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jrxs4all

jrxs4all
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  • MORL Is A 'Too Good To Be True' Investment: Updated [View article]
    The author's math is much too simple and therefore wrong.

    MORL will only lose 50% when the index drops 25% if this happens in one month. If the index drops 25% in two or more months, MORLs loss will be less than 50% because of the leverage resets at the end of the month. Something similar happens when the index rises.

    So in real life, the volatility drag depends on the pattern of losses and gains and will most likely be much less than in the author's example.

    In real life, stocks go up more frequently than they go down and then, in the end MORL may even return more than twice the index.

    See also this SA article (about daily reset leverage where the volatilty drag would be much higher than for a monthly reset leverage anyhow):

    http://bit.ly/1998D4q
    Mar 10, 2015. 12:23 PM | 7 Likes Like |Link to Comment
  • Prospect's Distribution Is Not Sustainable [View article]
    "As a BDC, Prospect has to distribute at least 90% of its net investment income ("NII") to shareholders to receive its beneficial tax status"

    Totally wrong! Sorry, I stopped reading the article after this sentence.

    I really don't understand that people who don't even understand the basics of how a BDC works write SA articles about them.

    BDC distributions are based on taxable income, not NII. A BDC is a regulated investment company (RIC). To qualify as a RIC, a BDC must distribute at
    least 90% of its annual investment company taxable income.

    So yes, PSEC more than covers its dividend. Also on a recurring basis, because the CLO income in excess of NII is recurring.

    It is very popular among SA writers to lie about this, but repeating a lie doesn't make that lie true.
    Dec 4, 2014. 08:51 AM | 2 Likes Like |Link to Comment
  • Prospect Capital And Required Returns [View article]
    Wow, it seems that some people still don't understand that BDC dividend is payed out of taxable income. And that PSEC's dividend coverage is >100%.

    Besides that, this whole fixation on dividend coverage looks a bit counterproductive to me.

    Who would prefer a 8% dividend with 110% coverage over a 13% dividend with, lets say, 90% coverage ?

    Its very easy to have a high dividend coverage, just pay a very low dividend. And if you look at what really matters, earnings yield (not influenced by payout), these BDC's with a high coverage are inferior to PSEC.
    Nov 21, 2014. 09:32 AM | 5 Likes Like |Link to Comment
  • Prospect Capital And BDC Expenses [View article]
    I know that a lot of investors like to buy a stock when its too expensive and sell it when it is too cheap, see my first comment on this article. And yes, that is fine with me, but it is not very clever.

    Everyone likes to use NII, so lets take NII/stock price for Q3: 1,7% for MAIN and 2,9% for PSEC. Clearly, MAIN is superior :-) No, seriously, it is certainly not a bad company, but it is way way overpriced.

    People get fooled by the great total return but that total return is only so high because the stock is too expensive. And because the stock price goes up, more and more people buy the stock so the price goes up even more. It is a bubble and it will burst for sure.

    @Bekster: PSEC's NII vs TI has nothing to do with originations. On a recurring base, the most important factor is CLO income. In a high default environment (something you don't want to see) NII would be higher than TI. Then, just like now, TI is a much more reliable indicator of their true performance.
    Nov 20, 2014. 09:54 AM | Likes Like |Link to Comment
  • Prospect Capital And BDC Expenses [View article]
    It is simply not true that NII is a more conservative measure than taxable income.

    Taxable income can be higher than NII, just as high, or lower.

    BDC's that trade at a premium are just too expensive, prices will always revert to NAV in the long end. If you buy MAIN, you overpay by more than 50% and it is certain that this will cause a capital loss in the future.

    Premiums or discounts do not say anything about the company. The market is there to serve you, not to guide you.

    A stock price is an opinion (that can change in a matter of seconds), a cash dividend is a fact.
    Nov 19, 2014. 11:16 AM | Likes Like |Link to Comment
  • Prospect Capital And BDC Expenses [View article]
    I may not make much sense to you (and your are right), but I see to many retail investors who don't think like this.

    A low price often leads to people selling the stock, which leads to even lower prices. Also, a lower price means a higher yield and too many people judge the risk of a stock only by its yield. High yield means high risk then, another reason to sell.
    Nov 18, 2014. 10:10 AM | 2 Likes Like |Link to Comment
  • Prospect Capital And BDC Expenses [View article]
    Since they diluted their NAV by less than $0.01 per share with this share issue, why do you care ?

    I trust the management, they have done an excellent job for me. I see no reason at all to second guess their motives.
    Nov 18, 2014. 10:04 AM | 1 Like Like |Link to Comment
  • BDC Growth Potential Vs. Dividend Coverage [View article]
    I fully understand that it is easier for you to compare BDC's using only NII and it is also easier to use NII to calculate dividend coverage.

    But it is still wrong, because they pay their dividend out of taxable income. I can't help it, its just how it works.
    Nov 18, 2014. 09:55 AM | Likes Like |Link to Comment
  • Prospect Capital And BDC Expenses [View article]
    More PSEC bashing ? This is getting kind of funny.....

    OK:

    1. They do not cover the dividend.

    - Sure they do, BDC's pay their dividend out of taxable income and PSEC's taxable income last quarter was (much) higher than their dividend.

    2. They are diluting their NAV by issuing shares below NAV.

    - That is true, in Q3 NAV declined $0.01 because of that. One whole cent! And that even includes the effect of the DRIP shares.

    3. Management fees are too high.

    - This is a well run company with a very clever management that makes a lot of money for their shareholders. And yes, they pay themselves well for that, but what is there to complain if shareholders get a +13% yield. Why is it wrong that the management makes a lot of money for doing an excellent job for their shareholders. Last time I looked, the US of A was not a communist country....

    I think that this whole ongoing PSEC bashing is just how the typical retail investor thinks. They love expensive stocks. When the price goes up, more positive articles are written.

    When prices go down, people sell and you see a lot of negative articles about a stock.

    Buy high, sell low, that is why the return of the average investor is so much lower than the return of the average investment.

    Smart money loves the unloved stocks and buys when prices are low.
    Nov 18, 2014. 03:55 AM | 20 Likes Like |Link to Comment
  • BDC Growth Potential Vs. Dividend Coverage [View article]
    I'm sorry, but that is not how it works with CLO income. There is no run rate that you can know in advance, because the most important factor is the default rate. If the assumed default rate is too high, GAAP income will be lower than cash income over the full life of the CLO.

    PSEC's CLO portfolio has very low default rates:

    "As of September 30 our CLO portfolio experienced a trailing 12-month default rate of 0.16%, significantly less than the broadly syndicated market default rate of 3.34%. In the same quarter this portfolio generated an annualized cash yield of 20.7% and a GAAP yield of 14.9%."
    Nov 18, 2014. 03:37 AM | Likes Like |Link to Comment
  • BDC Growth Potential Vs. Dividend Coverage [View article]
    Remember again that the $0.05 extra income from the CLO's is cash, it is really there.

    So I make one dollar of profit and I have that dollar in my hand. And a computer model says I made only 95 cents, you think the model is more reliable ?

    Strange way of thinking, I would say that the model or more precise the model parameters are wrong.

    But maybe you have to understand GAAP CLO accounting to appreciate this, GAAP CLO accounting can be very misleading as OXLC shows.

    Also note that if you make 1 dollar profit and you pay this as a dividend and GAAP says you only made 95 cents, there will be a deduction $0.05 deduction from NAV. But all the assets including the 5 cents are still there. OXLC keeps a separate balance in their accounts for that difference.
    Nov 17, 2014. 11:33 AM | Likes Like |Link to Comment
  • BDC Growth Potential Vs. Dividend Coverage [View article]
    Using NII instead of TI to calculate dividend coverage is not inherently more conservative.

    CLO cash income could also be lower than GAAP income used in NII, then TI would be lower than NII.

    It is not matter of being conservative or not, it also not a matter of opinion. PSEC and all other BDC's pay their dividend from TI. That is not PSEC's choice, its just how the fiscal rules are and how a BDC works.

    That has always been so, but the difference (if there) between NII and TI was buried deep in the results. Since very little people read the results well (if at all), they decided to make it more easy for the readers and explain the difference better.

    But it looks like people only read the headlines with the NII. So many people still think that PSEC does not cover the dividend (which is wrong).

    Regarding the CLO risks: yes, they are there. All their other investments have risks too, it is just a matter of finding the best risk/reward combination.

    What proof do you have that CLO's are so extremely risky ? Again, I advise you to read the articles on OXLC.
    Nov 17, 2014. 10:45 AM | Likes Like |Link to Comment
  • BDC Growth Potential Vs. Dividend Coverage [View article]
    PSEC not covering its dividend ? Are you joking ????

    BDC dividend is payed out of taxable income, that is how a BDC works (tax rules, not their own choice). It is very hard to take anything serious that is written by someone who does not understand this.

    TI was $0.44 minus the $0.11 non-recurring income from the Echelon event is $0.33. The 5 cent difference between $0.33 and the $0.28 (GAAP) NII is due to CLO income. Note that this difference is recurring, although the amount might change.

    TI income from CLO's is the actual income whereas GAAP income from CLO's is calculated from a model. TI is the real income from the CLO's, that money is actually there! Read the SA articles on OXLC if you want to know more about this, it is also explained there how this affects (GAAP) NAV calculation.

    So yes, PSEC covered the dividend and even added $0.11 to undistributed taxable income due to the Echelon event. On a recurring basis they just covered the dividend.

    I don't expect that they will cut the dividend.

    Please read up on CLO accounting and CLO's in general. That will also change your unfounded idea that CLO BDC's are more risky.
    Nov 17, 2014. 05:19 AM | 1 Like Like |Link to Comment
  • Prospect Capital: Is A Dividend Cut On The Way? [View article]
    PSEC easily covered the dividend in Q3, remember that the dividend is payed out of taxable income (TI).

    TI was $0.44 minus the $0.11 non-recurring income from the Echelon event is $0.33. The 5 cent difference between $0.33 and the $0.28 (GAAP) NII is due to CLO income. Note that the 5 cent difference is recurring.

    TI income from CLO's is the actual income whereas GAAP income from CLO's is calculated from a model. TI is the real income from the CLO's, that money is actually there! Read the SA articles on OXLC if you want to know more about this, it is also explained there how this affects (GAAP) NAV calculation.

    So yes, PSEC covered the dividend and even added $0.11 to undistributed taxable income due to the Echelon event. On a recurring basis they just covered the dividend.

    I don't expect that they will cut the dividend.
    Nov 11, 2014. 08:37 AM | 5 Likes Like |Link to Comment
  • PSEC Is Up On Earnings News In After Hours Trading [View instapost]
    @Factoids: look at the SA articles regarding OXLC.

    They explain why GAAP is not the good way to judge CLO income. Much better to take actual income which is also the basis for the dividend.

    And yes, PSEC easily covered the dividend for Q3 and if you exclude Echelon just covered it.

    The numbers look solid to me and I think that the spin offs will create value for the shareholders.

    By the way, the articles on OXLC will also explain that NAV is higher than it looks according to GAAP.
    Nov 7, 2014. 09:02 AM | Likes Like |Link to Comment
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