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PennantPark Investment Corporat Message Board

  • salzile salzile Dec 27, 2012 7:47 PM Flag


    Do not allow the company to sell shares below NAV. This is dilutive!!!

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    • i voted yes. the more money they raise the better we do.

      • 1 Reply to ezalldee
      • This is incorrect. You only do better if they sell shares above NAV or at. Otherwise, your investment is being diluted.

        Say there are 1000 shares valued at $10 per share. Therefore, there is $10,000 in equity available to shareholders. You earn 10% per year from the business operations from the BDC. If a pricing comes along and they sell another 100 at $12 a share, they are adding $1200 in cash but the total equity is now being divided by 1100 shares = $10.18 per share. Your investment has gained 1.8% just because of the additional shares being sold above NAV. I probably don't have to show the symmetrical case where you lose money when they sell them below NAV, but apparently since it is not obvious to many people like Ezalldee, I will calculate an example anyway. Say they instead sell 100 shares at $9 a share. Now they add $900 to the $10,000 in equity = $10,900 and divide the equity by 1100 shares = $9.90 in underlying value. Congratulations, you just lost $0.10 per share just because the BDC gave value away to the new shareholders. Giving away money was never really a winning strategy.
        BDCs can become market priced well above NAV. That is the only time that they should be selling more shares to bring the market price back inline with the NAV and add value to all existing shareholders.

    • It seems to me that all REITs, MLPs, BDCs tend to sell shares below NAV. Though temporarily dilutive, this is how they get money to make deals that ADD to income and thus lead to more profits and higher distributions. If you don't understand that then you should stick to buying ED, MO, T etc who don't do this but pay lower dividends. You must choose your investment style.

      Sentiment: Buy

      • 1 Reply to david4801
      • "Though temporarily dilutive, this is how they get money to make deals that ADD to income and thus lead to more profits and higher distributions."

        Do you not understand the BDC business? You are being paid 90% of the net investment income from the investments being made in the business. New money goes into deals and earns a return on those new shares. Existing shareholders do not benefit from the new cash injection unless the BDC can substantially increase the interest rate that they are receiving (not likely). The value of the underlying investment is not usually gaining except in the few cases where they make an equity investment and the underlying does extremely well. This is not the core BDC business.

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