Q4 2019 Earnings Call
Please standby.
Good morning, and welcome to <unk> Park floating rate Capital's fourth fiscal quarter 29, <unk> earnings Conference call Today's conference is being recorded.
At this time all participants have been placed in listen only mode. The color will be open for questions and answers. Following the speakers remarks, if you'd like to ask a question I time simply press star one on your telephone keypad.
You'd like to withdraw your question. Please press star to on your telephone keypad. It's now my pleasure to turn the call over to Mr. Art, Penn Chairman and Chief Executive Officer of Pennantpark floating rate capital. Mr. Pen you may begin your conference.
Thank you hi, good morning, everyone I'd like to welcome your dependent park floating rate Capital's fourth fiscal quarter 2019 earnings conference call.
Joined today by the that brought our Chief financial Officer.
Please start off I disclose your some general conference call information and included discussion about forward looking statements.
You Arts I'd like to remind everyone that today's call is being recorded. Please note that this call. It a property up in apart floating rate capital and that any on off right broadcast of this call in any form is strictly prohibited audio replay older coal will be available by using the telephone numbers and paying provided in our earnings press release it relies on our website.
I'd also like to call your attention to the customer Safe Harbor disclosure in our press release regarding forward looking information today's conference call May also include forward looking statements and projections and we ask that you referred to our most recent filings with the FCC four important factor that could cause actual results to differ materially from these projections.
We do not undertake to update our forward looking statements unless required by law.
10 copies of our latest filings. Please visit our website at <unk> Dot Com Oracle I said to want to 90, roughly 1000 at this time I'd like to turn the call back to our chairman and Chief Executive Officer Art Penn.
Thanks to be I'm going to spend a few minutes discussing financial highlights followed by discussion of the portfolio investment activity.
Naturals, and then open up for Q1 night.
Quarter ended September Thirtyth, we invested 141 million and primarily first lien senior secured assets.
An average yield of 8.5%.
Pennantpark senior secured loan fund or P. SSL continued to perform well as of September Thirtyth P. SSL owned a 489 million dollar diversified pool, a 45 names with an average yield of 7.6%.
Credit quality has improved since last quarter the number of non accruals on our books today is one down from four as of March 31, the one non accrual represents only 0.4% of cost and zero percent of the market value of the portfolio. We're pleased with this progress.
Over the last several years, we substantially grown our platform by adding senior and middle level investment professionals.
Regional offices as well as New York the additional people in offices combined with additional equity and debt capital. We have raised has significantly enhanced our deal flow. This puts us in a position to be both active and selective.
Today, we're only investing at approximately 4% of the opportunities that we are shown.
Net investment income was 29 cents per share.
Due to our activity level and the maturation of P. SSL. We're pleased that our current run rate net investment income covers our dividend.
Our earnings stream should have a nice tailwind based on a gradual increase in our debt to equity ratio, while still maintaining a prudent debt profile.
As of September Thirtyth, our spillover was 31 cents per share.
With regard to the small business credit availability Act a reminder, that our board approved the modified asset coverage that was included in the law, reducing asset coverage from 200%, 250% effective April .
2019.
Overtime, we are targeting a debt to equity ratio of 1.4 to 1.7 times, we will not reach this target overnight, we will continue to carefully invest and it may take a several quarters to reach the new target.
As of September Thirtyth, our debt to equity ratio was 1.27 times.
Given the seniority of our assets in September we completed our first CLL financing in which we raised $228 million of external financing to help achieve this new target.
CLL financing is attractively priced and long term.
The financing has an average cost of LIBOR plus 246.
As expected average life of seven years, and a final maturity of 12 years.
Hey, careful imprudent, increasing leverage against a primarily first lien portfolio should lead to higher earnings.
Our primary business a financing middle market financial sponsors has remained robust we have relationships with about 400 private equity sponsors across the country and elsewhere that we managed from our offices in New York, Los Angeles, Chicago in Houston.
We have done business with almost 185 sponsors today.
Due to the wide funnel deal flow that we receive relative to the size of our vehicles, we can be extremely selective in our investments.
We remain primarily focused on long term value and making investments. So we'll perform well over several years and can withstand changing business cycles.
Our focus continues to be all companies and structures that are more defensive have low leverage strong covenants and high returns.
We continue to be a first call for middle market financial sponsors management teams intermediaries, who want consistent credible capital.
As an independent provider free of conflicts or affiliations, we are trusted financing partner for our clients.
As a result of our focus on high quality companies CRT and the capital structure floating rate assets and continuing diversification our portfolio is constructed to withstand market and economic volatility.
The cash interest coverage ratio the amount by which EBITDAR cash flow exceeds cash interest expense continued to be healthy 2.4 times. This provides significant cushion to support stable investment income.
Additionally, at cost the ratio of debt to EBITDA on the overall portfolio was 4.6 times another indication of prudent risk.
And our core market of companies with 15 million to 50 million of EBITDA, our capital generally important to the bars or borrowers and sponsors we're still seeing attractive risk reward and we are receiving covenants, which helped protect our capital.
Credit quality since inception of rain half years ago has been excellent out of 363 companies in which we have invested since inception, we've experienced only nine non accruals.
Since inception, Pflp has invested over 3 billion at an average yield of 8.1%.
This compares to an annualized loss ratio, including both realized and unrealized losses of approximately nine basis points annually.
With regard to the economy and the credit cycle at this point, our underlying portfolio indicate a strong us economy and no signs of a recession.
From an experience standpoint, where one of the few middle market direct lenders, who is in business prior to the global financial crisis have a strong underwriting track record during that time.
Although pflp was not in existence back then pennantpark as an organization was.
And at that time was focused primarily on investing in subordinated and mezzanine debt.
Prior to the onset of the global financial crisis in September of 2008, we initiated investments, which ultimately aggregated $480 million again, primarily in subordinated debt.
During the recession, the weighted average EBITDA of those underlying portfolio companies declined by 7.2% at the trough with the recession.
This compares to the average EBITDA decline of the Bloomberg North American high yield index down 42%.
As a result, the IR those underlying investments was 8% even though they were made prior to the financial crisis in recession.
We are proud of this downside case track record on primarily subordinated debt.
On a mark to market basis positive movements in the value of by late am on train were offset by valuation declines of country fresh unitek and the write off of Hollander as discussed last quarter Hollander filed for chapter 11 in May our preferred strategy was a lender funded reorganization whereby the lenders would take majority control.
Unfortunately, we cannot get the majority of lenders to support a lender funded transaction and the company was sold to a third party.
In terms of new investments, we had another active quarter investing an attractive risk adjusted returns our activity was driven by mixture of M&A deals growth financings and refinancings and virtually all of these investments we've known these particular companies for awhile.
Studied the industries, where I have a strong relationship with the sponsor.
Lets walk through some of the highlights.
We purchased 6.5 million a first lien term loan 2.2 million of first lien revolver and 1.4 million of common equity of Altamira technologies. The company's government services contractor focusing on the modernization of technology for the U.S. defense and intelligence communities.
We are sky is the sponsor.
We purchased $90 million first lien term loan of quantum spatial as a provider of geospatial solutions. The company gathers detailed mapping datasets provides analyses and generates insights for its customers Arlington capital partners is the sponsor.
We purchased 18.3 million a first lien term loan $1.9 million revolver, a 4 million of delay draw as well as 0.5 million of equity of slush injure Global the company is a global market research platform that offers agencies and brands, both qualitative and quantitative data collection services gauge capital as the sponsor.
Turning to the outlook, we believe there the rest of 2900 will be active due to both growth and M&A driven financings due to our strong sourcing network in client relationships, we are seeing active deal flow.
Let me now turn the call over to leave our CFO to take us through the financial results.
Thank you art.
The quarter ended September 32019, net investment income was 29 cents per share.
Looking at some of the expense categories.
Management fees totaled about $5.3 million.
General and administrative expenses totaled about $1 million and interest expense totaled about $6.3 million.
We raised 228 million in external siloed debt and incurred 3.7 million upfront costs, which we will amortize over six years.
Since we do not elect to mark to market.
That said staff has indicated they prefer this position for the regulatory asset coverage test.
During the quarter ended September Thirtyth net unrealized appreciation on investments was about $11 million or 27 cents per share.
Net realized losses, what about $15 million or 39 cents per share.
Unrealized appreciation on our credit facility in notes was about one cents per share.
Net investment income exceeded the dividend by one cents per share Consequently, and Avi went from $13.07 to $12.97 per share.
Our entire portfolio, our credit facility knows our mark to market by our board of directors each quarter using the exit price provided by an independent valuation firms exchanges or independent broker dealer quotations when active markets are available under the 828 25 in cases.
More broker dealer quotes are inactive we use independent valuation firms devalue the investments.
Our portfolio remains highly diversified with 95 companies across 37 different industries.
87% has invested in first lien senior secured debt, including 11% in PSS sale.
40% in the second lien debt.
10% equity, including 5% NPS itself.
Our overall that portfolio has a weighted average yield of 8.7%.
99% of their portfolio is floating rate and our overall leverage on an 80 is 1.27 times now let me turn the call back to our.
Thanks, Steve.
To conclude we want to reiterate our mission our goal is a steady stable and protected dividend stream coupled with the preservation of capital everything we do is aligned to that goal, we try to find less risky middle market companies had at high free cash flow conversion recapture that free cash flow primarily in first lien senior secured floating rate debt instruments, and we pay out those.
Contractual cash flows in the form of dividends to our shareholders.
In closing I'd like to thank our extremely talented team of professionals for their commitment and dedication.
Thank you all for your time today and for your investment and confidence in US that concludes our remarks at this time I would like to open up the call to questions.
Thank you if you would like to ask a question Chris Please signal by pressing star one and your telephone keypad, if you're using this speakerphone. Please make you hear me function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question.
And we'll go first to Mickey Sheila lending banks.
Yes, good morning art and fees.
Good morning.
I want to sort out by asking.
30000 foot sort of question Theres been a lot of stress obviously the more liquid.
Loan markets and I do think some of that weakness is due to fund outflows, resulting from declining lie bore but I think the markets also realizing that deal terms have been too aggressive in some cases and fundamentals are deteriorating in other cases.
And then that's resulting obviously, there's bifurcation that we're seeing between.
Credits are perceived to be good and those that are perceived to be week, but as you know sometimes the baby gets sort out with a bath water. So kind of a long winded question, but within that volatility are there areas of the more liquid markets, where you're seeing interesting opportunities.
You think perhaps the market is a recent mispricing and for those investments would you be more interested in putting them on PFS LTE is balance sheet or the JV.
Thats a great question. Thank you Mickey.
We dabble in that.
Broadly syndicated space occasionally.
When we have really good information flow in the company, where we may have lent to it in the past, where we know the management team are we know the sponsor and where we can buy dollar for 90 cents or 80 cents or 70 cents. We occasionally we'll do so we certainly did a bunch of that in 2009 in 2010 and that was a significant.
Additions to our returns during that time period, we did some of that last December December of 2018 when.
When we saw some weakness and we had companies are we saw companies and the broadly syndicated space that we knew that we used to finance and we felt very strongly about that was certainly good times, a dip our toe and so it's something that we evaluate.
We are always scanning for companies that we know and industries that we like where we think we have.
And information.
In our library that can help us analyzer particular credit.
So it's something that we're monitoring where do we put it I think we put it wherever.
However, it is most efficiently financed.
Go into joint venture it could go into our new CLL. It could go right kind of into the the balance sheet of Pflp. So it's kind of it just depends kind of where it fits the best from an optimization standpoint.
So just to make sure I understand or presently you haven't done much of that if any then.
At this point no. It's something we're monitoring we did we just some of that in last December 2018, we're not seeing yet.
Are you I mean, it may take a little while sometimes.
The first blush.
I will take is not first time to be dealing in lot of the deals that were done in the broadly syndicated space last year too so lot of pro forma adjustments, obviously, they're typically covenant light to leverage is high.
So we look at all of this out of all of that there may be few things that few deals that might make sense for us to to select for our portfolio, but we haven't done anything yet, but it's something that we're monitoring.
Okay. If I could just switch gears can you give us the main drivers of the realized loss in the unrealized appreciation in the fourth quarter.
Sure.
Yes, let's just pull it out for you.
So the big was a big uptick for and non train.
As well as by late.
Offset by country fresh.
And hollander or holiday, we talked about was was obviously the biggest negative move when we were negatively surprised unfortunately by how that how that bankruptcy process played out and and our to do so that Keith.
In the case of Hollander did you say.
That was written down completely.
Yes that was run down completely.
We had a.
We were hoping for.
Hey, lender led reorganization, where the lenders word on the company.
We cannot get all the lenders.
In the same boat.
There are some people in marketing when they have a tough deal like to push and under its carbon not not talk about anymore for us. The question is what's the best thing for our investors long term in certain cases, we will invest more and.
And and try to drive value there and we've had a very good track record over time.
Doing that.
Fortunately.
We couldn't get all the lenders with US this time around so the company was sold we got our dip loan pay back and we wrote off our our term loan, but hollander is now in terms of.
So that's that that's obviously disappointing, but I did also noticed that lifecare was completely written down.
So those are.
Kind of outcomes you would like for first liens.
Was there something it was there some particular attribute about those deals that led to those outcomes.
With with all of our all of our Underperformers and we've had nine and about nine years FLT in terms of non accruals. There's always an idiosyncratic usually in idiosyncratic reasons I can go to reach I can go through all of them if you want to offline.
With the health of with the healthcare deal. It was it was it reimbursement change.
And with Hollander.
They were just doing too many acquisitions to quickly they didn't have enough kind of oversight of the company.
And.
The last acquisition didn't work so.
Moving to quickly so, but they all had their own story overall non accruals over nine years out of 363 deals.
Pretty good track record nine basis points of annualized loss over $3 billion very good track record, we happen to as you know several quarters ago Asps for non accruals and that one quarter after having no non accruals for two straight years. So so we've taken our medicine. The medicine has been taken in opening weekend.
We can go for us and strengths and make Pflp boring again, which is certainly our goal.
Okay. I appreciate that are just a couple of quick housekeeping questions.
Was there any interest income recaptured during the quarter or some sort of other nonrecurring item in interest income.
No.
Okay and.
Notice that the cash balance is relatively was relatively high.
Timber.
I'm sure is a good reason probably related to the changes in the balance sheet, but can you walk us through why you were holding so much cash.
At the end of the core.
If you have I believe that something with our COO. So when we got the yellow thats exactly right. So when we find that this year, though we got 228 total cash.
A large portion of it obviously would pay down our current credit facility and the rest of these we left for deals that were unsettled door.
For dividends that we need to base for the following day. So it ebbs and flows it just happens to be a nice early to be fairly large number but in general the idle cash or the cash on the balance sheet is area.
I understand the b, but theres still a sizable balance on the credit facility. So.
Theres a lot of moving pieces here I guess my question is is it reasonable to stream that cash returns back towards the sort of 30 million level, which if you've been doing that for a few quarters.
That's a very good assumption I think thats kind of where we are today again, it ebbs and flows you how unsettled trades that you need to prepare cash for.
30 million is a very good assumption okay. That's it for me I appreciate your time. Thank you.
Speaking.
And next we'll go to Ryan Lynch of KBW.
Hey, good morning, guys and thanks for taking my questions.
If I look at your guys.
The focus on the right your balance sheet for maybe if I go back as early as you know 2017, you guys had all of your your liabilities on our credit facility you guys have done a really good job expanding your liability structure.
You are dead and most recently.
These asset backed notes.
As we look going forward.
Are you guys happy with that kind of the current composition of your liability structure or how do you see that.
Changing if any going forward.
I think were relatively happy with it Ryan. Thank you for the question.
And we're always pondering and always looking at all the different markets and all the different.
Ways to finance, obviously with the law changing and the ability to leverage up.
Assets like these which are among the lowest yielding assets in the space and lowest risk assets in the space you gave us some really nice opportunity to assess.
So different options, including the CFO style financing, which which we like to do which is going to can be very efficient very long term.
Financed good financing for us for these kinds of asset so something we'd look at obviously.
We can take that style of financing and look at PSS l. itself and say could PSS hell benefit from kind of a securitization. So thats something we think about.
But there is nothing imminent that other than maybe thinking about something there, but thats certainly days.
Okay.
That's helpful. And then can you remind us if I look at.
Your balance sheet portfolio has about 8.7% yield versus your portfolio.
As to how has about a 7.6% yields about 100 basis points yield differential can you just talk about when you guys are outsourcing assets. What are what are the characteristics that would cause you guys keep alone on the balance sheet versus potentially.
Wasted in PSS al.
So I think the 8.7% I'm looking to be includes.
Our our investment in PSS sales, which in of itself as a double digit.
Return and the large investments. So we got may not be that large I'd say, it's probably the difference between 7.6% and eight 8% or 8.2% something like that.
Look I think since PSS held again does have very efficient financing.
If it fits in PSS ALS and again, we get 87.5% of the economics and its Kemper Greece.
We'll put it there now with the SSL just like DFL tell you were looking for highly diversified portfolio.
We want plenty names and we're looking to optimize both so I don't think theres anything kind of.
Kind of massively differentiated other than that Pflp itself has a has an investment in PSS, which is double digit.
Okay, that's helpful and Thats, a good point noon and well taken as far as the the yield on the balance sheet as D E B.
8.7%, including video for the PSC Sal.
I know you mentioned in your prepared comments would you expect the remainder of 2019 to be strong.
Driven by some growth and M&A financings.
As you kind of talked about with the previous question you know, there's definitely being a little bit of.
Disruption in the early stages.
Of some of the liquid markets, particularly some of the weaker credits.
I'm just wondering.
Pflp, obviously focuses on the on the middle market so different market segment.
But you guys focus in on on higher in the capital structure very high quality companies.
As it seems to be in some of the broadly syndicated loan market Thats, where.
People are also trying to be be drawn a little bit in some of the higher quality companies, Dan and higher up in the capital structure do you worry that there's going to be increased competition in tentative markets did you play in the middle market.
First lien to to higher quality companies, if we're starting to see some some cracks in the more liquid markets.
And it's good question I think we've actually seen the opposite as some of our peers, who are so large now have so much capital to deploy.
They are basically disintermediating broadly syndicated market. So if youre, a very large direct lender and you can write a big check to a bigger company that would have had an option is going to the broadly syndicated market. It's something that a lot of those guys are doing.
And in some sense, there, leaving the 2030 $40 million EBITDA company.
People like us are kind of more moderate size. So.
As you see some of the some of the Elias and look there may be a secular change going on there were.
For the for the single B.
Single B deal to broadly syndicated market, maybe losing share to direct lenders to some of the larger direct lenders.
May leave even more open train for folks like US who are kind of I'll call medium sized and focused on.
Focused on.
The $15 million to $40 million company now that said.
Let's just say anecdotally.
Those bigger companies have a lot more leverage.
EBITDA adjustments are.
A lot higher.
And to the extent to our covenants in many cases are not covenants. If there is a covenant. It said extraordinarily wide, it's really not really it's not really a covenant. So theres a whole argument for big companies into pulling big amounts to big companies.
And CNO and all that and there's there's a lot of truth to that.
We're very content being.
In our space, where we can do several months of due diligence.
I can really understand what we're buying where if theres any EBITDA adjustment, we fully diligence did and and underwrite to what we feel comfortable the EBITDA adjustment is where we can negotiate covenants that protect our risk and should something go wrong, it's relatively easy.
To to fix so we like our space, we're or we feel in some ways because a big players are moving away from it and that's that's just fine with us.
Okay Thats helpful commentary.
Those are all my questions I appreciate the time today.
Thank you.
And again as a reminder, that is star one if you'd like to ask a question. We'll go next to Chris York JMP Securities.
Good morning, guys and thanks for taking my questions.
So.
Hotels gaming and leisure is the second largest industry type in the portfolio.
Been an industry type use link for for decades. So.
Curious how you are evaluating new investment opportunities in king today or continuing to think about supporting an add on in your portfolio. Because we're starting this year more from investors that care about DSG.
From LP is that invest in either estimate.
Of dump truck lenders or investors that that's probably true.
Yes, it's a great question certainly yes. She is important to us we have any SG policy, it's on our website.
We.
Taking CSG into account in every one of our investments there's a whole analysis and every one of our investment Committee memos.
Evaluate CSG issues. So it's important for us so I'll, just say that kind of as a star with regard to gaming, which is an area weve.
We've done well in over a long period of time, I mean, I think we've deployed over $400 million in gaming and have had some like 13, 14% higher are in the space over time.
The way, we think about gaming at least in United States is in each case.
The gaming facility is in partnership with the state so whatever state to facility is in the state is a license is the operator in the state usually is a substantial economic participant in the outcome of the of the facility and the state's typically.
Kind of disclose where it what theyre doing with proceeds from whatever gaming they sponsor whether it be lotteries or other gaming type opportunity. So the way we think about it is.
Is it this is all done in sponsorship with the local jurisdiction the local jurisdiction is benefiting.
And.
Don in a very kind of above board clean.
Good fashion.
So thats kind of how we think about game in these portfolios.
Sure makes sense, thanks, Thats great color.
And then maybe for of these here you've ended your fiscal year with balance sheet leverage at 1.24 times.
Now on our.
Budget meeting your target leverage.
We are laughing because you're trying to get get asked the question. That's on answer but we want to thank you said that bottom in less than we mentioned 1.21 0.3 is where we are.
When we get to 1.7 will look out obviously pause that's kind of our high level right that we will take a quarter two or three or four I mean check your peak. We don't know we cannot project, we cannot really say, how long is going to take but definitely.
Going to see the leverage and that's our hope.
Taking advantage of the new laws and leveraging up.
That said the the balance there is we don't want to.
We don't want to for one.
Oh, no change our credit quality. So we only want to do deals that where we're very comfortable where the capital preservation attributes are strong.
And we're hoping to continue our very nice long term track record over 3 billion.
Over 8% returns with nine basis points of annualized loss. So we hope and anticipate that overtime we will.
More fully leveraged, but we're not going to Russia, we'd rather do know deals than do bad deals.
Got it and then another question to answer obviously Theres lumpiness in both.
Originations and repayments and things you cannot control there, but I do know that you didn't make a budget and just was curious on the timing ticket at 1.7 times and then a follow up is how do you think about your off balance sheet leverage with PSS Sal in terms of that 1.7 times.
Is it simply just.
Adding the full on funded capital on the revolving credit facility that kind of get above the one seven times or high gets how do you think about consolidated leverage.
Paris into that one seven times.
Yes, so pflp itself, we think over time, we should be targeting.
1.7 ish times as well so that vehicle up to 1.7 times again this is the limit.
We don't target is 1.4 to 1.7.
We may start to 1.4, and say you know enough is enough. We don't like the deal flow or we think leverage is fine for now are we want to keep drypowder. So I want to reiterate this is a targeted range, we're not trying to take it necessarily to 1.7 and something that we think about but it will be based on the facts and circumstances.
At the time and what's going on the market. So.
And then PSS L. itself same thing you know, it's fairly well optimized at this point I think it's like 1.6 to one.
Hey, you're in the zone of kind of a pretty fully optimized PSS sale. So.
Over time, if you add them all together into your Conglomerated all together, maybe you get to.
If you were to if you want to put PSS sell on balance sheet, maybe two times leverage.
And we compare that to what we know and we've lifted in CLL market. You can put these same assets into a middle market CLL get four to one leverage.
You know price it out very attractively and get to get basically seven year average life financing against it so.
We're not anticipating going there that we don't movement and Thats not for this company, but the market will take these exact assets and leverage on for more than than what we're talking about.
Great.
Good color. Thanks, Thanks for that and then last one.
You talked a little bit here in the queue in a about EBITDA adjustments and add backs and then just prompted some curiosity.
So is the reported debt to EBITDA that you provide here in the prepared remarks.
EBITDA number of sponsor provided number or tenant park underwritten adjusted EBITDA number.
It's a number that we diligence and we buy offline. So we always take a somewhat frozen adjusted EBITDAR direction, we will take away the grain of salt, we will diligence and come up with depend a parking number.
And that is a number that will go into our statistics.
Got it took part number okay. That's great. That's it for me thanks, guys.
Thanks, Chris.
And now we'll take a question from rate of infield capital.
With the current share price trading below the NPV what are your thoughts about investing back into yourself.
It's a good question, it's something that we talk with a board about every every quarter.
You've seen management purchases you may see more management purchases.
At this point, where we're trying to optimize leverage a little bit more I think it's something we at least this quarter chosen elect not to do but it's something that's in the mix that we talked to the board about.
You also mentioned in your earlier comments something about covenants and protection, we've been missing covenants in protection in the middle markets for Awhile is that something that is improving for you guys were kind of steady state.
Well, there's I guess just to take a step back.
Theres different pieces of the middle market Theres, the broadly syndicated market where.
The Companys typically are north of 50, or 60 or 70 of EBITDA typically thats covenant light thats been covenant like for awhile.
And then there see what we call the middle market, where we participate which is kind of 15 to 40 or 50 of EBITDA and there has been there's always been covenants. There I mean, we we get covenants in virtually all of our deals.
And based off ended in EBITDA again that would that we diligence and we buy off on so in our in our world where were below the threshold as broadly syndicated loan market weve well at least we have always gotten covenants.
Lastly, I had a question about the the equity portfolio I think that if I listen to the math properly down to about 5% of the dollars are invested in equity Stakes with I know not every section of the equity market is currently hot but it's been pretty strong this year and I'm wondering if a if you think you any.
Golden geese hiding in the equity portfolio that we can look for in 2022 will come out and show us.
Yes, so it's a great question and it's all their name by name you can see the mark to market by the independent third party valuation firms and you can see some names that are marked up substantially like led by late like some at like Deca APAC.
Kaino Walker Edison.
Dominion Holdings and the theirs.
Say 10 12 of these types of names that I think are marked up to some extent so.
If a sponsor owns the company and they see an ability to exit at attractive prices will do what they asked to do so it's really just a question that time.
In terms of when we when we can cash out on some of those deals.
Okay, Let's hope the timing is good soon.
Yes, Thank you great.
Thank you.
And with that that does conclude today's question and answer session I'd like to turn the call back to Mr. pen for any additional or closing comments.
Great and want to thank everybody for being on the call today, we wish everyone a happy healthy Thanksgiving.
And a happy and healthy holiday season, we will talk to you next in early February . Thank you very much.
And again, ladies and gentlemen that does conclude today's call me. Thank you again for your participation you may now disconnect.