Q4 2019 Earnings Call

Welcome and thank you for joining oak tree specialty lending corporations fourth fiscal quarter 2019 conference call.

Today's conference call is being recorded at this time participants Arnie listen only mode, but we'll be popped. It for a question and answer session. Following their prepared remarks.

No I would like to introduce Michael Mr. Geo of Investor Relations, who knows today's conference call Mr. Mr., Joe you may begin.

Thank you operator, and welcome to Oaktree specialty lending Corporation's fiscal fourth quarter Conference call earnings release, which we issued this morning and accompanying slide presentation can be accessed on the investor section of our web site at Oaktree specialty lending dot com.

Our speakers today, there are many nosy and Chief Executive Officer, and Chief Investment Officer, Matt I know, President and Chief Operating Officer, No Carlyle Chief Financial Officer and Treasurer.

I'll be happy to take your questions following their prepared remarks.

Or began I want to remind you that comments on today's call include forward looking statements, reflecting our current views with respect to among other things our future operating results and financial performance. Our actual results could differ materially from those implied or expressed in forward looking statements. Please refer to where I could see filings for a discussion of these doctors in further detail.

We undertake no duty to update or revise any forward looking statements I'd also like to remind you that nothing on this call constitutes an offer to salary solicitation of an offer to purchase any interest in any oaktree funds.

Just another she knows that Oaktree specialty binding uses the investor section of its corporate web site to not material information.

The company encourages investors the media and others to review the information that it shares on its corporate website with that I'd now like to turn the call over them out panned out.

Thank you, Mike and welcome everyone to our fourth quarter earnings Conference call. We appreciate your interest in and support Oh CSL. We're pleased to report that the fourth quarter fiscal year 2019 completed another strong year, Oh, CSL, we reported NAV per share of $6 in 60 cents, finishing the year with our SAP.

And the consecutive quarterly increase Nab and full year NAV growth, a 51 cents per share or 8.5% net investment income was 12 cents per share for the fourth quarter consistent with the prior quarter and 48 cents for the fiscal year up from 43 cents for the previous fiscal year the annual growth reflects.

Successful investment exits and realizations combined with lower operating and funding expenses.

We steadily monetize noncore investments over the fiscal year, which were reduced by $119 million or 37%. We also made progress reducing non accruals following the exit a four investments during the year.

In the fourth quarter, we received full repayment on one of our investments that was previously on non accrual. We also restructured and investment on nonaccrual status. When we led the recapitalization of the bar by converting our debt to equity and investing a modest amount of new capital I'd like to spend a few moments discussing these events in more detail.

Ill refer back optimal group one of the largest optical retailers in the U.S. faced challenges last year. Following the departure other key account, resulting in alone not being paid off at maturity, we elected not to extend the maturity and instead it entered into a forbearance arrangement with the company. We worked very closely with the private equity sponsor.

Sure and management team on a solution to maximize value and the company was able to sell one of its businesses, which covered the full $45 million of our debt at par, including all unpaid interest default interest and fees. This is an excellent example of our investment teams ability to proactively manage and they're performing investments.

To maximize recoveries and deliver positive outcomes for our shareholders.

Another example, during the quarter was the restructuring of our investment in cloud five formerly known as thing five class five is a provider of cloud based I T hardware and services for the hospitality sector. The company experiencing headwinds following the loss of a large customer and it went on non accrual status last year, we worked with the spot.

Sure a management team to restructure our investment converting our debt position to equity and providing a small amount of additional capital support the companys expansion as a result, we obtained the majority interest and the company and there was no debt on the balance sheet, which we believe puts us in the best position to maximize recovery.

We're pleased with the recent performance of the company and we're hopeful that we'll continue to successfully execute its growth initiatives.

All in these events noncore investors have declined from 893 million since we began managing Oh, CSL two years ago to $205 million or 16% of the portfolio.

We continue to work diligently on maximizing the values of our remaining noncore investments, which we expect will continue to occur overtime.

Fiscal year was also highlighted by our ongoing work to defensively positioned the portfolio. We remain focused on a risk controlled approach to investing <unk> lending to larger and more diversified middle market businesses with lower leverage.

As a result of our disciplined approach our net new investments for the year did not match the pace of our portfolio pay off payoffs and exits and consequently, we paid down debt by approximately $160 million and reduced our overall leverage from <unk> 0.75 times at the beginning of the year to 0.51 times at year end at the same time, we may.

Further improvements to our capital structure to reduce funding cost every prove our financial flexibility in February we amended extended an upsized, our credit facility, resulting in better pricing terms and flexibility and we received shareholder approval to modify asset coverage requirements, providing more cushion on financial covenants and fine.

<unk> as you know on September 30, our might put those in was appointed CEO and CIO Oh CSL arm. It has assumed portfolio management responsibilities for Oaktree Bdcs and strategic credit the team that is responsible for managing Oh see ourselves and portfolio.

Arm and is a respected investor with extensive experience an opportunistic and performing credit he joined Oaktree in 2007 as a member of our distressed debt investment team, where he focused on many of the group's successful credit investments in 2014, he moved onto a U.S. senior loan strategy, where do you assume portfolio management responsibility.

And this role I'm Gonna built an impressive track record that included improved performance and growth in our U.S. senior loan strategy and strong returns and Oaktrees yellows arm in his background investment actually men and significant leadership experience makes him the ideal leader pro CSL, we're fortunate to have a deep bench of highly talented investment.

Fastenal and leaders to drop from at Oaktree, and we're confident that army will lead the company to its best years ahead with that I'll now turn the call over to arm and.

Thanks, Matt and Hello, everyone.

Before discussing the market environment and the portfolio I'd like to say that I'm thrilled to be part of those see ourselves management team.

I'm excited to leave the company had its next chapter and I look forward to meeting with many of you over the weeks and months ahead.

As Matt mentioned I've been at Oaktree for nearly 13 years, starting in are distressed debt group and then what onto run or U.S. senior loan group, while I manage the different strategy I'm quite familiar with the strategic credit investment team and the Bdcs.

Throughout my career at Oaktree I spent a lot of time working with the strategic credit team oftentimes investing alongside them.

In fact, I, even hired some of the professionals, who are now I'm not team.

Fortunate to join and manage a very strong team that has done an outstanding job in repositioning in managing Oh see ourselves portfolio over the past two years.

I look forward to building upon all of their great work.

Now I'll share our view on the overall market environment.

The direct lending and syndicated loan markets continued to be impacted by the same trends that we've been experiencing for the last couple of years.

There continues to be an abundance of capital willing to invest in the space, which is mainly driven by ongoing demand from institutional investors, including Bdcs cellos another private lending vehicles.

As a result, the market remains very competitive and borrower friendly we continue to see tight spreads in both the direct lending and broadly syndicated loan markets with spreads in the direct lending market tightening relative to the broadly syndicated loan market.

Well, we're fundamentals Meanwhile, remain relatively stable as they continue to benefit from the steadily growing U.S. economy.

However, we are seeing signs of weakness in certain sectors of the economy as well as isolated company specific events and credit deterioration in certain loans held by a number of direct lending funds.

We believe that this could create more attractive investment opportunities pro CSL down the road.

Well, we remain disciplined and defensive in or investment approach, we are mindful of relative value and investing where we can find the best risk adjusted returns.

As a reminder, drawing upon the vast resources of the Oaktree platform, we're able to source for multiple origination channels, including middle market sponsor finance non sponsor broadly syndicated loans and bonds.

This diversity provides us with a unique set of investment opportunities. It allows us to optimally construct our portfolio.

Given these dynamics, we originated $138 million of new investment commitments across nine issuers during the fourth quarter for these ride ons to existing borrowers while the balance were made in the primary and secondary markets.

Our largest originations this quarter was to pay simple also known as ever Commerce, a service commerce platform that provides business management integrated payments marketing and other solutions to small and medium sized businesses. The company was seeking capital to support future growth initiatives and to recapitalize its balance sheet following an equity investment by a prominent private equity.

In aggregate Oaktree funds invested $60 million in the first lien what Joe CSL was allocated $38 million.

The loan as attractively priced at LIBOR, plus 550 basis points. It was supported by a healthy equity cushion of 77%.

The average yield for all of our debt originations was 7.7% down modestly from the previous quarter and 89% were first liens.

While our conservative approach has resulted in a slightly lower overall yield on new investments. We're confident that this is a prudent way to invest today, especially given the current competitive market environment.

Looking ahead, despite the broader competitive market dynamics. We're currently evaluating a number of interesting opportunities in our pipeline, including investments in the sponsor and non sponsor markets that we believe presents an attractive risk reward.

That said, we continued to be patient it opportunistic and our investment approach and we believe we're well positioned today with ample liquidity to take advantage of new investment opportunities in our pipeline.

Turning to the overall portfolio the portfolios characteristics were relatively stable from the June quarter at September Thirtyth, we held $1.4 billion of investments across 104 portfolio companies in 49 industries, 79% of our investments were senior secured loans of which 54% were first lean six.

<unk> was an unsecured debt, 7% was an equity and LP interest and 9% can just consisted of investments in the Kemper JV.

We remain focused on defensively positioning those yourselves portfolio by maintaining diversity across issuers and borrowers focusing on senior secured opportunities and lending to larger more diversified businesses with lower leverage levels.

So that end the median portfolio company EBITDA increased to $155 million from $103 million in the same period, one year ago.

Leverage at our portfolio companies was relatively unchanged at 5.0 times, well below our overall middle market leverage levels, which remain elevated.

[noise] in summary, we were pleased with the composition of our portfolio and with the ongoing progress of reducing the size and risk in the non core portfolio fiscal 2019 was a solid year gross yourself and we believe we're well positioned to continue to deliver attractive risk adjusted returns to our shareholders in 2020.

Now I will turn the call over to melt discuss our financial results in more detail.

Thank you aren't in Oh, CSL delivered another quarter of solid financial performance, which also contributed to strong full year results.

During the fourth quarter total investment income was 34.5 million down from 36.7 million in the third quarter the.

The 2.2 million decline was due to lower interest and dividend income and was partially offset by higher fee income.

Interest income was down by two point threemillion quarter over quarter, mainly due to higher oil idea acceleration on loan payoffs that we received in the June quarter as compared to the September quarter.

In addition interest income was lower due to the decline in LIBOR during the quarter as well as a smaller portfolio.

Dividend income was lower by 600000, primarily the result of the cell live in aircraft in our aviation subsidiary in the June quarter.

We recorded higher fee income quarter over quarter, mostly due to higher prepayment fees from a number of loan pay offs with the re fact exit being the largest contributor.

Overall, the re fact monetization generated 3 million in interest income and fees in the fourth quarter.

For the full year total investment income was up 9 million driven mainly by higher oil idea accretion and average interest income, which was partially offset by lower dividend income.

Net expenses for the fourth quarter totaled 18.2 million.

Around 1.8 million from the June quarter.

The decline was primarily driven by lower interest expense and lower incentive fees, mainly due to the decrease in investment income.

For the full year operating expenses decreased by 3.2 million as we reduced professional fees and other DNA expenses year over year.

Turning to net asset value.

Anybody was $6.60 per share at year end consistent with this level at June 30.

And up 8.5 per cent for the full year.

Contributing to the puts and takes for the fourth quarter with income in excess of our dividend and net gains and exited investments primarily offset by unrealized write downs of some of our quoted investments.

Moving to credit quality as of September 33 investments, representing less than 3 million at fair value run nonaccrual status.

Which represented just 0.2% of the debt portfolio.

This is down from 6.4% in the June quarter, and 9.6% at its peak in the December 2018 corridor.

The quarter over quarter decrease was mainly due to two events that Matt discussed first the successful exit of our investment in re fac and second the restructuring of our debt investment in cloud five which is now classified as equity.

With respect to leverage our leverage ratio decreased 2.51 times from 0.58 times on June Thirtyth.

As a portfolio shrank slightly during the quarter.

We experienced 139 million and pay offs exits, which was greater than the 129 million of investment fundings.

As of year end total debt outstanding was 476 million and had a weighted average interest rate of 4.8%.

Down slightly from the June quarter.

Cash and cash equivalents were 15 million at September 30, and we had ample liquidity 385 million of undrawn capacity under revolving credit facility.

Shifting now to the Kemper joint venture.

As of September 30, the JV had 361 million of assets invested in senior secured loans to 51 companies.

This compared to 349 million of total assets invested in the same number if companies last quarter.

Leverage at the JV was 1.2 times at year end.

Down slightly from the June quarter.

Taking into account the settlement of all trades net leverage would've been 1.4 times.

As a reminder, we also enhanced the joint ventures capital structure during the year by amending and increasing the size of its credit facility from 200 million to 250 million.

The JV credit facility had 80 million of Undrawn capacity at year end.

Now I will turn the call over to Matt.

Thank you Michelle we continue to effectively execute and deliver solid returns for old CSL through a number of initiatives first our ongoing progress positioning the Kemper JV for long term success continued in the late this quarter, we added $46 million of new investments across seven issuers leverage was one point.

Two times, well below a lot or longer term target of 2.0 times, leaving us plenty of runway to invest in opportunities. We also continue to reduce their holdings of non interest generating investments redeploying the capital into new investments. We received proceeds at $49 million from the exit of re fact, which can now be invested in.

Income producing assets to illustrate the impact that these proceeds can have on earnings assuming we're able to invest $49 million at our current debt portfolio yield of 8.9% Oh see ourselves our OE would increase by approximately 40 basis points annually.

Following the exit every fac non interest generating investments were $102 million corridor and a decrease from 152 million in the prior quarter. Additionally, Oh CSL has the ability to increase returns by deploying more leverage at the portfolio level, while we have no near term plans to exceed our target range <unk> 0.72 point.

Eight five times. We're currently operating at 0.5 times. So we have the opportunity to enhance returns as we find attractive investments and deploy higher leverage turning now to the dividend.

This morning, we announced an IDE and a half cent dividend is consistent with the prior six distributions, we intend to continue paying sustainable and consistent dividends that are supported by portfolio performance. In conclusion, we are proud of our strong fourth quarter results in our work to reshape the portfolio by investing in assets that are consistent with oak trees disciplined.

Risk controlled approach as we look to fiscal 2020, we're confident that we have positioned oh see ourselves portfolio for continued strong earnings we will continue to strategically leverage oaktree significant platform to identify attractive risk adjusted investment opportunities that deliver value to our shareholders. Thank you for joining us on today's call.

Paul and for your continued interest in Oh, CSL with that we're happy to take your questions. Operator, Please open the lines.

We will now begin the question and answer session.

You asked a question you Me Press Star then one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

[noise]. The first question is from Kyle Joseph with Jefferies. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions start off on on yields I know you highlighted that a yield on new investments has come down a bad but if you look at the the overall portfolio. The yields are really hung in there and are actually up a bit year over year.

Is that is that primarily a function of just portfolio rotation and rotating non income producing security into actual income producing assets.

Yeah, that's exactly right. Those are been speaking we have been able to deploy some non income producing assets into income producing loans.

Got it and that and then looking at repayments, obviously, they've been elevated but can you give us a sense for your outlook for repayments now that the you know the noncore book is has gotten to be the size and it is.

On the non core specifically on the overall portfolio overall portfolio would you anticipate repayment levels kinda subsiding, given you know how much you how much of the legacy book you guys have already exit.

You know, it's hard to predict the pace of of repayments. Yeah. We feel good about the book and when you do have a high quality book with with good borrowers I know you tend to see repayments are more frequently than you would like but I don't think we can make a prediction on the pace of the pace of repayments. Unfortunately.

Got it that's that's fair and then one last one from me obviously.

Nice job exiting two non accruals, but oh the of the assets you guys have originated can you give us a centsper performance there both in terms of revenue growth in EBITDA growth in any sort of <unk> and any changes you've seen over the last three months.

Yeah. That's a good question and I wouldn't say that there is a Ah you know a meaningful media and or mean, but anecdotally I would say in the U.S. economy in both broadly syndicated loans that we will look at and some of the private loans that we look at you know revenue growth.

As in the mid single digits EBITDA, it really depends on the company in the industry. We've seen a most businesses I would say have anemic EBITDA growth.

Despite having some revenue growth a part of the challenges as a in terms of profitability is a tight labor market as well as some volatility in commodities. So I wouldn't say, there's a tremendous takeaway other than them the market and the economy is stable, but I wouldn't say, it's a <unk>.

Strong as it was you know two or three years ago in terms of a year over year revenue and cash flow growth.

Got it that's helpful. Thanks, very much for answering my questions.

No problem. Thank you.

Your next question is from rich Shane with JP Morgan. Please go ahead.

And one in guidance Melissa on for like.

Alan I congratulate.

Welcome.

I was hoping you guys could touch on at the equity position I understand you get the restructuring, Italy comps five you said and restructured that deal and gypsum equity incentive that made a small incremental investment.

Given that you do want to ultimately rotate out and be illiquid or sort of non income producing position.

Hello, Hi might you be willing to take the equity component of that portfolio, if other restructuring opportunities.

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And thanks for the question Melissa It's really a case by case basis I don't we don't have a target in mind in terms of equity in fact, we would that we'd like to have the equity position at zero.

But with that said, we're always looking to maximize outcomes and recoveries given challenging situations.

We have of our shareholders and so sometimes you have to take equity to do that and to take to be able to.

You don't bridge to a medium or longer term outcome that we think is value maximizing.

Yeah, well this is Matt the yeah that kind of the point I would make is you know kind of sense weve taken over that the management of the B.C. You know, we've we've kind of work to name by name and to to reach that the we think the best outcome as opposed to kind of one kind of setting parameters are oh.

Broad brush approach, it's really just been name by name, we think that results in the than the best outcome and we're going to continue to do that.

Okay. I would also mentioned in terms of in terms of equity also I mean once in a while we do invest in some warrants along as kind of a a kicker attached to our some of our loan positions, but those are just more you know yield enhancement rather than a rather than a strip.

TJX view towards adding equity.

Got it and my name is well find a legacy investment or is that when it came from your point.

No it's a legacy investment.

Okay. I guess my last follow up question for you would be around since the syndicated market an apology I missed that well covered already given some volatility in that space and.

Yes, and increased allocation kind of Opportunistically there something you guys are considering.

And we're always considering relative value between you know bombs loans and private that and you're right that the broadly syndicated market is a little bit more dislocated than either high yield bonds or direct lending. The reason for that is there's been no over $50 billion of retail outflows out of the broadly.

Syndicated market over the last 12 months.

And see a low formation, while it's been strong most of the year, it's a tailed off here in the fourth quarter and so that that buyer base, which is actually very rating sensitive buyer base.

Is a little bit weaker than it was but even away from the COO.

Investor Universe, there really isn't incremental fund formation of meaningful scale to buy loans that arent structured optimally for CLL execution. So if you do have a b three corporate family rating a alone.

And if it's a loan that was then perhaps two years ago with spreads that are you know that were tighter than than they should be today. Those loans are are trading at a discount in the you know in the mid Ninetys and so yeah. We are seeing some opportunities to invest in that space, but obviously, we're not looking to add credit risk of meaningful scale and.

Into the into CSL and so it's it's really a relative value case by case underwriting, but but we are seeing some opportunities there.

Got it thank you.

Your next question is from Ryan Lynch with KBW. Please go ahead.

Good morning, Thanks for taking my questions I'll first arm and a welcome to new position as CEO of those yourself.

Thank you as I look at your your background arm in a you know you are.

The head up a little trees, performing credit, which includes you know really oversight Oh senior loans high yield bonds convertibles structured credit emerging markets mezzanine as well as the direct lending strategy as well as you know that did bdcs now that's a very wide range of very heavier.

Responsibilities. So how are you allocating your time and how do you have enough time to allocate to actually be focused in on Oh, CSL managing that entity.

That's a great question I think it's a a multipart answer first the team manages strategic credit and the and the Bdcs is in place and it's a team that I know very well.

And so there is sort of a seamless transition as it pertains to that team remaining.

ER and managing the portfolio second.

Edgar and I.

Joined Oaktree is roughly the same time in our distressed that group sort of grew up together in the distressed that strategy of a very similar view on credit and a view on investing informed by how things evolve in the global financial crisis I given that background. It was the most natural fit for me to take over for Edgar upon his departure.

Sure and we think that there will be no really very little to no style drift I, just given that consistency in background and investment type.

Well in terms of my other responsibilities I'm I'm fortunate to have a team of portfolio managers managing each of the individual strategies and so my responsibilities are more in terms of oversight and information sharing across the various strategies in terms of knowing where are the most attractive relative value resides best practices.

It is across those different strategies and geographies and so I'm not digging in on emerging market investments on a single name basis, but interface thing with our portfolio managers in each of those underlying strategies is actually <unk> I believe will inure to the benefit of arose CSL shareholders, because we will.

Have a view on a adjacent asset classes that may influence, both technical and fundamental outcomes that could be interesting proceeds so and so I. It is it is certainly a more than a full time job, but my my attention is very much focused on the strategic credit.

Strategy in terms of portfolio management responsibilities. Obviously those he also is a very material part of that and we're really looking to expand our reach and in the origination there. The other thing I would say as you know while I was the portfolio manager for our senior loan strategy.

I did earlier this year promote one of our senior members of that team to become an assistant portfolio manager and now he is taking over as the sole portfolio manager for that strategy. Upon my Uh Huh.

Departure from that group and appointment as CEO CSL. So it certainly busy but it's it's very manageable I think it's a very exciting time to be able to look across different asset categories and invest in Oh CSL without knowledge in mind.

Okay.

That's really helpful in really good color and background on on on the transition and how you you split your activities I had a question online capital deployment and leverage utilization.

So basically since Oh tree is taken over this entity, we continue to see a leverage continue to decline. It was one quarter word increase would basically every quarter is decline now I know it's in that Theres a lot of rotating out of noncore assets that can probably you know.

Yup repayments little bit over this time period, but you guys have a leverage target <unk> 0.7 to 0.85 you guys are now at <unk> 0.5, once was significantly below that.

Can you guys ROE leverage and how important news it touches utilized higher leverage in this you know.

In this competitive environment that doesn't really seem to be meaningfully change it changed while still being patient and prudent and sticking to your knitting.

Yeah, I mean, there's certainly a balance there you know we would like to get our leverage levels up into the range that we have indicated the fact that were below that is because we just haven't seen attractive direct loan direct lending opportunities as you know there's been a significant amount of fun formation and.

Direct lending over the last five to seven years or the assets under management in that asset class of more than doubled in that timeframe.

And we feel that you're chasing highly cyclical businesses in direct loans that are highly levered and as spreads have tightened then the typical sponsor backed direct loan that we're seeing getting done in the market is just not attractive enough from our perspective.

And so we would like to originate loans that are a little bit off the beaten path more opportunistic in nature, lower levered and working with borrowers that maybe I'm just aren't.

The classic fit for a typical direct lending fund or for CLL execution, and as you might imagine to be able to do that requires a meaningful investment in origination air wires patients.

And it requires turning over a lot of stones until you find a real they'll get a value. That's what we're focused on doing we will increase leverage as we do you know widened our pipeline or increase our pipeline.

But we're also not going to chase the is a highly cyclical market that that has gotta developed at this point indirect lending.

Okay. Yeah, I appreciate the willingness to be patient and prudent you know in an environment that is very competitive and where are you may not be seen some of the best [noise].

Risk adjusted returns.

But that would bring me I guess to maybe my next question regarding share repurchases. If the market environment, you don't deem attractive opportunities outside of your existing portfolio. You know, it's leveled actually grow the portfolio and increased leverage one way you can do that is purchased shares, particularly if you're trading.

At a significant discount to book value, which you are so what are your views on share repurchases.

Well, we we've considered many different ways to enhance shareholder value on share repurchases. We we're not advocating doing that at this time first of all it reduces the float on the shares a and second we would like to use our capacity that we have they know CSL to grow the.

Book I I am obviously very familiar with what sort of pipeline. We have seen this year, but I do think that we have we need to make a renewed effort to to looking at more deals I'm expanding our pipeline.

Widening our funnel and so I'm not prepared to say that we have turned over all the stones that we need to turn it over.

Before we could advocate a share buyback.

And Ryan, it's it's Matt and just to just to add to that into very you know it's a very good question, then and we discuss it with our board you know every time, we get together that one of the thing to add to the Army's answer is one of the things that as we mentioned previously we're very focused on his obtaining an investment grade rating. So you know increasing our leverage through.

<unk> share repurchase obviously is something that that that from a ratings perspective is not a positive. So that's just one other kind of one of the consideration that we add to the next whenever we look at where we look at this.

<unk>, Yeah now that's right.

Makes sense trying to trying to get the investment grade rating I get though that the negative that has on that I would you say you know as a follow up I I also understand the though the want to grow the portfolio versus actually repurchase shares, but I would say in the absence of portfolio growth with which hasn't happened really over the last couple of years it seems that she.

Every purchases could be a nice complement to that so.

That's all my those are all my questions I appreciate the time today.

Thanks Ryan.

Again, if you have a question. Please press Star then one the next question is from Jim Young with West family investments. Please go ahead.

Yeah, Hi, <unk> arm and you'd mentioned that there you're seeing from weakness in certain parts of the economy could you elaborate and be a little bit more secure degrees.

Sure well energy, obviously, we are seeing both exploration and production companies as well as services attached to those businesses are having problems both on the onshore and offshore you know part of that market we are seeing.

Some a commodity oriented weakness in some chemicals, we are seeing some autos a slow because especially those that are exposed to Europe and China. So I wouldn't say it is.

I wouldn't say the pockets of weakness are necessarily tied to one another but there are some idiosyncratic issues developing in the markets that that we're watching.

And the other thing is I would say generally leverage levels are higher today than they were five years ago, four years ago and companies, especially leveraged buyouts that were very aggressive in nature and and included significant synergy assumptions I would say that those haven't worked out on a broad.

Todd basis.

And therefore I'm those companies that were supposed to grow into their capital structures have not I would say by and large but there's certainly our outliers their their businesses that have done quite well in executing on synergies I wouldn't say, it's every business out there, but in other markets have been very aggressive unforgiving and.

And you know that I, we expect will come home to roost at some point.

Thank you and your second question is that you'd mentioned that.

You redeploy some reaction from a non in country income producing that you'd be free.

The are you talking about 40 basis points, earning wide basis can you give me similar benchmark. If you increased 11.5 times could 0.6 times what would be incremental are we benefit.

On an annualized basis and is that a benefit it is a linear benatar. Thank you.

Yeah. This is our men again I think we should probably follow up offline on that I mean, where I don't have I don't have that kind of other top of my.

You know the tip of my tongue, but we were happy to cut a run that calculation and get it you offline if you'd like yeah, and Jim It's Matt I'm never when they're very good at math, So [laughter] I mean make sure I get to the numbers rightfully give it out on a regular line.

Okay. Thank you very much that's it for my question.

Thanks, Jim.

This concludes our question and answer session I would like to turn the conference back over to Mr. Mustachio for any closing remarks.

Thank you again for joining us for our fourth quarter earnings Conference call. A replay of this call will be available for 30 days I know see yourselves website in the investor section or by dialing 87734 for 75 to nine for U.S. collars or one for one to 317 0088 for non U.S. collars with the replay at.

Access code 10135791, beginning approximately one hour after this broadcast.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[noise].

Mm Hmm.

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