GGV was founded as Granite Global Ventures. Since its inception in 2000, the firm has been successful in raising $2.2 billion across five fundings. The main purpose of the firm was to help entrepreneurs get together and bridge the business gap in between the different countries and create leaders in the field. The company’s greatest achievement can be viewed through the portfolio of 17 IPOs and 5 acquisitions since 2010.
Focus of Article:
The focus of this article is to provide a detailed projection of Prospect Capital Corp.s (NASDAQ:PSEC) net asset value (NAV) per share as of 6/30/2014. Prior to results being provided to the public in late August 2014 (via the companys quarterly press release), I would like to analyze PSECs NAV as of 6/30/2014 and provide readers a general direction on how I believe this recent quarter has panned out.
I will also include my quarterly net investment income (NII) and net increase (decrease) in net assets resulting from operations (also known as earnings per share (EPS)) projections in this article. My current BUY, SELL, or HOLD recommendation for PSEC will be in the Conclusions Drawn section of this article.
Side Note: Predicting certain accounting figures within the business development company (BDC) sector is usually more difficult when compared to other sectors due to the fair market value (FMV) adjustments that occur on a companys investment portfolio each quarter. Specifically, the following two PSEC accounts are typically more difficult to project in any given quarter: 1) unrealized appreciation (depreciation) on investments; and 2) realized gain (loss) on investments. As such, there are several assumptions used when performing such an analysis. PSECs actual reported values may differ materially from my projected values within this article due to unforeseen circumstances. This could occur because management deviates from a companys prior business strategy and pursues a new strategy that was not previously disclosed or anticipated. This could also occur when the company has a one-time extraordinary event which was previously unforeseen. Readers should be aware as such. All projections within this article are my personal estimates and should not solely be used for any investors buying or selling decisions. All actual reported figures that are above my ranges within this article will be deemed a positive sign in my judgment. All actual reported figures that are below my ranges within this article will be deemed a negative sign in my judgment.
Overview of PSECs NAV as of 6/30/2014:
Due to the fact that several figures needed to project/calculate PSECs NAV as of 6/30/2014 come directly from the companys consolidated statement of operations, I provide Table 1 below. Table 1 shows PSECs consolidated statement of operations from a twelve-months ended timeframe. Using Table 1 below as a reference, one must add certain account figures from the fiscal first, second, third, and fourth quarters of 2014 for purposes of projecting a suitable NAV as of 6/30/2014.
Table 1 – PSEC Fiscal Twelve-Months Ended Consolidated Statement of Operations
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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database)
Having provided Table 1 above (in particular PSECs Fiscal Twelve-Months Ended (ESTIMATE) column), we can now begin to calculate PSECs projected NAV as of 6/30/2014. This projection will be calculated using Table 2 below.
Table 2 – PSEC Twelve-Months Ended NAV Projection (NAV as of 6/30/2014)
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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 1])
Using Table 2 above as a reference, let us take a look at the calculation for PSECs projected NAV as of 6/30/2014. Unless otherwise noted, all figures below are for the twelve-months ended timeframe. Let us look at the following figures (in corresponding order to the Ref. column shown in Table 2 next to the June 30, 2014 column):
B) Stockholder Transactions
C) Capital Share Transactions
- Net Increase (Decrease) in Net Assets From Operations Estimate of $318.2 Million; Range $278.2 – $358.2 Million
- Confidence Within Range = Moderate to High
- See Red Reference A in Table 2 Above Next to the June 30, 2014 Column
This net increase (decrease) in net assets from operations figure consists of the following three amounts that come directly from PSECs consolidated statement of operations: 1) net investment income (see blue reference A in Tables 1 and 2 above); 2) net realized gain (loss) on investments (see blue reference B in Tables 1 and 2 above); and 3) net unrealized appreciation (depreciation) on investments (see blue reference C in Tables 1 and 2 above). Since I have refrained from writing a quarterly consolidated statement of operations projection article for PSEC (due to time constraints), I will summarize what I believe will occur within these three amounts during the fiscal fourth quarter of 2014. Let us first discuss PSECs NII account.
1) Net Investment Income:
- Estimate of $367.9 Million; Range $352.9 – $382.9 Million
- Confidence Within Range = Moderate to High
- See Blue Reference A in Tables 1 and 2 Above Next to the June 30, 2014 Column
PSEC reported NII of $82.3, $92.2 and $98.5 million for the fiscal first, second, and third quarters of 2014, respectively. I am projecting PSEC will report NII of $94.8 million for the fiscal fourth quarter of 2014. Using Tables 1 and 2 above as a reference, when combined this is a projected NII of $367.9 million (rounded) for the twelve-months ended 6/30/2014.
Per PSECs quarterly Security and Exchange Commission (SEC) filings, management disclosed the company had loan originations of $423.3 million during the first-half of the fiscal fourth quarter of 2014. Management also disclosed PSEC had portfolio sales/repayments of ($118) million during the first-half of the fiscal fourth quarter of 2014. Through the temporary stoppage of PSECs at-the-market (ATM) offering and InterNotesÂ programs, the company stopped providing SEC filings during the second-half of the fiscal fourth quarter of 2014. As such, I must project PSECs loan originations and portfolio sales/repayments during the second-half of the fiscal fourth quarter of 2014. I am projecting PSEC slowed quarterly loan originations during the second-half of the fiscal fourth quarter of 2014 while still having a moderate amount of portfolio sales/repayments. This assumption should be deemed cautious in nature.
When combining the companys quarterly loan originations less portfolio sales/repayments, I am projecting PSECs total investment portfolio increased (decreased) $400 million for the fiscal fourth quarter of 2014 (prior to all quarterly FMV fluctuations). For PSEC, this would be a material decrease when compared to the net investment portfolio increase of $1.09 billion for the fiscal third quarter of 2014.
The projected minor decrease in quarterly NII ($94.8 million for the fiscal fourth quarter of 2014 versus $98.5 million for the fiscal third quarter of 2014) is mainly attributed to a minor drop in the total income versus total expense ratio during the quarter. Specifically, I am projecting a material increase in PSECs interest and credit facility expense. As of 3/31/2014, PSEC had borrowings under the companys credit facility of $729 million. Interest on borrowings under PSECs credit facility is currently 1-month LIBOR plus 275 basis points. The credit facility also has a minor commitment fee which varies based on the amount of the unused portion of the revolver. During April 2014, PSEC quickly reduced the balance of the companys credit facility by issuing two material debt issuances. On 4/7/2014, PSEC issued $300.0 million of senior unsecured notes due 2019 with a stated annual interest rate of 5.00%. On 4/11/2014, PSEC issued $400 million of senior convertible notes that mature on 4/15/2020 with a stated annual interest rate of 4.75%. Both new debt issuances have a higher stated annual interest rate when compared to the credit facility. When compared to the prior quarter, I am projecting PSECs interest expense will increase (decrease) approximately $9.0 million during the fiscal fourth quarter of 2014. Now let us discuss PSECs net realized gain (loss) on investments account.
2) Net Realized Gain (Loss) on Investments:
- Estimate of ($6.0) Million; Range ($56.0) – $14.0 Million
- Confidence Within Range = Moderate
- See Blue Reference B in Tables 1 and 2 Above Next to the June 30, 2014 Column
PSEC reported a net realized gain (loss) on investments of $3.8, ($5.7), and ($1.6) million for the fiscal first, second, and third quarters of 2014, respectively. I am projecting PSEC will report a net realized gain (loss) on investments of ($2.5) million for the fiscal fourth quarter of 2014. Still using Tables 1 and 2 above as a reference, when combined this is a projected net realized gain (loss) on investments of ($6.0) million for the twelve-months ended 6/30/2014.
Regarding the fiscal first, second, and third quarters of 2014, the following material transactions occurred within this account: 1) realized gain (loss) of $3.3 million on NRG Manufacturing, Inc.; 2) realized gain (loss) of $1.2 million on Apidos CLO VIII, Ltd.; 3) realized gain (loss) of ($7.9) million on National Bankruptcy Services, LLC; 4) realized gain (loss) of ($1.6) million on ICON Health amp; Fitness, Inc. (partial loan sale); and 5) net realized gain (loss) of $1.5 million on all remaining investment portfolio companies who had realized activities.
Regarding the fiscal fourth quarter of 2014, I am projecting a net realized gain (loss) of ($2.5) million due to various minor gains (losses) in association with the investment portfolios sales/repayments. This projection is formed from a detailed investment portfolio table that will be omitted from this article due to the sheer size of the spreadsheet. Now let us discuss PSECs net unrealized appreciation (depreciation) on investments account.
Side Note: During the fiscal fourth quarter of 2014, one of PSECs portfolio companies (New Century Transportation, Inc. [New Century]), abruptly filed for Chapter 7 Bankruptcy protection (liquidation). Since this event occurred in June 2014 / near the end of the quarter, I am still projecting PSEC reported the companys debt investment in New Century as unrealized (as opposed to realized) as of 6/30/2014. This bankruptcy was still on-going as of 6/30/2014. As such, my projected FMV decrease associated with New Century is reported in PSECs net unrealized appreciation (depreciation) on investments account. Since this is merely a potential account classification issue, my projection for both accounts, when combined, would remain unchanged if PSEC realized/wrote-off the companys debt investment in New Century (higher net realized loss and lower net unrealized depreciation) during the fiscal second quarter of 2014.
3) Net Unrealized Appreciation (Depreciation) on Investments:
- Estimate of ($43.7) Million; Range ($63.7) – $6.3 Million
- Confidence Within Range = Moderate
- See Blue Reference C in Tables 1 and 2 Above Next to the June 30, 2014 Column
PSEC reported a net unrealized appreciation (depreciation) on investments of ($6.2), ($1.2), and ($14.8) million for the fiscal first, second, and third quarters of 2014, respectively. I am projecting PSEC will report a net unrealized appreciation (depreciation) on investments of ($21.5) million for the fiscal fourth quarter of 2014. Once again using Tables 1 and 2 above as a reference, when combined this is a projected net unrealized appreciation (depreciation) on investments of ($43.7) million for the twelve-months ended 6/30/2014.
Regarding the fiscal first, second, and third quarters of 2014, various material valuation changes occurred within this account. I have covered these material valuation changes in past PSEC articles. As such, I refer readers to the following linked articles:
Prospect Capitals Dividend Sustainability Analysis (Post Fiscal Q1 2014 Earnings)
Prospect Capitals Dividend And Net Asset Value Sustainability Analysis (Post Fiscal Q2 2014 Earnings) – Part 2
Prospect Capitals Dividend And Net Asset Value Sustainability Analysis (Post Fiscal Q3 2014 Earnings) – Part 2
Specifically, please refer to Table 4, 8, and 7 within the first, second, and third linked articles above for a breakout of PSECs material unrealized appreciation (depreciation) valuation changes, respectively.
Regarding the fiscal fourth quarter of 2014, I am projecting a net unrealized appreciation (depreciation) of ($21.5) million due to various minor to material gains (losses) in association with PSECs investment portfolio. As stated in the above side note, a majority of this projected unrealized depreciation is in regards to the Chapter 7 Bankruptcy of New Century. However, I am also projecting PSECs collateralized loan obligation (CLO) investments had a minor to modest net appreciation thus offsetting some of the unrealized depreciation from New Century. This accounts projection is formed from a detailed investment portfolio table that will be omitted from this article due to the sheer size of the spreadsheet.
Let us now combine the three amounts described above to come up with a proper net increase (decrease) in net assets from operations figure for the twelve-months ended 6/30/2014. When combining NII of $367.9 million, a net realized gain (loss) on investments of ($6.0) million, and a net unrealized appreciation (depreciation) on investments of ($43.7) million, and, I am projecting PSEC had an increase (decrease) in net assets from operations of $318.2 million for the twelve-months ended 6/30/2014 (see red reference A in Table 2 above).
B) Stockholder Transactions:
- Net Increase (Decrease) in Net Assets From Stockholder Transactions Estimate of ($403.2) Million; Range ($423.2) – ($383.2) Million
- Confidence Within Range = High
- See Red Reference B and Blue Reference D in Table 2 Above Next to the June 30, 2014 Column
- See Blue Reference D in Table 3 Below
Side Note: As shown in Table 2 above, PSECs net increase (decrease) in net assets from stockholder transactions figure is the equivalent to the companys distributions to stockholders from net investment company taxable income (ICTI) figure. Since this is the only amount within this specific classification, both figures will be the same.
This is a fairly simple calculation. This is PSECs dividend distributions for the fiscal first, second, third, and fourth quarters of 2014.
Table 3 – PSEC Twelve-Months Ended Distributions to Common Stockholders Projection
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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 1])
Using Table 3 above as a reference, the number of outstanding shares of common stock as of 4/28/2014 is projected to be 341.3 million. As such, I am projecting 7.8 million shares of common stock were issued between 4/1/2014 and 4/27/2014. When broken out, this consists of 7.7 and 0.1 million shares of common stock being issued under PSECs ATM offering program and dividend reinvestment plan, respectively. The monthly common stock dividend for the month of April 2014 was $0.110400 per share. When calculated, I am projecting an April 2014 dividend distribution of ($37.7) million.
Still using Table 3 as a reference, the number of outstanding shares of common stock as of 5/28/2014 is projected to be 342.5 million. As such, I am projecting 1.2 million shares of common stock were issued between 4/28/2014 and 5/27/2014. When broken out, this consists of 1.1 and 0.1 million shares of common stock being issued under PSECs ATM offering program and dividend reinvestment plan, respectively. The monthly common stock dividend for the month of May 2014 was $0.110425 per share. When calculated, I am projecting a May 2014 dividend distribution of ($37.8) million.
Once again using Table 3 above as a reference, the number of outstanding shares of common stock as of 6/27/2014 is projected to be 342.6 million. As such, I am projecting 0.1 million shares of common stock were issued between 5/28/2014 and 6/26/2014. When broken out, this consists of 0.1 million shares of common stock being issued under PSECs dividend reinvestment plan. The monthly common stock dividend declared and accrued for in the month of June 2014 was $0.110450 per share. When calculated, I am projecting a June 2014 dividend payable of ($37.8) million.
When these three monthly dividend distributions are combined with the nine-months ended dividend distributions of ($289.9) million, I am projecting PSEC had an increase (decrease) in net assets from stockholder transactions of ($403.2) million for the twelve-months ended 6/30/2014 (see red reference B in Table 2 above and blue reference D in Tables 2 and 3 above).
C) Capital Share Transactions:
- Net Increase (Decrease) in Net Assets From Capital Share Transactions Estimate of $1.046 Billion; Range $995.7 Million – $1.096 Billion
- Confidence Within Range = High
- See Red Reference C in Table 2 Above Next to the June 30, 2014 Column
This net increase (decrease) in net assets from capital share transactions figure consists of the following three amounts: 1) issuance of common stock, net of underwriting fees (see blue reference E in Table 2 above and Table 4 below); 2) offering costs on issuance of common stock (see blue reference F in Table 2 above and Table 4 below); and 3) issuance of common stock under dividend reinvestment plan (see blue reference G in Table 2 above and Table 5 below).
1) Issuance of Common Stock, Net of Underwriting Fees:
- Estimate of $1.032 Billion; Range $986.8 Million – $1.077 Billion
- Confidence Within Range = High
- See Blue Reference E in Table 2 Above Next to the June 30, 2014 Column
- See Blue Reference E in Table 4 Below
This is a more complex calculation. This is PSECs issuance of common stock, net of underwriting fees for the fiscal first, second, third and fourth quarters of 2014.
Table 4 – PSEC Twelve-Months Ended Issuance of Common Stock, Net of Underwriting Fees Projection
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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 1])
Originally discussed within PSECs distributions to stockholders from net ICTI figure, I projected 7.7 million shares of common stock were issued under PSECs ATM offering program for the month of April 2014 (through 4/27/2014). Using Table 4 above as a reference, when calculated this is projected gross proceeds of $84.1 million for the month of April 2014.
On 5/5/2014, PSEC also issued 1.1 million shares of common stock in relation to the recapitalization of Arctic Energy Services, LLC. As such, these shares also need to be added. When calculated, this is projected gross proceeds of an additional $11.9 million for the month of May 2014.
When adding projected gross proceeds of $84.1 and $11.9 million for the months of April and May 2014, I am projecting total gross proceeds of $96.0 million for the fiscal fourth quarter of 2014. When excluding ($0.5) million of quarterly underwriting fees, I am projecting PSEC will report an issuance of common stock, net figure of $95.5 million for the fiscal fourth quarter of 2014.
Therefore, when this figure is combined with the nine-months ended figure of $936.2 million, I am projecting PSEC will report an issuance of common stock, net of underwriting fees figure of $1.032 billion for the twelve-months ended 6/30/2014 (see blue reference E in Tables 2 and 4 above).
2) Offering Costs on Issuance of Common Stock:
- Estimate of ($1.3) Million; Range ($1.8) – ($0.8) Million
- Confidence Within Range = High
- See Blue Reference F in Table 2 Above Next to the June 30, 2014 Column
- See Blue Reference F in Table 4 Above
This figure consists of the offering costs associated with the issuance of common stock. This figure was originally projected within the issuance of common stock, net of underwriting fees figure above. However, I reclassified ($0.1) million of offering costs originally projected within the ($0.6) million of underwriting fees and offering costs for the fiscal fourth quarter of 2014.
Once again using Table 4 above a reference, when this figure is combined with the nine-months ended figure of ($1.2) million, I am projecting PSEC will report an offering costs on issuance of common stock figure of ($1.3) million for the twelve-months ended 6/30/2014 (see blue reference F in Tables 2 and 4 above).
3) Issuance of Common Stock Under Dividend Reinvestment Plan:
- Estimate of $15.3 Million; Range $13.2 – $17.4 Million
- Confidence Within Range = High
- See Blue Reference G in Table 2 Above Next to the June 30, 2014 Column
- See Blue Reference G in Table 5 Below
This is a simple calculation. This is PSECs issuance of common stock under the companys dividend reinvestment plan for the fiscal first, second, third, and fourth quarters of 2014.
Table 5 – PSEC Twelve-Months Ended Issuance of Common Stock Under Dividend Reinvestment Plan Projection
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Originally discussed within PSECs distributions to stockholders from net ICTI figure, I projected 0.1 million shares of common stock were issued under PSECs dividend reinvestment plan for the months of April, May, and June 2014. Using Table 5 above as a reference, when calculated this is projected proceeds of $0.9, $1.0, and $1.0 million for the months of April, May, and June 2014, respectively. When combined, I am projecting PSEC will report an issuance of common stock under the companys dividend reinvestment plan figure of $2.9 million for the fiscal fourth quarter of 2014.
Therefore, when this figure is combined with the nine-months ended figure of $12.3 million, I am projecting PSEC will report an issuance of common stock under the companys dividend reinvestment plan figure of $15.3 million (rounded) for the twelve-months ended 6/30/2014 (see blue reference G in Tables 2 and 5 above).
When combining equity raised in common stock issuances, net of underwriting fees of $1.032 billion, offering costs associated with the issuance of common stock of ($1.3) million, and equity raised in relation to the companys dividend reinvestment plan of $15.3 million, I am projecting PSEC had an increase (decrease) in net assets from capital share transactions of $1.046 billion for the twelve-months ended 6/30/2014 (see red reference C in Table 2 above).
Remainder of NAV Calculation:
After combining the three referenced figures discussed earlier (see red references A, B, C in Table 2 above), I am projecting PSEC had a total increase (decrease) in net assets of $960.7 million for the twelve-months ended 6/30/2014 (see red reference (A + B + C) = D in Table 2 above).
Having this figure established, let us now calculate PSECs projected NAV per share as of 6/30/2014 (see red references D, E, F, G in Table 2 above):
Total Increase (Decrease) in Net Assets: $960.7 million
(+) Net Assets at Beginning of Period: $2.656 billion
(=) Net Assets at End of Period: $3.617 billion
(/) Outstanding Shares of Common Stock as of 6/30/2014: 342.6 million
(=) NAV Per Share as of 6/30/2014: $10.56 per share
To sum up all the information discussed above, I am projecting PSEC will report the following NAV per share as of 6/30/2014:
PSECs Projected NAV as of 6/30/2014 = $10.56 Per SharePSECs Projected NAV Range as of 6/30/2014 = $10.46 – $10.66 Per Share
This projection is an increase (decrease) of ($0.12) per share from PSECs NAV as of 3/31/2014. This modest decrease in NAV can be attributed to the following quarterly per share changes:
Table 6 – PSEC Quarterly NAV Per Share Changes
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(Source: Table created entirely by myself, including all calculated figures and projected valuations)
Using Table 6 above as a reference, I am projecting PSECs net increase (decrease) in net assets resulting from operations (also known as EPS) will be $0.21 per share for the fiscal fourth quarter of 2014 (rounded to the nearest cent). In comparison, I am projecting PSEC had dividend distributions of ($0.33) per share for the fiscal fourth quarter of 2014 (also rounded to the nearest cent). I am also projecting PSEC had no NAV accretion (dilution) in relation to the companys equity raises for the fiscal fourth quarter of 2014 (once again rounded to the nearest cent). After adding these three amounts together, an increase (decrease) of ($0.12) per share for the fiscal fourth quarter of 2014 is obtained.
My BUY, SELL, or HOLD Recommendation:
I continue to believe there are several positive and negative aspects to PSEC right now. Let us first discuss a few positive factors for PSEC. First, PSECs current annual dividend yield continues to be over 12%. This is one reason why investors are attracted to this stock and to the BDC sector in general. More investors are looking for a steady stream of dividend income in this continued low interest rate environment. I believe PSEC could be an enticing proposition for some investors looking for a steady stream of income while having a somewhat lower risk tolerance when compared to other high-yielding sectors. I also believe PSECs dividend should continue to be stable (fractionally higher) through the foreseeable future (supported through evidence from past articles). Even though there has been a minor to modest overpayment of NII when compared to dividend distributions over the past few quarters, PSEC continues to have a material cumulative NII surplus. More important, PSECs net ICTI has been basically in-line with dividend distributions for the past few quarters. This should be seen as a positive sign. As I have always stated (see past articles for support), net ICTI trumps NII regarding a BDCs dividend sustainability.
Second, even though I am projecting PSEC will report an increase (decrease) in NAV of (1.14%), I am also projecting the company will generate an economic return (dividends paid and net change in NAV) of 1.96% for the fiscal fourth quarter of 2014. This positive economic return for the quarter is even after the projected depreciation associated with the Chapter 7 Bankruptcy of New Century. While New Centurys bankruptcy filing was rather abrupt, in a past PSEC article (linked provided earlier) I also classified this debt investment as performing materially below expectations as of 3/31/2014. As such, this bankruptcy was not a total surprise in my opinion and PSECs economic return for the quarter should be seen as a positive sign.
Third, I like the diversification of PSECs business operations. The following are seven origination strategies management currently implements regarding PSECs investment portfolio: 1) lending in private equity sponsored transactions; 2) lending directly to companies not owned by private equity firms; 3) control investments in corporate operating companies; 4) control investments in financial companies; 5) investments in structured credit; 6) real estate investments; and 7) investments in syndicated debt. Furthermore, PSEC has the flexibility and expertise to add additional types of origination strategies when deemed appropriate/lucrative. This should also be seen as a positive sign.
Now let us discuss a few cautionary / negative factors. First, as stated in PSECs 10-Q for the fiscal third quarter of 2014, the company disclosed that the SEC staff had determined certain wholly-owned holding companies within PSECs control investment portfolio are deemed wholly-owned subsidiaries per Generally Accepted Account Principles (GAAP). As such, the SEC staff believed these entities are also considered investment companies per GAAP and should be consolidated at the parent level. This determination was based on the SEC staffs interpretation of Accounting Standards Codification 946 – Investment Companies (ASC 946). Specifically, the SEC staffs interpretation was based on Accounting Standards Update 2013-08: Amendment to the Scope, Measurement, and Disclosure Requirements (ASU 2013-08).
PSEC disagreed with the SEC staffs interpretation of ASC 946 and appealed to the SECs Office of the Chief Accountant (OCA). PSEC stated the SEC staffs interpretation to consolidate these particular holding companies was not supported by any written guidance within existing GAAP. PSEC strongly believed these wholly-owned holding companies did not meet the definition of an investment company under GAAP. Furthermore, management believed GAAP permitted, but did not require, investment companies to consolidate other investment companies. In my opinion, PSEC did not consider ASU 2013-08 to be written guidance within EXISTING GAAP (since it was an update).
On 6/10/2014, PSEC announced the company would not be required to restate its prior period financials. However, under the guidance of the newly amended ASC 946 (through ASU 2013-08), PSEC will need to consolidate the companys wholly-owned or substantially wholly-owned holding companies (deemed wholly-owned or substantially wholly-owned subsidiaries) starting with the companys fiscal year 2015. As such, I believe a middle-of-the-road scenario occurred. I believe a worst-case scenario would have been if PSEC needed to restate the companys prior period financials. I believe a best-case scenario would have been if PSEC did not need to consolidate the companys wholly-owned or substantially wholly-owned holding companies. In the agreement between PSEC and the SEC, the company needs to incorporate the newly amended ASC 946 (through ASU 2013-08) beginning in the fiscal first quarter of 2015. (quarter ending 9/30/2014).
Readers should understand this change in accounting will most likely cause some uncertainty regarding the new look of PSECs financial statements beginning in the fiscal first quarter of 2015. This uncertainty could cause some volatility in PSECs stock price. When PSECs annual report for fiscal 2014 (10-K) is released, I would like management to disclose specific details in regards to PSECs upcoming prospective consolidation of the companys wholly-owned or substantially wholly-owned holding companies. This may alleviate some of the upcoming uncertainty. I believe this entire situation should be seen as a cautionary factor.
Second, due to the recent situation that unfolded between PSEC and the SEC, management has temporary stopped using the companys ATM equity offering and InterNotesÂ programs. Management stated PSEC wanted to avoid using such programs while the situation with the SEC was unresolved. As a result, PSECs investment portfolio growth was partially suppressed during the fiscal fourth quarter of 2014. This reduced level of investment portfolio growth hindered structuring and fee income during the fiscal fourth quarter of 2014 and will continue to do so until PSEC re-activates these debt/equity programs. It has been nearly two months since PSECs press release was issued stating the SEC situation was resolved. However, PSEC has yet to re-activate the companys InternotesÂ or equity issuance programs. My speculation is PSEC will continue to refrain from re-activating these programs until at least the companys 10-K for fiscal year 2014 is issued. Under a more pessimistic scenario, these programs will not be re-activated until PSEC incorporates the newly amended ASC 946 (through ASU 2013-08) beginning in the fiscal first quarter of 2015. Since this would inherently limit investment portfolio growth, I believe this should be seen as a negative factor.
PSEC recently closed at $10.65 per share as of 8/6/2014. This was a $0.09 per share premium (discount) to my projected NAV of $10.56 per share as of 6/30/2014. This calculates to a price to NAV ratio of 1.009 or a premium (discount) of 0.9%. From all the factors listed above, I currently rate PSEC as a HOLD when the stock trades up to a modest premium to NAV (up to a 5% premium), a BUY when the stock trades at or slightly below NAV, and a STRONG BUY when the stock trades at a modest discount to NAV (over 5% discount).
Full Disclosure of Long Position in Regards to PSEC: I initiated a position in PSEC in October 2013 at prices ranging from $10.80 – $10.85 per share. Prior to these acquisitions, I did not own PSEC as an investment. I have taken both cash and reinvested stock dividends depending on the stock price of PSEC when the monthly dividends were distributed. On 7/28/2014, I sold 50% of my position in PSEC at a price of $11.00 per share. This decision was based on the following: 1) valuation at the time of sale (modest premium to projected NAV as of 6/30/2014 achieved); 2) the upcoming worse-than-expected projected earnings for the fiscal fourth quarter of 2014; and 3) upcoming uncertainty of the pending accounting change regarding PSECs wholly-owned or substantially-owned holding companies.
Each investors BUY, SELL, or HOLD decision is based on ones risk tolerance, time horizon, and dividend income goals. My personal recommendation may not fit each investors current investing strategy.
Good afternoon. My name is Sammi, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Asta Funding Inc. Conference Call for the Three and Nine Months Period ended June 30, 2014, of the Fiscal Year ended September 30, 2014. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)
On the call today is Mr. Gary Stern, Chairman and Chief Executive Officer; Mr. Bob Michel, Chief Financial Officer; and Mr. William Skyrm, CEO of CBC Settlement Funding, LLC.
Before our host, Gary Stern, discusses the Companys current results, let me take a few moments to read the following statements.
Except for statements of historical facts, all of the statements made during the conference call are forward-looking statements. Although Asta Funding believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. Forward-looking statements are not guarantees and are subject to numerous known and unknown risks and uncertainties that could cause actual results to diverge materially and adversely from the results expressed or implied by such forward-looking statements.
Factors that can contribute to such differences include the Companys ability to purchase defaulted consumer receivables at appropriate prices; changes in government regulations that affect the Companys ability to collect sufficient amounts on defaulted consumer receivables; the Companys ability to employ and retain qualified employees; the Companys ability to fund future portfolio purchases; changes in the credit or capital markets; changes in interest rates; deterioration in economic condition; negative press regarding the debt collection industry, which may have a negative impact on the debtors willingness to pay their debts; statements of assumption underlying any of the foregoing; and those factors identified in Asta Fundings Annual Report on SEC Form 10-K for the fiscal year ended September 30, 2013 filed with the Securities and Exchange Commission and, from time to time, in its other filings with the Securities and Exchange Commission. Asta Fundings filings with the Securities and Exchange Commission are available, free of charge, through the Companys Web site at www.astafunding.com.
Now, let me turn the call over to Gary Stern. Please begin, sir.
Thank you. Good afternoon everyone, and thank you for joining todays conference call. Were pleased to announce a profitable first nine months and third quarter of fiscal year 2014, in which we reported net income of $9.3 million in the first nine months of fiscal year 2014 as compared to net income of $733,000 for the nine month period ending June 30, 2013. Including the results of the three and nine month periods ending June 30, 2014 is the forgiveness of non-recourse debt in the amount of $26.1 million.
We’ve had our challenges with the Great Seneca portfolio and we’re pleased that we completed this transaction with the Bank of Montreal and we like to thank them for working with us to finalize this. We are very excited about the growth of CBC Settlement Funding, LLC a structured settlement unit we invested in at the end of December 2013.
On a pro-forma basis, CBC has more than doubled its total receivables balance, purchase volume in the six month period ended June 30, 2014 and increased its transaction volume by 19% as compared to the same period of the prior year.
We continue to see growth in the personal injury unit as revenue on personal claims increased by 16% in the nine month period ended June 30, 2014 compared to the same prior year period. Although the revenue is not yet material, we’re pleased that the growth of GAR National Disability Advocates, LLC our non-attorney advocacy group which obtains and represents individuals in their claims for social security disability and supplemental security income benefits from the Social Security Administration.
Our cash and securities position at June 30, 2014 was $96.2 million. Overall, we’re pleased with the results of the third quarter and nine month periods ended June 30, 2014. Steps taken in the quarter put us in a very strong position moving forward.
Now I’d like to turn the call over to Bob Michel, our Chief Financial Officer, who will provide some additional comments on the financial results.
Thank you, Gary. Good afternoon, everyone. For the third quarter of fiscal year 2014, we reported net income of $5,464,000 or $0.41 per diluted share, as compared to reported net loss of $2,737,000 or $0.21 loss per diluted share for the third quarter of fiscal year 2013.
The nine months ended June 30, 2014 we reported net income of $9,295,000 or $0.70 per diluted share as compared to $733,000 or $0.06 per diluted share for the nine month period ended June 30, 2013. Included in the third quarter a nine months results is the previously announced Forgiveness of Debt which amounted to $26,101,000.
On June 30, 2014 we made a payment of approximately $2.9 million which included a voluntary payment by the Company of $1.9 million to finish paying the remaining amount due based on the settlement agreement signed in August of 2013.
With these payments, the settlement agreement entitles us to retain 100% of the next approximately $16.9 million of net collections on the Great Seneca portfolio. Until such time, we will share in the net collections with Bank of Montreal with Asta Funding retaining 70% of the net collections thereafter. As Gary mentioned, we appreciate the efforts of Bank of Montreal working with us to finalize this transaction.
Company reported revenues for the three months ended June 30, 2014 excluding the forgiveness of non-recourse debt of $10,173,000, a decrease of $2,495,000 from the $12,668,000 reported in the third quarter of fiscal year 2013.
Revenues for the nine month period ended June 30, 2014 excluding the forgiveness of non-recourse debt of $30,591,000, a decrease of $2,714,000 from the $33,305,000 reported for the nine month period ended June 30, 2013.
Included in total income of $36,274,000 and $56,692,000 for the three and nine months period ended June 30, 2014 is the Forgiveness of Debt of the $26,101,000. Also included in total revenue is income from structured settlements as reported by CBC in the amount of $1,406,000 in the three month period ended June 30, 2014 with no comparative data from the prior year as the acquisition of CBC was completed on December 31, 2013.
CBC reported income from structured settlements of $2,941,000 during the six month period ended June 30, 2014, the period in which CBC was included in the results of Asta Funding year-to-date.
In addition, revenues from the personal injury claims for the three months ended — three month period ended June 30, 2014 were $1,779,000 as compared to $2,287,000, small decrease from the prior year as we included a level of reserves during the third quarter of fiscal year 2014.
Revenues from personal injury claims was $5,724,000 in the nine month period ended June 30, 2014 compared to $4,921,000 for the nine month period ended June 30, 2013, a 16.3% increase over the prior year.
Net cash collections of receivables acquired for liquidation including cash collections represented by account sales during the third quarter of fiscal year 2014 were $10,041,000 as compared to $15,425,000 in the third quarter of fiscal year 2013. Net cash collections receivables acquired including account sales was $3,743,000 for the nine month period ended June 30, 2013 as compared to $42,038,000 for the same period in the prior year.
Including the net collections in the three month period — three and nine month period ended June 30, 2013 was approximately $2 million of accounts sales. Account sales were not material in the nine months of fiscal year 2014.
Net collections on the Great Seneca portfolio were $2,781,000 in the third quarter of fiscal year 2014, as compared to $3,348,000 in the third quarter of 2013. Net collections on Great Seneca for the nine months ended June 30, 2014 were $7,749,000 as compared to $8,989,000 for the nine month period ended June 30, 2013. Carrying value on the Great Seneca portfolio at June 30, 2014 was $21,601,000 as compared to $46,294,000 at June 30, 2013.
Zero basis income was $6,532,000 in the third quarter of fiscal year 2014 as compared to $9,749,000 reported in the third quarter of fiscal year 2013. Zero basis income for the nine months ended June 30, 2014 was $20,195,000 as compared to $25,824,000 we reported for the nine months ended June 30, 2013.
Our investment in structured settlements through our unit, CBC Settlement Funding was $35,892,000 at June 30, 2014, an increase from $30,436,000 at December 31, 2013, the date of the acquisition of CBC.
Our investment in personal injury claims through the joint venture Pegasus Funding, LLC was approximately $31,733,000 at June 30, 2014 as compared to $30,489,000 at December 31, 2013.
General and administrative expenses for the third quarter of fiscal year 2014 were $7,012,000 as compared to $6,545,000 for the third quarter ended June 30, 2013. The increase reflected the inclusion of CBC and GAR National Disability Advocates, LLC as there is no comparable data in the three month period of the prior year.
General and administrative expenses were $20,517,000 for the nine month period ended June 30, 2014 as compared to $17,926,000 for the nine month period ended June 30, 2013. Gamp;A expenses were higher during the current nine month period as compared to fiscal year 2013 primarily due to the inclusion of CBC and GAR National Disability in the current nine month period.
Interest expense was $413,000 during the third quarter of fiscal year 2014 as compared to $518,000 for the third quarter of fiscal year 2013. Interest expense was $820,000 for the nine month period ended June 30, 2014 as compared to a $1,621,000 for the same period a year-ago.
Interest expense for the current period is primarily from CBC as the settlement agreement with the Bank of Montreal significantly reduced the interest expense for the parent company.
Impairments of $19,901,000 we reported in the third quarter of fiscal year 2014 as compared to $10,148,000 reported in the third quarter of fiscal year 2013. The impairment reported in 2013 was attributable to the Great Seneca portfolio. A $14.2 million impairment was reported on the Great Seneca portfolio during the third quarter of fiscal year 2014. Most of the remaining amount of the impairment charge was the write-off of medical receivable asset class. The Company’s book value per share as of June 30, 2014 was $13.91.
This concludes my remarks on the financial results. I’ll turn the call back to Gary.
Thank you, Bob. Now, we’d like to take questions.
WINOOSKI, Vt. -
Low-income students are getting a helping hand from the Vermont Student Assistance Corporation. But VSACs own future is in question as the federal government begins to cut contracts.
Its a chance for students to get ahead. Dual-enrollment allows high schoolers to take college courses before graduation. Now, VSAC is providing financial assistance for low-income students interested in participating. VSAC has received $50,000 from the Legislature to provide up to $150 for each eligible student.
Weve already heard from 300 students who are interested in seeing if theyre eligible, said Scott Giles, the president of VSAC.
The stipend will cover costs like books and fees. Last year, 1,600 high school students took college courses through Vermonts dual enrollment program. VSAC hopes to see those numbers increase.
I would love to see this program grow by 25 percent this year, said Giles.
But as that money flows in from the Legislature, even more is at risk for VSAC. The US Department of Education may drop VSACs federal contract to service student loans.
In 2011, the federal government cut the contract in a push to centralize education loans and cut costs for students. But after pressure from Vermont lawmakers, VSAC was offered $1.3 million to keep servicing loans.
We do understand that they are talking about reducing the number of servicers because they think excess capacity but we have not heard, at this point, anything definitive, said Giles.
Vermonts congressional delegation is pushing to save VSACs contract. A joint statement to WCAX News says: VSAC is a very important institution in Vermont. The delegation has spoken to Secretary (Arne) Duncan and made it clear to him that we all feel strongly about VSAC continuing to play an important role helping college students in Vermont and elsewhere.
Until the decision is made final by the secretary of education, VSAC continues to have hope.
We are hopeful that we will not only be able to continue servicing the federal government, but that we will be able to expand the number of accounts that we service for them, said Giles.
Giles says its premature to say what the financial implications could be. But back in 2011, Giles said if VSAC didnt get the federal contract, theyd have to cut 200 jobs.
Anytime you have a major program with one customer, theres always the risk that that customer will, at some point, decide not to continue that relationship so weve been talking to staff about that possibility as part of our long-term planning for the way VSAC will fulfill its mission going forward, said Giles.
The Department of Education says they do not have a comment at this time regarding VSACs federal contract.
Temecula, CA (PRWEB) August 21, 2014
Kevin Leonard has a large group of mortgage professionals and real estate agents working daily on how to become more effective in the market. Focusing mostly on the Southern California market the last few months, they decided to offer a discounted model for the “for sale by owner in Temecula” real estate market. Because the inventory is still very light in the area, some homeowners feel they can either sell the home on their own, or use a discount Realtor in Temecula for minimal assistance. The real estate group is doing their best to service all homeowner’s needs when it comes to listing a house for sale, so they are offering this discounted benefit as an addition to their current services. To learn more on how to list a home in Temecula, or how to use the new discounted service call the office directly at, http://www.kevinleonardmortgageexpert.com/agents/temecula/
Homes for sale by owner in Temecula California might shrink up a bit, once some of the sellers find out about a cheaper way to list a house. That is what Realtors in Temecula that offer different structures for their clients believe. Having the ability to offer a full range of real estate services to the client opens the door for agents that can offer all the bells and whistles, to a basic package of service. Kevin Leonard who is personally responsible for over 5 billion in residential transactions, and who is helping promote this offer believes it offers more options for the homeowner on what they feel comfortable paying in commission. He was quoted “everyone wants more options, it just makes sense, and homeowners that do not need much help in selling their property shouldn’t have to pay the highest commissions”.
The good news for the “for sale by owners in Temecula” clientele is, if they decide to use the new discounted model, they will have only pre-approved buyers at their doorstep. The Realtors in Temecula are part of a full service team of mortgage and real estate professionals, which means that borrowers have the ability to be pre-approved for the purchase. This will help cut down on the sellers aggravation of showing the property to people who may or may not qualified to buy the house. The mortgage consultants are experts in VA, FHA, and jumbo home loan products, so they can offer a full range of home loans available. To discover how to get pre-approved for a home loan in Temecula call (951) 200-5750
The real estate group has enlisted the services of an internet marketing company to assist in promoting the new service. The firm plans on submitting the discounted real estate information on finance and real estate related blogs and social networks. The team also has budgeted an amount for Google Adwords and Facebook PPC advertising in an effort to spread the word quickly.
Kevin Leonard entered into the mortgage business in 1997 and quickly rose to become one of the top loan officers in the country and earned national acclaim for his efforts. Mr. Leonard prides himself in offering constant communication with his clients so that they have a full understanding of the loan process from start to finish. He is personally responsible for thousands of fundings, and along with his team, he has over 5 billion in residential loans funded to his credit. Mr. Leonard has a full understating of the loan process from start to finish, and also consults with mortgage bankers in the secondary market. There are few, if any, that have the experience that Kevin Leonard has in the mortgage profession. He was one of the first to register with NMLS in 2008 when it was first instituted, and currently is licensed in the state of California as a loan originator. He is partnered with the top Temecula Realtor for a good reason–he offers fast pre-approvals with the ability to fund purchase loans quickly.
Phone: (951) 200-5750
Is it really that hard? Yes. And no. And mostly yes again. And maybe it should be.
And since January 10 when the CFPBs Qualified Mortgage rule took effect, it is definitely harder. So yes.
But theres more to the story than that, and it doesnt mean only Patsy Pays Perfect can qualify anymore.
The Qualified Mortgage rule has definitely put the squeeze on would-be homebuyers seeking a mortgage. People with lower income, the self-employed, those with credit scores on the margin, and people whose income comes from tips, bonuses or other harder to document sources are definitely being are all facing an uphill battle.
Industry analysts say that anywhere from 10% on the low side to 20% on the high side of people who have a mortgage now would not qualify for a mortgage under todays rules.
But the rules and standards for getting a mortgage were already tightening long before the CFPB put their screws to it. In fact, the industry had largely self-corrected as if it had a choice long before Washington put it in ink with heightened documentation and tighter standards.
Mortgage applications, the first step in the mortgage process, have been down this year almost consistently.
Analysts with Goldman Sachs[GS] say that at least one of the reasons is persistently tight mortgage lending standards.
After the housing crisis, lenders tightened mortgage credit and the tightening was particularly pronounced for those with low FICO scores. Surveys conducted by the New York Fed show that an increasing number of low-FICO borrowers do not apply for mortgages for fear of being rejected, Goldmans analysts note. Because low-FICO homebuyers are more likely to rely on mortgages to finance home purchases, an increasing number of discouraged low-FICO borrowers contributes to elevated cash transactions. In other words, persistently tight credit supply over the past few years may have begun to depress mortgage demand, resulting in a sustained gap between home sales and purchase mortgage applications.
Click the chart to enlarge.
The two big challenges for mortgage applicants are the QM rule and the Ability-to-repay rule.
QM is the standard that the CFPB created for loans considered relatively safe, so it doesnt affect interest-only or balloon mortgages. Loans eligible to be purchased by Fannie Mae, Freddie Mac, and the Federal Housing Authority are considered QM. QM also requires that a mortgage not push a borrowers debt load above 43% of income, and originating costs cant exceed 3% of loans above $100,000.
The ATR rule requires most lenders to make a concerted effort toensure that the borrower will actually be able to pay off the mortgage
This is where it gets more difficult for borrowers, both in documentation and dealing with lenders. In practice, it means banks and other mortgage originators will have to look at more documents proving a borrowers income, assets, credit history, monthly expenses, and employment situation.
The heyday of the ninja loan when shady brokers and Realtors could set a buyer up despite there being no income, no job, no assets is long over.
Thats a feature, not a bug, of new rules and regulations. Too many people who couldnt handle their own checkbooks were getting loans for houses they couldnt afford.
Part of that was pure greed on the part of the brokers and the housing finance industry. The industry is still dealing with the fallout of that. Part, though, was the natural outgrowth of a misguided affordable housing philosophy that said Hey, look how responsible all those homeowners are, with their better credit and stable jobs. Maybe if we fast-tracked neer-do-wells into homeownership, theyll become responsible too. (Policy makers arent real wise at telling cause and effect apart. And you can lead a man to reason, but you cant make him think.)
The bottom line is there are more hoops, and the bar is set higher in regards to FICO scores.
Further, some lenders are so gun shy about these rules that they make borrowers jump through even more difficult hoops, like a Siegfried trying to one-up Roy.
And then there is the fear factor some potential buyers think they need to have pristine credit to get a mortgage and often dont apply for a refinance or a purchase loan because they fear their application will be rejected.
The best rates will go to borrowers with FICO credit scores of 740 or higher, but borrowers can qualify without pristine credit.
Borrowers generally can get conventional loans with FICO scores of 680 and 5% down. Those with lower credit scores normally have to apply for FHA loans.
As Goldman noted, about one-third of borrowers with a FICO of 630 get rejected, so thats about the demarcation line.
Some lenders offer FHA loans for borrowers with scores of 620 and down payments of as low as 3.5%, but others have stricter requirements.
Below that, down payment requirements are higher, even for FHA loans.
The high-water mark for homeownership in America is in the high 60% range. It peaked with the housing bubble and its been declining since. More than 65% and it seems like we hit a point of diminishing returns.
Everyone wants to move markets forward, and it would be great if the sense of an ownership society permeated every strata and socioeconomic level, but the reality is it looks like about 35% of the population and its a dynamic 35%, not a permanent caste placement either arent ready yet for homeownership, or wont ever be.
Real estate industry lobbyists foster the false impression mortgage lending standards are tight. They are not.
Real estate industry lobbyists appeal to lawmakers for policies the real estate industry believes will promote more transactions at higher prices. Most often this lobbying is short sighted and causes unintended long-term detrimental impacts on the housing market.
For example, real estate industry lobbyists continually support relaxed lending standards. In 2004 they watched all of their dreams come true as all mortgage standards were abandoned causing a large boost in transaction volume and much higher home prices. Rather than being the panacea they envisioned, the abandonment of lending standards inflated a massive housing bubble that pulled forward demand, caused a deep house price crash, lowered home ownership rates to 20-year lows, and caused an 80% reduction in new home construction — a condition the industry has not recovered from.
Rather than learn an important lesson from this disaster, real estate lobbyists continue to pepper the press with complaints about how tight mortgage standards are today with hopes that policymakers will lower standards at the FHA and GSEs to promote more transactions by making bad loans to people who won’t repay them. In short, they learned nothing; lobbyists still promote short-term goals at the expense of long-term stability. And the worst part is they are completely wrong about mortgage standards being tight today.
The Truth about Mortgage Underwriting
by Lisa Marquis Jackson, John Burns Consulting
The world is awash in inaccurate sound bites related to mortgage credit. We spoke with numerous industry executives and identified three truths that need to be clarified:
1. Low income buyers actually have it easy. Buyers with poor credit and low income are finding it quite easy to buy a home below the FHA limit.
People with FICO scores below 620 can obtain FHA loans with only 3.5% down. FHA standards are not much above subprime.
2. Many affluent buyers find it very difficult. Automated underwriting prevents many highly qualified borrowers, especially affluent retirees, self-employed, or commissioned salespeople from getting a mortgage because their income situation does not fit squarely in the credit box.
This truth is counterintuitive because affluent borrowers who do qualify make up a higher percentage of today’s sales than normal. This is not because standards are too lose for them, it’s because so few lower-income households have the income or down payment necessary to buy a home.
3. Industry executives are unintentionally preventing a recovery. Mortgage industry executives lobbying for the good old days where FHA limits were higher, fees were lower, and documentation was easier need to stop whining because they look very unreasonable to regulators and politicians who are not sympathetic.
This is a surprisingly blunt and accurate statement. Whining industry lobbyists are asking for the very things that caused the housing bubble and ensuing crash.
Our purpose here is to shed some light on what is actually happening–because if there were clarity around this, we would have:
1. More entry-level home buyers. Many qualified people are not even shopping for a home because they presume they cannot get a mortgage. We provide several examples of easy qualification below.
2. More affluent home buyers. More good loans to very qualified buyers would be made if underwriters were allowed to use good business sense rather than fill in automated forms. As we did our research, we heard many stories of buyers reluctantly paying cash or deciding not to move at all and telling their friends who then also elect not to move. These include business owners, retirees, and commissioned salespeople.
3. More relocating home buyers. Many relocating employees are renting simply because they cannot provide historical pay stubs at their new employer. Given their track record of steady employment and desirability to multiple employers, does that make any sense?
One of the main reasons I did not buy a home in late 2011 was because I didn’t have qualifying W2 income, and it would have been very difficult to obtain a loan.
In the aftermath of the housing crisis, the reality is that we are lending aggressively to the poor and conservatively to the rich. While the Dodd-Frank rules were written with good intent, let the truth be known, so more first-time buyers can take advantage of current programs to buy homes. Let the bankers use good judgment again, so more affluent buyers can get a mortgage.
Easy Money through FHA
FHA federally insures 95%+ loan-to-value (LTV) mortgage loans made to people with poor credit and low incomes.
Here are three recently approved loans, all through FHA or VA:
1. Recent foreclosure. 96.5% loan on a $170,000 house to a couple with $36,000 in income, a foreclosure three years ago contributing to their 620 FICO score, and debt service equal to 55% of their gross income
2. 57% of income needed to pay debts. 96.5% loan on a $165,000 home to a couple with $38,000 in income, a 642 FICO score, and debt service equal to 57% of their gross income
3. Fixed income and disabled. 100% loan on a $160,000 home to someone permanently disabled with a 601 FICO score and a $34,000 fixed income
Does that sound like tight lending standards, or does it sound like a return of subprime? Each of those loans profiled is high-risk, and the chances of default are high, yet our government chose to back them.
Tight Money above FHA Limits
Affluent commissioned salespeople, self-employed, newly employed, and retirees who don’t have steady paychecks have tremendous difficulty getting a mortgage because they either: report inconsistent income to the IRS, cannot provide extended income history from a new employer, or do not have sufficient current income to qualify but are trying to keep some cash in the bank or delay paying taxes on an IRA distribution.
Here are six borrowers who were denied a mortgage:
1. 27% LTV. A couple with a 780 FICO score who wanted a $300K loan on a $1.1 million house and would have $300K in reserves after closing, but whose verifiable income was only 30% above the proposed mortgage payment.
2. 801 credit score. Newly retired couple with fantastic 801 credit score, $1 million in retirement accounts, and $400,000 in savings after they were going to put down $350,000 on a $550,000 home purchase, but whose Social Security income was less than double the proposed mortgage payment.
3. Affluent business owner. Owners of a small retail business who were turning the business over to their children to manage, with the intent of collecting dividend income; who had $500K in cash savings and wanted a 50% LTV.
4. Relocating borrower. A US citizen who has been working overseas takes a job in the US, has a 700 FICO, 20% down payment, and plenty of reserves, but cannot produce a W-2 because he does not exist in the country in which he was working and hasn’t started his new job yet.
5. New employee. A prospective borrower qualified in every way except she had only been in her current job for five months and had worked in the family business previously where she did not get a W-2.
6. Loan = 15% of applicant’s assets. A retiree who wanted a 50% LTV and had assets six times the proposed loan amount was turned down and eventually paid cash.
Some of those loans have risk, but how risky are they compared to the FHA loans listed in the previous section?
Mortgage Industry Vets Tell It Like It Is
We expect the borrowers and outcomes profiled above will be surprising to many. We also want to share the following sound bites from mortgage industry veterans to offer surprising clarity on other areas of debate:
Loans today are easier than the 1990s. For the average borrower, I believe it was more difficult to qualify for a mortgage in the 1990s.
That’s an astonishing statement given the spin we read in the financial media.
Huge improvements are being made in conforming loans. For a while, if you didn’t have a credit score over 720 and you wanted a loan with less than 20% down, you were pretty much looking at an FHA loan. During this period, it’s fair to say that sales were being seriously impacted by 20%+. Slowly at first, and now more rapidly, things are changing. Credit requirements for 95% conventional financing are as low as 620, and MI companies have lowered premiums and relaxed guidelines. Banks have been peeling back overlays. You aren’t likely to get a conventional loan with a ratio above 45% anymore, but nor could you really get that back in the 90s either.
The standard most responsible for borrower default is the high back-end DTI ratio. Nobody can afford to consistently pay more than 43% (the standard is 43% not 45%) without running a personal Ponzi scheme. These loans weren’t made in the 90s, they aren’t being made now, and hopefully, they will never be made again.
Disposable income is more important than gross income. Our industry needs to focus more on disposable income versus debt-to-income ratios, meaning a borrower who makes $2,200 a month with a 40% debt-to-income ratio is more risky than someone who makes $12,000 a month with a 50% debt to income ratio. The first borrower has very little cushion after income taxes, utilities, car insurance, food, etc. for emergencies. But the person making $12,000 a month would have much more left over after all of these other debts.
While their argument is sound, the focus on DTIs with a rigid cap is a sound safeguard in the system. Once you make that barrier flexible, it won’t take long before lenders completely ignore it and begin funding personal Ponzi schemes. Further, this does nothing but inflate house prices at the high end; it doesn’t make for any sustained increase in sales volumes.
Stated income should have its place. There is a time and a place for Stated Income, not No Doc loans, but Stated Income loans. They were a great tool back in the 2000s that rarely went bad if they were used properly because the borrower had a lot of their own capital invested in the home.
Sorry, but that one is bullshit. Stated-income loans have no place. They were called liar loans for a reason, and the presence of these loans, more than any other, caused the credit crunch of 2007. When investors realized they couldn’t trust the underwriting in the mortgage pools they were buying, they abruptly stopped buying them. This caused a cascade reaction where investors began to question all loans and stopped buying them. The private securitization market still hasn’t recovered.
Income is the problem. The challenge is not credit based, it’s income based. Home valuations have increased at a steeper trajectory than income. Also, the new buyer pool is saddled with student loans and other debt, which has really created the (disposable) income issue. I believe credit is much more accessible than the media/public portrays (in terms of credit scores, LTV’s, etc.) My opinion will remain our immediate challenge is income/debt/DTI.
Yes, the problem is one of income and down payment. The recession wiped out the meager savings of many potential homebuyers, and the lingering unemployment is keeping wage growth in check. I know I’ve said it a million times, but the housing market won’t have a true fundamental recovery without strong job and wage growth. Period.
In conclusion, let’s:
1. Get the word out that loans below the FHA limit are readily accessible, with monthly payments that are a great historical value in comparison to gross incomes.
2. Let the bankers use manual underwriting in instances where they can document that the loan has a very low likelihood of losses.
I don’t believe consumer education is the answer. Lenders constantly advertise for business, and I don’t believe anyone considering buying a house who has a sufficient down payment doesn’t at least talk to a lender about getting a loan. I think the real reason for the lack of low-end sales volumes is the lack of a 3.5% down payment. If people don’t have that, there isn’t much point in shopping for a loan.
The second point about allowing manual underwriting is a red herring. Banks who make non-conforming loans to hold on their own balance sheets can use any standards they want; they are not bound my automated underwriting standards. The only lenders limited by these standards are correspondent lenders who plan to obtain government backing for the loan and sell it into the secondary market. Those loans should be limited by automated standards because once you start allowing exceptions, the trickle becomes a flood, and lenders will stuff all kinds of bad loans into that loophole.
Looser lending standards won’t improve sales much, but they would increase risk to the US taxpayer. What the real estate industry needs is a strong economy with good job and wage growth. Until we get that, the housing market will remain in the doldrums.
According to the Wall Street Journal, the Securities and Exchange Commission is investigating a number of dark pools. Dark pool is an ominous term that sounds like its a cheap science fiction movie when actually it refers to privately operated exchanges ran by some of the biggest Wall Street investment banks like Goldman Sachs, Credit Suisse or Morgan Stanley. In certain respects they do share common ground with a cheesy sci-fi flick; some of the creatures lurking there can be pretty scary.
Dark pools are run in virtual secrecy. There is almost no disclosure about their rules, who participates or even what theyre doing. That leaves the door wide open to abuses pointed out in Michael Lewis new book Flash Boys. Lewis questions whose interests are coming first: the clients, the high frequency traders that buy access to the dark pools trading information, or the brokerage firms own proprietary traders?
In my opinion, it would be different if they were just taking advantage of the big boys, but now some of the average stock investors trading is done in a dark pool. Back when they started, to me, there was some legitimacy to them. Frustration with the public exchanges like the New York Stock Exchange or the NASDAQ led the big Wall Street banks to create private exchanges for their big clients like mutual funds or pension funds. The Wall Street factions claimed that their clients could make trades without being exploited. Today, however, 40 percent of trading is done off-exchange and thats up from 16 percent six years ago.
Back in the 1980s, dark pool trades were big ones, but today the average trade is 200 shares. The reason is the amount of places available to trade. There are 13 public exchanges, up from just a few 20 years ago, and there are 45 dark pools, mostly started since 2007.
In my opinion, the beneficiaries of dark pools are high frequency trading firms and the dark pool operators themselves. Both use powerful computers to transact trades. They use complex algorithms (step-by-step procedures for solving a problem) to analyze the markets and then execute trades based on them. A speed advantage of one thousandth is estimated to be worth $100,000,000 a year.
To me, an easy way to get ahead to get ahead of the curve for the high frequency traders is to pay the dark pool operators for advance access to their customers orders, and thats exactly what they do. Once they have the information on what trades will get executed in the dark pools, they go out and either buy or sell stocks ahead of the customers like you in a travesty known as front running. According to Lewis, most of the dark pool operators themselves have their own traders use their knowledge of whats going to be traded and their ultra-fast computers to front run the customers as well. One way to protect yourself is to use limit orders.
High frequency traders are responsible for fully 50 percent of stock trades and they argue that the volume they provide makes the markets more liquid. In my opinion, that is false. The volume they provide does little for the safety, transparency or legitimacy of the markets.
Bank of America, Goldman Sachs, Barclays, Credit Suisse and others are among the largest banks in the world and to me they have two things in common. They have paid fines for crimes against the markets, and theyre dark pool operators as well. As far as their dark pool activities, as of now, they havent done anything illegal. As astonishing as that sounds, its the way the system is set up. But since the release of Lewis book in February, things may have changed. Both the SEC and Congress have begun investigations of both dark pools and high frequency trading and I hope they will rectify some of their activities.
Until the next time, well watch your money.
Nick Bertell is a chartered financial consultant. These are the views of Redwood Coast Financial, and not necessarily those of Summit Brokerage Services, Inc. and any of its affiliates and should not be construed as investment advice. Redwood Coast Financial Partners, an independent firm with securities offered through Summit Brokerage Services Inc., member FINRA/SIPC. Advisory Services offered Through Summit Financial Group Inc., a Registered Investment Advisor.
Senator Enyinnaya Abaribe is the Chairman, Senate Committee on Information and Media. He is one of the chieftains of the Peoples Democratic Party(PDP) who have announced their intention to contest the 2015 gubernatorial election in Abia State. In this interview, he speaks on the state of Nigerian politics and his job as the senator representing Abia South Senatorial District. Group Politics Editor, TAIWO ADISA, brings the excerpts.
What are the problems you think the next Governor of Abia State will inherit from the outgoing governor?
Let me say that the challenges of development in every state in Nigeria will also be exactly the same, that is, if you are in Abia, you will have to confront – underdevelopment, massive unemployment and infrastructure that is not at par with what you need for a 21st century economy and then of course the basic ones of education, health, environment and agriculture.
Basically, what I think is the biggest challenge you have to face will have to do with all the young men and women who are coming out of schools without jobs. First, we will need to deal with how to produce people that are functional in our state at the moment. Abia stands at a vantage position, being at the top of the whole Niger Delta region and all the ancillary industries in the Niger Delta – the oil and gas and all the other things that go with it, and Abia will provide manpower, provide skill set.
Usually, when people want to do anything within the Niger Delta region, they can come to Aba to get it. For specific reasons, all the while, Abia has always had through Aba an industrial set up with skilled people, artisans and managerial skilled people who have been doing things locally. Now, what we need to do is to move their skills up and also to be able to train them enough to fit into the manpower needs within the oil and gas region. We think that as a matter of policy, you must be able to move people away from the grammar school literary type education to technical based education now and that you will have to do if you are Governor of the State.
Secondly, you will also have to be able to retrain those who are already in the different sectors in Abia, who cannot fit into the new ICT-based economy. That is part of the PDP manifesto for the state to let people acquire the relevant knowledge for those types of industries that are there. There are jobs, but you do not have the requisite trained people for those jobs and when you don’t have it, what the oil and gas people do is to import skilled workers from outside. So, that’s why you find that if you go to most of the industries in the Niger Delta region, you see a whole of Chinese, Koreans, Indians, you just have people bringing those skill set which we ought to have but which we do not have.
We are also going to partner with the Federal Government because we are part of the Niger Delta. We should also be part of those who get training for all these because I know that a lot of money has been spent by them in upgrading the skills of the Niger Delta people. Being part of it, we are also supposed to enjoy that Federal Government largesse. The other challenge that you have to meet if you are Governor of Abia is infrastructural challenge because the amount of money that comes to the State which forms the basis of the spending in the state is very low, compared to the surrounding states. So, whoever is going to be governor will have to do two things: first prudence, which means that whatever money that you get, you are going to get the optimal use of that money. That is the only way to go.
Secondly, you must also start to seek newer ways of funding things and you must have to get better ways of doing both internally generated revenue and what comes from the federal purse. For internal generated revenue, what happens to day as we have seen, in fact the Governor, recently in an interview also bemoaned the fact that it was so low and there was so much leakage within the system. That means that you will have to deploy technology to reduce leakages and you also now have to find new and innovative ways of doing things and make sure that counterpart fundings for the things that come from both multilateral agencies and from Federal Government that you are going to have to do that. So, we are going to have to make Aba a test case for a new government and private sector enterprise.
How well have you represented your district in the Senate in the last eight years?
I said it earlier that what I bring to the table is not theoretical; it is something that has already been done and among all the things I have done, when I was talking about exposing our people to the 21st century. We did something that was very unique and never been done by anybody before. Aba is the key to the industrial sector in the South-East. In Nigeria, things made in Aba used to enjoy wide patronage, until we started having the twin problem of lack of physical infrastructure and power.We think that if these two things are dealt with, Aba will rise again to continue to fulfill its potential.
But we did something that was unique. We said every time they do trade fairs in Nigeria, you don’t do a trade fair that is specific to a particular place. So, we did a Made-in-Aba Trade Fair in Abuja. We brought the different groups that manufacture things in Aba – from people who were manufacturing petrol pumps to sell and diesel to people who are now manufacturing shoes and bags, belts and so forth. We brought all of them to Abuja and we did an exhibition in which we now brought the key people in government. We brought the Minister of Trade and Industry. We also brought different heads of the military – Chief of Army Staff, Chief of Defence Staff, head of the police, head of the Civil Defence and so forth; we just wanted to expose them that most of the things that they import and give to their people, we could make them in Aba.
My view was to do a sort of backward integration. In other words, if we make it in Aba and you buy from us – let’s say for the military, there are more than a million people under arms in Nigeria from police to army, to Navy to the Air Force and you say okay, you have a million people and you need a million boots to match on the ground, a million boots being made in Aba puts the economy on a very high scale because as you are making it, all the people have to hire new people. Those people that are hired, of course, when they have work to do, they no longer look at crime. Of course, they spend all those monies within the economy and everything will have a multiplier effect.
We actually showcased and we did it. We also found that the procurement process within the agencies and all that is such that procurement takes a long time to have all those things available; we sort of brought it to them and said you can now ask these people who are coming to do procurement, who are putting their companies forward that these things are available here. We also got the companies that we brought from Aba to be able to also now look at the way we are going to now enter the procurement process – either by merging or having partnerships and so forth.
Most of the people who ought to make policies may be detached from the reality on the ground. We want to bridge this reality. So, I have done it. I took people and I exposed them. These are the things that we intend to do when we come into government; to do practical things. Like I told another set of journalists, the way we are going to go is to start from the things that are doable. From the things that are doable, we go to things that are possible. And when we get to things that are possible, you now find that those things that we call impossible are actually possible.
Looking at your contributions so far, would you say you have done well in the Senate to deserve being trusted with the governorship of Abia?
Of all the people who have been in the Senate from Abia, I think I have done more than anybody. If what you have done for your people is the criteria, then I deserve to be governor based on that and the evidence is clear. This is not evidence that is coming just out of my mouth but the evidence is pictorial and otherwise, for which we will expect that people can verify.
Can we say that you are taking advantage of the fact that the governorship has been zoned to your area, Abia South? Is that why you are contesting?
As I said, I started my consultations in April; so, between April and May, we went all over the state and concluded it with the party in the state. Ultimately, by the time we completed the consultations in May, June had passed and it was in July that the state party now took the decision to zone the governorship fortuitously to my zone – Abia South zone. So, I could not have come because of the zoning. Actually, I would want to think it was because we had sufficiently told the party the reasons why they needed to take the best decision that also may be part of what made the party to zone it to Abia South.
So what are you bringing to this race that will distinguish you from your competitors?
Three things: character, competence and integrity. All the political actors in Abia know for one thing that it’s not just enough to talk the talk. You should also be able to demonstrate by your actions the type of person that you are. I can say this without any fear of contradiction that anybody in Abia knows that if it is in terms of character, uptightness and being able to be your own person and actually work for the people of Abia, they will not find me wanting. If it is in terms of being competent enough to do the job of governor, they will also not find me wanting, because I have been at various levels and demonstrated at various times that I have the ability to run a state. For everybody who is a governor, your word is your bond. We have also had the unfortunate situation of having had a governor in Abia who will say one thing today and tomorrow will do exactly the opposite. That will never be me and that is why, when I meet with Abians, they agree that this is the sort of person that is needed at this time of our national development.
There is this issue of the governor planning to install his successor. We have heard stories of the governor endorsing Mr A or Mr B because some people see you as independent-minded. Do you see the governor trusting you?
Let me say this very unequivocally that at the time which we heard some people making claims of being anointed or so by the governor, I contacted the governor. I called a meeting of Abia South Senatorial zone, being a political leader of the area, and we needed to deal with that matter. The governor told me that I should please tell the people when I meet with them that he has never anointed anybody and that he didn’t have any intention of anointing anybody. Subsequently, the government of Abia also went on air, on radio and disowned any such statement. I’m sure those statements died down but people who do not have anything to sell themselves with usually try to do reflected glory of saying this man is bringing me. I just call it reflected glory because that means you got nothing yourself to offer when you now have to wait for somebody else to do so.
Also recently, when the governor swore in the transition chairmen for local government areas in the state, he made the same statement and said he was not going to influence anybody; that what he is going to do is to ensure that the field is made in such a way that everybody will have an equal chance of being able to emerge as governor and he said it very clearly that the person who will become Governor will be made by three persons – the first person will be God himself because everything that we do as human beings, its only when God wills it; secondly, that he himself as the incumbent will also have a say on how the process is done; thirdly is the party apparatus, that is those within the party who will eventually be the delegates to the congresses that will bring out the nominee. After making that point, he has also subsequently made several points along this line.
When the party made the decision for zoning to Abia South, there was a meeting called of all the stakeholders of the State to come and look at what the party has said and decide. When the stakeholders met, I couldn’t go. I had to send the Governor a text and he responded and told me that we should continue to sing the song of equity and fairness in Abia and that it’s only fair that somebody from the Senatorial zone that has not been governor before to have the opportunity to be so. The governor has been singing the song of equity and fairness. As I said, he is a man that we trust in the sense that when he says this is what I believe or this is what I want to do, he doesn’t go doing something else. So, having said he believes in equity and fairness, we believe also that he will not turn around to be unfair in trying to pick anybody. So, I believe him when he says I will not interfere in the process in any way. All I want is that let the process be sure to bring out somebody who will work in the interest of Abia State.
What is your relationship with the presidency and the party in Abuja?
I am a very strong member of the PDP. I have been in the Senate twice. I have a very good relationship with the party at the national level and I have also related with each and every member of the national body on a personal basis. So, I’m not somebody that is unknown to anybody within the national party. I am also not somebody who is unknown to the Presidency because I have also played a role. My role today as the spokesman of the Senate also shows everybody that I have a very good relationship with them.
How united are the PDP chieftains in Abia for 2015? We have always seen that the big wigs in the state find it difficult to work together when the chips are down. It happened in 2003 and in 2007. How are you and other leaders of the party addressing these circumstances as we move closer to the general election?
I think that that matter has already been settled and dealt with by the incumbent governor today, Governor T.A Orji. Since 2010, when he came back into the PDP, he has been able to bring everybody together; he has been able to bring the different factions of the PDP together. So, what we have seen really is that syndrome of disunity has actually been permanently buried by the way that has handled everybody. Let me tell you that between 2003 and 2010, for example, several of us never went to Umuahia, not to talk of going to Government House in Umuahia, even though we were senior members of the party; even though somebody like me was Senator in 2007. We never went there because of the way that the previous incumbent scattered everybody. But today, you can see that any time there is anything that brings us together, everybody goes to show that disunity has now been permanently buried.
How do you see the challengers from the other political parties? Are they not in existence in Abia?
I can make a prediction today and I want you to take the prediction to the bank; if I am given the ticket of PDP in Abia, there will be an exodus from every other party to the PDP because most of the people who are in the other parties, are just waiting for is for the PDP to make their decision. I know that they will not have anything to challenge the PDP for once we have the ticket. We have not been talking about other parties because we know those other parties are actually PDP people, who for one reason or the other found themselves in those places and I know that a consensus builder coming into the race will bring each and every one of them back to the PDP.
Angry Birds composer, CEO of The Good Evil and more to lead gaming sessions at Hamburg event
The organisers of Reeperbahn Festival have confirmed a series of talks aimed at games developers for next months event.
The festival is a celebration of the music, games and digital industries, and the team behind it is keen to build on the gaming content, in part by bringing in experts to discuss some of the industrys key topics.
There will be six talks and panel sessions taking place across Thursday, September 18th and Friday, September 19th, covering crowdfunding, finance, music and more.
Reeperbahn Festival takes place in Hamburg, Germany from September 17th to 20th click here to register for tickets. You can read full details of the games programme below:
Thursday, September 18th
11am to 12pm: News Games Marcus Bouml;sch (co-founder and CEO, The Good Evil)
We read a text, listen to a radio report, and watch a television programme. So far, so good. Traditional media are linear. But computers, smartphones, and tablets are capable of more. These are input and output devices. They are interactive. And this is where newsgames come in.
Journalistic content is being not only consumed but turned into something that can be experienced. Games are perfect for making complex systems interactively explorable. Newsgames have been tested around the world during the last ten years or so. Marcus Bouml;sch shows the best and worst examples from Arte, the Guardian, the New York Times, etc. What works? What doesnt work? And whats the hidden potential?
Marcus Bouml;sch guides us through the world of newsgames. In 2013, Bouml;sch and his game studio published Germanys first newsgame and in 2014 he organised Europes first Newsgames Hackathon.
11.45am to 12.45pm: Brains In Games – Combining Virtual and Real Worlds
Panel: Christian Szymanski (CMO, Stryking Entertainment); Lou Fawcett (Director of Games Europe, Iconicfuture); Bruno Kollhorst (Leiter Social Media Techniker Krankenkasse Deutschland)
A significant number of games are using real world IPs to attract customers and gamers. There are a number of reasons: Games allow brands to talk directly to their audience in an emotional and meaningful manner. Brands help game developers to add meaningful content, improve key performance indicators and drive monetization.
1.15pm to 1.30pm: Financing Games in Germany Thorsten Unger (Managing Director, GAME Federation Germany)
Games is a mass market. Games are innovative. The games market is growing year by year. But financing a game in Germany is nearly impossible. What are the reasons?
What kind of solutions are available? What about funding, venture-capital, crowdsourcing, reliable business models and sustainable circumstances in order to push the german market for developing video games onto the next level?
Thorsten Unger, serial entrepreneur and CEO of GAME, the largest association for video games in germany, talks about the current status, new opportunities and risks concerning the issue of financing videogames in germany.
1.30pm to 2.15pm: Crowdfunding: A new way to finance games [German language]
Panel:Thorsten Unger (Geschauml;ftsfuuml;hrer, GAME Bundesverband der deutschen Games-Branche); Adrian Goersch (Managing Director, Black Forest); Jan Theysen (Creative Director, KING Art Games); Claas Wolter (PR Director, Daedalic Entertainment)
Just as music or movies, games are part of our culture. At the same time, Gaming is a multi-million Euro business – and the costs to develop and market a game are rising steadily. Today, for a number of studios its close to impossible to receive any cultural fundings for game development. For some studios, there is one last hope to create their visions: The gamers themselves. In the last couple of month, games such as Dieselstouml;rmers from Black Forest Games or Battle Worlds: Kronos from KingArt, which would not have found any other way of funding, were financed via crowdfunding platforms such as Kickstarter. What advantages does crowdfunding offer to developers? And is crowdfunding a new hope for some companies to develop their games – or just the last resort in an economy that does not support gaming as an cultural object?
At this panel, weve invited a number of spokespeople from gaming studios to discuss how new ways of funding games such as crowdfunding might change the whole industry – and whats right and wrong about it.
Friday, September 19th
1.45pm to 2.45pm: Ari Pulkkinen: The future of game music
You might not have heard of Ari Pulkkinen yet – but you should know some of his tunes: His soundtrack for Angry Birds is not only familiar to millions of gamers all over the globe but also went gold within 7 minutes in Finland and was performed by the London Symphonic Orchestra.
As a music and audio professional, Ari Pulkkinen has gained the deep knowledge and specialized in the field of music and sound design in game industry. His work as a composer, sound designer as well as music and audio producer has left a memorable mark in many productions and independent projects.
In his talk, will discuss the current situation of game music, future contract opportunities, revenue models and designing music for games.
Ari will discuss the importance of music in video games and the opportunities for both the game and music industry in working with artists and composers and soundtracks.
In addition, Ari will explain his work on music and audio design for games such as Angry Birds, Resogun, Outland, Dead Nation and Trine. As Ari states: I love to create emotions, feelings and good memories trough music if my music inspires others, I am truly happy.
4.15pm to 5.15pm: Gaming and music industry why cant we just be friends?
Panel:Ari Pulkkinen (Composer amp; CEO, AriTunes); Wolf Lang (Founder amp; CEO, Threaks); Michael Stoeckemann (Game Sound Artist, Sound of Games); Herr Kasche (Musician amp; Producer); Christoph Hendel (Juristischer Referent, GEMA)
Music is more and more important to the gaming industry, but still only few games invest in licensed music and composers. As of now, licensing music is expensive, rights management is difficult and composers most of the time do not get the gamers recognition. So how should both industries music and gaming work closer together to leverage music in gaming?