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BDCS vs. ETF Alternatives
The ETRACS Linked to the Wells Fargo Business Development Company Index due April 26, 2041 is designed to track an investment in the Wells Fargo Business Development Company Index ("Index"), and may pay a variable quarterly coupon linked to the cash distributions associated with the underlying BDC constituents, less investor fees. Note that if the BDCs do not make distributions or those distributions do not overcome the investor fees, then investors will not receive any coupons.
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Wednesday, Nov 272:15 PM"Frustrating" quarter for Fifth Street
Wednesday, Nov 272:15 PM| 1 Comment
- "It's been extremely frustrating," says Fifth Street Finance (FSC -1.4%) CEO Len Tannenbaum on the earnings call (transcript), as the company has struggled executing on its five-point plan and yesterday cut the dividend to be more in line with reduced earnings.
- He blames this FQ4's particularly weak result on prepayments being front-loaded coupled with a "lousy" origination number of $120M as several deal closing slipped into FQ1. "The board looked at $0.24 (NII) versus our dividend level, and said, all right, we just have not earned our dividend for several quarters and we have to put it at least temporarily in line with the current earnings level."
- Responding to a question about whether the board will consider cutting the fee structure in light of the company's move into first lien, safer, lower-yielding assets, President Bernard Berman dances around a bit, but does promise an improvement in general and administrative expenses next year.
- One thing investors don't have to worry about in the short-term is a stock offering as Fifth Street - given the tough deal environment - is sitting on plenty of excess capital (there was a secondary in September).
- Company specific? Thus far, the rest of the BDC sector is shrugging off FSC's weak results.
- BDC ETFs: BDCL, BDCS, BIZD
Thursday, Aug 1511:12 AMIncome stocks hit hard by rising yields
Thursday, Aug 1511:12 AM| 13 Comments
- Anything paying income is again being particularly hard hit by the rise in Treasury yields (the 10-year now at a 2-year high of 2.8%).
- Selections in mREITs (REM -2.1%), (MORT -1.9%) include RAIT Financial Trust (RAS -4.1%) - whose IRT had an ill-timed IPO yesterday and Ellington Residential (EARN -4.8%) - the market not caring about reasonable Q2 performance, a hefty discount to book, and the launch of a repurchase program. Other mREITs: CYS Investments (CYS -3.6%), Apollo (AMTG -3%), Newcastle (NCT -5%), Invesco (IVR -2.7%), Arlington Asset (AI -1.2%). A leveraged ETF play: MORL.
- Hanging in there relatively well are the BDCs: Fifth Street (FSC -1.3%), Triangle (TCAP -1%), MCG (MCGC -1.2%), Hercules (HTGC -1.2%), Ares (ARCC -0.3%).
- BDC ETFs: BDCS, BDCL, BIZD.
- In emerging markets fixed income, a trader takes note of EDD, a closed-end fund now trading at more than a 15% discount to NAV.
- Emerging market bond ETFs: EMB, LEMB, PCY, EMLC, ELD, PFEM, EBND, VWOB.
Wednesday, Aug 710:24 AMAres Capital loses Buy rating at KBW
Wednesday, Aug 710:24 AM| 1 Comment
- Ares Capital (ARCC -2.5%) slides after KBW removes its Buy rating on the stock a day after Q2 earnings were reported.
- Of note is the 90 basis point Y/Y decline in average yield on the company's debt investments to 10.8% - a result, says management (transcript), of a focus on lower-yielding senior secured debt, lower yields on new debt in general, and the repricing of some loans. The yield on the total portfolio (which includes equity investments) fell a more moderate 60 bps to 9.8%.
- Earnings presentation slides.
- Other BDCs of note: Triangle (TCAP -1.9%), TICC (TICC -1.3%), Prospect (PSEC -1.2%).
- Related ETFs: (BDCS -1.3%), (BDCL -2.5%), (BIZD -1.6%).
Thursday, Jul 113:32 PMOutperforming in the BDC (BDCS -0.9%) sector today is American Capital (ACAS +4.1%) - the only one among the larger players not paying a dividend. Instead, an aggressive buyback program was very active during the stock's roughly 20% decline over the last 2 months, the company purchasing about 3% of the float in Q2 through June 26. |Thursday, Jul 113:32 PM| 3 Comments
Friday, Jun 710:43 AMTreasury prices are sharply lower, but high yield (HYG +0.6%) is enjoying a nice bounce after a rough few weeks. The move is translating into higher prices for BDCs (BDCS +1.5%) - whose assets are somewhat comparable to junk debt. Leading: Prospect (PSEC +1.2%), Main Street (MAIN +2.2%), Triangle (TCAP +1%), MCG (MCGC +1.6%), American Capital (ACAS +1.7%), Fifth Street (FSC +1.1%), and Golub (GBDC +0.9%). As SA's Alberto Alfonso points out, American Capital - for one - can take advantage of recent declines to buy back even more shares at well below book value. |Friday, Jun 710:43 AM| 1 Comment
Tuesday, Jun 41:43 PMMain Street Capital (MAIN -4.2%) continues for a 2nd day to bear the brunt of the selling in the BDC sector (BDCS -0.7%). The company's just-published investor day presentation is typical conference stuff - showing how the company is different (and superior) to its sector brethren, explaining the opportunities in lower and middle-market lending, and including several case studies. Also notably lower: MCG Capital (MCGC -1.6%), Prospect (PSEC -1.3%), and Hercules (HTGC -1%). |Tuesday, Jun 41:43 PM| 16 Comments
Monday, Jun 311:52 AMBusiness development companies (BDCS -1.1%) see some selling as higher interest rates threaten to offer at least minor competition to their fat dividends. The drop in junk bond prices - a decent proxy for the assets on their books - isn't helping either. Leading on the downside today: Main Street (MAIN -4.5%), American Capital (ACAS -2.4%), Prospect Capital (PSEC -1.4%), Ares Capital (ARCC -1.1%), Blackrock Kelso (BKCC -1.1%). |Monday, Jun 311:52 AM| 6 Comments