I read the FSAM news release. They acknowledged that FSC and FSFR are both below net asset value. They seemed to imply that was going to hit them. I will listen to conference call tomorrow. I am certain they will be asked by analyst how they going to grow if their two major funds (FSFR and FSC) are both way below net asset value.
FSAM reports the earnings tomorrow after the market closes. There should be details in there about how they intend to grow the company, which is going to have to mean how to make FSC and FSFR grow.Also, the conference call the next day should be worth listening to!
I did some research on FSFR. The original stock offering was 6.67 million shares at $15/share. FSAM paid all the fees out of their own pocket. The secondary was 22.8 million shares at $12.13 after all fees and charges were taken out. Multiply 6.67 times $15 and 22.8 times $12.13 gives a grand total of $376.8 million. Divide this number by 6.67 + 22.8 gives a composite net asset value of about $12.78. Note that the underwitrers could have exercised an option to buy more shares, etc. In any event, I think the company has maintained the NAV pretty well, though obviously the investors in the ipo got ripped off very badly!
I agree with you that the dividend should not have been raised in the first place. However, I doubt very much that the dividend will be reduced anytime soon. More likely is that there will be some combination of higher interest income, lower interest costs, and reduced management fees to make up for the $3 million shortfall that prevents the company from being able to fully fund the dividend each quarter on an ongoing basis.
One other comment I would make. Management could cover the higher dividend rate easily if they reduced the total administrative burden on the shareholders slightly. Last quarter FSAM took a total of $25 million to cover all costs except interest. If FSAM reduced this figure to $22 million. The $3 million is equivalent to 2 cents per share since FSC has about 150 million shares outstanding as I recall.
I agree with everything you say, but I can add some details. In my opinion, the dividend was jacked up in order to lift the share price above the most recent net asset value. Remember, the company can not sell shares below NAV! Once that was accomplished, then the SPO was able to take place. Note also that the share price had to be at least 2 or 3 percent above the NAV in order for the company to offer the new shareholders a small concession on price and still remain above nav..
Given the nav of FSFR of $12.65, and the high degree of leverage it is trying to use (200 percent), why is $1.20 so difficult to achieve? BDCs can not use that much leverage but FSFR is not a BDC.
Do you have any idea why FSC crashed in price today? I am not aware of any news and their exposure to energy is quite limited?
I am confused here. I thought that when the secondary stock offering was completed, the net asset value fell to $12.80. From that point to the current day, the net asset value fell from $12.80 to $12.65.
It is noteworthy that FSAM announced that no more shares of FSFR would be issued BELOW net asset value. FSAM must have taken tremendous heat for what they did earlier this year with their secondary stock offering. I am surprised that people did not complain to the Securities & Exchange Commission.
By the way, FSAM itself is doing very poorly. It was supposed to be a $24-$26 stock and is now below $13.
I think people are beginning to realize that If FSC and FSFR are not doing well, then there is no way on earth that FSAM is going to grow their own income.
People should pay close attention next week when the quarterly report for FSAM is announced. They will announce their plans, if any, to squeeze more money out of the shareholders of FSC and FSFR.
I trust FSC more even though their management fees are very high. I have confidence that their numbers are genuine and they will never have a problem with the SEC.
Please spare me. I have been saying for a long time that PSEC is trash. While the dividend has been slashed, do you see any mention of a reduction in management fees??? The problem is not that the dividend is so high, but rather that PSEC management fees and charges are nearly the highest in the nation
of any publicly traded business development company.
What happens if FSAM tries to do the same thing again next year to the shareholders of FSFR? If you read the transcript of the FSC conference call, one of the analysts asked that very question!
Do I understand this correctly? The management got permission from the shareholders to triple the number of shares outstanding by selling new shares at 25 percent below net asset value of $15, thus causing the net asset value to fall to $12.80?
I agree with you. This stock is trash. If the company can not make the case at the annual meeting, when can they make it???
I have said in a number of posts recently that PSEC is trash! I wish I had taken my own advice. I sold most at $10.09, unfortunately, I hung on to 30 percent of my original position hoping that a miracle would happen.I expect some very bad news to come out tomorrow at the annual meeting.
I agree with you. Hopefully, we will find out tomorrow whether or not the company is likely to survive in its present form. It is ironic when you think about it: This company bought Patriot Capital when they were about to fall into the abyss, and now the shoe may be on the other foot!
The management is ripping off the shareholders with the HIGHEST management fees in the nation. If you look at the most recent quarterly report, deduct interest payments from the net investment income, giving you about $62 million. Then calculate total management expenses paid to FSAM, which comes to about $25 million. $25/$62 is .41 or 41 cents of every dollar of cash flow is paid as management fees. Based on a recent Seeking Alpha article, this is the highest in the country for a publicly traded BDC.