Well, it has been one heck of a day!
I may have misunderstood one of your comments earlier. I thought you were saying there were better investments paying higher yields than TCAP, which is why I asked what they were.
No argument the blue chip names should be a safer port in the storm, although all the names you mentioned (XOM, WMT, & INTC) are down over (-30%) year to date and TCAP is only down about 2%. Personally, I wouldn't hold anything energy related at this time.
There was no place to hide this morning, and TCAP did trade with a $16 handle for a while, so your prediction came true, just a lot faster than you expected.
My view of the rest of the year is not as gloomy as yours, and I think the good names in the BDC sector are well positioned for growth and attractively priced. The dregs of this sector are another story, and there's more than a few that fit this category.
I did just a little bit of BDC buying this morning, but did not add any TCAP.
Hang in there.
I'm curious, what investments are you aware of that are bigger, safer businesses, that are growing their dividends, tax advantaged, and paying better yields than TCAP?
TCAP's dividend yield on their regular dividend is currently 11.38%. I'd take a long hard look at anything with a higher yield than that to determine how sustainable it is. While I contend TCAP's regular dividend is safe, I'm sure we could both come up with safer investments than TCAP.
I agree with your assessment on MLP's & REIT's but don't think BDC's should be painted with the same broad brush. These sectors are all high yielders, but that's where the similarity ends. REIT's & BDC's are not affected by the lower commodity prices MLP's are getting crushed by (well, BDC's do have some limited exposure via some energy investments in their portfolios), and REIT's & BDC's not going to be affected the same by rising rates.
One thing we do agree on is to keep plenty of dry powder. I'm at about 40% cash. While I do think there are some quality BDC's available at good entry prices right now, they could be cheaper tomorrow. Actually, looking at the futures as I type this, it looks like that is going to be the case on tomorrow.
I don't see tax loss selling as a big problem this year, and the reason is partially mentioned in your post.
In 2014 the share price went from $30 dwn to $18. TCAP started this year at $20.29, and while it's bit below that right now, it's not nearly as attractive a tax loss selling candidate this year as it was last year. Plus, even though TCAP has given slower portfolio growth guidance than investors were hoping for during the remainder of 2015, I think it ends the year more than a little higher than where it's at today.
I was patient with the TCAP shares I was holding from last year and didn't sell them until the middle of June. Collected 2 more dividends and got an average price of $23.79 for my shares. Have a short term capital loss on the share price, but actually turned a profit when all the dividends received are included. I've been buying back some of those shares recently. Those $0.05 specials might not be with us much longer, but the regular $0.54 dividend is safe and the coverage will improve as the year progresses.
I wouldn't say there can't be a steep sell off on just about any stock right now because in addition to deteriorating fundamnentals in some sectors, fear is rampant right now. That said, I find TCAP's price an attractive buy at this level. As long as credit quality remains stable, TCAP is well positioned to appreciably grow NII per share going forward.
Good luck to you.
Conspiracy theories aside, my reading of the terms of the merger indicate that, because if where PFLT's share price is trading, the amount of PFLT shares MCGC shareholders will receive is based on PFLT's NAV, not their share price.
Exchange ratio: Floating, based on value of $4.521 per share of MCGC common stock.
PFLT to be valued at the greater of NAV and the 10 day weighted average volume-weighted average price ("VWAP") per share of PFLT common stock prior to the second trading day prior to closing
Cash Consideration: $0.226 per share of MCGC common stock (approximately $8mm in the aggregate) paid by the Adviser.
The adviser will contribute up to an additional $0.25 per PFLT share issued in this transaction to the extent PFLT's "VWAP" as calculated above is less than PFLT's NAV.
Since PFLT's NAV is about 10% higher than where the share price is trading, the amount of shares to be issued is based on PFLT's NAV. A lower share price will not affect the number of PFLT shares MCGC shareholders will receive.
The $0.226 cash component to the deal is based on how many MCGC shares you hold, so this has no bearing on what PFLT is trading at either.
However, because of the recent drop in PFLT's share price, PFLT's external manager will have to pay the additional $0.25 per PFLT share to the new shareholders.
So, if anything, the recent drop in PFLT's share price is costing PFLT's external manager an additional $3mm.
If your understanding of this is different, let me know your understanding of this.
They're talking about CRS Reprocessing.
This was a large loan that went on non accrual status in Q314.
It was restructured in Q215 and it is now a control company of TCAP's.
The bad news is it resulted in a $20mm realized loss.
The silver lining is it's back on accrual status, will be back to paying some investment income going forward because there are two new senior loans TCAP holds by virtue of the restructuring, along with an equity stake in CRS.
I think this merger is a good deal for shareholders of both MCGC & PFLT.
MCGC shareholders have a chance to trade in their shares of what has been a very mediocre BDC for many years for what has been the best performing Senior Floating Rate BDC, and they will realize NAV in the process. When's the last time MCGC has traded at NAV?
What "risk" are you talking about?
The only risk I see here is if MCGC shareholders vote against the merger. Then, by the end of Q3 they will be left holding a BDC with only 1 remaining investment valued at $2.7mm. Instead of beginning to collect PFLT's $0.95 monthly dividend, they will be part owners in a BDC that will be losing money every day, which means NAV will decline. MCGC will be worth less in November, and less in December, and so on
MCGC's management's concerns about the HCHC offer have proven to be accurate. Because HCHC's share price has dropped over 35% since their first public offer, their offer is now well below PFLT's. Are there any folks here still enamored with HCHC after seeing what their share price has done over the last 2 months. As a comparison PFLT's share price has declined about 3.5% over the same period, but that share price decline is somewhat offset by PFLT's monthly dividend.
PFLT's dividend is secure plus they have about $0.80 of spillover income. If you do the math, by the time PFLT invests the MCGC cash and leverages it to about where they are leveraged now, which is pretty modest, NII per share will be more than it currently is, and PFLT has regularly over-earned their dividend.
The merger will provide MCGC/PFLT shareholders ownership in a BDC that has never realized a loss and has plenty of liquidity to be active in the market when many BDC's are constrained by their inability to raise new equity and are highly leveraged
I'm not trying to be sarcastic, just wondering what risk are you concerned about?
You're invested in MCGC, was there really an expectation of realizing something above NAV?
Just glancing through TCAP's 10-Q I'd say you missed a number of TCAP's energy related holdings.
Applied- Cleveland Holdings
Not to mentioned one of TCAP's recently restructured loan, CRS Reprocessing Svcs.
Overall, TCAP's exposure to Oil & Gas is about 9%of their total portfolio.
As the price of oil falls below $50 again, a BDC's energy related holdings are a legitimate area of concern.
Not trying to sound alarmist. I hold TCAP. Just thought your post did not accurately portray TCAP's exposure to the energy sector.
If you want a BDC with very little exposure to the oil & gas sector, take a look at HTGC.
Something to consider....
Since HCHC's first offer to MCGC on May 4th, their share price has fallen from $11.03 to $9.00, a percentage drop of (-18.41%).
Since the PFLT/MCGC merger was announced on April 28th, PFLT's share price has gone from $14.15 to $14.29, for an increase of +0.98%, plus they've paid out 2 $0.095 dividends.
Regarding that $25mm potential loss number, I was quoting directly from MCGC's June 22nd Investor Presentation.
On P.3 of that Presentation, it states:
"If HC2 truly believes that the SEC will approve the transaction, that HC2 stock price won't fall below the collar and the MCG shareholders will vote for the HC2 deal, they should pay the $7mm termination fee directly to PFLT and offer MCG stockholders guaranteed cash (i.e., in a lock box) in an amount sufficient to cover the losses (i.e., at least $25mm)."
I wouldn't criticize management for looking to protect the downside should they seriously consider HC2's offer. The last thing MCGC shareholders need is to send PFLT away and have the HC2 offer fail due to Falcone's previous indiscretions.
I also wouldn't be so sure PFLT wouldn't just walk away rather than get into a bidding war with HC2. PFLT's offer has none of the problems associated with the HC2 offer. It is the offer that cold definitely close, and sooner than HC2's.
IF MCGC decides to accept HC2's offer, PFLT could just take their $7mm break up fee and go home. After costs already spent associated with the merger they probably end up with about $4mm free and clear. That would increase PFLT's NAV about $0.25. PFLT is only modestly leveraged. They could continue to grow their portfolio for a while without the need for a secondary. PFLT shareholders did not give management the authority to issue shares below NAV, but since they already trade so close to NAV, they could do a secondary and the external manager could pick up the underwriting costs and the amount necessary so that PFLT realizes NAV from the secondary. Several other BDC's that don't have shareholder approval to issue shares below NAV have done this very thing, and we already know from the proposal for MCGC that PFLT's external manager is willing to "invest" their own money to grow PFLT's AUM. It's the external manager that is paying the cash component of the PFLT offer.
In MCGC's last presentation they state in the event the HCHC proposal could not close, HCHC should offer MCGC shareholders guaranteed cash (i.e., in a lock box) in an amount sufficient to cover MCGC's losses (i.e., at least $25mm). So far HCHC is only offering to pay $13.35mm. Why should MCGC shareholders be exposed to potential losses if they were to accept the HCHC proposal? There is a much higher risk the HCHC deal would not close and they don't have this concern with the PFLT deal.