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Business Development Companies
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The following message was updated on 11/6/2017 9:29:19 PM.
High PWAY ABDC reports very ugly Q3-17 - cut div by 26%
From the earnings release:
Total investment income of $7.6 million
Net investment income of $4.8 million, or $0.34 per share based on weighted average shares of common stock outstanding, after management fee waivers of $1.2 million
Invested $28.1 million in debt and equity securities, inclusive of three add-on investments
Received proceeds from repayments of $3.9 million
Paid regular quarterly dividend for the third quarter of 2017 of $0.34 per share on October 5, 2017
The Company's Board of Directors declared a dividend of $0.25 per share for the fourth quarter of 2017, which is payable on January 4, 2018 to stockholders of record as of December 29, 2017
The Company's Board of Directors approved a $2.5 million open market stock repurchase program. The program is authorized through November 2, 2018
Net asset value of $174.8 million, or $12.27 per share, which is down from $12.73 in the second quarter of 2017
I have (for the last few years) instructed my audience to me "heavily weighted in low or average PWAY BDCs". To the best of my knowledge, I am the originator of the PWAY acronym. I may even merit the title of "the father of PWAY awareness". I put PWAYs in every year to date spreadsheet I produce - and have done so for some time. So I will cut myself some slack in having one PWAY fault. It would have been an improvement in those instruction if I had said to totally avoid BDCs with PWAYs above sector average.
The ABDC numbers:
Q3-17
Q2-17
Q1-17
Q4-16
Q3-16
Q2-16
Q1-16
Q4-15
Q3-15
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Realized and Unrealized Gain
-6,454,859
-9,996,441
-3,561,538
-1,195,769
-6,629,320
-4,503,177
-1,291.134
-6,577.824
-1,877.595
1,764.307
14.717
-1.505.377
3,306.153
- 264.414
Real + Unreal Gains/share
-$0.4531
-$0.7343
- $0.2650
- $0.0889
- $0.4914
- $0.3336
- $0.0955
- $0.4866
- $0.2388
$0.1305
$0.0011
- $0.1114
$0.2446
- $0.0196
Cap gains incentive fee
0
0
0
0
0
0
0
0
-434,217
434.218
1,001,467
Cap gains incentive fee/share
0
0
0
0
0
0
0
0
-0.0321
0.0321
0.0741
Income based incentive fees
0
0
653,911
930,546
607,739
926,158
790,727
521,295
546,027
397,028
806,100
Income based incentives/share
0
0
0.0487
0.0692
0.0451
0.0686
0.0585
0.0386
0.0404
0.0294
0.0596
The story in the realized and unrealized gains numbers was saying "Don't touch ABDC" as early as 2015 - and continued that story in 2016 and 2017.
Q3-17
Q2-17
Q1-17
Q4-16
Q3-16
Q2-16
Q1-16
Q4-15
Q3-15
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Interest income
6.192
7.356
7.663
9.057
7.532
6.338
6.560
7.203
6.723
5.858
5.953
5.082
3.667
2.725
PIK interest income
1.011
0.365
0.902
0.999
1.038
1.805
2.362
1.062
1.309
2.003
1.546
1.951
0.763
0.906
Other income
0.408
0.588
0.610
1.164
0.158
2.498
1.023
0.412
0.475
0.342
0.727
-.565
1.056
0.000
Total investment income
7.611*
8.338*
9.201*
10.900*
9.116
10.640
9.946
8.677
8.507
8.507*
8.225
6.670*
5.861*
3.635
* Quarters where ABDC also had 'dividend' income
Q3-17
Q2-17
Q1-17
Q4-16
Q3-16
Q2-16
Q1-16
Q4-15
Q3-15
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Total investment income
7.611
8.338
9.201
10.900
9.116
10.640
9.946
8.677
8.507
8.507
8.225
6.670
5.861
3.635
3.995
3.436
Net investment income
4.843
4.843
4.593
6.119
4.787
5.898
5.605
4.530
5.142
4.649
4.977
4.551
4.596
2.455
3.176
2.315
Investments @ fair value
0.282
0.271
0.283
0.276
0.306
0.294
0.282
0.296
0.289
0.285
0.267
0.259
0.214
0.200
Wt Av Share Count
14.245
13.612
13.439
13.452
13.490
13.500
13.515
13.517
13.517
13.517
13.517
13.517
13.517
13.517
TII/share
$0.5343
$0.6125
$0.6847
$0.8103
$0.6758
$0.7881
$0.7359
$0.6419
$0.6294
$0.6293
$0.6085
$0.49
$0.43
$0.27
NII/share
$0.3400
$0.3558
$0.3418
$0.4549
$0.3549
$0.4369
$0.4147
$0.3351
$0.3804
$0.3439
$0.3682
$0.34
$0.34
$0.18
NAV/share
$12.27
$12.73
$13.43
$13.72
$13.69
$14.16
$14.41
$14.43
$14.92
$15.03
$14.90
$14.87
$15.00
$14.76
Wt Av Yield
11.5%
11.6%
11.7%
11.7%
11.8%
11.7%
12.0%
12.4%
12.2%
12.1%
12.0%
11.9%
11.7%
11.9%
12.2%
12.2%
Portfolio Leverage
3.59x
3.68x
3.65x
3.93x
4.34x
3.88x
3.86x
3.72x
3.70x
3.38x
3.50x
3.31x
3.30x
3.51x
3.58x
3.60x
Leverage numbers are recently from the time of the earnings release. There have been ex post facto changes in those numbers.
# Portfolio Companies
30
30
31
32
35
33
31
32
29
29
28
28
24
21
NII/TII Ratio
63.6%
58.1%
49.9%
56.1%
52.5%
55.4%
56.4%
52.2%
60.4%
54.6%
60.5%
68.2%
78.4%
67.5%
The improving NII/TII ratios in Q3 and Q2-17 are due to fee waivers.
Oil & Gas % of Portfolio
5.69%
5.55%
5.46%
4.91%
4.99%
5.22%
6.73%
6.43%
6.41%
6.51%
6.49%
6.99%
7.40%
The NAV story is about as ugly as it gets. (This is a 'one strike and you are out' metric.) The lack of diversification strongly shows in the the number of portfolio companies (Another 'one strike' metric). The PWAY is well above sector average (Which should have been a 'one strike' metric.). The energy exposure was high enough to give a warning - while not being high enough to steer one away. The fee waivers cover up the lack of dividend coverage.
Q3-17
Q2-17
Q1-17
Q4-16
Q3-16
Q2-16
Q1-16
Q4-15
Q3-15
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Debt
113.451
88.677
100.534
92.638
124.323
102.790
80.085
103.161
93.899
78.835
63.045
62.715
27.254
22.695
Debt/share
7.9643
6.5146
7.4808
6.8866
9.2159
7.6141
5.9256
7.6319
6.9467
5.8323
4.6641
4.6397
2.0163
1.6790
Debt/share to NAV
64.91%
51.18%
55.70%
50.19%
67.32%
53.77%
41.12%
52.89%
45.56%
38.80%
31.30%
31.20%
13.44%
11.38%
Interest expense
1.549
1.513
1.527
1.537
1.777
1.618
1.574
1.530
1.428
1.269
0.789
0.421
0.377
Interest expense/share
0.1087
0.1112
0.1136
0.1143
0.1317
0.1199
0.1164
0.1132
0.1056
0.0939
0.0584
0.0312
0.0279
Interest expense/TII
20.35%
18.14%
16.60%
14.10%
19.49%
15.21%
15.82%
17.63%
16.79%
14.92%
9.59%
6.31%
5.75%
Annualized Int exp/Debt
5.46%
6.82%
6.07%
6.64%
5.72%
6.30%
7.86%
5.93%
6.08%
6.44%
5.01%
2.69%
4.94%
PWAY - Int exp/Debt
604 bps
478 bps
563 bps
506 bps
608 bps
540 bps
414 bps
647 bps
612 bps
556 bps
699 bps
921 bps
676 bps
Debt consists of $50.1 million in 6.39% WAY InterNotes with maturities starting in 2020 + facility debt of $50.5 million at LIBOR + 2.25
Alcentra Capital InterNotes debt began with the first issuance in January 2015
My audience has been instructed to use the cost of debt as one of the metrics they should use in setting a required rate of return number. The cost of ABDCs debt should have been a big red flag saying "Don't touch ABDC".
Summation - There were a lot of red flags that should have resulted in only the worst of those with yield blindness owning this stock.