GSC Investment Corp (ticker:GNV) is a specialty finance company that trades as a closed end fund. Its discount to NAV is currently listed as -77.42%, but this is highly deceptive. Last month, the fund announced a $1.825 per share dividend, with an ex-dividend date of November 23 and a payable date on December 31, 2009. Each shareholder may elect to receive up to $0.25 in cash. The remaining $1.575 per share of the dividend will be paid in shares of GNV stock. The exercise price for the newly issued stock is based on the weighted average price of GNV for the three days of Dec. 24, 28, 29.
Anyone who will receive this large dividend may have an incentive to try to lower the market price of GNV on these three days. The lower the price goes, the more new shares will be issued and the lower the new NAV.
As of Dec. 23, GNV has a listed NAV of $6.91, but once the dividend shares are distributed, the number of shares outstanding will balloon. If GNV has a weighted average market price of 1.50 for the three days, the NAV should drop to around $3.00 a share, depending on how many investors accept the cash. For lower prices, the NAV will drop even more.
Full Disclosure: No position in GNV