Thursday, January 26, 2012

Bought 100 HTGC @ $9.7/ERF and MSPRA Mentioned In Latest Richard Lehmann Forbes Column/Bought 2 United Refining 10.5% Senior Secured Bonds Maturing 2/28/2018 at 94.5/PSEC BDGE

British GDP declined .2% in the 4th quarter, which brought the 2011 GDP down to a positive .8%. Anemic is the only word to describe those numbers, and many economists expect a double dip recession for the U.K. A number of peripheral European countries, including Italy, Greece, and Spain, are already in a recession.

The European Central Bank has a €55 billion loss on its purchases of Greek government debt. NYT

The Treasury sold five year notes yesterday at a .899% yield.  The coupon is .875% and the remainder of the yield is in the original issue discount.

Yesterday, the Federal Reserve extended its pledge to keep interest rates at "exceptionally" low levels until late in 2014. The prior target was mid-2013. FRB: Press Release--Federal Reserve issues FOMC statement--January 25, 2012

The Fed's Jihad against the Saving Class continues in earnest. I am just trying to cope with this unprecedented punishment of the Saving Class.

Richard Lehmann recommended Enerplus, a recent add, in his Forbes column. Forbes He states in that article that a U.S. investor can avoid the 15% Canadian withholding tax by owning ERF shares in an IRA. I do not know about that, but do recall one of my brokers collecting that tax in a retirement account. It may depend on whether the broker is on the ball and many of them are out to lunch. Added 90 ERF at $24.69 USDs After those shares were purchased, my broker converted them into the Canadian ordinary shares (ERF.TO), so I will continue to receive my dividends in CADs which is what I want. I want to increase my CAD stash. Canadian Dollar (CAD) Strategy

Lehmann also mentions the non-cumulative floating rate equity preferred stock issued by Morgan Stanley, MSPRA, and I own 200 shares of that one. Advantages and Disadvantages of Equity Preferred Floating Rate SecuritiesFloaters: Links in One PostBought 100 MSPRA at 12.88 in May 2009SOLD 100 MSPRA at 21.43Bought 50 MSPRA at 15.7Sold MSPRA at 18.50Bought 50 MSPRA at 19.71Bought 50 MSPRA @ 19.57 in IRASold 50 MSPRA at 21.03 in Roth IRAAdded 50 MSPRA at 19.54Bought 50 MSPRA at $16.6. This security pays qualified dividends at the greater of 4% or .75% above the 3 month Libor rate on a $25 par value.

1. Bought 100 HTGC at $9.7 Last Monday (see Disclaimer):

Hercules Technology Growth Capital is a business development company that provides equity and debt capital to mostly private technology companies. Like REITS, the BDC will avoid taxation at the corporate level on income distributed as dividends to its shareholders, provided at least 90% of the taxable income is paid out in dividends. This allows the BDC's to pay high dividends, but this comes with a price. Since most of the income is being paid out to shareholders, and their investments are risky, the BDC will frequently have to sell stock to replenish its coffers. Unfortunately for existing shareholders, many of those sales have been at below net asset value. 

Last Friday, I noticed that HTGC had declined significantly, and it was for a typical reason. It was selling stock. It sold 5 million shares at $9.61, with an over-allotment option of an additional 750,000 shares. SEC Form The close prior to this announcement was at $10.25. 

This is a link to the HTGC web site discussing their Portfolio.  As HTGC mentioned in a recent SEC Filing, it will often receive warrants for stock when providing debt capital to these companies.  It has 104 warrant positions in technology related companies, and nine of those firms had filed a registration statement in anticipation of completing an IPO. SEC Filed Press Release Of course, the mere filing of a S-1 registration statement does not guarantee that the company will actually be able to go public. 

In that press release, HTGC did mention that Coviden recently acquired a portfolio company called BARRX Medical. An acquisition would be another way for HTGC to make money. 

This is a link to HTGC's press release announcing third quarter results SEC Filed Press Release Distributable net operating income for the third quarter was 22 cents. The Board declared a third quarter dividend of 22 cents per share. If that dividend rate was annualized, the yield at a total cost of $9.7 would be approximately 9%.  

On 9/30/2011, the net asset value per share was at $9.61.

I did trade HTGC successfully in 2009, but had to average down during the Near Depression period to come out ahead. I also apparently reinvested some dividends, though I have no memory of it:

2009 Taxable Account HTGC 165.451 Shares +$228.52
Sold HTGC at $8.67 (July 2009). I also flipped 50 shares in a regular IRA for a $40 profit.

Hercules Technology Growth Capital closed at $9.63 in trading yesterday.

2. Prospect Capital (PSEC)(own): Prospect Capital is another BDC.  PSEC recently announced that it and other shareholders of NRG Manufacturing have agreed to sell that company  PSEC said that it expected to receive $100 million in cash for its NRG securities before the end of this quarter, plus an additional $14 to be place in escrow and paid out in future periods. PSEC invested $12 million in NRG securities, providing the company with a 59% annualized return. Prospect Capital Press Release

Prospect Capital Corp. closed at $10.64 yesterday. I am reinvesting the dividend paid by the 200 shares owned in a taxable account.

I have discussed this BDC in several prior posts, including the following: Item # 2 Bought 50 PSEC at 10.48 (September 2009 Post);  Item # 2 Sold 50 of the 200 PSEC at $12.16 (March 2010); Item # 5 Bought 50 PSEC at 9.5 (July 2010 Post); Bought 50 PSEC @ 9.97 in IRA (November 2010 Post); Sold:  50 PSEC @ 11.5-Regular IRA (January 2011 Post); ; Item # 1 Prospect Capital (PSEC) (June 2011 Post);  Added 100 PSEC at 10.1- ROTH IRA (July 2011 Post).

3. Added 2 United Refining 10.5% Senior Secured Notes Maturing 2/28/2018 at 94.5 (Junk Bond Ladder Strategy)(see Disclaimer): I previously discussed this note after buying just 1 bond at a higher price. Bought 1 United Refining 10.5% Senior Secured Bond Maturing 2/18/2018 at 97.25 I have nothing to add to that post.

Prospectus: Prospectus
Finra Information on this Note: FINRA Information
Company Website: URC - United Refining Company

I have assigned a 6 risk rating to this bond. Personal Risk Ratings For Junk Bonds

Although United Refining is a private company, it does file reports with the SEC.  SEC Filings This is a link to the last filed SEC Form 10-Q for the Q/E 11/30/11. This is a link to the Press Release announcing those results. The company reported quarterly revenues of $944.031 million and EBITDA of $121.809 million. Net income was reported at 62 million compared to a loss of $8.1 million in the year ago quarter.

My confirmation states the current yield at my cost is 11.064% and the YTM is 11.687%.

For all practical purposes, I am being forced into the Junk Bond Ladder Strategy due to the FED's Jihad against the Savings Class, now likely to extend into 2014.

4. Bridge Bancorp (BDGE)(own: REGIONAL BANK BASKET STRATEGY): Bridge reported 4th quarter net income of $3 million or $.42 per share, up 23% compared to the year ago quarter. The one analyst that provides an estimate had predicted an E.P.S. of 39 cents.

Tangible book value increased to $12.54 per share, as of 12/31/2011, compared to $10.33 at the end of 2010. Bridge Bancorp, Inc. Reports Fourth Quarter and Year End 2011 Results (Nasdaq:BDGE)

As of 12/31/2011, the efficiency ratio was 57.96%; the net interest margin was 3.97%; NPLs to total loans stood at just .68%; the allowance for loan losses as a percentage of NPLS was 260.44%; the total capital ratio was 16.2%; and the tier 1 capital to risk weighted assets ratio was 15%.

Bridge Bancorp closed at $20 yesterday. According to Marketwatch, the dividend yield at that price is 4.6%. I own 150+ shares.   

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