Jehoshaphat Research short Main Street Capital, sees likely dividend cut

In a recently published report, Jehoshaphat Research said it is short Main Street (MAIN) Capital, “a BDC which in our opinion has been systematically inflating the fair values of its investment portfolio. These illiquid valuations imply enormous unrealized gains, while its track record of actual investment realizations over time is negative (cumulative realized losses). The unrealized gains are concentrated where there are no third-party marks available to sanity-check these absurd valuations. Going investment-by-investment illustrates the absurdity at a deeper level, as does cutting the portfolio in a variety of ways and analyzing those slices against comparable ‘slices’ of peers’.” “In our analysis, these unrealized gains have inflated MAIN’s NAV by ~40% and its EPS and ROE similarly. However, they do nothing to support the dividend – a dividend which is no longer covered by underlying portfolio cash flows and which we think will be cut, just as it was cut the last time internal cash flows fell like this.”