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TCP Capital Corp. (TCPC) Message Board

jan814_1999 8 posts  |  Last Activity: Jun 9, 2014 10:22 PM Member since: Apr 27, 2000
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  • jan814_1999 by jan814_1999 Jun 9, 2014 10:22 PM Flag

    Nice post and you state your case well.
    If I correctly understand your thinking you are suggesting the BDC's industry price weakness is primarily due to the BDC's getting booted from the Russell Indexes. There is certainly plenty of evidence for that as every single one of the 35 BDC's in the Russell Indexes (2 in the Russell 1000 and 33 in the Russell 2000) have seen their short interest increase since the Russell announcement on March 3rd through the latest short interest reporting period ending 5/15/14. So investors are selling the BDC's even if they have to borrow the shares they sell, with the intent of buying later as the Russell effect abates. But here is my problem with that theory as it applies to MCC.
    When the market averages resumed their rise (the DOW on May 21st), several of the well established and respected BDC's reversed their downward slide, but MCC was not one of them. Starting on May 21 and going through Friday's close, HTGC was up $1.51, TCPC up $1.23, MAIN up $1.52, TCAP up $1.77, and even the low volatile PNNT was up $.39. But MCC was down $.07. And every one of these BDC's will have large amounts of stock sold out of the Russell indexes come June 27th.The approximate shares to be sold are as follows: HTGC 5.6 mil; TCPC 3.2 mil; MAIN 3.6 mil; TCAP 2.5 mil; PNNT 6.1 mil; and we don't want to forget MCC at 4.3 mil shares to be sold. Even ARCC with its 10 million shares to be sold was up $.24.

    So if the Russell deletions of the BDC's is the primary factor in holding down the price of MCC, why is it not holding down the price of the other comparable BDC's? That is why I believe that the real MCC culprit is MCC itself and its issuing of too many shares too often. This excessive issuance of stock, which freezes EPS and dividends, may have caused investors to turn away. I agree with you that MCC is currently a great value and the exclusion from Russell certainly has something to do with that. But it also may be at a low price because confidence in management has been shaken and the "buy" volume has diminished. Of course, I could be all wrong about this. Time will tell.

    This morning, JMP Securities downgraded MCC to" Market Perform" from "Out Perform" and removed its $15.50 target price.

    Also, in case you didn't notice, the Analyst Ratings Network has picked up and published a portion of your recent MCC posts (mine also). Don't know why that happened but it did. ARN is a subscription service that publishes stock information several time a day. Because it is "subscription" I can't give you a link to it but I wanted to be sure you know so you could feel a little bit famous.

    As always, just one opinion.

  • Reply to

    Timely Play Pt 1

    by jan814_1999 Jun 6, 2014 10:04 AM
    jan814_1999 jan814_1999 Jun 8, 2014 7:03 PM Flag

    Thanks for your comment. I do appreciate it.

  • jan814_1999 by jan814_1999 Jun 6, 2014 2:52 PM Flag

    Again, MCC has done a great job in growing the portfolio. But there is some question whether that accomplishment, will in fact, profit the stockholders since it hasn't done so in the last two years. Two years ago the stock was at $14.25. Now it is at $12.48. Over the last year, MCC has had the largest price drop of any stock in its peer group (market cap over $500 million).In the meantime, there are several other BDC's which are also growing their portfolios while being more attentive to the benefits accrued to their stockholders.
    Having said all that, MCC is very attractive from a price standpoint. At $12.47, price to book is .983, dividend yield is 11.87%, and with a consensus target price of $14.98 the total return comes in at 32%. But that 32% requires the price to achieve that $14.98 level which might be a struggle given the recent price movement and the flat NII projections. We shall see.

    As always, just one opinion.

  • jan814_1999 by jan814_1999 Jun 6, 2014 2:49 PM Flag

    Good Afternoon triloron.
    Your summary of MCC is basically correct but what you are missing is the fact that MCC has come with follow-on stock offerings in six of the last eight quarters including the quarter we are in right now. We understand that all BDC's need to and should raise capital with equity offerings periodically. But MCC has done it too often. MCC's action has been good for portfolio growth but it has also nullified the NII per share growth and dividend per share increases. All of that showed a degree of disdain for the stockholders as the continual increasing of shares outstanding permitted little growth in stock price appreciation, resulting in investors possibly losing confidence in MCC management. In the last eight quarters the share count progression was 17.3 million, then 23.1, 28.7,28.7, 32.2, 40.2,40.2, 46.3, and will rise again this quarter. Over those same eight quarters the NII per share was $.36, .36, .39, .36, .37, .41, .42, and .38, a two cent rise over eight quarters. During that eight quarter period, the dividend increased once by a penny per share. So while the portfolio was growing nicely from $363 million to $959 million, the EPS and dividend payouts were not following suit.
    During this year's annual meeting, the stockholders did NOT grant permission for MCC to issue stock below NAV which suggested a loss of confidence in management.
    What the future will bring depends on what management does going forward. With the stock price now below NAV per share, the Company cannot currently raise more capital with a follow-on offering and that may be good thing given the recent management decision making. But not being able to raise capital with equity offerings is not a great position for a BDC to be in.

  • Reply to

    Timely Play

    by jan814_1999 Jun 6, 2014 9:35 AM
    jan814_1999 jan814_1999 Jun 6, 2014 2:22 PM Flag

    Yes, I too believe KBW is the most thorough of the BDC analysts. If memory serves me correctly, ACSF is the only BDC on the KBW Analyst Select List. They also like HCAP. Their rating is "Buy" with a price target of $16, well above the current price of $14.21. This morning I put some words on HCAP up on that chat room. If you have an interest you may want to go over there and take a look.

    Thanks for your comment.

  • jan814_1999 by jan814_1999 Jun 6, 2014 10:07 AM Flag

    Additionally, we now know that all BDC's are coming out of the Russell Indexes on June 27th. Even though the stock of the affected BDC's won't be sold out of the Indexes until or about the 27th, BDC's are, and have
    been, under price pressure in anticipation of the event. There are 35 BDC's that will be sold out of the Indexes (2 out of the Russell 1000 and 33 out of the Russell 2000) most of which will come out over a one or two day period around June 27th. Short selling continues strong on these BDC's with 34 of the 35 showing increased short positions for the 5/15/14 reporting period (from the 4/30/14 period). Since Russell announced the exclusion of the BDC's on 3/3/14, the short positions have increased on all 35. The 5/30/14 short numbers should be out on about 6/10/14. However, HCAP has no shares in any of the Russell Indexes and is one of the few BDC's that will not be affected by the June 27th exit.

    As always, just one opinion and good hunting to you all.

  • jan814_1999 by jan814_1999 Jun 6, 2014 10:04 AM Flag

    HCAP (IPO 5/2/13) is investing its capital at a slower pace than expected, but patience should be handsomely rewarded. The Q2 pipeline is strong but income from the added loans may not fully accrue until Q3. The Company invests in the lower middle market where risks are higher, loan yields are higher, and investments in this smaller market can be more difficult to find. HCAP has invested in some "placeholder" loans which are temporary, lower yield, but more liquid (easier to move out of) until the core deals are found. Thus Q1 NII, at $.34, was less than hoped for and Q2 will be about $.32 per street consensus. But Q3 projection is $.36 which will cover the $.1125 monthly dividend and Q4 moves up to $.39. On an annual basis, 2014 NII is projected at $1.41 with a nice increase to $1.60 in 2015. At yesterdays closing price of $14.40, price to book is .994 and the dividend yield is 9.38%. All loans in the portfolio are current (no non-accruals) and HCAP has plenty of dry powder (78% of portfolio fair value). All three analysts have a "Buy" rating with a consensus target price of $16.50. The total return number calculates to 23.96%. HCAP is expected to file for a SBIC license later this year, which if granted will provide low cost funds down the road. The management fee structure is stockholder friendly. After the last earnings report the CEO, on May 16th, bought 15,000 shares in the open market. So with HCAP we get paid nicely now as we look at a growth profile that should result in increases in both NII and dividends.

  • jan814_1999 by jan814_1999 Jun 6, 2014 9:35 AM Flag

    ACSF looks like an interesting play. The Company invests in Senior Secured, Floating Rate, broadly syndicated loans, meaning they are a higher quality, lower risk BDC, loaning into a very large market. ASCF came to market on 1/15/14 and by the end of the March quarter their IPO funds were fully invested. This kind of BDC usually delivers lower dividend yields but still appeals to many investors because of their higher safety status. And yes, ACSF does have about 17% of their portfolio in CLO's (limited to 20%) in order to boost the portfolio yield. The management fee structure is one of the lowest in the industry with a low management fee and no incentive fees. The portfolio is clean with no non-accrual loans. KBW recently referred to ACSF as their Best BDC Idea, and currently have an Outperform Rating with a $16.50 target price. The short term catalyst here is that ACSF, on March 17th, declared their first dividend (for a partial quarter) of $.18. The street talk is that ACSF will soon declare a $.28 quarterly dividend on NII earnings of $.29. On the CC, ACSF management, in response to an analysts question, said they do not totally disagree with the approach used by the analyst in determining a $.28 to $.29 run rate for the coming quarter. As of the Thursday closing price of $13.96, ACSF is selling at .924 of book value and if the next Q dividend is $.28, the dividend yield will be 8.02% which is above the peer group** average. Since the Q1 earnings report, there have been four insider buys of the stock. Finally, we know that the exclusion of all BDC's from the Russell Indexes on June 27th is an overhanging drag on the entire BDC industry. There are no shares of ACSF in any of the Russell Indexes so the sale of BDC's out of the those Indexes on June 27th should have no affect on ACSF.

    ** Peer Group consists of four Externally Managed Floating Rate Senior Secured BDC's and they are PFLT, SUNS, FSFR, and ACSF.

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