Shares of Fifth Street Finance Corp. (NASDAQ: FSC) are trading down by about 10% as of 2:30 p.m. EST after the company reported a disappointing fiscal fourth quarter.
The sole bright spot in Fifth Street Finance's earnings report was that it covered its dividend with operating income, reporting that it earned $0.18 per share in net investment income against a dividend rate of $0.18 per quarter. But that's the extent of the good news today.
Credit deterioration is the story of the hour. The company reported that net asset value, or book value, fell to $7.97 per share, down from $8.15 last quarter, and $9.00 a year ago. The company's CEO (Todd Owens) and its chief investment officer (Ivelin Dimitrov) will step down from their roles on Jan. 2, 2017.
Patrick Dalton will fill the shoes of Fifth Street Finance's CEO. He was previously employed by middle market lender Gordon Brothers Finance, and before that, Apollo Investment Corp. On the conference call, management indicated that it had no current plans to name a new chief investment officer.
Investors are clearly growing frustrated with Fifth Street Finance. This marks the sixth straight quarterly decline in Fifth Street Finance's book value, despite a repurchase program that the company used to buy back nearly 5% of its shares in the 2016 fiscal year.
Frustration doesn't stop at the financial statements. Last quarter, the company promised more details about a change to its fee agreement with its manager, Fifth Street Asset Management (NASDAQ: FSAM). On today's conference call, management indicated that it would institute a total return requirement that would appropriately link management fees to underwriting results. That's good news.
The bad news is that the waiting game will continue until 2017, when a new fee structure will take hold. When pressed, management declined to give a specific answer as to whether its poor results this quarter would be taken into consideration when it adopts its new fee structure in calendar 2017.
For their part, investors are showing a preference toward selling now rather than waiting for more details -- and perhaps more credit losses -- by the time Fifth Street Finance rolls out changes in early 2017.