Monday, December 16, 2013

Added to my TCP Capital (TCPC) position

On Friday I added to my position of TCPC. I got the additional shares @ $15.94 and its something I have been waiting for a couple months now. What was I waiting for? The next secondary public offering.

BDCs have a very straight forward business model. They sell shares of stock, take the money and give it out as loans, then pay out 90% of their taxable profit as a dividend to shareholders. That leaves very little left to grow the company with so they always do regular SPOs. Several times a year is fairly common or about as long as it takes for them to deploy the capital from the last SPO. The pricing of this one came out to be $16 so we had the expected drop from $16.50 down to under $16.
The size was 4.5 million more shares added to the share count.  Thats a hefty amount at more than a 10% increase. Everytime a company has an SPO there are always cries of dilution and existing shareholders being hurt. That is sometimes the case but with most BDCs its not. Its a great thing for existing shareholders and its been great for TCPC.  I originally bought TCPC back in Q1 of 2013. Lets see how they have done since I bought it.

Q1 2013 results: $14.7 NAV
Q2 2013 stock offering: 4.5m shares @ $15.63

Q2 2013 results: $14.94 NAV
Q3 2013 stock offering: 3.8m shares @ $15.76

Q3 2013 results: $15.06 NAV
Q4 2014 stock offering: 4.5m shares @ $16.00

TCPC is caught in a great cycle. They issue shares for more than the previous offering. They are then able to give out more loans then before which in turn makes the overall company more valuable and the share price rises. Rinse and repeat. Long term readers may recall that I was in Trinagle Capital (TCAP) back in 2012. The exact same thing happened with them. They eventually stalled out and was unable to maintain this cycle as their share price got to be nearly x1.9 over the NAV. TCPC is sitting at a much safer x1.03

Additionally TCPC has about $1.02 is undistributed taxable income.. thats 6.2% of TCPC's market cap. This is after they have two special dividends this year. I love owning companies whose biggest problem is that with a 8.76% yield they are having problems in paying me enough and have to pay more.

Now I am not saying this is a bottom and its going up. I don't try to call bottoms. I'll leave that to soothsayers and amatuers. Mathematically it was a no brainer to me as it was virtually the same price I bought in originally back in Q1. Except this time it has a big bonus pile of cash to pay me and its grown in value.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

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