Another law firm has joined the “let’s sue Kohlberg Capital for mis-valuing its portfolio” club. We can’t comment on the merits of the case. What we can say is that Kohlberg Capital has badly mismanaged the fall-out of the Great Recession (which is now the generally acceptable term for what we went through). Coming to blows-figuratively of course-with its bankers was mis-step one. Then there’s disagreeing with Deloitte, it’s auditor. Then failing, as a result of the last fact, to file its 10-Q and cause the prospect of being delisted. Now class action lawsuits.
KCAP is not the first BDC to be sued by its shareholders, but these mistakes seem avoidable. We lost our patience with all this folderol a few weeks ago and sold our positions in KCAP. Certainly the stock has taken a hit, dropping from $5.22 as late as December 21 2009 to $3.88 today, a 25% drop. This at a time when most BDCs are on a roll. We assume KCAP is trading at a substantial discount to its NAV (whatever that is). There may even be value in the Company at this price. A buyer may buy the assets, pay off the recalcitrant lenders, settle the lawsuits and make the Deloitte matter redundant. Less likely, KCAP might liquidate most of its assets, pay off the lenders and settle matters with Deloitte, lawyers etc. But we have no information, no visibility. The sidelines seems to be the best place to be except for the insiders.
By the way, we have a Red Flag warning on KCAP, which means we expect the ongoing dividend to be cut or suspended.
Disclosure: No position: KCAP