SA Transcripts • Tue, Nov. 11
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- This article discusses risk indicators for investing in FS Investment Corp.
- I consider FSIC to have a safer than average risk profile.
- This article compares FSIC to NMFC both of which I consider to be relatively ‘safer’ BDCs for the reasons discussed in this article.
- FS investment Corp released its financial results earlier than announced and this article will walk through some of the highlights.
- Using adjusted core net investment income the company covered dividends by 115%.
- Fee income of $18.5 million helped to offset a slightly reduced portfolio yield from higher quality investments.
- This article will also discuss some of the key variances between my optimal leverage analysis and actual results for Q2.
- This article uses my "optimal leverage" analysis to assess dividend coverage for FS Investment Corp.
- The BDC industry is experiencing yield compression and 7 out of the 26 BDCs that I cover have recently cut dividends.
- I will use this series to project which BDCs are less likely to cut dividends in the future.
FS Investment Corporation's Capital Structure: Critical Trade-Offs
- In Part II of BDC Reporter's review of new Business Development Company FS Investment Corporation (FSIC) we review the Company's critical borrowing choices.
- FSIC has chosen-to date-to borrow short term from large banks, benefiting from low cost debt capital but with greater risk of getting into trouble should market conditions change.
- However, changes may be underway in a number of areas which could change the risk profile and economics of FSIC's borrowing, along with leverage levels, management fees and incentive fees.
- The biggest non-traded Business Development Company FS Investment Corporation (FSIC) went public last week, and immediately became the 4th largest company in the sector by asset size.
- In a two part series, the BDC Reporter initiates coverage on FSIC: reviews key metrics and questions the sustainability of earnings and distributions in the medium term.
- FSIC uses GSO, the $65 billion Blackstone (BX) subsidiary, to manage the investment portfolio. We suggest this provides mixed blessings to investors in the BDC.
- In Part II, the BDC Reporter will review FSIC's capital structure and how the Company might fare in a hypothetical liquidity crisis and negative credit environment.
- FS Investment (FSIC) is a new BDC listing on the NYSE today and will most likely become one of the higher-quality BDCs that I follow.
- FSIC does not have direct exposure to the Russell indices that are currently weighing on BDC prices.
- FSIC has higher dividend and NAV per share growth than most BDCs.
- The company has announced that it will be purchasing shares through a tender offer between $10.35 and $11.00.
Mon, Nov. 10, 5:04 PM
- Adjusted net investment income of $0.25 is down one penny from Q2. Q3 dividend was $0.3228, up from $0.2228 in Q2.
- Net increase in net assets from operations of $0.23 per share vs. $0.27 in Q2.
- Net asset value per share of $10.19 slips from $0.28 at the end of Q2.
- $451.9M in direct originations committed to during quarter, 91% of which were senior secured debt.
- Gross portfolio yield of 10.3% flat from Q2.
- No new investments put on non-accrual. Those currently on non-accrual represent 0.5% of total portfolio based on fair value of about $4.3B.
- Conference call at 9 ET
- Previously: FS Investment NII in-line, beats on revenue
- FSIC flat after hours
Mon, Nov. 10, 4:45 PM
Fri, Oct. 10, 4:24 PM
- "The sector's drawdown is 50% of what occurred in the 2011 euro-crisis without anything like the accompanying conditions," writes a bullish BDC Reporter, noting the sector is lower by about 14% since its February high, and stalwart Ares Capital (ARCC -3.1%) is trading at a discount to book value for the first time in years.
- Another example is TCP Capital (TCPC -2.5%), down about 15% from a high hit three months ago. The company has paid out a steadily-increasing dividend since going public, current and future earnings are in excess of the payout, the balance sheet was recently strengthened with medium-term debt capital, the average cost of debt is 2.63%. and its investments yield 9.2%. What's not to like?
- If the current benign business and credit cycle is indeed over, then BDCs have further to fall. If, as BDC Reporter believes, low rates are here to stay for awhile (and even if rates rise the BDC sector should prosper), BDCs are reaching bargain levels.
- ETFs: BDCL, BDCS, BIZD
- Today's action: Prospect Capital (PSEC -2.9%), Fifth Street Finance (FSC -3.5%), FS Investment (FSIC -3%), Apollo Investment (AINV -2.1%), Triangle Capital (TCAP -1.6%), THL Credit (TCRD -2%), OHA Investment (OHAI -4.2%).
Tue, Aug. 19, 10:12 AM
- FS Investment (FSIC +0.4%) out-earned its dividend in Q2, reporting adjusted NII of $0.26, up from $0.23 in Q1, and vs. distributions of $0.2228. Net increase in net assets from operations was $0.27 vs. $0.31 in Q1.
- Net asset value per share was flat at $10.28 thanks to the repurchase of stock at $10.75 amid the post-IPO tender offer and one-time expenses associated with coming public.
- After earnings and the distribution, undistributed net investment income and realized gains on a tax basis rises by $0.09 per share to $0.67. A special cash distribution of $0.10 was paid on Friday and management expects (earnings call transcript) to pay out another dime in mid-November.
- BDC Buzz's highlights from FSIC's Q2
Mon, Aug. 18, 11:30 AM
- Prospect Capital's (PSEC +0.9%) sizable $210M lending deal announced this morning and 9 booked deals over $100M in the last year suggest it and many of its larger brethren are competing for larger borrowers who don't fit the mold of the larger syndicated loan market BDCs typically play in, writes Nicholas Marshi.
- On the good side, these "story credits" allow Prospect and other BDCs to charge higher rates and fees than are available in the "dirt cheap" syndicated loan market. And Prospect (and others) have become so big that typical middle market deals aren't enough to move the needle on their portfolios anymore.
- Ideally, though, no individual loan would represent more than a tiny fraction of the portfolio, so while "big fish" deals allow for good earnings and maintenance of the distribution today, Marshi worries about the impact of the blow-up of an individual company or of wider credit issues when the next economic downturn hits.
- Other large players today: Ares Capital (ARCC +0.8%), FS Investment (FSIC), American Capital (ACAS +1.4%), Apollo Investment (AINV +0.4%), Main Street Capital (MAIN +0.1%).
- ETFs: BDCL, BDCS, BIZD
Tue, Jul. 1, 9:16 AM| 1 Comment
Tue, Jun. 17, 10:38 AM
- Newly public, but one of the BDC sector giants, FS Investment (FSIC +1.1%) is started with an Outperform rating and $11.75 price target at KBW.
- See also: Apollo Investment and Blackrock Kelso boosted by upgrades
Thu, May. 29, 9:21 AM
- FS Investment Corp. (FSIC) notes its tender offer to purchase up to $250M in common shares was oversubscribed.
- Preliminary results from the modified Dutch Auction showed more than 24M shares tendered at or below the $10.75 purchase price by yesterday eve's offer expiration, and FSIC expects to buy about 96.5% of tendered shares at or below that price.
Thu, May. 15, 7:14 PM
- Fair value of investments at FS Investment Corp. (FSIC) was $4.1B at quarter's end; core investment strategies made up 83% (57% direct origination, 26% opportunistic investment).
- Paid regular cash distributions of $0.216/share during Q1.
- Intends to declare two special cash distributions ($0.10/share payable Aug. 15, to those of-record July 31; another $0.10/share payable Nov. 14, to those of-record Oct. 31).
- Conference call tomorrow at 11 a.m.
- Q1 results; financial presentation
Thu, May. 15, 7:00 PM
Mon, Apr. 21, 12:26 PM
- So far so good a few days after FS Investment Corporation (FSIC +0.6%) - the largest non-traded REIT - went public, immediately becoming the 4th largest company in the publicly traded BDC sector.
- BDCs are generally a retail product - the typical one targets 90% retail investors, 10% institutional - but, along with also recently gone-public TPG Specialty Lending (TSLX -1.3%), FSIC "begins to create some comfort with institutional investors," says Raymond James' Robert Dodd, noting FSIC backers Blackstone and Franklin Square Capital Partners. The TPG listing, according to sources, had 85% institutional participation.
- The pressure from 60K individual investors owning FSIC could weigh on the shares, says Ladenburg Thalmann's Mickey Schleien, but offsetting that is a tender offer by the company for up to $250M of stock.
- ETFs: BDCL, BDCS, BIZD
FSIC vs. ETF Alternatives
FS Investment Corp is an externally managed, non-diversified, closed-end management investment company. Its portfolio is comprised of investments in senior secured loans and second lien secured loans of private middle market U.S. companies.
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