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William Packer  

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  • Fifth Street Finance Has 50% Upside From These Prices [View article]
    I am moving to 100% of my capital invested in FSAM. Been selling off MDLY is small pieces... so will just be FSAM from now on... 100% conviction on the trade. I also believe $FSC, $FSFR are excellent buys.$7.20 (FSC), $10.80 (FSFR) $11 (FSAM). Prices associated with suggested entry prices. Although, I will just own FSAM because i am targeting more than 100% upside.

    I see FSC moving up after the earnings report... coming back to $8 at some point after it reports and then slowly moving back to book value as EPS increases. FSC and FSFR are deploying funds in a joint venture that is very accretive to earnings.. those loans are expected to have extremely low default risk. Remaining portfolio is pretty solid. Only 1 expected loan on books headed for a haircut @ FSC, but that is offset by aircraft business and 0.07 clawback NAV bump. So targeting a neutral to higher NAV for this quarter at FSC.

    I see MCC NAV dropping.. so warning that people should be concerned with even more non-accruals @ MCC and another hit to NAV.
    May 1, 2015. 01:39 PM | 1 Like Like |Link to Comment
  • It Is Finally Time To Buy Medley Capital Corp. [View article]
    I am throwing in the towel on MCC ... price is in the $9.30s... more non-accrual loans on horizon. Removing my price target and coverage for the stock... same goes for MDLY.

    Recommend investors consider $FSC, $FSFR, $ACSF instead for BDCs... Also, I like the manager FSAM @ $11
    May 1, 2015. 01:24 PM | Likes Like |Link to Comment
  • Fifth Street Finance Has 50% Upside From These Prices [View article]
    He is just lowering our expectations so he can beat them. Yes, Japan is speculative but they have been working on building relationships there for 9+ years. FSC run into some issues with non-accrual recently.. but I think they will recover from that... and FSFR is looking OK at 87-90 cents on the dollar.. so as interest rates rise... it should definitely be able to kick off enough income to increase the dividend... and drive a higher stock price. I think there will be AUM growth in 2015 and I think that FSC can turn itself around... I am expecting some buybacks at FSC and yes that reduces AUM temporarily... but I am not concerned longer term about this. They may not buyback shares either.. it's hard to say.. but even if they don't... NAV should stabilize at FSC and the drive for yield should push the stock back up above book at some point... allowing for more offerings. I think a key catalyst for both FSC and FSAM... is rising interest rates and better reinvestment spreads. So I see growth coming back to life in 2016+ and yes 2015 is going to be slower than prior years... but I still see some growth in 2015... with possible takeovers by FSAM using that 175m credit facility... and so we are looking at earnings growth still @ FSAM.
    Apr 25, 2015. 10:36 AM | Likes Like |Link to Comment
  • IPO Preview: Fifth Street Asset Management [View article]
    Below is an email from FSAM Investor Relations... So maybe some additional color for some of you folks looking at the company today.

    "William –

    Thank you very much for your questions relating to FSAM.

    In regards to the first question - Class B shares are not convertible into Class A shares, but in fact it is the LP interests that are convertible into Class A shares. Upon conversion of LP interests into a Class A share, the corresponding Class B share is cancelled. Since our EPS is based on fully converted 50mm shares, there is no effect to EPS upon LP-Class A conversion.

    In regards to your second question, FSAM is a C-Corp and dividends paid are qualified dividends.

    Please let me know if you have any additional questions.

    Best,
    Robyn"

    Original email:

    "Hello,

    I am looking at FSAM and I have a few questions. I read that the class B common stock is convertible into class A common shares after two years from the date of IPO. Would such a conversion impact the earnings power of the class A common shares? In other words, would the earnings of Class A holders be diluted by the conversion of class B into class A?

    My second question relates to the tax implications of FSAM. Is the dividend taxable as a qualified dividend for tax purposes, like a C-corp? Or are we talking about a ordinary income dividend at FSAM like how FSCs distributions are classified?


    Thanks,
    William Packer"
    Apr 24, 2015. 12:50 PM | Likes Like |Link to Comment
  • Fifth Street Finance Has 50% Upside From These Prices [View article]
    The better deal for everyone right now... is to buy FSAM... I like it better than even MCC now. Fee earning assets keep accelerating and they did again in Q4 2014 from Q3 2014. Fee income is on the rise from rising AUM. The stock is dirt cheap and is QUALIFIED vs ORDINARY income that BDCs pay. Also, I see the dividend at 0.20 to 0.30 range per quarter for 2015.. even at the low end.. it's a 7.25% dividend yield for a qualified divy assuming you get long at $11. Ok. So definitely a buying opportunity.. and if you go by other asset managers that don't have permanent capital vehicles that approximate over 90% of AUM... FSAM should be trading at $20.30 per share today or better. But i would argue a premium valuation because FSAM has the permanent capital vehicles... so maybe $22 to $24 range seems fair. So huge disconnect and the upside is fantastic. Silly not to own it.
    Apr 23, 2015. 11:37 AM | Likes Like |Link to Comment
  • It Is Finally Time To Buy Medley Capital Corp. [View article]
    My active trading has more than offset the unrealized losses but despite this... Yes, MCC is down 5% from the time this was written... But if you have a medium to longer term view... You can see how the positive carry and dividends can easily provide a solid return over the next year. I still think that your cost average up near $10.50 is reachable within 1 year plus dividends paid. Look, it's a huge discount to book value and book is generating a solid 10% plus yield right now and a historical 3 year ROE near 9.5%. (7.5% nonaccrual losses or 2.5% per year and dividends were paid near 12% ROe on book before the latest cut) So net came out near 9.5% per year after nonaccruals) ... MCC is providing an outsized return to investors and not much sense in the huge discount... But that's just the way it is for now.. They are buying back stock and working on the JV.... While paying a good dividend return. Book should stabilize soon and valuation should increase.
    Apr 16, 2015. 03:28 AM | 1 Like Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    I don't blame you for being against FSC, PSEC, TICC.... But MCC is not on their level.. They made some underwriting mistakes because of how fast they grew but those are getting resolved and NAV will stabilize and return to a path of slow and steady growth from NII rollover and buybacks. So if you book mark this... MCC is $9.06 and MAIN is $31.33... We will see who outperforms from here 1-3 years from now based on dividends reinvested and total return.. And my bet is that MCC carries less valuation risk, much more upside, and much better total return from here. But even longer term... 10 years out... You will see the significance even more because we don't know when the economy will turn.. But when it does... Main will take a much bigger hit and you won't realize it fast enough to get out... But with MCC.. You will have more time to see it because nonaccruals related to economic slowdowns lag the economy everytime and the valuation risk won't be as excessive as MAINs.. So when I move to avoid the crash and push capital into preferreds.. i won't have to take as much of a valuation haircut. I have done this song and dance before and I model and prepare for it regularly. Thankfully, I don't have secondary offering risk like you do in MAIN as an extra risk as well.
    Apr 15, 2015. 01:41 PM | Likes Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    Special dividends exist because of capital gains which won't always be there. You can't count on them.
    Apr 15, 2015. 01:37 PM | Likes Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    Oh please, MCC only recently had a discount to book value... They traded at a near 30% premium for a while there. Valuation risk is huge in MAIN and you might not see it come back to bite you for a while... But it will eventually... Meanwhile you get paid very little money to take that risk among the other risks when you could just buy a decent preferred stock and get paid more money and have less risk.
    Apr 15, 2015. 01:35 PM | Likes Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    Furthermore, if you are buying MAIN for yield... That is pretty lame because you can find similar yields in some S&P 500 companies that have excellent growth potential, multiple expansion, dividend growth prospects.... Where their dividends qualify as qualified dividends rather than MAINs ordinary income dividends which are taxed at a higher rate.

    Or you can find better capital preservation and safety in a variety of preferred stocks... Like MTGEP or AGNCP which pay about 8% and are cumulative. So that adds extra layers of safety and provides a stable yield that cannot be taken away from you in a recession.
    Apr 15, 2015. 01:24 PM | Likes Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    You clearly don't understand what I am saying. Yes, realized gains are what you are seeing today in MAIN. Because equity multiples keep going up lately so they can sell them for more money. This is simple multiple expansion 101. MAIN is not a smart buy at 40 or 50% over book value. It just isn't and you aren't going to see a meaningful return over the long run because once multiples compress... You will find yourself with a different scenario.. Prices will drop below book value for MAIN and match the so called "trash BDCs." You say I have no idea and that I am new to BDCs but this couldn't be further from the truth. I only trade in BDCs and mREITs and I have done so since January 2008 as a full time job. Ok. I know what I am saying and you can try to spin MAIN as some kind of super safe superior BDC all you want but when push comes to shove MAIN carries much more valuation risk and you get paid peanuts because of the big premium. Yes, it's nice to have internal managment and improved cost saving measures but not at the expense of a 40-50% premium. ACAS carried a big premium too in 2007-2008. Perceptions are everything in this business and people perceive MAIN to be safer but this simply is not true. Sorry to be the one to tell you.

    Remember, MCC had an increasing NAV for a while there and increasing dividends and increasing net investment income... Like the "good BDCs." Things can take a big turn fast and then you see the valuation risk imbedded in these things not just the NAV and earnings risk.. But a totally other risk set.... Which is that big premium evaporates and turns to a discount. It sounds like you want to learn the hard way and I am sure this posting will be Burried and lost by the time you get shafted... But I hope when it happens to you that you remeber what I said... Just a matter of time.
    Apr 15, 2015. 12:58 PM | Likes Like |Link to Comment
  • I Was Simply Wrong About American Capital Mortgage [View article]
    Big tank, or you could buy MCC which will maintain and work on increasing NII over the period of rising interest rates... Historically stable NAV with nonaccrual rate of 2.5% per year with net total roe on book of 9.5% but when you look at the current discount, it's a huge upside potential for the stock at 78 cents on the dollar. Based on the current stock levels... You can get about 13% with 117% dividend coverage
    Apr 15, 2015. 11:24 AM | Likes Like |Link to Comment
  • BDC Total Returns Q1 2015: Part 2 [View article]
    Even the best BDCs can run into trouble and when that happens expectations change and you can take a much bigger hit. Sometimes you have to find value in names that don't deserve to be down as much as they are. Ok. Take for example MCC which writes mostly senior secured first lien loans to middle marker companies.... Over a 3 year period they lost nearly 7.5% of NAV from nonaccrual or 2.5% per year annualized. Now they paid a dividend on book of 12% for a long time... So total ROE was 9.5% per year for the past 3 years... Not bad... But look, the market punishes them for delivering that net return to shareholders. Nonaccrual will always be a part of BDCs.. Ok. You cannot avoid it. No BDC is immune. I would argue that MAIN and some other BDCs have more equity exposure and thus more valuation risk when it comes to determining the fair value of those investments. They also would take bigger hits during a recession and for 2 reasons... The private equity valuation risk and the independent BDC stock valuation risk swinging from premium levels of 30-40-50% to a discount to NAV and that NAV declining faster then senior secured lenders like MCC at that point due to the excessive equity exposure. The equity exposure is the same reason why MAIN's NAV is up so much and some of the other BDCs... They take those equity pieces and we know equity multiplies keep expanding right now but eventually they can contract and contract hard! So loans are more predictable in terms of nonaccrual and total NAV. We know loans are suppose to repay at par. Equity is a big guessing game and the marks can be manipulated up and up where as loans can only be manipulated up to par like levels (except for the cases of PIK but not going to cover that here)

    Bottom line: it's easy to try and say MCC or credit focused lenders are not doing a good job but the reality is far from it in the case of MCC. They just don't have the equity pieces to drive a 30-40% ROE during the bull runs. But all that excitement comes and goes with the next bear market. Look what happened to ACAS in 2007-2009 due to their equity exposure. They had a 40% premium to NAV before in 2007 but things turned and they got killed. If ACAS had a do over they would have invested more like PSEC did... Which was allowed to keep paying a dividend and despite some NAV losses.... They delivered a much more stable NAV and survived. The problem with PSEC is the very high management fees - not the business itself. MCC has lower fees but not as low as MAIN or TCAP. But what I am saying is... Be careful of the equity piece and definitely look at valuation and valuation risk when it comes to both the BDC itself and the individual equity pieces.
    Apr 15, 2015. 11:07 AM | 2 Likes Like |Link to Comment
  • Full Circle Capital Is Full Of It [View article]
    Yeah.. The preferred of FULL is not safe in my opinion. I would never buy it.
    Apr 9, 2015. 10:47 PM | Likes Like |Link to Comment
  • Full Circle Capital Is Full Of It [View article]
    The PSEC piece I am referring to is a baby bond and if they did not pay it would constitute as a default and would cross-default the revolver and other series. So the baby bonds are ultra safe compared to full preferred.
    Apr 9, 2015. 12:40 PM | Likes Like |Link to Comment
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