Why TICC Capital Stock Plunged 10% on Thursday
Shares of TICC Capital Corporation (NASDAQ: TICC) are down about 10% as of 4:00 p.m. EDT after the company reported disappointing earnings that failed to cover its dividend, even after favorable adjustments. In a puzzling move, it kept its dividend at $0.20 per share.
TICC Capital is an oddball in the business development company industry because of its concentrated investments in collateralized loan obligations, or CLOs. CLOs use leverage to magnify the gains or losses earned on portfolios of senior loans, often generating yields in excess of 15% for their investors.
Accounting for the value of a CLO, and the income it produces, isn't a perfect science. Recently, declining yields on the loans inside the CLO have weighed on income they can pay to their investors. As time goes on, defaults and loan losses whittle away at the value of the CLO, leading to lower earnings. For this reason, a portion of the cash payments received from CLO equity is economically a return of capital, or the return of the initial investment.
Source: Fool.com
