Saturday, September 27, 2014

What is a Troll?

From Wikipedia:

In Internet slang, a troll is a person who sows discord on the Internet by starting arguments or upsetting people,[1] by posting inflammatory,[2] extraneous, or off-topic messages in an online community (such as a newsgroup, forum, chat room, or blog) with the deliberate intent of provoking readers into an emotional response[3] or of otherwise disrupting normal on-topic discussion.

Top trolls that I deal with on each PSEC article:

I will keep track of comments (even the ones that are deleted from Seeking Alpha due to being considered 'abusive') so that readers have context for our continued conversation and hope that others find humor in this blog.

Recent comments from 'koleffstephan':

"Heck, maybe you can sell some of the Hercules BDC stock that you are touting (all of the insiders of Hercules have been selling, why not you too and join the club!) and use the money to have a mental health care professional give you some humbling self-deprecating attitude reality check. Jusy sayin."

" Mr. Buzz: You too "write the same content and hidden biased verbiage on PSEC." Please "don't try next week," to write some more on PSEC - save your time and our eyesight."
" You really are writing and drinking koolaid. I am entitled to read any and all articles on my investments - including PSEC - and while many articles on PSEC are worthwhile, yours are not."

" It is "absurdly extreme" to think that Hercules insiders "have more skin in the game" than the PSEC insiders (including the CEO's of each respective company). Just saying."

Wednesday, September 24, 2014

BDCL Weightings

The following information was provided to me by UBS for the Wells Fargo BDC Index that should correlate to the weightings for BDCL/BDCS as of September 23, 2014.

Tuesday, September 23, 2014

Q4 2014 Premium Subscriber Sign Up

This pricing is only available through September 30, 2014 and after that please sign up at the following link:Premium Subscriber Sign Up”. 

I have recently organized BDCs into four tiers mostly based on dividend coverage potential taking into account my base, worst and best case core earnings projections through 2014 as well as leverage potential and reduced yield scenarios.  My future articles on Seeking Alpha will reflect upgrades and downgrades based on these tiers.

Types of reports:

  • Special Reports -  these are detailed reports that address specific issues or provide general rankings and side by side analysis for:
    • General BDC rankings (risk, profitability, returns, valuation, etc.)
    •  Impacts from rising interest rates
    • Dividend coverage and portfolio yield compression issues
    • Earnings projections (base, worst and best cases) and dividend coverage
  • Full BDC Reports - these are more detailed reports on specific BDCs that include:
    • Potential risks and rankings
    • Projected total returns
    • Earnings projections with best and worst case scenarios
    • Interest rate sensitivity analysis
    • Leverage and lower yield dividend coverage analysis
    • Growth capital
    • Quality of management indicators
    • Future equity offering forecasts
    • Dividend cut or growth projections
    • Pricing
  • BDC Projections - these are shorter reports (6 to 8 pages) that I try to keep updated for each BDC to take into account the latest equity or debt offerings as well as any preliminary results released by the company.  For the larger BDCs I try to turnaround the new information before markets open the next day with my personal recommendations.  These reports include:
    • Base case projections over the next three quarters
    • Worst and best cases projections
    • Leverage and lower yield dividend coverage analysis (based on new capital structure)
    • Future equity offering forecasts
    • Dividend cut or growth projections
  • $50 for reports through December 31, 2014.
  • $85 for reports through March 31, 2015.
  • $150 for reports through September 30, 2015.

These reports will include new BDCs that I will be adding to my list of 26 with updated rankings and special reports that provide side by side comparisons.

Renewal Options:
Email address to send report:

FS Investment Corp (FSIC) Research


Articles for FS Investment Corp (FSIC):

Wednesday, September 10, 2014

Newsletter: September 9 2014

BDC Buzz Report: 9 September 2014

Most Recent Articles:

I have a new series of articles on Seeking Alpha focused on the ‘Risk Profiles’ for each BDC.  This series will include indicators for which BDCs would be the most likely to outperform the others during an economic downturn including NAV stability or declines from increased defaults on portfolio investments.  This series will also impact my pricing for each BDC as I believe that investors should expect higher risk adjusted returns from their investments.  If you would like email notifications when articles are published please select ‘Get email alerts’ on my profile or at the top of any of the articles.

Included in this newsletter:
  • Early Sign Up for Q4 Premium Reports
  • PSEC Update
  • BDC Market Update
  • YTD Portfolio Updates
  • BDC Total Returns (since Jan-13)
  • Recommendations & Pricing Update

Early Sign Up for Q4 Premium Reports:

I have decided to start Q4 premium reports early this quarter which gives subscribers access to all the reports from Q3 as well.  I usually have two new reports a week mostly related to recent announcements for individual BDCs as well as updated detailed rankings (dividend coverage, interest rate sensitivity, general/overall, etc.). I also have a report coming out that breaks down my current allocations/holdings and will keep subscribers up to date (real time or before) as changes are made. Usually BDCs make key announcements after the markets close and I try to have updated recommendations out prior to the open of market the next day.  My recommendations are categorized for both aggressive and conservative investors.

For a complete description of the reports available and pricing, please visit “Q4 Premium Subscribers”.

PSEC Update:

Part 5 of my “PSEC: What Comes Next?” series will be coming out later this week and I wanted to give newsletter subscribers advanced notice of what to expect.  It has become painfully obvious that PSEC is not able to support the current dividend and this problem will be getting worse over the next few quarters.  I have already put together base/best/worst case scenarios for dividend cuts to premium subscribers and will be walking through some of these projections on Seeking Alpha over the coming weeks.  Below is a ‘back of the envelope’ view of PSEC’s dividend coverage and there are many reasons why this might be optimistic and a few reasons why it might be conservative and I will include in the upcoming articles.

Possible downsides to this analysis: inability to originate new investments at the current stated portfolio yield of 12.1%, inability to borrow at 0.75 leverage due to declining portfolio quality, issuing share below NAV, other G&A expenses not included.

Possible upsides to this analysis: increased use of leverage, using short term borrowings at lower rates, investing in higher yielding investments, issuing shares at a premium to NAV.

BDC Market Update:

BDC are around breakeven for the year and seem to still be headed up. However there are some potential seasonality issues as well as more rate fear swings coming so investors should be prepared. In multiple articles this week there is the usual rhetoric related to the upcoming Fed meeting. This morning’s Bloomberg article ‘Treasuries Decline as BlackRock Warns on Fed’ mentions: “Treasury 10-year notes declined for a fourth day, the longest rout in three months, as BlackRock Inc. said the Federal Reserve may raise interest rates sooner than traders expect.”

Year to Date Total Returns:

Changes since last week: The risk averse and lower risk total return portfolios have performed much better than the others over the last few weeks.  Higher yield BDCs continue to underperform compared to the others even after taking into account the higher dividends paid.

The average BDC is around breakeven since the beginning of the year due to being dropped from the indices, small-caps in general being down and continued knee jerk reactions from the market regarding interest rates.  However this means that investors are still getting decent yields and I have included the average dividend yield for each suggested portfolio at the bottom of the table. Some BDCs that were significantly down in 2013 such as FSC (due to a dividend cut) are showing higher than average price appreciation for this year which is why looking at returns over a longer period makes sense and I have included in the next section with both 2013 and 2014 results.

Explanation of calculated returns: The ‘Stock Price’ return assumes you purchased the stock at the beginning of the year and sold as of the date shown below.  Dividends do not assume reinvestment and are calculated using the amounts paid divided by the purchase price at the beginning of the year and I have accrued the dividends owed for partial month/quarter amounts.  Hopefully BDCs will rally for the remainder of this year and it will be interesting to watch these returns over the next few months.


2013 & 2014 Total Returns:

This table uses the same methodology as the previous one but keep in mind the ‘Reg.’ dividend return amounts are cumulative over the last ~20 months which is why BDCs such as PSEC has 20% in regular dividend return but partially offset by a lower stock price.  The same goes for TICC, FSC, KCAP and MCC, all with higher dividends but lower than average total returns.  However BDCL continues to perform better than other high yielding BDC investments with a total return of over 24% after taking into account a price that is 1% lower than it was on January 1, 2013 but given the large payout it has returned more than the average BDC.

GLAD, FDUS and TCAP were recently (last 12 months) removed from the TR portfolios all of which have had higher than average returns. As many subscribers are well aware I have considered BKCC, KCAP, SLRC and MCGC to be overpriced and/or generally not recommended BDCs since early 2013 and have underperformed the average.  However I will continue to monitor these companies as potential investments because often the BDCs with poor historical performance outperform due to being discounted such as FSC, AINV and GLAD recently (seen higher in the first table) making them candidates for the ‘Underdog’ portfolio.

Recommendations & Pricing Update:

I have decided to delay the new pricing and recommendations until next week so I can cover more risk profiles.  As shown in the following table, I have already started to reposition each BDC according to potential risk. As most subscribers know, I use ‘relative risk rankings’ in many of my articles for valuation purposes, because I believe BDCs should be measured on projected risk vs. return.