Updated: Aug 17, 2017 @ 12:47 pm

The chart below shows Fifth Street Finance’s net investment income (NII) per share since its IPO.

Fifth Street Finance’s Net Investment Income

  • There isn’t much to say here. Fifth Street Finance’s net investment income has suffered from a general decline in net asset value per share due to poor underwriting results.
  • The 2009 decline in net investment income was driven by FSC’s dilutive stock issuance to fund its Small Business Investment Company subsidiary, which was approved by the Small Business Administration that year. Fifth Street sold stock below NAV to fund that program, and the resulting dilution negatively impacted net investment income in subsequent periods.
  • Elevated net investment income during the years from 2011 to 2013 came as a result of Fifth Street Finance’s growth in assets. The company records fee income at the time of loan issuance. Therefore, origination and structuring fees add to its NII during periods of asset growth. When FSC shares traded below NAV in 2015, a drop in asset growth resulted in fewer new deals and resulting origination fees. You can see a clear trend toward lower net investment income due to the drop in originations and related fees. The company announced that its Chief Investment Officer and Chief Executive Officer would step down in its fiscal 2016 earnings press release.

Net investment income is a GAAP measure of earnings that includes everything except for capital gains and losses. BDC investors use NII as a measure of a BDC’s steady state earnings power, as it is typically generated by repeatable sources of income like interest, dividend, and fee income rather than capital gains or losses. In general, BDCs usually aim to roughly match their routine dividend payouts with net investment income.