The chart below shows Fifth Street Finance’s net asset value (NAV) since its IPO.
Fifth Street Finance’s NAV per share
- Fifth Street Finance’s net asset value first plummeted in 2009, when it issued millions of shares at prices below net asset value. The stock issuance caused an immediate $1.21 drop in NAV per FSC share. This is discussed on BDCStock.com’s page on FSC’s history, but it is clear on the chart. Look at the difference between calendar 2Q and 3Q 2009.
- There’s no use sugarcoating it: Other than dilutive issuance, FSC’s performance is characterized by poor underwriting results. In only two fiscal years can its underwriting be described as “breakeven.” In every other year, FSC recorded more realized losses than it recorded gains. Its underwriting has been horrendous given that it made most of its investments after the financial crisis. The post-crisis period was a very advantageous period to be a BDC, and FSC failed to capitalize.
- We can’t fault FSC for ignoring accretive share repurchases. In fact, FSC repurchased about 7% of its stock in just the last two fiscal years. However, this isn’t enough to offset record realized losses in fiscal 2016. Good capital allocation as it relates to repurchases does very little good if the underlying underwriting results are poor. We can say only that FSC’s NAV per share would be lower if not for repurchases…believe it or not!
Net Asset Value, or NAV, is the equivalent to book value. It is calculated by subtracting liabilities from assets, then dividing by the number of shares outstanding. Good BDCs have net asset value that is steady or increases over long periods of time.