling the trigger on the right decisions. Valuations are strongly based on growth perceptions -- and all growth perceptions are volatile. The setting of CAGRs involves generating a picture of growth in neat, stair stepped increments in a world where such neatness never exists. That level of Fear, Uncertainty and Doubt (or FUD) is true even when investing in sectors (and sub-sectors) that one loves. One could incorrectly see the setting RRRs as the process of metrically justifying a quantification of FUD attributes. (The correct perception would see RRRs based on Uncertainty alone.)

    I do not believe I could objectively set RRRs and CAGRs for a sub-sector where I held a bias. So I do not even try.
    Nov 16, 2014. 08:15 AM | Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Friday update - no changes to NII projections or price target. TCAP's price rose 0.09% to $22.54 while the BDCS fell 0.15% on a day when 17 of the 29 stocks in my sector coverage universe were up. I have posted a year to date BDC update for 11-14-14 at my Seeking Alpha Instablog - the link is http://seekingalpha.co...
    Nov 15, 2014. 12:49 PM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Thursday update - no changes to NII projections or price target. TCAP's price rose 0.04% to $22.52 while the BDCS fell 0.16% on a day when the index looked out of touch with the sector. The naked eye would cause me to expect the index should have done worse than that. AINV was down 0.48% - ARCC was down 0.24% - FSC was down 0.17% - PSEC was down 0.41% - SLRC was down 2.30%. 21 of the 29 BDCs in my coverage universe had price decreases. Trading volume for TCAP has significantly fallen back to a number that is still above average volume.
    Nov 13, 2014. 07:52 PM | 2 Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Wednesday update - no changes to NII projections. Price target fell to $27.04. (The high target is still $29.00 and the low is $25.00 -- I expect the high target will fall some -- I expect the target will at least fall to $26.00 -- But time is running out - there may be no more changes left to occur.) TCAP's price stayed at $22.51 while the BDCS fell 0.21% due to near 1% falls in ACAS, FULL, SLRC and WHF -- and some BDCs had a good day.
    Nov 12, 2014. 07:20 PM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Tuesday update - no changes to NII projections or price target. TCAP's price fell 0.53% to $22.51 while the BDCS was flat. (I wanted to have a publicly posted documentation for these changes so that 1- if I were in error, someone could catch it; and 2- so we have a record of this occurence with a 'vetted' record of how fast analyst projections are updated at Yahoo.)
    Nov 11, 2014. 07:26 PM | 2 Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Monday update - I made three projections - so let's track how I am doing as of today.
    (1) I wrote that the analysts EPS projections would fall.
    Since Friday's close, the 2014 and 2015 EPS (which is really NII) projections for TCAP have fallen from $2.13 and $2.33 to $2.06 and $2.24 (as measured or reported by Yahoo Finance).
    (2) I wrote that the analysts price targets would fall.
    Since Friday's close, TCAP's target has fallen from $29.00 to $27.63.
    (3) I wrote that the changes would slowly tumble in.
    It is too early to tell, but it appears that the changes flooded in today.

    I have posted updated BDC stats on my SA InstaBlog - which can be found at http://bit.ly/1u3kRTh
    Nov 10, 2014. 07:57 PM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    We may not be on the same wave length here. I wrote an article for Thursday morning - for a world in which TCAP's stock price would perhaps be falling - and the world needed to know why. On the other hand, the price might be flat due to little change in the NAV. BB&T had yet to publish its downgrade. I was correct in projecting turbulence. I wanted to provide the world a balanced perspective. I had no idea that Seeking Alpha was going to make this a 'pro' article with a 24 hour embargo. I think it was a pretty good article given that time context.
    Nov 9, 2014. 10:09 AM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    RonFrankDHM asked "How long have (I) been invested in or following this stock and how the management has been performing?"

    I began tracking BDCs in 2007 - and TCAP was added to my coverage universe in December 2007. I am not sure how long I have been publicly sharing that data - but it has been several years. I am a former shareholder in TCAP, I am a current shareholder in TCC - the TCAP baby bond of shortest duration. I have posted a number of articles on Seeking Alpha about BDCs.
    Nov 9, 2014. 09:26 AM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Propicker wrote: " I don't think you grasp the importance of the fact that TCAP is internally managed, the operating advantage that structure provides."

    In the comment section I wrote that "TCAP's NII/TII ratio is great." That is putting into 'metrics' the same thing you are saying in 'fundamentals'.

    Propicker wrote: "I think you failed to provide the fact that the book value went up last quarter".

    Forgive me for going with recall from a faulty memory, but I believe the cause for the NAV growth was due to the secondary offering - and that absent that offering, NAV would have declined.

    I believe my presentation of the data was balanced. I believe I included just the right amount of 'negative'. I did not conclude that TCAP was a 'sell'.

    Q3-14 provided a reminder that subordinated debt is a bit risky. I believe a $23 price target correctly reflects that risk while a $25.50 target does not. (I wish you had stated what the amount of the KBW price target prior to the earnings release.)
    Nov 9, 2014. 09:07 AM | 1 Like Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    bsorge wrote "The more I look at (TCAP) - (the more) it reminds me of owning a CEF."

    You should know that this numbers guy (or "yield + CAGR - RRR" valuation setting guy) is not going to let you slip in a comment that sounds to me like finger nails on a chalk board.

    I am going to nitpick that statement for the benefit of the rest of the classroom. Bsorge - don't take this personally. I am sure there are lot of investors who are (incorrectly) thinking the same thing.

    CEFs and BDCs both own portfolios of investments - but that is close to where the similarities stop. One would need to do a CAGR assessment for each portfolio holding of a CEF to get a good total average CAGR. Setting a CAGR projection for a BDC is much easier. (Yahoo Finance has bad CAGR projections while LTM NAV growth makes a quick and pretty accurate short term forward CAGR projection. You would also need the div/projected NII ratio to verify that metric is in alignment with the LTM NAV.)

    Setting a RRR assessment for a CEF would also need to be done one portfolio investment at a time - and that task would take close to forever to do. Setting a RRR assessment for a BDC requires gathering several metrics (historical NII projection accuracy, spreads in the current projections, knowing the div/NII ratio, finding the cost of the credit facility and the yields on publicly traded bonds, etc.) -- but it is a task a good retail investor can handle. And good BDCs provide portfolio debt/EBITDA metrics - and those numbers are also great for setting RRRs.

    In summation - someone who would write that BDCs remind them of CEFs has done such a tiny amount of due diligence that they should not be currently owning BDCs. BDCs are a high due diligence sector.

    There is a Catch-22 to BDC investing. Only those who have learned the lessons from the school of hard knocks for a period of about five years should be investing in BDCs. But you can't learn those lessons without investing in BDCs during a period where you should not be investing in BDCs.
    Nov 8, 2014. 09:42 AM | 4 Likes Like |Link to Comment
  • BDC Stat Update 11-07-14 [View instapost]
    opc11 asked "do the BDC's borrow at a fixed rate and lend at variable rates? If they lend at fixed rates are they of shorter duration?

    BDCs that have long term debt have debt at fixed rates. Most BDCs have some form of long term debt. I believe all BDCs have 'credit facilities' - and all credit facilities are at variable rates. And the terms of their credit facilities are one of the inputs I use in the risk assessment of BDCs.

    opc11 wrote " I'm wondering how their loan portfolios will do in a rising rate environment."

    That information is in many of the 10-Qs. When I expanded my "coverage universe" into tech and industrial stocks (and transportation stocks, health care stocks, packaging stocks), I dropped many of the metrics I track for BDCs. But I do have some old data. Here is some of that data - most of which is from Q2 and Q3 of 2013:

    AINV reports in their Q3-13 10-Q that a 100 bps (basis points) increase in interest rates would decrease their net investment income by $0.747 million or $0.003/share while a 200 bps increase in rates would increase income by $11.450 million or $0.051/share.

    Assuming that the consolidated statement of financial condition as of September 30, 2013 were to remain constant and that ARCC took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates. The data is in thousands.

    Change in interest rates Increase (decrease) in interest income Increase (decrease) in interest expense Net increase (decrease) in investment income
    Up 300 basis points $ 96.1 $ 28.1 $ 68.0
    Up 200 basis points 37.9 18.7 19.2
    Up 100 basis points (13.9) 9.4 (23.3)
    Down 100 basis points 6.1 (1.7) 7.8

    FSC reports in their 10-K that a 100 bps increase in interest rates would increase interest income by $1.3 million while increasing interest expense by $1.9 million - while a 200 bps increase would increase interest income by $9.8 million while increasing interest expense by $3.8 million.

    GLAD reported in their 10-K that a 100 bps increase in interest rates would increase interest income by $0.011 million while it would increase interest expense by $0.469 million - while a 200 bps increase would increase interest income by $0.698 million while increasing interest expense by $0.938 million.

    GAIN reported in their 10-K of 5-14-13, that if interest rates fell 20 basis points, the change in interest income would be flat and interest expenses would fall $0.063 million - for a positive effect of $0.063 million. If interest rates were to rise 100 bps - then interest income would rise $0.036 million while interest expenses would rise $0.310 million - for a negative impact of $0.274 million. If interest rates were to rise 200 bps. - then interest income would rise $0.365 million while interest expenses would rise $0.620 million - for a negative impact of $0.255 million.

    Assuming that the consolidated statement of financial condition as of September 30, 2013 were to remain constant and that GBDC took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates. The data is in thousands.

    Change in interest rates Increase (decrease) in interest income Increase (decrease) in interest expense Net increase (decrease) in investment income
    Down 25 basis points $ (26) $ (582) $ 556
    Up 100 basis points 230 2,326 (2,096)
    Up 200 basis points 9,101 4,740 4,361
    Up 300 basis points 18,580 7,154 11,426

    10-Q's are fairly big documents, and I could have missed data from some of the BDCs that were reporting these metrics.
    Nov 8, 2014. 07:09 AM | 3 Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    I have posted my 'year to date' spreadsheet along with the earnings projections and price/earnings ratio spreadsheet on my Seeking Alpha InstaBlog. The link to that page is: http://seekingalpha.co...
    Nov 7, 2014. 08:31 PM | 2 Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Dan_salesa2z wrote "Could have sold yesterday's purchase on today's bounce for a quick profit but decided to hang in a little longer. I'll be interested to see what Monday brings."

    When the hypothetical Jack cries "Wolf!" - the reaction varies by 'field' or sector.

    When Jack cries wolf in the MLP field, investor will ask: Who the hell is this Jack? What are his credentials? What metrics are causing Jack to say wolf? My brokerage is not seeing any wolf - and I have grown to trust those guys.

    When Jack cries wolf in the BDC field, investors are quick to sell. There is a trend that he who sells the fastest loses least. TCAP fell quickly with BB&T's downgrade to 'hold'.

    What is going to happen next week? We are likely to see several earnings projections downgrades (or more Jacks calling 'baby wolf'). Yahoo Finance shows the average price target projection for TCAP to be $29.00. I would expect price targets to head to a number closer to $24.00 or $25.00. And that slightly negative news will slowly tumble in - one source at a time. I would not expect any dramatic downgrades. At the same time, I would expect a parade of slight downgrades that will have a cumulative negative force.

    In summation - my nitpick with what you wrote is your intention to stay "a little longer". Investors with a short term focus will do well to sell on this dead cat bounce because it is logical to expect that next week will be another difficult week for TCAP. Of course, what logically should happen is frequently the opposite of what actually happens. I have confidence that this short term projection is 'logical'. I have a low amount of confidence that this will actually happen.
    Nov 7, 2014. 08:10 PM | 2 Likes Like |Link to Comment
  • Triangle Capital Has A Growing Non-Accrual Problem [View article]
    Dan - you are right about the headline. The non-accrual problem was the big news item. It had to be mentioned in the headline. And the issue needed context. I provided the data to give it some context.

    A larger problem for TCAP is the falling weighted average portfolio yields. But that is not news. The yields have been falling for some time. A larger problem is the falling NII/share. A larger problem is that the dividend is (temporarily?) more than NII/share.

    The BIG problem is the pause in dividend growth. BDCs that sell at large premiums on the price/NAV metric have good dividend growth. With TCAP selling at a current (23.00/16.64) 1.38 ratio -- how much of a premium is there in that price for growth that now is on pause? How much of a bull do you have to be to believe that growth is ONLY on pause? How many fellow BDC investors also follow the rule of "never buy an uncovered dividend" - and now have TCAP off of their buy lists?

    Such nuanced ideas are hard to be briefly expressed in a headline.

    TCAP is having a good day today (Friday). I hope I have provided sufficient information to leave you with the expectation or anticipation of price volatility.
    Nov 7, 2014. 12:06 PM | 2 Likes Like |Link to Comment
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