zip, I respect your judgement and due diligence. I have been adding to my positions in PSEC and PCAP over the last few days due to the market decline. It seems to me that after the pcap deal is closed, their dividend coverage should be easy. Your thoughts?
Thanks for your detailed response jes,
The increase in investment income is also the result of increases in income from other sources. The significant increase in other income reflects our settlement of our net profit interests in IEC/ARS for $12,576. In addition to settlement of net profit interests, sources of other income include but are not limited to income from structuring fees and overriding royalty interests.
I am not Zip, but the short answer is it was a one shot, non cash adjustment on a loan.
The long answer is IEC/Advanced Rig was in a technical default on its loan from PSEC and issued addtional debt to compensate (per the Columbus Acquisition prospectus). Columbus was a SPAC with an agreement to purchase IEC/Advanced Rig, adn I assume IEC/Advanced Rig wanted acquisition to go through. It didnt. As to how solid IEC/Advanced Rig is absent its acquisition by Columubus, who knows.
Thanks for the response and congrats on the fantastic gain on PCAP. I thought you had been in PSEC a while. Because of all my research thus far I’ve purchased some shares of PSEC.
Without going back to the 1st Qtr, 11/10/08 10-Q, can somebody tell me why they beat the consensus earnings by 0.244, organic or fancy accounting
I put the arb into one of my spread sheets from the time the deal was announced.
Generally the absolute arb premium has been shrinking though in the last week it has expanded from about 17 cents to 22 cents. Not bad on holding the stock for 20 days.
But as some have suggested, the arb is not right if PSEC pays a dividend BEFORE the merger closes. Since it was to close 10/2 and we have not heard otherwise nor heard that PSEC is declaring a dividend, then the arb seems right.
Perhaps we will hear more with the earnings release next week.
I am a bit concerned that a date has not been set for the vote on the merger by PCAP holders. I prefer this close and sooner is better in my view as a PCAP holder.
Zip what do you think of this
Arbitrage Spreads On Pending Mergers & Acquisitions A12:23 PM ET 9/10/09 | Dow Jones
Patriot Capital Funding Inc. (PCAP), Prospect Capital Corp. (PSEC)
Premium offered: $0.24 or 6.19%
Shares offered per share: 0.3992 share
Value of offer per share: $4.12
Value of outstanding common equity: $86,314,000
Acquirer share price: $10.12
Target share price: $3.88
Expected closing: 60 Days From Date Of Announcement 10/2/2009
Annualized gain: 102.62%
Note: Prospect will pay off $110.5 million in debt from Patriot as part of
You are quite right, this should have been dealt with better. I see more lawsuits. The PSEC shareholders if PSEC does not declare the maximum dividend they legally can. The PCAP shareholders if PSEC declares any dividend in excess of current quarter earnings.
This should be interesting.
When I say scheduled I mean that based on past dividend practices PSEC would declare a dividend of about 40 cents per share to holders of record by early October. This board action has not yet taken place. The agreement provides no prohibition of such a dividend nor adjustment to the exchange ratio for such action. My discussion with PSEC confirmed no such prohibition or adjustment.
One poster suggested that this was probably not a fault of the PCAP lawyers but a result of the best deal they could get. I disagree. Assuming this was the best deal PCAP could get then the lawyers should have put in language limiting the amount of such a dividend. I am not suggesting that PSEC would materially exceed a 40 cent payout but they could. Good lawyering would have covered this base.
I took another look that the arb spreads based on the close.
IF we assume as you suggest that PSEC will pay a dividend before the closing - and we further assume that dividend will be 40 cents then PCAP is already selling for MORE than the holders will get in PSEC stock value.
And that analysis fails to take into account the tax liability that PCAP holders will incur on the dividend that will be declared before the merger.
So the arbs are fools if PSEC can and will pay a dividend before closing the merger.
If you were here, I would bet you a drink on it. :-)
>>PSEC is scheduled to pay about 40 cent dividend before the deal closes.
Where do you get that?
I do not see it on the PSEC site:
IF you are right - then they have the arb community fooled too. Frankly, I doubt that.