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Prospect Capital Corporation Message Board

steve484842 68 posts  |  Last Activity: Jan 27, 2015 1:52 PM Member since: Dec 22, 2010
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  • Reply to

    Green close

    by criminalmindscraft Jan 27, 2015 1:21 PM
    steve484842 steve484842 Jan 27, 2015 1:52 PM Flag

    Crim, VG reminder to OUR PSEC Longs. I expect Positive News from PSEC going forward.
    I hope the Shorts are waiting to cover as the price rises.

    Sentiment: Strong Buy

  • Reply to

    Thoughts for Next Week

    by yieldinvestor2015 Jan 24, 2015 4:16 PM
    steve484842 steve484842 Jan 24, 2015 6:27 PM Flag

    Yield X Dividend on Wed. 1/28 So there be an .11 drop BUT that means nothing.
    Long term PSEC is a VG Investment. Good Luck

    Sentiment: Strong Buy

  • Reply to

    Quit zig zagging and get in the chute.

    by darv222 Jan 23, 2015 11:18 AM
    steve484842 steve484842 Jan 23, 2015 11:58 AM Flag

    igurumo, I agree with you 100%. I am also adding except I do NOT see it as overweight with the future that I consider for PSEC and us Longs. Dividend was reinvested from yesterday also adding to my shares.
    Good luck

    Sentiment: Strong Buy

  • Conservative capital structure, improving financing terms and yield enhancement process.
    Dividend cut is more likely to secure shareholder income streams.
    Potential spin-offs in sectors that are expected to outperform the market.
    Little exposure to oil & gas production and energy sectors with the majority being controlling interests.
    In this article I outline 5 reasons explaining my decision to go long on Prospect Capital Corporation's (NASDAQ:PSEC) shares. I explain why I believe the company is doing a nice job creating security of income for its shareholders for now on and at the same time fortifying its position for future downturns.

    1. Conservative capital structure

    According to the company's December 2014 presentation, 75% of their portfolio is invested in 1st and 2nd lien secured loans. Given the upcoming hike in interest rates by FED, this can be considered to create extra cushion in case some loan agreements go south.

    2. Improved financing terms

    Looking at the notes of the company's latest 10-Q report, we identified an improvement in the company's revolving credit facility terms. Specifically, with the "2014 Facility," valid through March 2019, interest rate was decreased by 50bp plus one month LIBOR, in relation to the "2012 Facility," landing at one month LIBOR + 225bp. Recently the company announced an increase of their revolving credit facility commitments to 885m.

    In addition, as it is shown in the following table, the company's "December 2010" $150m senior unsecured convertible note, becomes due, bearing a coupon of 6.25%. This means that the interest easement described above will take place, and therefore will be incorporated in the company's books, sooner rather than later.

    Source: PSECs December 2014 Investor Presentation

    Finally, it is worth mentioning that the majority of the company's debt is unsecured term debt and more importantly, there are no cross defaults with the revolving facility.

    3. Yield enhancement program

    In the company's latest earnings call, we heard Mr. Eliasek saying that the company is in the middle of a yield enhancement process in collaboration with third party investor capital. By this process, the company will seek to sell off lower yielding loans and "rotate to higher yielding assets." Prospect Capital's COO also said that they "hope, but cannot guarantee, to close this initiative over the next few months."

    4. Dividends

    That's right. Dividends. Despite the recent slash in the company's dividend, and the subsequent buzz of sour comments here on SA, I found this decision to be rather attractive. I'll explain.

    The serious dividend investor's number one rule is "Looking only for high dividend yields when screening for a dividend stock is not a wise strategy." That's because high dividends may be unsustainable. Rule No2 is "Look for steady and increasing dividends throughout time." Now, given that I live in Greece, I can relate with the feeling that you get in the case of budget cuts and thus in the situation of seeing your monthly dividend check cut by more than 20%. Fortunately, this company is run by an experienced management group and not by Greek politicians. So, while in my case I'm not so sure that these budget cuts will not be in vein, in the case of Prospect Capital Corporation I see this dividend cut as a precautionary measure which aims to create security and comfort for its shareholders. Let's do the math.

    According to the following table, Prospect Capital Corporation had a payout ratio of 132%, before the dividend cut, accompanied by a 5 year annual 0.5% growth in dividends. Of course, once we incorporate the dividend reduction into the payout ratio calculations, we get a payout of around 100%, ceteris paribus.

    Except for PSEC, we included the four highest yielding BDCs (TICC, MCC, FSC, FULL) alongside with two of the highest market capitalization (ARCC and AINV). As we can see, the highest yielding BDC has also the highest dividend payout ratio. On the other hand, the most conservative payout ratio is found in Apollo Investment Corporation and Ares Capital Corporation. So from the table above, the most efficient combination of high dividend yield and secure dividend payout (or Net Income per share if you do the math) comes from PSEC, ARCC and AINV with dividend yield to dividend payout ratios of 11.88% (based on 100% payout ratio), 12.15% and 16% respectively. However, Prospect Capital trades at a bold 20% discount to NAV, based on their latest 10-Q, in the neighborhood of AINV (18%) and in significant distance from ARCC (5%).

    5. Spin-offs

    According to the company's last earnings call, the management plans to spin off certain of the company's activities. We're talking about real estate, online lending and some of the CLOs. The process is now in the registration statements and hopefully in the next earnings call we will have news on that. However, we can't ignore the following facts:

    Online lending business is the most dynamic one, although it accounts for only 1% of the company's portfolio.
    Real estate is focused primarily on multifamily properties. Specifically, Prospect Capital Corporation owns a total of 37 multifamily and 10 commercial properties through its consolidated holding companies. Multifamily property growth is driven mostly from favorable demographics, as I have outlined in my previous articles, and it's generally considered a good investment at this time.
    These activities may be rewarded with a premium by Mr Market, due to their expected performance, if and when they get separated from the mother company.

    The oil sector risk
    Despite the colorful situation described above, many have expressed their concerns regarding the exposure of the company to the energy and oil and gas sectors. To an extent they are right. The current oil crisis could take some small industry players out of the game, therefore affecting the company's returns.

    On the other hand, this risk is reduced by two factors. First and foremost, Prospect Capital Corporation has controlling interests in the majority of their investments in the energy and oil and gas sector. Only four of their holdings in these sectors are in the form of non-control investments and account for only 2.4% of the company's net assets. The second factor is related with the company's history. As you may know, Prospect Capital Corporation was formerly named Prospect Energy Corporation. Their expertise was energy investments. This know -- how could prove to be of the essence should things go south with their energy and oil and gas production exposure.

    Conclusions
    The overall feeling I get from this company is that they are building a protective fence against uncertainty. They're continuously improving their financing terms, and invest rather conservatively in debt. Having the case of Patriot Capital acquisition in mind, which could be described as a home run for the company, I wouldn't be surprised if I saw more strategic moves from them. With their dividend yield still on double digits, and with my mind on the potential spin-offs, I recently opened a long position. That doesn't mean that there aren't other notable BDCs, such as AINV. But at the $8.30 levels, PSEC could be described as a bargain. So when the dust created by the dividend cut settles down, I think investors would be looking at a pretty good investment for both capital appreciation and dividend security.

  • 10-Year Treasury yields have gone below 2% in a span where many predicted they were headed for 4 percent.
    High-yield bond investors should look at closed-end funds trading at a discount to net asset value. Leveraged Prudential Global Short Duration (NYSE:GHY), trading at a 5% discount and better than 9% yield is an idea for those who want to take some credit risk, yet stay to the short-end of the yield curve. High-yield investors might also want to consider business development companies which make primarily loans to private middle market entities. Prospect Capital (NASDAQ:PSEC) and Apollo Investment (NASDAQ:AINV) are both trading at significant discounts to their last stated net asset value and yield in the double digits.

    Sentiment: Strong Buy

  • Good luck PSEC LONGS! Also enjoy your Dividend being paid this Thursday. I hope the Shorts also Enjoy paying the Dividend.

    Sentiment: Strong Buy

  • I entered InvestorPlace’s Best Stocks for 2015 contest with business development company Prospect Capital (NASDAQ:PSEC). With 2015 getting off to a rocky start, I’m feeling good about my focus on income and deep value. Prospect Capital sports a 12% dividend yield and trades for just 80% of book value. For Prospect to simply return to book value, we’d be looking at 25% returns. Add in the 12% dividend, and we’re looking at 37% returns. Chip in any special dividends – which management says is a distinct possibility – or any growth in book value, and we’re looking at returns north of 40%.

    Today I’d like to take a quick look at Prospect’s December investor presentationand highlight a few slides I find to be particularly relevant. Let’s start with Prospect’s bad loans. As a percentage of the portfolio, they continue to trend down. In 2009, 5.8% of the portfolio was classified as “non-accrual.” Today, that number is 0.03%. The key bit of information to glean from this is that Prospect Capital has been de-risking over the past six years. I consider that a good thing. With banks essentially out of the business of lending money due to regulatory fallout and a lack of capital, BDCs like Prospect have been able to step in and make high-quality loans.

    Furthermore, Prospect’s portfolio is diversified across industrial sector. With crude oil prices still in freefall, it’s worth mentioning that Prospect’s exposure to oil and gas is just 4%.

    Meanwhile, most of Prospect’s lending is secured. 71.5% of its debt portfolio is secured by a first lien position. And another 26.3% is secured by a second lien position.

    All told, about 75% of its total portfolio consists of first and second lien loans.

    Are there risks? Sure. If we hit a rough patch in the economy, Prospect’s bad debts will creep up again. But given the massive amount of de-risking the company has done in recent years, I see that risk as being very tolerable. If anything, I would say the risk is that Prospect Capital’s portfolio isn’t risky enough. Its conservative portfolio might not allow for the kind of dividend growth investors enjoyed in previous years.

    All the same, with U.S. stock valuations looking stretched and bond yields scraping along near all-time lows, Prospect’s 12% dividend is hard to ignore

    Sentiment: Strong Buy

  • As I noted in my preview article, I think the business development company (NYSE:BDC) group represents the most tangible value in the market for income generating securities. With discounts to net asset value in the 20% range for something like a Prospect Capital (NASDAQ:PSEC), there is value, regardless the criticism over the company's handling of the dividend last year or external management conflicts.

    Sentiment: Strong Buy

  • From a REAL stock Picker:
    Best Stocks for 2015 – Prospect Capital Could Deliver Total Returns of 40% or More
    by Charles Lewis Sizemore, CFA on DECEMBER 31, 2014 in DIVIDEND INVESTING
    Editor’s note: This column is part of our Best Stocks for 2015 ontest. Charles Sizemore’s pick for the contest is Prospect Capital Corporation (PSEC).

    I have a reputation to redeem. After winning InvestorPlace’s Best Stocks contest in 2011, coming within a hair of winning in 2012, and then winning it all in 2013, I’m at the bottom of the heap in2014. My bet that 2014 would be the year that emerging markets assumed leadership proved to be premature.

    This is my bet for 2015: Cash will be king.

    I don’t expect much from U.S. equities in 2015. It’s not that I’m a bear — I’m not — but valuations look stretched, and U.S. stocks are priced to deliver flattish returns over the next 5 to 7 years.

    Rather than buy, hold, and pray that this bull market has another good year left in it, I’d prefer to get my returns up front in cold, hard cash.

    My pick for InvestorPlace’s Best Stocks of 2015 contest is business development company Prospect Capital Corporation (PSEC).

    PSEC invests primarily in first-lien and second-lien senior loans and mezzanine debt and provides financing for leveraged buyouts, acquisitions, recapitalizations, and capital expenditures for growth. PSEC also invests in the higher-risk but potentially much higher-return equity tranches of collateralized loan obligations.

    Most of PSEC’s individual investments would have to be considered risky given the early stages of the companies involved, but the portfolio is diversified across a wide variety of industries, and management recently announced it was lowering its risk profile by increasing its allocation to first-lien loans.

    PSEC caused a ruckus in December by cutting its dividend to 8.333 cents per month from 11.1 cents to bring its dividend more in line with its reduced risk and return profile. But even after the reduction, PSEC sports a dividend yield of nearly 12%.

    And the effective yield may end up being higher. In their recent press release, management indicated that additional special dividends are a real possibility over the next 12 months.

    Investors hate dividend cuts, and PSEC’s share price has taken an absolute beating following the announcement. PSEC now trades for just 80% of book value (see chart), matching its lows of 2011. At these prices, the market is valuing PSEC as being worth more dead than alive.

    PSEC Insiders Are Eating Up PSEC Stock

    What kind of returns do I expect in 2015? If PSEC share price were simply to rise to accounting book value, we’d be looking at 25% capital appreciation. Add in the 12% dividend, and you’re looking at returns north of 37%. And this is before the payment of any special dividends, which I consider very likely.

    At current prices, we have a wide margin of safety. If PSEC’s accounting book value proves to be slightly overstated, that’s OK. Buying at a 20% discount, you have a little wiggle room.

    Meanwhile, company insiders have been backing up the proverbial truck. In the month of December alone, PSEC insiders collectively bought 552,200 shares worth more than $4.8 million. Year-to-date, company insiders have plowed a combined $11.2 million dollars into Prospect Capital’s shares.

    I should emphasize that these are open-market purchases made with the insiders’ own money, not executive stock options.

    Sentiment: Strong Buy

  • Reply to

    SEC

    by jimcooper28 Jan 2, 2015 3:56 PM
    steve484842 steve484842 Jan 2, 2015 3:59 PM Flag

    YOU sound like a Major SHORT. YOU are now on my IGNORE list so I will NOT see your response.

    Sentiment: Strong Buy

  • Reply to

    PSEC Today and going forward in 2015

    by steve484842 Jan 2, 2015 6:46 AM
    steve484842 steve484842 Jan 2, 2015 3:53 PM Flag

    Looking good for us PSEC Longs and I hope the Shorts have NOT started to cover yet.
    I hope they wait till after PSEC comes out with future Positive News.
    Good luck LONGS

    Sentiment: Strong Buy

  • Reply to

    PSEC Today and going forward in 2015

    by steve484842 Jan 2, 2015 6:46 AM
    steve484842 steve484842 Jan 2, 2015 10:15 AM Flag

    Minny The name you mention is one of my Ignores. I have NO interest in their noise hate and LIES.
    I have been increasing and averaging down my PSEC investment.
    Good luck

    Sentiment: Strong Buy

  • I see a Long term UPtreand for PSEC. The tax selling for 2014 is now over and I think there will be Short Covering and New Long term Investors coming in and the current Long term Inestors (like myself) increasing as I (we) did on 12/31. I also think PSEC Management will continue increasing their shares and PSEC will be coming out with Positive news.
    Good Luck PSEC Longs.

    Sentiment: Strong Buy

  • Reply to

    Just bought 18,000 shares of PSEC.

    by elvis_presley0140 Dec 31, 2014 3:40 PM
    steve484842 steve484842 Dec 31, 2014 4:18 PM Flag

    Smart

    Sentiment: Strong Buy

  • Looks like a final Huge Tax selling (over a Million shares) in the last few minutes and some buying, overall a Positive day. Congrats to you who bought this am.
    Unless there is a market crash I see PSEC moving up starting in January.
    Good luck and Happy New Year to all the PSEC LONGS!

    Sentiment: Strong Buy

  • steve484842 steve484842 Dec 31, 2014 3:19 PM Flag

    Minny, Thanks ................ I think PSEC has Positive Info. in the works

    Sentiment: Strong Buy

  • steve484842 steve484842 Dec 31, 2014 2:14 PM Flag

    I only disagree with his up to $9.00 price buy. I see PSEC going back to over $11 as the Company moves forward with its plans for the future.
    Good luck LONGS

    Sentiment: Strong Buy

  • Prospect Capital is dirt cheap, trading at more than a 22% discount to NAV.
    Will the stock rebound in 2015?
    At current prices, Prospect Capital yields over 12%.
    It is no secret that Prospect Capital (NASDAQ:PSEC) has had a very rough 2014. The year started off okay, but hardly great, with a couple inline quarters. However, by around mid-year many investors, myself included, were becoming worried about worsening NII trends, despite efforts to increase leverage. Furthermore, concerns were being raised regarding the impact of persistently low interest rates. Basically, as older loans were being paid off, they were being replaced by lower yielding investments. These fundamental factors were exacerbated by a surprise SEC inquiry, now resolved, the failed buyout of auto lender Nicholas Financial (NASDAQ:NICK), etc.

    As a result of these issues, Prospect Capital announced an adjustment to its dividend policy, lowering the dividend by ~25% to $1.00 per share, or $0.08333 per month.

    However, the market is not buying what Prospect Capital is selling. Shares of the PSEC are down nearly 10% since the dividend cut and are now trading at a shocking 22% discount to its $10.47 per share book value as of Q3 2014.

    Nevertheless, I believe shares of Prospect Capital are bound to rally in 2015. The company has several upside catalysts which the market seems to be discounting.

    1) The end of tax-loss selling

    Locking in gains or losses at year end is a real phenomenon as investors try to lower their potential capital gains tax bills. For many, this means selling out of favor positions which have declined in value to offset gains in other positions.

    As Prospect Capital has fallen 26% YTD, it is very likely a prime target for such a strategy. I believe the recent weakness in its share price is partly to blame on tax-loss selling. However, once we enter 2015, this selling should abate, removing a considerable headwind for the stock.

    2) The dividend cut is old news
    As an income stock, Prospect Capital's prestige was greatly wounded by the dividend cut. After all, if your main reason for owning the stock was a stable stream of income and all of a sudden it were cut 25%, your tolerance for holding would be much weaker.

    However, this cut was widely anticipated by the markets. Many articles here on SA and elsewhere suggested that Prospect Capital's dividend was unsustainable. Indeed, a lower dividend was telegraphed by the company during its Q3 2014 earnings when it failed to provide guidance for the next dividend, essentially leaving the door open for a dividend reduction.

    Furthermore, the new $1.00 per share dividend is now fully covered by estimated 2015 NII. While Prospect Capital will likely have enough taxable income to cover the prior dividend level for a few more months, the company wanted to focus its dividend to be inline with NII, with a potential year-end special dividend to meet its REIT requirements.

    While everybody hates a lower monthly paycheck, the simple fact of the matter is that Prospect Capital's dividend needed to be cut. Furthermore, with the dividend above NII, those extra few pennies per month were coming straight out of NAV, a net wash from a total return perspective.

    I believe that as the market adjusts to the new reality of Prospect Capital's lower dividend, that the share price will rise to be close to NAV, as it has typically traded in the past. Besides, the yield at current prices is over 12%, a very respectable level of income.

    Dark horse: Spin offs
    Lastly, let me discuss Prospect Capital's proposed spin-offs. During its Q3 2014 earnings call, Prospect Capital announced plans to spin off certain of its "pure play" controlled investments. The company noted the following as potential spin-offs:

    Collateralized loan obligations (CLOs)

    Various real estate investments

    The online lending unit

    All of these business have strong revenue growth and are likely to demand a premium valuation from the market if separated from Prospect Capital via an IPO.

    What we know regarding Prospect Capital's plans is that it intends to spin off these assets in a tax efficient structures, raising capital along the way, while maintaining its leverage and current earnings intact. Furthermore, Prospect Capital would free up its 30% basket and leverage capacity limit which it is subject to as a BDC.

    However, when pressed for more questions during its conference call, Prospect Capital was extremely tightlipped, noting that:

    "We're not giving away the crown jewels on this call"

    This is a reasonable response. However, as a result of this uncertainty, the market seems to not be valuing theses possible divestments. A catch-22 situation.

    As was seen by the proposed separation American Capital (NASDAQ:ACAS) into3 separate companies, there is often hidden value buried deep in a BDCs portfolio. I believe that if Prospect Capital can manage these spin-offs, then the stock price could get a major shot in the arm. And unlike ACAS, Prospect Capital still pays a dividend.

    Conclusion
    Despite its dividend cut, Prospect Capital remains a solid pick for income. The yield is one of the highest in the BDC sector at 12%+ and is now actually sustainable to boot. I have been adding to my position in PSEC and will continue to do so at below $9.00 per share. Given that insiders are buying stock at record levels, this hardly seems like a poor choice.

    Sentiment: Strong Buy

  • Reply to

    Bought another 2k today---Bottom Is in

    by h92661 Dec 31, 2014 1:25 PM
    steve484842 steve484842 Dec 31, 2014 1:37 PM Flag

    h, I agree that this morning hit the bottom and the turn around will happen also your dividend comment is right on.
    I also bought a large amount of PSEC shares this am. As to one of the PSEC board WHINERs you mention he is ONE of my IGNORES. I have NO reason to listen to their NOISE.
    Good luck to YOU and the other PSEC longs.

    Sentiment: Strong Buy

  • Reply to

    PSEC End of Year selling almost over this am.

    by steve484842 Dec 31, 2014 10:07 AM
    steve484842 steve484842 Dec 31, 2014 10:39 AM Flag

    Ray, I think WE will be receiving positive news from PSEC Management in January and going forward.
    I also increased my PSEC shares this am.
    Good luck

    Sentiment: Strong Buy

PSEC
8.25-0.030(-0.36%)Jan 30 4:00 PMEST

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