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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (47846)	5/8/2012 3:52:00 PM
From: Sergio H	6 Recommendations Read Replies (1) \| Respond to of 78666

Maybe start at Winkipedia which has more correct information than your post. en.wikipedia.org BDCs are not for everyone but no one should read your post in determining if a BDC is right for them. <Aren't BDC just crappy junk bonds with leverage in disguise. > No. Don't know of any BDCs that offer crappy bonds with leverage in disguise. Please show me one. <They have nothing to do with private equity, although there are a few that take stakes in smaller companies as well.> Wrong. Most BDCs are involved in private equity in one way or another. <Based on my observations, BDC are mostly a Ponzi scheme catering to investors reaching for yield a bit too far.> Please show one example of where a BDC is similar to a Ponzi scheme. <in most cases, the yield is just a return on capital, either directly, or the loans are so risky that a default rate erodes the principal. > Not true. BDCs are governed by law on what they pay out to investors. <These are not stocks you want to own if there are any problems in the credit market.> Why is the risk greater for a BDC if there are problems in the credit market?

To: Spekulatius who wrote (47846)	5/8/2012 3:52:39 PM
From: Grommit	1 Recommendation Read Replies (2) \| Respond to of 78666

BDCs. "These are not stocks you want to own if there are any problems in the credit market." There are a lot of stock that you do not want to own under such circumstances. It would prob be easier to list the stock that you would want to own in that case, and it might be zero. But I would not put all BDCs in the same boat. I bought ARCC after the 08 crunch, and one significant factor tipping the scale was their performance during the credit market crunch. snl.com PS bought a few more CLF at 55.77

To: Spekulatius who wrote (47846)	5/11/2012 3:49:02 PM
From: MCsweet	3 Recommendations Read Replies (2) \| Respond to of 78666

Clownbuck, You make some good points, but I think your reasoning is skewed by ALD. BDCs may or may not be junk bonds with leverage in disguise. Those that depend on syndicated paper (such as AINV in the past) are essentially that. Those that originate their own loans to middle market companies are not. That is a real business that cannot be replicated using junk bonds or junk bond funds. BDCs are related to private equity. Some make private equity investments. Others make debt investments alongside private equity. Some BDCs may have been akin to a Ponzi schemes (ALD, ACAS in the past?), but others, such as ARCC, have managed quite well through the crisis and are clearly reputable companies with excellent track records. BDCs are not good to own in a credit crisis, but right now they don't seem any frothier than junk bonds. I actually think they look attractive relative to junk bonds right now, although with junk bonds yielding only 7% on average, they are not all that attractive. There are major negatives of high fees and credit sensitivity, but all in all I think BDCs are worthy of investment consideration. I especially am interested in the senior bonds that have been coming out. Given moderate duration of these bonds, the yields seem quite attractive relative to other corporate bonds. Best, MC

To: Spekulatius who wrote (47846)	5/18/2012 9:17:31 AM
From: Grommit	3 Recommendations Respond to of 78666

BDC - I read Einhorn's book that you recommended. Very good recommendation. The level of blind acceptance of company propaganda by retail investors and lack of effort by professional portfolio managers is astounding. Especially the latter. The facts of ALD's accounting misstatements were there, the work was done and easily available. Lazy lazy lazy! At any rate. page 153: on march 25,2003: "...subpoena from the SEC... related to Farmer Mac, MBIA, Allied Capital. and ACAS. ACAS was one of ALD's competitors, which we had not shorted or criticized. In fact, we owned it in 1998-1999. It had the same business model as ALD, so some believed that our criticisms applied to it as well. In fact, most of our criticisms had nothing to do with the business model. I don't believe that there is anything inherently wrong with BDCs. Greenlight's criticisms are specific to ALD, its accounting and corporate behavior." For myself, I got out of ALD in 2002, and moved to ACAS. I got nailed with ACAS in 2008, but I sold sooner than most, and moved my ACAS $$ to beaten up pref shares which went 2x or 3x since then. So I got my money back, but rode a different horse to do it. I saw that ARCC weathered 2008 pretty fairly, and they bought ALD in 2010 (but not all of ALD's assets). I own a bit of ARCC now. My remaining issue with ARCC is that they now have as CFO, the same person who was CFO at ALD -- Penni Roll. According to Einhorn, she was in it deep at ALD. She allowed and contributed to the bad "accounting and corporate behavior" that Einhorn documented. She was behind the the bogus accounting and valuations, made false statements, and published a white paper with faulty accounting arguments justifying that ALD did not have to follow SEC rules for BDC accounting. How in the hell did she end up on her feet? Sure someone can change their spots, but a CFO should have the backbone to stand up to an unethical CEO. That is a CFO's job. This doesn't necessarily blacklist ARCC for me, but their choice of a CFO is astounding.