Replies to post #36094 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

Hi 1step

PSEC is in a class of stocks known as "business developement corporation" They are sort of like REITS in that they pass thru all income without corporate taxation and are required to pay out 90% of income. There are also some rules on how much leverage(debt) they are allowed to have. There are about 50 of them

In one case they finance taxies. In others they make money the way Warren Buffet did with Goldman Sacs. They lend money at a fairly high rate that the company can pay back at any time but the BDC also gets options at the current stock price. So if the company pays off the loan the BDC has the money to exercise the stock option when hopefully the stock is at a much higher price. They tend to finance smaller companies that have trouble getting conventional financing.

Toofuzzy

[karw]

Hi 1step,

Just looking in Morningstar at PSEC, I see that the operating cash flow is negative and getting more negative each year.

http://financials.morningstar.com/ratios/r.html?t=PSEC®ion=USA&culture=en-us

that would be a red flag for me, despite the nice dividend and the nice pop today.

this does not look like a buffett enterprise.

Kind regards,K