Coin jar stuffed with coins

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What happened

Shares of Fifth Street Finance Corp. (NASDAQ:FSC) are down by about 14% as of 11:00 a.m. EST. The company reported disappointing fiscal first-quarter earnings and a change to its dividend policy.

So what

The company reported operating income of $0.16 per share. When gains and losses on its portfolio investments are included, the company reported a net loss of $0.52 per share during the quarter.

In light of its poor performance, Fifth Street Finance announced a change to its dividend policy. Dividends are detailed in the table below.

Payment Date

Type

Amount

March 31, 2017

Monthly dividend

$0.02 per share

June 30, 2017

Quarterly dividend

$0.02 per share

September 29, 2017

Quarterly dividend

$0.125 per share

Data source: Securities and Exchange Commission filings.

Presumably, Fifth Street Finance will seek to maintain the $0.125 dividend on a quarterly basis, and thus pay out $0.50 per share vs. the previous policy of paying $0.72 per share on an annualized basis.

Now what

Fifth Street Finance's proxy filings with the SEC call for a change in the management agreement such that incentive fee compensation is reduced in periods where the company fails to achieve a specific return. The goal is to align Fifth Street Finance's results with what it pays its manager, Fifth Street Asset Management (NASDAQ:FSAM).

However, the new fee structure likely doesn't go as far as some investors would have expected. Under the new fee structure, incentive fees can be reduced by only 25%, which some would argue only partially aligns currently misaligned management incentives.