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Ares Capital Corporation Message Board

  • jan814_1999 jan814_1999 Aug 15, 2011 10:07 AM Flag

    A BDC Look

    Now that most BDC June Q earnings are behind us and conference calls are completed, here is a brief review of five of the best BDC's out there, keeping in mind that all that follows is just one opinion.
    Those five BDC's, in alphabetical order are ARCC, HRZN, MCC, SLRC, and TCRD.

    Regarding ARCC: Per the August 5 Stifel Nicolaus report, Stifel says they continue to believe ARCC is one of the best managed BDC's with an excellent platform and a high quality balance sheet. They reiterated their "Buy" recommendation. Their target price is $17.50.

    Regarding HRZN: I posted a two part write up on HRZN over on the HRZN board. If you wish to read it, here are the links.

    Regarding MCC: I am working on a write up on MCC but the stock has been strong this morning so I don't know what stock price to use in calculating the various metrics. When the price settles, I will try to put an update together. For now, I will simply say that MCC may currently be the number one BDC for near term forward performance.

    Regarding SLRC: Per an RBC Capital August 5 report, RBC says "We continue to view SLRC as one of the most attractive players in the BDC space given our outlook for portfolio growth and book value upside." Their recommendation is "Buy" and their target price is $27.00 per share.

    Regarding TCRD: I put up a detailed post on the TCRD board.

    Good Hunting

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    • I am a long-time investor in BDCs, including ALD (bought by ARCC) and ACAS, both of which were, once upon a time, the cream of the BDC crop. No matter how well you think you know these firms, they are just like banks in that they are blind pools of assets. You don't really know what is in the portfolio until everything hits the fan.

      I still invest in the sector as I believe in the business model but my trigger finger is always itchy.

      These are not "set it and forget it" stocks - you have to monitor them all the time. Do not be lulled into a sense of false security by an analyst's positive report.

    • new to this board but have small holding in arcc as well as psec and fsc... you seem to know your BDC's as well as anyone i've read on the various boards... do you have any thoughts or knowledge of PSEC or FSC? thanks for any info.

      • 2 Replies to glsimmons3
      • glsimmons3,
        When I look at BDC's I try to evaluate managements' historical performance, especially during difficult economic times, on the premise that their past performance can be a window to future performance. And a couple of key measures of performance are price movement over time, and dividend history. Dividend history, for a BDC, is extremely important because they are RIC's, which means dividend history is a reflection of EPS history.

        With that as background, I am not a great fan of either FSC or PSEC.
        In the case of FSC, management initiated the quarterly dividend in May of 2008 at $.30, lowered the dividend once in May of 2009 (twice if you count the time they went to a monthly payout), and now, three years later, are paying just under $.32 per quarter. And the NII for the latest quarter was near the lowest ever. That is not the kind of accomplishment I look for.

        In the case of PSEC, they simply come to the market with too many equity offerings, causing a continual flow of EPS dilutions, which in turn impact the stock price. In the period from the beginning of 2009 to now, I have been able to count 17 equity/convertible offerings from PSEC and that is too many for my liking. During that same 3.5 year period, the stock went from $12 per share to less than $9 per share today. Of the 8 analysts following PSEC, only 1 suggests buying it.

        Well you asked my opinion and now you have it. But it is only one opinion.

      • Jan is fantastic when it comes to his knowledge of BDC's. You will find a few others out there just as proficient.

        Watch out for some make believe artist named Jade. He comes up with all these imaginary trades that end up being losers. The guy is a joke on pretty much every BDC board out there.

        Best of luck...

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