fracmonk, you have a lot to learn about mgmt. and conflict of interests. It is done a lot because some of these WS predators know how to do it and have deep pockets to protect themselves. I have seen them penetrate State legislatures to advance their interests. In the case I mentioned they got caught with their hands in the cookie jar and had to pull in their fangs. FYI what these characters were doing was known for years, immoral yes, but legal. Neverthless, investors were taken to the cleaners.
The high level of defaults I was referring to is a potential outcome. External mgmt. goes after incentives and fees from a bigger and bigger portfolio, and usually don't care about the outcome of the investment. Over a period of time the portfolio is loaded with garbage. I saw that in a REIT I have owned by the symbol of CWH (now EXC). It;s a horror story that now is being repaired by new internal mgmt.
Ebeads: Thanks for the reminder. I had already read his last March article, but I overlooked the part about fees and incentives. What struck me when I read it was the 13.5% yield, which combined with the 11% distribution led me to buy. Baaaad decision! I think that with time the distributions will be going down, maybe for the high level of defaults, who knows? What discourages me about MCC is that external mgmt. rarely, rarely is on the side of the investor for obvious reasons.
The time to buy was when CLMP was around 20. I think the promise to increase distributions has already b een baked into the pps. I sold @23 since I missed my chance to add at 20. GLTA
For those of you who are curious about the cost of hiring external management (Medley Advisors LLC), look up the last quarterly report. It is an eye opener. We are paying $8M to them for $31 of revenue. That's almost 25% of total inflow. Somebody may want to look at the footnotes to see what the $8M is based on (total assets, $949M? or is it based on total revenue). The total estimated revenue on an annual basis is about 13% of assets. That's quite a bit for a business to pay. Now I know why they are so anxious to float more shares! I really think MCC was created for the benefit of the advisors, with these distributions as a come-on for the investors.
You raised another issue with that 11% figure. If these managers give you that payout and then add administrative costs plus management fees (I saw 1.75% somewhere not including incentives), it means that their loans have to be at least in the 14-15% range. I wonder how desperate these businesses are to pay such high interest. It makes me feel that we are playing Russian roulette with our money. hhmmmmm .......................not a pretty picture.
You have described what most folks have known for years, but choose to take part in what I call the "casino". It's almost the only game in town if you want to gamble and keep up with real inflation (assuming they know how, LOL). In a humorous way I look at these folks playing musical chairs in the casino.
My approach from the very beginning has been to avoid the stock market and focus on what I can control and know how to play: real estate invetments. I did very, very well. However, we can't do that forever, and comes a time when we have to give it up and go to something else, and that's where I am now. I don't trust stocks because I really don't know what the insiders are doing behind closed doors with my invested money. I'm sure you have read the news about the many frauds, and most of them get away with it. Sorry, I'm ranting and raving without any answers to the problems. Anyway, good luck.
If they have more shareholders and more capital, I really don't see the pps appreciating, except that we get a distribution from the eps since 90% must be paid out. God forbid the economy turns South many of these loans will go into default or the borrowers go to Chapt 11. However, as long as they manage our money they get a fixed percentage of the revenues. I may have this wrong, but I'm concerned should we have another recession. I don't see their siding with the shareholders except pay them a distribution when there is a DCF. In other words the investor has all the risk, and the management has none.
As I remember MCC is managed external, probably by the group that created it. Does anyone know what their mgmt. fee is, and what incentives they have?. My fear is that they are diluting to death to increase their intake, until the house of cards comes down for the little investor. TIA.
BTW... I bought TCAP sometime back for a similar reason, except that they are more in seconds and mezzanine. My conclusion is that these BDCs will all do well on the up part of an economic cycle, but unload when the bubble starts. I'm basing my approach on that premise.
I took a first long position here the other day at 13.38, before knowing that these jokers were coming out with a 5M IPO, and I was going to beat the ex div date. Talk about timing! Oh, well.
I sense that this board has some very informed and sharp investors or traders by the comments here. The way I see it an 11% yield is way high, and there may be 2 reasons for it. Either the business is too risky and it demands a high return, or the economic cycle is such as to make the MCC investments attractive. If the second reason is true, then the pps should be at a level where the yield is about 7%. Am I misssing something here?
Especially right after the distribution being paid. My only guess is that there is institutional interest (ie high volume) for whatever reason. The other puzzle is that CEQP did not move the same way (maybe because of their terrible eps loss).
IF you are right then we will be in great shape. IF things turn sour, I will wait for the stock to go below 25 and add. My 6th sense tells me that the road ahead will be bumpy for them and the Market. GL
What you are really saying is that they will be borrowing to pay these distributions for at least another year. So we should be praying that their new acquisitions, once on line, will bring in the extra cash flow to cover these distributions. The way I see it we may have to wait until 2016. I might dump over 30 and wait for a better price. a payout of 2.74 seems excessive to me based on what they have now. Thanks
I bought 60% of my position at 41. It translates into an 8.5% yield assuming they don't cut the distribution. Not a bad return these days.
The fact that they are reducing says that they found a lot of non paying tenants and empty space. I think we will be seeing a fire sale soon. JMHO. Also, the sale of SIR shares says they needed cash to fix the problems here. Not a good picture for the short term.