The purpose of this series on Business Development Companies, or BDCs, is to help you avoid the dividend-declining companies while capturing some much-needed income. The intro article in the series was "How To Identify Risk In BDCs." This article is on KCAP Financial (NASDAQ:KCAP), also known as Kohlberg Capital Corporation. This BDC sells at a 401 bps higher than average yield. KCAP lacks 2017 dividend coverage based on projected NII, or net investment income. Is the higher yield correctly correlated to higher risks? Should the fall of total investment income per share indicate the dividend is in danger? I will take you through the last several earnings releases, show the 24-point red flag checklist of assessing the quality of KCAP's income, show the relative valuations for the sector, and present my assessment of KCAP Financial.
Before I show the Q1-17 numbers, I want to show the analyst projections.
Earnings Estimates from Yahoo Finance from before the earnings release:
|Current Qtr. (Mar 2017)||Next Qtr. (Jun 2017)||Current Year||Next Year|
|No. of Analysts||3||3||3||3|
|Year Ago EPS||0.13||0.14||0.50||0.41|
|Revenue Estimate||Current Qtr. (Mar 2017)||Next Qtr. (Jun 2017)||Current Year||Next Year|
|No. of Analysts||3||3||3||2|
|Year Ago Sales||9.51M||9.58M||36.20M||32.95M|
The Q1-17 actual Net Investment Income, or NII, was $0.0865/share. Total Investment Income, or TII, was $7.774 million. Five of the six income components are falling and one is MIA. The Net Asset Value fell another 10 cents per share. Since the earnings release, the 2017 consensus projection has fallen to $0.39 and the 2017 average TII projection to $32.16 million.
My spreadsheets with the current and historical earnings metrics:
|Realized & Unrealized Gains||-2.877||-4.088||-1.806||-2.029||-11.607||-0.445||-22.449||-4.599||1.165||-0.748||2.719|
|Realized & Unrealized Gains/share||-0.0773||-0.1100||-0.0486||-0.0547||-0.3128||-0.012||-0.6060||-0.1247||0.0316||-0.0205||0.0678|
KCAP has had negative portfolio gains in 9 of the last 11 quarters and that is putting the history in the best light. KCAP has had negative gains in 8 out of the last 8. Some of the losses are severe. Since the beginning of 2012, KCAP's NAV has fallen 31.46%. Only one other BDC has done worse. This series has already done updates on "nest egg eating" Fifth Street Finance Corp. (FSC) and Medley Capital Corporation (NYSE:MCC). KCAP's performance on NAV is significant worse than those two.
|Interest income from debt||4,555,178||4,722,263||5,186,745||5,214,331||5,705,577||5,720,722||6,302,777||5,879,930||6,197,828|
|Interest income from cash||15,906||7.862||7,168||6,981||7,372||3,155||2,726||3,657||701|
|CLO income - affiliates||2,974,558||3,029,103||3,307,950||3,235,756||3,051,816||3,066,784||3,684,802||3,599,699||4,340,143|
|CLO inc - non-affiliates||118,111||127,289||195,182||155,859||152,317||187,592||196,965||396,398||227,679|
|Asset Manager dividends||850,000||550,000||1,152,071||1,547,069||1,235,439||1,413,975|
|Structuring service fees||110,644||187,071||321,744||116,473||43,239||103,784||45,009||56,263||161,803|
Let me tell the slightly complex asset manager story from text directly from the 10-Q. Katonah Debt Advisors and Trimaran Advisors are the two asset manager affiliates that (should) produce dividend income to KCAP. They had approximately $2.8 billion of par value assets under management at the end of Q1-17.
The asset manager affiliates are each managed independently from KCAP by a separate management team. At the same time, certain of KCAP's executive officers also act in similar capacities for one or both of the asset manager affiliates.
The asset manager affiliates provide investment management services to CLO funds, but they do not have any investments in the CLO funds they manage. However, KCAP holds investments in a portion of the securities issued by the CLO funds managed by the asset manager affiliates.
The $53 million KCAP has invested in CLO funds are predominantly in the Katonah and Trimaran funds. Because of the services these advisors perform, these funds generate income from their existence alone - and that income causes them to have a valuation. The dividend income KCAP receives is derived from the income these funds generate. Those dividends have disappeared. And the value of KCAP's investment in those funds has fallen.
|Net investment income||3.218||4.094||4.523||5.108||4.765||5.303||6.541||5.832||6.507||5.540||5.517||4.596||4.467||5.201|
|Investments @ fair value||0.355||0.366||0.372||0.373||0.378||0.410||0.437||0.474||0.488||0.480||0.442||0.437||0.429||0.441|
|Wt Av Share Count||37.203||37.149||37.152||37.164||37.110||37.136||37.047||36.892||36.843||36.475||40.126||39.723||33.350||33.612|
|Reported Wt Av Yield||7.0%||7.0%||7.1%||7.2%||7.3%||7.4%||7.4%||7.3%||7.3%||7.3%|
|My NII 2014 numbers sum, to $0.5390 - Yahoo Finance numbers sum to $0.60. My 2015 = .6541 & Yahoo = .66. My 2016 = .3875 & Yahoo = .50|
TII, NII and NAV are all falling. The only visible good news is that the NII/TII ratio has a history of being close to sector average.
|Some Port $ by line||Q1-2017||Q4-2016||Q3-2016||Q2-2016||Q1-2016||Q4-2015||Q3-2015||Q1-2015||Q4-2014||Q3-2014||Q2-2014||Q1-2014||Q4-2013|
|Senior Secured loans||196,553,708||200,322,152||200,021,049||194,066,823||193,931,052||194,123,223||204,189,144||217,535,523||217,219,634||218,329,860||168,920,608||153,304,076||152,797,023|
|Senior Secured @ cost||202,900,985||207,701,078||207,336,757||202,023,215||205,077,628||203,819,074||211,411,566||220,875,385||218,339,421||220,965,922||170,002,011||159,600,198||159,596,442|
|Senior Secured value/cost ratio||96.87%||96.45%||96.47%||96.06%||94.56%||95.24%||96.58%||98.49%||99.49%||98.81%||99.36%||96.06%||95.74%|
|CLO Securities @ fair value||52,999,028||54,174,350||45,126,919||46,180,067||49,358,283||55,872,382||66,720,782||78,448,455||85,853,478||77,541,901||87,382,253||91,730,898||77,747,524|
|CLO Securities @ cost||76,994,975||76,851,317||66,714,991||66,637,934||73,610,853||83,214,947||86,288,448||97,601,049||99,812,887||90,889,190||119,453,082||113,748,903||101,169,147|
|CLO Securities value/cost ratio||68.86%||70.49%||67.64%||69.30%||67.05%||67.14%||77.32%||80.38%||86.01%||85.31%||73.15%||80.64%||76.85%|
|Equity Securities @ cost||10,389,008||10,389,077||10,208,846||10,467,787||10,467,787||10,467,787||8,514,478||8,514,487||8,828,812||8,828,812||17,454,438||16,289,233||16,289,233|
|Equity value/cost ratio||47.19%||48.67%||43.03%||88.18%||104.39%||105.43%||81.48%||88.58%||91.33%||91.97%||63.82%||53.77%||50.41%|
|Total Assets @ fair value||355,176,313||366,471,304||372,213,564||372,830,119||378,303,694||409,570,495||437,408,599||474,100,660||487,641,106||479,706,494||442,415,046||437,425,888||428,959,411|
|Total Assets @ cost||412,382,593||420,801,057||422,664,283||416,914,597||423,240,979||450,712,189||461,951,090||482,425,123||491,339,972||484,498,354||486,451,459||483,480,724||479,294,183|
|Total Assets value/cost ratio||86.13%||87.09%||88.06%||89.43%||89.38%||90.87%||94.69%||98.27%||99.25%||99.01%||90.95%||90.47%||89.50%|
|KCAP had $54.691 million (cost - 36.942 Fair Value) in one asset manager (investing in CLOs) in Q1-17 that failed to generate income while causing $2.606 million in portfolio markdowns|
All three asset types (secured debt, CLOs and equity) began 2014 at close to widely varying ratios of fair value to cost. The secured debt loans had a fair value that oscillated in the high 90s. Equity began at 50% - bounced to over 100% - and then fell back. The level of volatility is extremely high. CLOs have a fair value that oscillated between 67% and 86%. That level of valuation volatility is moderate.
The CLO portfolio had a fair value that was (76,994,975-52,999,028) $24 million below cost. The CLO-related asset manager had a fair value that is just under $18 million below cost. Let's add those two together to get $42 million. While the total portfolio has a fair value that is $57 million below cost, roughly (42/57) 75% of that fall in fair value is CLO related.
Before we move away from the current and historical numbers, let's look at the liability side of things.
|An Int Exp/Debt||4.96%||4.90%||4.83%||5.03%||5.65%||6.08%||5.48%||5.34%||5.30%||4.93%||6.00%||6.00%||6.21%|
The average BDC has a debt to NAV ratio around 80%. KCAP uses slightly higher than average leverage while the cost is slightly below sector average.
The Red Flag Check List For KCAP - Where a fail is worse than average; a double fail is close to the worst in the sector; and all fails on the first two points merit double fails.
(1) Has a well-covered dividend - KCAP has a 2017 NII projection of $0.39 compared to a dividend of $0.48. Double fail.
(2) Has a rising LTM NAV - KCAP is a double fail with a -6.55% LTM NAV change.
(3) Has a lower than sector average PWAY, or Portfolio (Company) Weighted Average Yield - KCAP has a PWAY of 7.0%. Due to a high CLO allocation, this PWAY fails to adequately indicate portfolio risk.
(4) Has higher than average income projection accuracy for its annual NII numbers. KCAP has had more than 10% NII shortfalls in 8 of the last 10 years. Fail.
(5) Has lower revenue volatility for its quarterly TII numbers. Any volatility comes from surprises - not disappointments. KCAP had 3 TII in the last four quarters - with declines of 5.78%, 10.30% and 4.04%. Fail.
(6) Has an average cost of debt that is below 5%. KCAP's cost of debt in Q1-17 was 4.97%. Pass.
(7) Has a run rate NII based on "Portfolio times PWAY + Average Fee Income" that supports the NII projection. Project earnings are under run rate earnings. Pass.
(8) Has a dividend/NAV ratio that is 200 bps lower than the PWAY for BDCs with PWAYs over 10. KCAP's div/NAV in Q1-17 was 9.3%. Fail.
(9) Has more than 50 portfolio company investments. The Q1-17 number of portfolio companies in which KCAP had investments was 75. Pass.
(10) Has a debt/NAV ratio that is lower than 80%. The Q1-17 ratio was 92.02%. The ratio has been above 80% for the last 10 quarters. Fail.
(11) Has a NII/TII ratio over 50%. The ratio was 43.19% in Q1-17, but above 50% in 11 of the last 14 quarters. KCAP is "internally managed". Pass.
(12) Has a better than sector average trend in "portfolio gains". KCAP has had losses in 9 of the last 11 quarters. Fail.
(13) Has less than 5% in structured products (a.k.a. CLOs). The ratio was (53/355) 14.9% in Q1-17 in direct investments. Adding asset managers (90/355), the ratio was 25.4%. Fail.
(14) Has less than 5% in income that comes from PIK ("payment in kind") income. KCAP has zero in PIK income the last two quarters due to two PIK loans being on non-accrual. Pass.
(15) Has less than 5% of the portfolio in energy loans. The Q1-17 ratio was 2%. Pass.
(16) Has an acceptable market cap (or liquidity) that results in a "beta" under 1.0. Beta was 0.83 at MarketWatch. Pass.
Valuation Comparisons to BDCs with similar attributes:
(17) Has a yield that is OK compared to BDCs with close to the same PWAY. Other BDCs with a PWAY under 9% have a yield of 7.73%. Pass.
(18) Has a yield that is OK compared to BDCs with close to the same dividend coverage. Other BDC lacking dividend coverage on 2017 and 2018 projections have an average yield of 11.75% compared to KCAP's 13.87%. Pass.
(19) Has a yield that is OK compared to BDCs with close to the same NAV trend. Pass.
Transparency - The wanted quality of the earnings release or supplemental reports:
(20) Reports weighted average Debt/EBITDA and weighted average interest coverage ratio numbers for its portfolio companies. Fail.
(21) Has transparency on the amount of accelerated amortization of upfront fees and prepayments - so TII jumps or declines are explained. Fail.
(22) Has never had a secondary offering below NAV and will not in the future. Pass.
(23) Reports Q4 numbers. Fail.
KCAP fails on (1, 1, 2, 2, 4, 5, 8, 10, 12, 13, 20, 21, 23) 13 of the 23 points. Bad BDCs have fails or red flags in the mid teens. Good BDCs in the low single digits. I believe my valuation system should have produced a larger number of red flags for KCAP. Point 13 on the CLO weighting probably merits a double or triple fail. Getting a pass on a low percentage of PIK income due to PIK loans being non-accruals probably merits a double fail. KCAP is much worse than average and it is priced that way.
Showing the math on point 7
|Formula||average for last 4 quarters||portfolio times yield / 4||Sum of components|
|Numbers||181||355 million times .0864 / 4||7.849|
|The Q1-17 TII - fees = 6.664 million. That number times four divided by a portfolio of 355 million results in an adjusted TII/portfolio ratio of 8.63%.|
|Formula||average for last year||TII times NII/TII||NII/ share count|
|Numbers||50%||.50 times 7.849||3.9245 / 37.203||$0.1055/share|
|The consensus analyst 2017 TII projection is (32.160 / 4) 8.040 and NII projection is ($0.39 / 4) $0.0975/share/quarter.|
Showing the numbers on point 8
|------- 2012 -------||------- 2013 -------||------- 2014 -------||------- 2015 -------||------- 2016 -------||---- 2017 ----|
Back in 2014, when the NAV was in the 7s, KCAP was producing NII/share in the mid to low teens, which would be enough to support the current dividend. But since that time, NAV has fallen another $2 or 30%. We can see trigger thresholds where KCAP has cut the dividend (when the dividend/NAV ratio hits 14%), but all those thresholds have been way too late, which is a partial cause of the next dividend cut.
I stopped having faith in the KCAP calculated PWAY in Q1-15. I have used the TII/Portfolio number as a substitute since that time. With a TII/Portfolio ratio of 8.8%, a safe paying ratio would be close to 6.5%. That would imply a dividend of $0.33/year or $0.0825/quarter.
Add to that, the dividend would only be safe if the NAV stops falling. There is no indication that such a thing is about to happen.
Let me show the year to date numbers based on prices as of the market's close on 6-16-17:
Yield in the spreadsheet below is based on the Q2-17 "regular" dividend. Spreadsheet header abbreviations: Div = dividend; EPS = earnings per share; LTM = last twelve months; NAV = Net Asset Value; PWAY = Portfolio Weighted Average Yield (or the yield on the investments that they own); YTD = year to date. The dividend to EPS ratio is a measure of dividend safety. Due to calendar and fiscal years failing to overlap, I also include a dividend to the sum of the last four quarters of NII - in the Div/NIIltm column. After the Price/NAV ratio, the next column displays the percent change in price YTD. The next display price change plus YTD dividends accrued on the payment date - not the earned date. For the last four columns - the first measures the percentage change in the 2017 EPS projection since the beginning of the year; the second measures the change in the price target since the beginning of the year; the third measures the change in the Q2-17 dividend from the Q2-16 dividend; and the last measures the change in NAV between Q1-17 and Q1-16. Special dividends are not included in this data. ARCC, FDUS, MAIN and TCPC have paid special dividends on a near regular schedule.
|Share Price||Div/||Div/||Div/||Div/||Q1-17||Price||YTD Percent Change||LTM %||LTM %||Last3yr||Last 3Yr|
|Alcentra Capital Corporation||(NASDAQ:ABDC)||11.97||13.28||10.24||11.70||95.8||91.3||85.6||10.1||13.43||0.99||10.94||16.62||-4.70||1.79||0.00||-6.80||0.00||-9.01|
|American Capital Senior Floating||(NASDAQ:ACSF)||11.90||12.55||9.24||6.71||99.1||99.1||96.6||8.5||13.66||0.92||5.46||7.90||0.00||7.17||0.00||16.55||3.57||-9.60|
|Apollo Investment Corporation||(NASDAQ:AINV)||5.86||6.46||9.29||10.90||95.2||93.8||90.0||8.7||6.86||0.94||10.24||15.36||-4.55||0.16||-25.00||-5.77||-25.00||-20.88|
|Ares Capital Corporation||ARCC||16.49||16.30||9.33||9.30||102.7||91.6||104.1||9.2||16.50||0.99||-1.15||1.15||-8.07||9.53||0.00||0.00||0.00||0.49|
|BlackRock Capital Investment||(NASDAQ:BKCC)||6.96||7.46||9.65||11.70||86.7||81.8||76.3||8.8||8.22||0.91||7.18||12.36||-3.49||1.38||-14.29||-14.73||-14.29||-14.29|
|CM Finance Inc||(NASDAQ:CMFN)||9.30||10.20||9.80||9.72||87.7||93.5||81.6||8.1||12.32||0.83||9.68||15.05||-2.56||0.00||-27.95||3.01||-26.04||-15.90|
|Capitala Finance Corp.||(NASDAQ:CPTA)||12.93||13.66||11.42||13.20||99.4||96.3||88.8||9.9||15.71||0.87||5.65||8.66||-2.48||0.92||-17.02||-3.56||-17.02||-22.73|
|Fidus Investment Corporation||FDUS||15.73||17.08||9.13||12.90||101.3||96.3||113.6||9.9||15.80||1.08||8.58||11.06||-4.94||3.80||0.00||3.61||2.63||3.81|
|Fifth Street Finance Corp.||5.37||3.98||12.56||10.40||87.7||83.3||74.4||6.9||7.23||0.55||-25.88||-23.56||-24.00||-23.73||-30.56||-13.21||-49.98||-26.30|
|Fifth Street Senior Floating Rate||(FSFR)||8.71||7.44||10.22||8.10||102.7||100.0||95.4||7.0||10.83||0.69||-14.58||-12.40||-18.68||-10.53||-15.56||-3.13||-29.63||-28.42|
|Franklin Square Investment Corp||(NYSE:FSIC)||10.30||9.30||9.59||9.20||103.7||107.5||103.4||9.4||9.45||0.98||-9.71||-5.38||-1.15||3.02||0.00||7.14||0.00||-8.07|
|Gladstone Investment Corporation||(NASDAQ:GAIN)||8.46||9.45||8.13||12.70||103.8||108.2||105.1||7.8||9.82||0.96||11.70||13.97||0.00||10.51||2.40||6.51||28.00||17.75|
|Garrison Capital Inc.||(NASDAQ:GARS)||9.35||8.36||13.40||10.80||100.9||110.9||103.5||9.4||11.90||0.70||-10.59||-7.59||-9.02||-9.42||-20.00||-11.85||-20.00||-22.98|
|Golub Capital BDC, Inc.||(NASDAQ:GBDC)||18.39||19.30||6.63||7.70||102.4||100.0||103.5||8.1||15.88||1.22||4.95||6.69||-4.58||5.43||0.00||0.19||0.00||3.05|
|Gladstone Capital Corporation||(NASDAQ:GLAD)||9.39||9.94||8.45||11.40||100.0||98.8||100.0||9.8||8.53||1.17||5.86||8.09||-2.33||15.35||0.00||7.70||0.00||-12.87|
|Goldman Sachs BDC||(NYSE:GSBD)||23.52||22.64||7.95||11.80||91.8||89.1||89.6||9.9||18.26||1.24||-3.74||0.09||-3.92||9.67||0.00||-2.20||9.76||-8.61|
|Harvest Capital Credit||(NASDAQ:HCAP)||13.75||13.16||10.26||14.80||99.3||97.1||87.5||9.7||13.89||0.95||-4.29||-1.10||-4.90||1.75||0.00||-0.07||0.00||-4.07|
|Horizon Technology Finance Corp||(NASDAQ:HRZN)||10.53||11.24||10.68||15.50||104.3||101.7||86.2||9.9||12.11||0.93||6.74||9.59||-4.17||-3.49||-13.04||-11.09||-13.04||-15.43|
|Share Price||Div/||Div/||Div/||Div/||Q1-17||Price||YTD Percent Change||LTM %||LTM %||Last3yr||Last 3Yr|
|KCAP Financial, Inc.||3.98||3.46||13.87||8.75||123.1||120.0||105.3||9.3||5.14||0.67||-13.07||-10.05||-20.41||-10.53||-20.00||-6.55||-52.00||-32.55|
|Main Street Capital Corporation||MAIN||36.77||38.99||5.69||9.68||99.1||96.5||98.5||9.9||22.44||1.74||6.04||7.55||-2.61||10.19||2.78||5.95||12.12||11.42|
|Medley Capital Corporation||7.51||6.38||13.79||11.60||122.2||114.3||115.8||9.8||8.94||0.71||-15.05||-12.12||-12.20||-8.32||-26.67||-8.78||-40.54||-29.55|
|Monroe Capital Corporation||(NASDAQ:MRCC)||15.38||15.16||9.23||9.50||95.9||88.6||94.0||9.8||14.34||1.06||-1.43||0.85||-8.18||2.88||0.00||-0.76||2.94||2.50|
|New Mountain Finance Corp||(NYSE:NMFC)||14.10||14.40||9.44||11.10||100.0||97.1||100.3||10.0||13.56||1.06||2.13||4.54||-1.45||5.61||0.00||5.36||0.00||-6.68|
|OFS Capital Corporation||(NASDAQ:OFS)||13.76||14.07||9.67||12.03||100.7||91.9||95.3||9.1||14.98||0.94||2.25||4.72||-9.40||10.43||0.00||2.25||0.00||3.67|
|Oak Hill Advisors||(NASDAQ:OHAI)||1.73||1.22||6.56||12.20||21.6||18.6||23.4||2.0||3.99||0.31||-29.48||-28.32||-13.95||0.00||-66.67||-17.73||-87.50||-54.30|
|Prospect Capital Corporation||(NASDAQ:PSEC)||8.35||8.06||12.41||12.30||113.6||114.9||109.2||10.6||9.43||0.85||-3.47||0.42||-5.38||-3.81||0.00||-1.87||-24.81||-11.70|
|PennantPark Floating Rate Capital||(NASDAQ:PFLT)||14.11||14.00||8.14||7.90||103.6||96.6||104.7||8.1||14.05||1.00||-0.78||1.24||-4.35||2.00||0.00||3.77||5.56||-2.84|
|PennantPark Investment Corp||(NASDAQ:PNNT)||7.66||7.48||9.63||11.90||84.7||88.9||79.7||7.9||9.09||0.82||-2.35||0.00||-1.16||7.82||-35.71||2.94||-35.71||-18.33|
|Saratoga Investment Corp.||(NYSE:SAR)||20.61||21.20||8.68||10.80||105.7||105.7||88.0||8.3||22.21||0.95||2.86||7.33||-18.31||9.48||12.20||0.68||Infinity||3.98|
|Stellus Capital Investment||(NYSE:SCM)||12.06||13.66||9.96||11.30||104.6||97.1||97.8||9.8||13.84||0.99||13.27||16.09||-4.41||11.96||0.00||5.97||0.00||-4.49|
|Solar Capital Ltd.||(NASDAQ:SLRC)||20.82||21.78||7.35||10.20||95.8||87.9||95.9||7.4||21.75||1.00||4.61||8.45||-7.73||4.61||0.00||3.18||0.00||-3.03|
|Solar Senior Capital Ltd.||(NASDAQ:SUNS)||16.44||16.76||8.41||8.00||100.0||98.6||99.0||8.4||16.81||1.00||1.95||4.09||-0.70||7.52||0.00||0.66||0.00||-6.82|
|Triangle Capital Corp||(NYSE:TCAP)||18.34||17.66||10.19||11.50||102.9||95.2||103.3||11.8||15.29||1.16||-3.71||-1.25||-7.41||1.72||0.00||1.80||-16.67||-2.74|
|TCP Capital Corp.||TCPC||16.90||16.77||8.59||11.10||94.1||91.1||96.2||9.7||14.92||1.12||-0.77||1.36||-2.55||3.53||0.00||1.77||0.00||-2.61|
|THL Credit, Inc.||(NASDAQ:TCRD)||10.01||9.86||10.95||11.40||96.4||93.9||87.2||9.2||11.71||0.84||-1.50||1.20||-6.67||-2.76||-20.59||-4.33||-20.59||-12.22|
|TICC Capital Corp.||(TICC)||6.61||7.03||11.38||14.00||127.0||148.1||148.0||10.6||7.53||0.93||6.35||9.38||-3.08||1.45||-31.03||27.84||-31.03||-23.01|
|TriplePoint Venture Growth||(NYSE:TPVG)||11.78||13.40||10.75||10.10||94.1||97.3||96.8||10.8||13.38||1.00||13.75||19.86||1.32||7.84||0.00||-0.15||20.00||-8.23|
|TPG Specialty Lending||(NYSE:TSLX)||18.68||20.48||7.62||10.50||86.7||87.6||82.5||9.7||16.04||1.28||9.64||13.81||2.27||10.72||0.00||6.15||2.63||3.42|
|With the 10 Treasury at 2.15% and sector average yield on Q2 dividends at 9.86% - the spread is 771 bps.|
|The cap weighted ETN BDCS has a price change of -0.62% year to date - with dividends its total return is 3.29%.|
|SPY or S&P 500 ETF is 8.55% year to date. - and with unreinvested dividends is 9.01% year to date.|
My assessment of KCAP:
KCAP's price is down 13.07% in a sector (using numbers from my coverage universe); that is up 0.51% year to date in 2017. KCAP's price was down 2.21% in a sector that was up 6.58% in 2016. KCAP was down 40.32% in a sector that was down 12.90% in 2015. KCAP was down 15.49% in a sector that was down 15.53% in 2014.
This losing record on price changes is a logical reaction to the terrible record on operating and financial metrics. KCAP is not overdue in having a good year due to those losses. All of those losses were merited.
I believe a fair current price for KCAP would result in a 9% yield (due to its TII/Portfolio ratio) based on a $0.33/year dividend. That would put the dividend slightly below the NII/share. That price would be $3.67. And that price would only be fair as long as the NAV becomes stable. Given that there is no sign that NAV stability will happen, KCAP is - basically - unsafe at any price or any yield for all conservative investors.
Disclosure: I am/we are long AINV, ARCC, FDUS, MRCC, PFLT, PNNT, TCPC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.