Tortoise Capital Resources (TTO)

TOP CONTRIBUTORS

Kirk McClure

Tortoise Capital Resources TTO, a closed-end fund, operates as a business development company (BDC) investing primarily in micro-cap public or privately held companies in the midstream and downstream segments and to a lesser extent the upstream segment of the U.S. energy infrastructure sector.

TTO is sponsored by Tortoise Capital Advisors, LLC, a energy infrastructure Master Limited Partnership (MLP) investment specialist.

Valuation

Distributable Cash Flow

TTO considers distributable cash flow (DCF) to be the most meaningful measure of their operating performance and distribution paying capacity.

DCF is total distributions received from investments including cash distributions, paid in kind distributions and dividends and interest plus total expenses such as operating expenses, leverage costs and current taxes. Total expenses for DCF does not include deferred income taxes or accrued capital gain incentive fees.^[1]

Net Asset Value

TTO's board of directors determines its Net Asset Value (NAV), which may not be realistic. NAV was surprisingly stable during the explosion and collapse of natural gas prices, credit market crisis, and fraud charges at Quest Midstream Partners, L.P. (then representing 12 percent of TTO's total assets).^[2]

Trends and Forces

Uncertain valuation of assets increases risk

As BDCs invest primarily in private companies, there is no readily available market value for their investments. There is often no public information on these companies, and thus there is no standard method in determining the fair value of the companies. This can lead to overly optimistic estimates of the portfolio investments.^[4]

Growth depends on capital market access

Because TTO distributes substantially all of its income to stockholders, it needs additional capital to make new investments. If additional funds are unavailable or not available on favorable terms, its ability to make new investments will be impaired.

TTO canceled a planned secondary offering on Dec. 21, 2007 due to "market conditions".^[5] In essense, additional stock sales at prices substantially below NAV are dilutive.

Correlations

Some interesting statistical correlations (Feb 2, 2007 (or when ETF premiered) - Dec 2008) :

References

1. ↑ TTO 2008 Q1 Earnings Conference Call http://files.shareholder.com/downloads/TYGD/528829629x0x186539/d40e8209-d0ca-4b0f-b81c-f8f6de1cf4d2/TTO%20Q108%20Prepared%20Remarks.pdf
2. ↑ TTO Press Release http://tygd.client.shareholder.com/ReleaseDetail.cfm?ReleaseID=330591
3. ↑ ETFConnect http://www.etfconnect.com/select/fundpages/sectors.asp?MFID=174442
4. ↑ see, for instance, David Einhorn's book Fooling Some of the People All of the Time
5. ↑ TTO Press Release http://tygd.client.shareholder.com/ReleaseDetail.cfm?ReleaseID=283105