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Prospect Capital Corporation Message Board

  • instantwinbutton instantwinbutton May 2, 2013 3:53 PM Flag

    Take a look at FSC.. 10% over book and lower dividend then PSEC

    They invest in secured loans too 90%. So... Either FSC is overvalued or PSEC is deeply undervalued =)

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    • Not the same. In addition to the SBA stuff that J mentioned, FSC has a lot of floating-rate loans and the company rarely sells stock below NAV. Remember, PSEC had a good amount of one-time gains from Gas Solution and they were getting extra income from that deal; that extra income won't be here in a few quarters -- which is why analysts estimate earnings closer to $1.20 for PSEC.

      PSEC does have some short-term upside of about 30 or 40 cents if they can resolve the H&M issue. But understand that PSEC mgmt will sell more stock to increase its mgmt fees. I expect PSEC to maintain good dividends; I don't expect the stock to go to $13. There are a lot of convertable notes that will increase the number of outstanding shares, which makes it more difficult to maintain the 11 cents/month (which may last only another two years, then back to 10 cents).

      I've been in both for almost years and I have full positions in both.

    • In a way, it is indeed true that FSC does appear to be a bit overpriced and its yield is much lower, but many investors rather hold it than PSEC, why? One main reason is because their management is quite smart and has the foresight to obtain two SBIC licenses in order to obtain two SBA loans, 150M (first license) and 75M (second license) but not only that, they had the foresight to lock in the interest rate for ten year fixed at around 4% or lower (just from memory). That guaranteed they will make money on these two loans for the next ten years. For some reasons, PSEC never apply for any SBIC licenses and I once asked them why not, they never did give me a good reason, possibly they may not want the SBA to keep a close eye on them because they have to apply for exemptions from SBA in order not to count those SBA loans toward their 1:1 debt/equity requirement for BDCs. They rather issue secondary shares (at 12% cost) and senior notes (around 6%) in order to raise capital. That was a little bit puzzled to me when you could get money at 4% or below fixed for ten years.
      Secondly, FSC had converted many of their loans (to others) to first-lien and floating (libor plus) so that when interest rate rises, it will not adversely affect them. I am not saying FSC may necessarily be a better buy than PSEC at this time, but PSEC is in one of the indexes now, that means many funds can buy it but imagine when the market goes south, their automatic selling program kicks in, start dumping large quantity of PSEC. PSEC, in that regard, is much more risky but can be rewarding for those successful gamblers.

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