thewisejman,
Thanks for trying to post the write up on Yahoo. Sometimes they will take the content and sometimes they won't. I guess we are dealing with a Yahoo computer program because there never is an explanation.
jdb_1234,
You are welcome. Here is one more indication that the DS Waters operations may be in pretty good shape. Kelso, considered putting DSW up for sale in October of 2010. This was prior to DSW's last four acquisitions so DSW should be performing with higher operating numbers now than back then. Nevertheless, here is what Businessweek had to say about the possible sale:
DS Waters Reportedly Up For Sale
Oct 29 10
DS Waters of America Inc. will be divested in an auction expected to fetch up to $700 million, people close to the situation said. The people stated that a private equity company is most likely to acquire DS Waters. They added that the auction was still in its initial stages and the company may not be sold if the offers are too low. Buyout groups may be interested in the company, as it has steady sales and regular cash flow, the people said.
I'll try to answer your specific questions. It is tough to try to guess what kind of capital gains may be realized from the preferred equity as we don't know all the terms associated with the preferred. We think we know they are five year issues with a 15% rate, with no conversion features. So their value may be governed by interest rates coupled with the fortunes of DS Waters. So even though the capital gains on the preferred may be limited, the 15% coupon makes for a great return. And yes, PIK income is reported quarterly on the income statement even though it is not received quarterly but instead added to the principal amount. And PIK income is included when satisfying the annual distribution requirements of a RIC (Regulated Investment Company). That is why we don't want to see too much PIK income coming from the portfolio companies. But keep in mind that the restructuring did not add any new PIK income to the SLRC income flow since both the old notes and the new preferred both were PIK income loans and in the same amounts.
We should get an update on the DSW situation when SLRC reports Q1 on May 1st which is just eleven trading days from now. There should be no material fallout from this refinancing. I say that because in a recent update to a SLRC N-2 filing SLRC said:
"Recent Portfolio Developments
Subsequent to December 31, 2011, DSW Group, Inc., our largest investment, announced it is seeking to refinance its capital structure. Until the terms of the recapitalization have been finalized, we cannot fully assess the impact on our portfolio; however, at this time, we do not believe the impact will be material.
I agree with both of you that the current SLRC stock price is at an unusually attractive level. Relative to book value, SLRC hasn't been this low for six months and that was back when the Dow was more than 2200 points lower. As of yesterday's close the SLRC dividend was yielding 11.72%; was selling at just .93 times its' $22.02 book value; and had a potential total return of 34.86%.
st3ve27,
Thanks for your kind words. I'll try to put some words together on MCC in the next few days.
Jan
