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TICC Capital Corp. Message Board

  • nanospeak nanospeak Jan 2, 2008 2:30 PM Flag

    It's the negative anticipation

    At first glance at the Yahoo summary the earnings don't seem to support the div and the p/e is high as well. All reasons for negative anticipation and why the price is low and yield (current) is high. Anticipation is that the dividend will be slashed.

    So lets say it gets slashed from 1.44 to 1.00. To me that still warrants a pps of close to 10 based on yield ( 10%)for this type of stock. The only way pps should be less is that this company would still be considered a prime candidate for additional losses.

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    • "At first glance at the Yahoo summary the earnings don't seem to support the div and the p/e is high as well. All reasons for negative anticipation and why the price is low and yield (current) is high."

      It doesn't work this way.

      TICC is a BDC - business development company. You can't value it as a normal operating enterprise.

      The businesses model here is simple:

      1.Get money by issuing shares.

      2. loan it out at high rates - i.e. sub prime - a 1 for 1 leverage is permitted.

      3. pay 90% of earnings out as dividends to shareholders - this is required by law in order to avoid corp. income taxes.

      The devil is in the accounting. Earnings for the computation of the dividend is interest received + realized short term gains. But earnings for the computation of the income statement must take into account the gain or loss in assets marked to current market prices - i.e. the loans not yet due have to be given a current sales value.

      The current sub prime panic (really in real estate but rippling far beyond) severely decreases the current market value of these loans. Recently instituted accounting rules require marking assets (loans) to market even if there is no ready market but only a few comparable sales for guidance. So to be within the law, the BDC has to show asset losses which may well never take place since the loans are expected to be paid in full at maturity.

      So why can't these loans be sold at near full value? Because there is a panic going on and no one wants to touch anything that has any contact with sub prime loans

    • I have heard that the reason for it dropping below $10 is the anticipation that their credit line will not be renewed. At least that I what I have heard.

      I would like to buy but will wait it out for now.

      • 2 Replies to pine52x
      • 138MM outstanding on their line as of 9/30/07. Two loans made are in the "expected some loss of principal category. Despite the credit conditions out there, the three banks on the credit line do not want to be in BDC business. I expect that when the the April 08 payment of the credit line comes due, it will be extended. The extension may freeze the line at whatever balance is currently owed and require that loan payoffs be applied to paying down the credit line balance. This may put a hold on increasing earnings. Also of concern is the economy and how many companies that they have loaned to will go belly up. Just like banks, some losses are to be expected, it just comes down to how good the original loans were and the extent of the economic downturn.

      • I suspect the problem TICC has is that it is a very small ship in a very big storm. Hard to get attention and loving care from financial institutions when they have liquidity problems of their own.

 
TICC
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