The analysts and others raised questions about a lot of the assets and PSEC:
1. The CLOs, per page 41 of the Q, are substantially all "residual" interests. So if the CLOs go south, PSEC takes the hit before others. The CLOs are about 17% of assets. Problem.
2. Tower is another 10% of assets. Huge outside loans to Tower, BEFORE PSEC loans/equity. Again, if Tower hits a rough spot, others get paid before PSEC. Problem.
3. Totally ridiculous private investors. Can't believe PSEC let them speak so long. Crazy. And encourage one to give his phone number on a CC? As to the investor who said 30% or so of PSEC stock held by institutions, let's be clear, most of that is either index funds or convertible debt. Professional advisers are not, for the most part, putting money in PSEC.
4. Significant accumulated amounts being used to cover current dividends. Problem.
Thanks, great summary. I thought their CLO was only 14% of their portfolio, according to a Seeking Alpha article published on April 4, 2013: "Prospect Capital: Is It Better Than American Capital?", I guess the amount must have grown. That is what it says about the risk of PSEC:
PSEC has a $3 billion portfolio at fair value with a less than average industry diversification mostly because of a larger concentration in consumer discretionary (see chart below). It invests in collateralized loan obligations ("CLO") which are debt and equity positions in a form of securitization where the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches; generally risk rated from BB to B depending on the tranche. In a previous article, I discussed some potential issues with these types of investments including potentially riskier and less transparent than direct investments in portfolio companies, repayment priority of more senior debt holders, thinly traded, not listed on traditional exchanges, making them less liquid, difficult to value and more volatile. CLO investments account for 14% of the portfolio. Other BDCs that invest in CLO-type vehicles are KCAP Financial (KCAP) with 24% of its portfolio, TICC Capital (TICC) at 32% and ACAS at 5%."
My biggest concern with them is their continued increase of issuing senior convertible notes up to $1B with interest (about 6%) due semi-annually and their continued selling of additional shares via their ATM and/or SPOs. This dilution of shares and continued increase in dividend payable plus notes interest payable will have negative impacts on their future NAV. This indeed resulted in the deterioration in the their last two quarters' NAV and I believe will happen with this current quarter (end of June).
1. None of the CLO's have gone South and this represents a big part of the gas solutions replacement income. Returns are averaging 18%
2. Tower is a control investment
Our wholly-owned entity, First Tower Holdings of Delaware, LLC, owns 80.1% of First Tower Holdings LLC, the operating company of First Tower,
LLC. Not sure what you mean by others get paid. If any of our investments go South NOBODY GETS PAID and we lose money...
Institutional holdings Increased
3.Owner Name Date Shared Held Change (Shares) Change(%) Value(in 1,000s)
BLACKROCK FUND ADVISORS 03/31/2013 9,453,081 1,348,269 16.64 105,024
VANGUARD GROUP INC 03/31/2013 7,525,178 (3,890,306) (34.08) 83,605
STATE STREET CORP 03/31/2013 4,028,880 489,683 13.84 44,761
NORTHERN TRUST CORP 12/31/2012 3,202,937 596,451 22.88 35,585
CITADEL ADVISORS LLC 12/31/2012 3,101,676 3,035,038 4,554.52 34,460
PRINCIPAL FINANCIAL GROUP INC 03/31/2013 2,858,142 378,507 15.27 31,754
BARCLAYS GLOBAL INVESTORS UK HOLDINGS LTD 03/31/2013 2,741,567 278,177 11.29 30,459
MORGAN STANLEY 03/31/2013 1,994,075 47,891 2.46 22,154
TRUSTMARK NATIONAL BANK TRUST DEPARTMENT 03/31/2013 1,798,692 0 0.00 19,983
DELPHI FINANCIAL GROUP INC/DE 12/31/2012 1,700,000 1,700,000 New 18,887
JPMORGAN CHASE & CO 03/31/2013 1,561,944 95,299 6.50 17,353
UBS AG 12/31/2012 1,519,298 254,482 20.12 16,879
BANK OF NEW YORK MELLON CORP 03/31/2013 1,440,617 (154,965) (9.71) 16,005
RIVERNORTH CAPITAL MANAGEMENT, LLC 12/31/2012 1,359,416 1,359,416 New 15,103
BLACKROCK GROUP LTD 03/31/2013 1,185,988 374,793 46.20 13,176
Read more: http://www.nasdaq.com/symbol/psec/institutional-holdings#ixzz2Sf7L5eVU
4. Still have 22 cents per share to pay out which if earnings stay at .26 or 8.7 cents per q it would take 9.5 months to pay out the excess.
Sentiment: Strong Buy
jmk you left out the fact that NAV will also decrease by 4 cents due to dilution in the 45 Million shares that they have already announced that they will sell at the ATM This eating up the surplus as is the deficit between earnings and distributions but then you are the Leghorn chicken back up your statements as you promised to the board bears. ONly one has called you out what if 20 had called you out. YOu can't even call one caller. All bluster and no brains to back it up or no money. If you had any money you wouldn't be worried about $1200. hell I had one stock go down $30,000.0o today. Come on apologize or take up the bet.
These CLO's are more risky and they are adding them up. CLO's get a higher return because of risk..And with them increasing debt from 29 % to 48% with no stopping of debt added will hold earning per share down because they will have to add shares to pay down debt. Creating an $ 11 stock with $ 30 earning paying out more in dividend than they take in.
PSEC is unprofessional and questionable. The investments they make are high risk high return. Their CLO's are risky, Tower is risky too.. but to compensate for that risk they are paid like 20% IRR. They are pretty good investors though... despite their unprofessional behavior. The dividend being more then the NII is OK as long as the investor reinvests the excess portion of the dividend (return of capital) back into the stock. The stock is priced too high for the risk.. i think 0.88 to book sounds about right or $9.40 per share until we see some positive improvement to NAV and better support for the dividend. I am not long PSEC, or short. sticking to my MTGE for now.
Instant: all of the things you point out existed on Monday afternoon, which is when you said the stock would hit $11.30 on Tuesday. Now you're telling us that 0.88 to book sounds about right. Sorry, you have no credibility here.
And, oh, brilliant insight about PSEC being high risk, high reward. All BDCs are high risk, high reward.
The FACT that there are none in default form the last 6 years say that you're opinion is wrong.
They only do business with less than 10% of prospective clients. They are very professional and selective. the next quarterly report will surprise to the upside (opinion).