Tuesday, October 20, 2009

Fifth Street Finance (FSC) Releases Its October Newsletter

FSC is the only Business Development Company which publishes a regular FSC October 2009 Newsletterr, which is a shame because it's always important to have some up to date information on any public company. Of course, a newsletter, even more so than an SEC filing, is more of a marketing tool than anything else.  With that said here's the good news which FSC chose to share with the public:

First and foremost FSC is making some  progress with its under-performing loans:

" Lighting by Gregory,...of which we own 95%, had its best month
   since September of 2008.  The company now has accumulated enough 
cash on its books that no further funding from us is anticipated."
Still, FSC still has two loans on non-accrual, unchanged from June 2009. 
If no new under-performers have been added during the period, FSC still has
6 under-performers left (which includes the lighting company). 
Second,  FSC is done with capital raising in 2009. After negotiating a new Loan
Agreement with Wachovia (at an OK LIBOR + 4%), and raising new equity of $58mn.
FSC says they have enough money for now. 

Nonetheless, new business is in a stall at FSC by its own admission. Despite 
poking around dozens of prospective deals none has been closed. Moreover, the 
Company is still waiting for the SBIC license for which the capital has been raised.
There's even been a small amount of loan repayment. 
The upshot is that earnings at FSC are unlikely to be going anywhere in 2009.
By next year asset formation and earnings should be up, but we'll have to see if 
the other shoe drops in the bad debt area. 
We expect the $0.35 a share in Net Investment Income Per Share in the second 
quarter will be unchanged or slightly lower in the III and IV quarters of 2009.