Overall, I was left with a very favorable impression of today's call. It was re-assuring to hear management repeatedly drive home the point that they had and continue to have a very conservative approach towards lending and have the liquidity to weather the current storm of volatility and credit tightening.
CSE may be a good place to park some money until we get a better understanding of the greater effect foreclosures will have on the economy. Even if CSE's price goes to hell, we'll still reap the benefits of a sizable distribution that doesn't appear to be going anywhere for the near term.
A few of my concerns going forward are 1. the already beginning slow down in prepayment premium income and 2. an overall slow down in loan originations. Delaney mentioned $100B in the pipeline that will have to be sold off before new originations can begin. If spreads continue to widen and the economy does slow down, there may not be a lot of lending going on. Also, if spreads widen and liquidity tightens there will be a reduction in re-financing and the prepayment premium income that goes along with it.
Then again, if that is the case hopefully CSE's healthcare sector can pick up where the others left off and at least maintain the current distribution until things turn around. That's all based on a big off of spread widening and an economic slow down...
I was pleased with the overall tone management took to the call. They didn't try to dress their comments up, analyze why CSE is getting beaten up in the market or make excuses. They confidently and calmly said everything was and will be fine at CSE and had specific ways to carry out their plan. Even during Q & A they never missed a beat.
Hang on, it might be a bumpy ride. We'll see what we're talking about this time next year...
Delaney also said that the widening of spreads will benefit CSE as CSE's liquidity will allow CSE to reap the difference. They also said that they expect the best lending environment (over the past five years) for CSE to unfold. That they have been preparing for this type of market for some time.