Q1 2020 Earnings Call
[music].
Please standby were about to begin.
Good morning, and welcome to the Pennantpark Investment Corporation first fiscal quarter 2020 earnings conference.
This call is being recorded.
This time, all participants have been placed in.
Listen only mode. The call will be open for a question answer session. Following this speaker's remarks.
If you would like to ask a question that any time simply press the star.
Keith followed by the digit one on your telephone keypad.
If you would like to withdraw your question. Please press star too.
It is now my pleasure to turn the call over to Mr. Art, Penn Chairman and Chief Executive Officer of Pennantpark Investment Corporation Mr. Pen you may begin your conference.
Thank you hi, good morning, everyone I'd like to welcome you to Pennantpark Investment Corporation first fiscal quarter 2020 earnings Conference call.
I'm joined today by Veeva front, our Chief Financial Officer.
Please start off by disclosure Singerman conference call information and included discussion about forward looking statements.
Thank you art I'd like to remind everyone that today's call is being recorded. Please note that these called into property or Pennantpark investment Corporation and that anytime authorize broadcast will be school if any.
Form is strictly prohibited.
A replay of the coal will be available like using the telephone numbers I'm keen provided in our earnings press release as well as on our website.
I'd also like to called your attention to the customary safe Harbor disclosure in our press release regarding forward looking information today's conference call May also include forward looking.
These statements and protections and we asked if you refer to our most recent filings with the FCC four important factors that could cause actual results could differ materially from these protections.
We do not undertake to walk they are forward looking statements unless required by law.
Think copies of our latest FCC filings. Please visit our website at the kind of Barclays.
Core Colas parents to want to 905 1000.
This time I'd like to turn the call back to our chairman and Chief Executive Officer Parks.
Thanks, Steve I'm going to provide an update on the business starting with financial highlights.
Followed by discussion of the overall market in the portfolio investment activity.
The financials and then open up for queuing.
We were active in the quarter ended December 31st 2019, we invested 174 million and primarily first lien secured debt at an average yield of 8.8%.
Our any V or any be increased from $8.68 per share to 8079 cents per share.
Net investment income was 15 cents per share, which was all recurring income we had no other income in the quarter. Other income is typically one to three cents per share.
As we've discussed we're generally moving into first lien secured position is higher in the capital structure and into a more diversified portfolio.
As did as of December 30, Onest first.
I mean exposure was 57% of the portfolio up from 48% a year ago.
Along with a lower risk portfolio, we're prudently targeting higher leverage.
As of December 31st a regulatory leverage was 1.06 times.
Over time, we are targeting a regulatory debt equity ratio of 1.1 to 1.5.
James.
We will not reach this target overnight, we will continue to carefully invest and may take us time to reach the new target.
Careful and prudent increasing leverage against primarily first as it gets primarily a first lien portfolio should lead to higher earnings.
In early October we also received a green light for our SP IC three.
Extremely gratified that our long term track record and excellent relationship with U.S.P.A. will result in attractively priced a long term financing for the company.
We're also actively assessing a new senior loan joint venture similar to two the successful joint venture a pflp, which can also increase our earnings over time.
I recently.
Only amended credit facility issuance of unsecured bonds last fall SB I see three and the potential joint venture should provide a solid pathway for earnings growth.
Solid covered your dividend should come as a result, this prudent increase and leverage.
Above and beyond a prudent increasing leverage earnings should grow as we.
Sure performing equity investments and reinvest those proceeds in loans.
As of the last fiscal year, we a taxable spill over a 34 cents per share which provides significant dividend cushion.
Our primary business a financing middle market sponsors has remained robust we manage relationships with about 400 private equity.
Just across the country from our offices in New York, Los Angeles, Chicago in Houston, and we've done business with about 190 sponsors.
Over the last 12 months about 65% of the company's we invested in where existing borrowers. These were generally cases, where we had an option to continue to finance and existing borrower or could opt.
Now to US this encompasses the best to both worlds staying with solid credits with reduced competition or choosing to exit.
Market, where investors are asking about differentiation among middle market direct lenders the value of incumbency can't be overstated.
With 135 borrowers in our overall platform, we are driving substantial.
Annual benefits of incumbency.
Our growing team capital resources, and incumbency put us in a position to be both active and selective today, we're only investing approximately 4% of the opportunities we are shown.
Due to the wide funnel deal flow that we receive we will continue to be extremely selective with.
Our investments.
As you'll recall in 2007 justice today PNNT he was focused on financing middle market financial sponsors.
Our performance through the global financial crisis in recession with solid.
Prior to the onset of the global financial crisis in September 2008, we initiated investments, which ultimately aggregated.
480 million.
The investments performed well.
Average EBITDA for the underlying portfolio companies fell about 7% at the bottom of the recession. According to the Bloomberg North American high yield index. The average high yield company EBITDA was down about 40% during that timeframe.
As a result, we have few defaults and.
To recoveries on that portfolio.
The IR of those underlying investments was 8%, even though they were done prior to the financial crisis and recession.
We are proud of this downside case track record.
We have had only 13 companies going nonaccrual out of 245 investments since inception over 12 years ago.
Further we are pleased and even when we have had those non accruals, we've been able to preserve capital for our shareholders.
As of December 30, Onest 2019, we had no non accruals.
Since inception PNNT. He has invested in about $5.8 billion at an average yield of about 12%.
This compares to an.
Loss ratio, including both realized and unrealized losses of approximately 30 basis points annually.
The strong track record includes both our energy investments as well as our primarily subordinated debt investments made prior to the financial crisis.
At this point in time, our underlying portfolio indicates a strong U.S.
And no signs of recession.
Remain focused on long term value and making investments that will perform well over an extended period of time and can withstand different business cycles.
We are first call for middle market financial sponsors management teams intermediaries, who want consistent credible capital.
As an independent provider free of conflicts or affiliations.
Patients we are trusted financing partner.
For our clients.
In general our overall portfolio is performing well, we have cash interest coverage ratio of 2.7 times and the debt to EBITDA ratio 4.7 times that cost on our cash flow loans.
With regard to Ram energy as we've discussed.
Ram is focusing on its core 13500 continued contiguous gross acres.
Auction chalk project in the Giddings field outside of Houston, Texas. This area has received renewed focus.
Yes, first seven wells of all ranked in the top 20 wells in terms of an initial production with four of these in the top 10, including the number one and.
Number three wells in the Austin chalk.
Ramps acreage is surrounded by well known and active strategic oil and gas companies today Ram has over 100 potential additional locations in this project.
We decided to convert a portion of the company's outstanding debt to equity and today, we had about 40 million unfunded revolver outstanding.
That.
In addition to the 30 million funded portion of Macquarie loan represent represents less than three times leverage our Rams 2020 estimated EBITDA, which is consistent with comparable companies in the industry.
18% of our portfolio was preferred and common equity as of December 30, Onest. This is higher than our long term target of 5% to 10%.
Substantial portion of the growth in equity is due to the positive performance of quite a few investments the strong performance of mid Ocean JNS.
We will pros ITC rumba Deca, APAC PT network Walker Edison Dominion and others has resulted in mark ups in those equity positions over the last few quarters.
About.
120 million or nearly half of our equity portfolio has increased in value over the past 18 months, where we can envision an exit over the next 12 to 24 months.
Our goal is to make substantial progress over the next 12 to 24 months and exiting equity positions at attractive prices.
As we reinvest those proceeds and into our core cash paying debt.
Sure once our income should grow.
To give you a sense if we were to exit only 60 million of that $120 million and reinvest in loans consistent with our recent yields are Eni I would increase about 1.5 cents per share per quarter.
We were to actually all $120 million and I would increased by three cents per share per.
Quarter.
On a mark to market basis, this past quarter positive movements in the value of mid Ocean JNS MPT network were offset by valuation declines in each TX overall asset appreciation generated 18 cents per share of any be gain.
In terms of new investments, we've known these particular.
For a while have studied the industries or the strong relationship with the sponsor.
Lets walk through some of the highlights.
We purchased 13.7 million of Drs Holdings, Dr. Scholls first lien term loan with revolve our common equity Dr. scholls as a leading brands in the foot care category, North America, including in soles skin treatment centers.
Products.
So what is the sponsor.
We purchased $2.9 million VCM industry's first lien term loan was revolver and common equity DCM as a provider of a broad range of tools and consumables for electrical and harsh environment applications under highly regarded brands.
No capital partners has the sponsor.
We purchased 5.5 million of Sargent and Greenlee first lien term loan Sargent and Greenleaf as a global manufacturer of high end locks for safe for residential ATM and government end markets opened gate capitals to sponsor.
We purchased 5.2 million a first lien term loan of Telecom holdings the company as a quad play telecom operator.
In Guam pontoon family investments as a sponsor.
Turning to the outlook, we believe that the remainder of 2020 will be active due to growth in M&A driven financings due to our strong sourcing networking client relationships. We're seeing active deal flow. Let me now turn the call over to achieve our CFO to take us through the financial results.
Thank you.
Our.
The quarter ended December 30, Onest 2019, net investment income totaled 15 cents per share.
Looking at some of the expense categories management fees totaled $5.5 million taxes general and administrative expenses totaled $1.5 million that interest expenses totaled 8.9.
<unk> million dollars.
Our investment.
Gained 18 cents per share on our mark to market basis, our dividend exceeded our GAAP net investment income by three cents per share and our liabilities reduced and 84 cents per share on a mark to market basis.
And maybe per share went from $1.68 cents per share to $8.79 per share.
During the quarter.
Exercise I think going to all our unsecured bond.
Trading on NASDAQ under the ticker PMT G and issued an additional 11.
Point $3 million the total amount of the bond is $86.3 million.
As a reminder, our entire portfolio credit facility on senior notes or Mark to market by our board of directors each quarter using the exit price provided by independent valuation firms securities and exchanges or independent.
Okay dealers quotes when active markets are available under.
See 828 20 volume.
Okay says were broker dealer quotes are inactive we use independent valuation firms to value the investments.
Our overall that portfolio has a weighted average yield of 9.6.
On December 30, Onest, our portfolio consisted of 78 companies across 30 different industries.
Portfolio was invested in 57% first lien senior secured debt.
80% in second lien secured debt.
5% subordinated expand 18% in preferred and common equity.
98% of their portfolio has a floating rate now looking at turned to go back to our thanks Steve.
To conclude we want to reiterate our mission our goal is to generate attractive risk adjusted returns through income coupled with long term preservation of capital everything we do is aligned to that goal, we try to find less risky middle market companies.
Is that at high free cash flow conversion, we capture that free cash flow primarily in debt instruments, and we pay out those contractual cash flows in 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 continued investment and confidence in us.
That concludes every.
Marks at this time I would like to open up the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure you hear me function is turned off to a liar signal to reach our equipment.
Once again star one if you would like to ask a question.
And well pause for a moment.
And we'll first hear from Kyle Joseph of Jefferies.
Hey, good morning, guys and thanks for taking my questions.
First question, just just wanted to talk about sort.
To that.
Hey.
So the cadence of deployment during the quarter.
What was it a little bit exactly in the quarter just wanted to get get a sense in the yield dynamics in the quarter.
Thanks, Yes.
As usual, we had a large number of deals close right around year end December 30 Onest.
So a big a big chunk of the flow came it right at year end and or shortly thereafter so.
Very active quarter in general we're pleased with the activity like to risk adjusted returns you are getting but it was very back end loaded.
Got it and then just on the yield obviously.
You guys are subject to.
Niamh market movements, you are subject to base rates and lastly, we're seeing portfolio allocation. Obviously you guys are only in control of one of those aspects, but leak in terms of the portfolio that station can you give a sense.
A sense for how much progress you've made how much more of the portfolio.
Full year, there is two to rotate which would ultimately pressure assets I know that rotating equity into yields in essence and actually enhance the yield on the portfolio. So just give us a sense on the progress you've made and how much would you have left to check if you will.
Yes, it's a good question and look at.
At the same goes it's.
Process.
A while ago, we said look work in this environment, we are going to be much more cautious about second lien advance.
Given where the leverage rate leverage ratios were they were willing to pivot and do more first lien and take advantage of the higher leverage.
The higher leverage availability in the BDC space. So we're in the midst of that that transition today first lien exposures, 57% of the portfolio up 10% 40 for about 10%, 9% from last year, which is 48% almost everything we're doing going forward is going to be first lien, where we'll be able to leveraging up a bit more.
Occasionally we'll do a second leader management, it's going to has to be very very compelling for us. So we're kind of in the middle this transition.
Of more first lien higher leverage lower yield the made up with leverage safer portfolio and at the same time working on exiting as best we can.
Our equity investments and replacing those with.
With cash paying debt instruments. The fact that a bunch of the equity investments are performing very well and the valuations are rising is a good signs it say, it's a nice foundation for exit.
For the coming quarters again, we don't really control.
Most of that but it sets up this dynamic where over time.
This increase to leverage with the ability to exit these equity investments not only should we see solid dividend coverage, we should see some growth well well beyond that so that's the game plan.
We knew what was not going to be.
Flipping a switch and journey lights on we know is going to take some time, we are in the middle of that.
And.
And it's very labor intensive we're committed to like we thing in the end it'll be a much much better company much better cash flow stream.
And then maybe for our shareholders.
Got it that's very helpful. Thanks very much.
For answering my questions.
Thank you.
Once again start one if you'd like to ask a question I'll make a comment will next year from Robert Dodd Raymond James.
Hi, guys on the on the equity book, obviously, which went up this quarter because of that happens whether things, but can you.
You give me any color that you willing to on what proportion of the book if any.
In two discussions to exit all you know exit all just you know it.
Obviously it to process that.
All sitting out that always any event.
Currently in active discussions.
It's a good question because sometimes we are in the rang one we you know we're in the room weren't happens, sometimes we're not going anywhere Martin happens.
So I know Robert you like Broadway.
So there's a portion of the doubling.
I'm going to say.
Of that 120 million, 10% to 20% more in the room, where it happens and we know of discussions at this point the rest of it we're not anymore. It happens and yes, you would hope and think that as the company's performed well and as they are in the hands primarily of middle market financial sponsors.
It's just a matter of time it might be six months, you might be year might be 18 months or two years, but it should just be matter of time until that add value is realized.
Got it. Thank you on the JV AG you'd said youre actively assessing so pretty.
Well.
You know, which would you be instead of speak to that had been booked I didn't quite get I mean, you know as is that early stages. I mean any color you can give us on all the when something might go live on that front.
Yes. So we're we're actively assessing proposals right now from potential parties.
From potential partners. So we're hopeful that.
By the time, we speak a in early May well, we'll have something more concrete to talk about.
Got it. Thank you and then just one on a them, which as you say you restructured that a little bit looks to be doing pretty well.
Well.
That and you obviously had just got to another permit I think that to drill out just a couple of days ago will that be more needed that either from you guys open mcquarie to fund incremental well if you know I mean again you just go on.
[music].
So.
That could acquire more debt capital over this is the drilling program through this yet already funded them from capital they have.
Yeah, well. So we're we're kind of where we're kind of done with with 10 wells. There's two more potential wells in this in this project to.
Point now would hit that would come from Macquarie.
So we will see you know kind of one one day to time.
Again reason, we kind of did this recap as we wanted to get debt to EBITDA to be kind of in the zone of like a comparable as well which is about three times EBITDA. So.
We would only go forward with the other two wells if we felt we could keep it within zone out in terms of our capital I think at this point were more or said, we're not planning to put any more capital and.
And the idea you know rolling back to taper over the last couple of quarters and we've shared this with everybody is we felt we are really good.
We started we've had some really good acreage there in this they're getting field area and the mission has been to prove it out so that we can position the company best.
As best as possible for moving it to the right long term hands, we are not the right long term aims for these assets.
There's three or four big strategic sure.
And surrounding our acreage. So the idea has been proven out to best position the company for potential exit in the strongest way. So the wells have been very good to seven wells, where we have.
Our results are all in the top 20 in that area. So we think we're setting ourselves up as best we can.
For a potential exit.
But it's a volatile market out there in energy as we all know and and we can do what we can do for in terms of our capital commitment.
At this point, we're finished and the additional wells would come from Macquarie. If we decide to go with with those additional two wells.
Got it got it.
Thank you and then one more if I can honestly, obviously youre indication of a target regulatory leverage one one to one thought.
It's pretty wide range, obviously, you're sitting there at 18% equity in the portfolio right now what would how away in that range would you be willing to go if equity.
I'd.
The for the time being that means that 20% the portfolio and where would it need to be figure to be willing to go to the 1.5.
Yeah, It's really that's a good question it really for us depends on the underlying assets you know as you know most of what we're doing is.
First lien senior.
Sure.
Net debt to EBITDA of were originated today in the senior basis for to foreign asked times, where again, 8% to 9%.
That kind of collateral as we know in a more dramatic world Kids I went to a middle market CLL would be leveraged four to one we're not suggesting that well what we are suggesting that has we have more.
And your collateral getting depending on whats financing that whether DSP I see credit facility.
Or otherwise.
We would potentially take it towards the upper end of that range, assuming what we have buying largest first lien senior secured loans.
Okay got it thank you.
Thank you.
Next we'll hear from Mickey Schleien of Ladenburg Thalmann.
Yes, good morning, I want to follow up on Robert's question about leverage.
The clarifying the target you announced a regulatory target or a total debt to equity target.
Yeah, we I'd say for regulatory what's just to be clear excludes SP actually financing.
Okay, I understand and yeah.
Walk us through the dynamics of winding down.
See wall, I mean, why and putting us be 83 into place and.
Portion of your deals.
Today's market.
Yeah, I see complying.
Yes. So you know once you get Sps refinancings of 10 year financing.
Once you get kind of test the midpoint in five years Dsps says hey, we really need to see game plan for getting us fully paid out by the end of year.
And so after five years, you don't really increase it that much you really have to start winding it down and we are you know we were getting towards the back end of SP IC to.
And so we've kind of start winding it down and we.
Hey back a bit of the SBA debt you know last quarter.
Part of that and as part of our relationship. We were pleased we got a green light Green light letter again, I just want to declare green light letter is getting very good and usually leads to getting a license. We are still in the licensing process. We think we'll get a license, but there are no guarantees we.
We like the financing its very attractive in terms of what fits.
Usually there's a lot of our chain rules around what fits in with doesn't usually if a company had some form of manufacturing.
In the United States It fits as general as the general rule of thumb and and niche as you look at our.
Good day about 25% or so.
The portfolio.
Kind of fits so that actually fits nicely with the size of potential SP I see three.
And it was a nice adjunct to to our tools.
And our.
25% of your deal flow fits in other words.
Are you willing to invest in businesses that oriented toward manufacturing given where we are in the economic cycle.
That's a good question, what we say is when we do manufacturing it usually light manufacturing. So we generally voice heavy capex.
Yeah.
In a big sickle goal capex pulp and paper steel chemicals, and usually lighter manufacturing, which by the way is a lot of what's going on in the economy.
But it is about 25%.
Yes, and as we kind of looked at the flow over the course of time, it's it's a reasonable amount in some cases not manufacturing companies fit.
Theres lots of rules about number of employees and.
And what your net income is so theres lots of different different.
It's about what fits but as a general proposition something that does some form of manufacturing them in United States fits.
And my last question or.
In the current environment.
Oh, how long from a green light letter typically to a license I know, there's a lot of moving parts, but would that be a calendar year 2020 event in your mind.
Yeah, I mean, you we think it was a six month process. So since we got the license.
Kind of I think in.
When we get to license to be.
Just around October October.
Still girlfriends on here soon six months is very safe.
Assumption, but we never know this be we're in the business.
And how would you capitalize this.
Uh huh.
Yeah, we'll be with ER with new.
It's all new deals you need to provide.
A dollar of equity and over time, you get up to $2 debt. So we would.
We would borrow to finance the equity portion of DSP I see.
And with credit facilities will allow for that is that correct.
What did they don't give me a lot of.
Credit for they allow for or you could do some unsecured bonds. So we get some unsecured bonds last quarter and.
And that could help finance it as well.
Okay. That's all for me. This morning I appreciate your time thank you.
Thank you.
Next we'll hear from Ryan Lynch of KBW.
Hey, good morning, Thanks for taking my questions first one just wanted to talk about Ram a little bit from from a higher level art. How do you balance you know thinking about actually being a investment like ran that seems to be performing pretty well and making some pretty good.
Progress, but it is in a very out of favor industry. So clearly I think Ram is isn't announcement on your balance sheet bad, but I think investors would like this you guys. Thanks, it, particularly because of the equity component and the sector, but you are trying to sell that didn't do a sector that is very out of favor today. So how do your.
Trying to get out of that that net investment investors, probably want to see you get out of but but also wanting not big bump.
Significant items value.
And in a in a sector, that's really out of favor today.
Yeah. So it's a great question somebody grapple with all the time and I want to say all options are on the table right. We know we're not the best.
Long term holder for this asset, particularly as.
The wells are performing extremely well and their snacks of strategic right around the geography. So no we're not the best long term older.
We'd rather not sell into weakness either so that's the conundrum.
It is an important investment for us, we do want to converted to cash over.
Time.
So we have to play out you know were.
We now very active website on Ram anyone can go to like Virginia. When you go deals drillships the geography in the wells and give you sensitive results versus the comparable some appears in huge appears are.
So we're open minded and happy.
Take suggestions from people, who how we can maximize the value that asset. So it may just takes and thought you know I ran supported by don't want obsess on it because we have a lot of other you know really good equity investments that are.
Growing in value based on strong performance that we hope to exit and those are in more in favor.
And then energy so I think Iran would just got played out we had couple more wells potentially to drill put up too good results.
And then try to maximize value as best we can and long run all options are going to be on the table.
Okay, Yeah that's.
That's helpful.
I had a question regarding or whatever so your your target regulatory leverage is 1.1 to 1.5.
I'm just wondering obviously the FDIC debentures do not count against that that's about you know 20 points of additional levers that you guys have on you conclude USPI.
Total leverage if you guys get another FDIC license that can even become a larger component. So I'm just wondering.
I think about total leverage at all as you guys are operating or is your main focus just going to be on on that regulatory leverage target.
Yup.
We obviously think about overall leverage as well and we think about what's the appropriate leverage against.
The <unk>, what's the appropriate leverage against the particular asset. So clearly we're doing primarily first lien senior secured loans today, which as we said there are ways to finance that too much more aggressive.
Good leveraged than even to the wants you to ones the BDC regulatory.
Gap regulatory.
And you know in theory, if you had the Sps each I guess, we could get to two to one leverage on an overall basis again that would be against at that point time, mostly senior fault.
No we're not there yet you know.
It's going to take some time to another war going on wanting to even get their heads at that point in time, but it does give us a lot of dry powder, particularly in senior assets to generate earnings into Safeway.
Okay.
And then.
Last one on your Yeah. Obviously, you guys are have been green light.
Hoping to get a another Sps you'd license do you know.
Where the all in rates would be a keywords or do you Didnt ask me I see license today and drawn down some debentures you know when those those current all in costs aren't today roughly.
Yeah, those are likes really have to foreign half percent generally indicative zone.
Okay. Those are all my questions I appreciate the time today.
Thanks Ryan.
Next we'll hear from Rick Shane of JP Morgan.
Hey, guys. Thanks for taking my questions. This morning.
First one way.
From a governments perspective, I believe you guys now too.
Three board seats.
I'm curious from ownership perspective.
Can you just talked a little bit more about the capital structure what percentage.
On the capital does your equity represent what percentage of ownership.
So we we own when all the equity that said, we have a program for management.
To participate.
Upside and participate in a potential exit.
So for US management's key here, we think we've got a great management team led by Larry Lee and some really talented operators and we think highly them and we've wanted to we have.
You Miss in place, where they will participate.
In in upside so, but we do on 100% exactly at this point.
Got it okay great.
No.
Yes.
Obviously related but in the tangential way historically being equal they've had higher concentrations all equity.
Thats wins.
Traded at significant discounts to anything.
Your.
Obviously highly aware that your dressing.
That in terms of your outlook on ideas just curious.
Give me did scale and that opportunity.
Unity, how important is we pulled you'd seen shares as you move forward.
I would think particularly active on the buyback the last several quarters.
Given the discount and given that.
That's one opportunity you weigh it against deploying capital.
It's a good question Rick.
And we it's something we in the board talk about you know regularly which is.
Capital allocation, we've now done to buybacks.
The last one ended a couple of quarters ago management's been buying the stock regularly through you know even past then and King will continue to do so.
It's something we evaluate it sits on the table.
All the time.
Look we want to.
As you said, we want to exit some of these equity investments and that will be very good nice thing to happen when it happens and that will and then we'll evaluate all the different options in front of us whether it be new investments buybacks et cetera.
Got it.
I understand that signaling implications of man management.
Buying shares and that's important to market certainly looks to that but given the did you know.
To any deane.
The company buying shares in.
Good point, not only because of the signaling in app, but more importantly, because you in that potential investment return associated with long.
Great and that's why we've done today to buybacks in the last few years and why it's always something.
Oh I lost you can you hear me.
Hi, guys I said, that's a use it makes a lot of sense, which is why we've already done to buybacks and it's something that we we continue to to discuss regularly.
Sort of I appreciate that thank you got.
Okay.
Next we'll hear from Casey Alexander ask.
Compass point research.
Yeah, Hi, good morning, I just have one question the reclassification of the ran loan into equity Andy additional equity that you put into Iran was that done at the 930 valuation or the 12 31 valuation.
So.
So you know if if you look at it Casey.
As a nice 30, the fair market value of the bundle of Lamb was 124 million.
We put 10 million of new money and bringing that to 134 million and has of 12 31 that value of 134, which wasn't at 930 is worth about 100.
38, so there wasn't markup in in the evaluation of the of the overall bundle because the wells you know have had excellent performance and as we discussed we converted some of that debt to equity.
You know during that time period.
But that was it was the.
The conversion of the debt to equity also at the 930 valuation.
It would stay was done it did it was done it Tonight Dirty valuation. It was that we converted at that at that valuation and where it was mark has a nice 30.
All right. That's that's the only question I had thank you for taking my question.
Thank you guys seats.
Next.
We'll hear from David My as backing of confluence investment management.
Hi, good morning.
Turing aren't you talked a little bit about the overall shifts that you're you're moving more towards senior secured.
With what you have on the balance.
He and I'm just wondering from it for a broad perspective, when you talk about.
Doing only 4% or deal flow.
Trends are you seeing.
Across the entire underwriting opportunity with regard to revenue and EBITDA trends.
For your target market.
Is it stabilize or getting a little better.
Yeah, no or the a that you'd be economy as a general proposition is in good shape I mean, we're seeing.
Solid mid single digit revenue and EBITDA grows as a general proposition across the economy. There are certain areas of weakness you know auto related has been a little weak.
Manufacturing that had been related to tariffs as a little weak.
You know, we haven't really been in at least in our portfolio see much from 737, Max that's been.
Muted at least within our portfolio. So okay. So far so good we don't yet know, though the outcome of this virus Uh huh.
You know it's early.
But as general proposition the economy is good and you know because we have a why funnel you know we can stay in our lane.
And our lane has been a good one for you know in that kind of first lien mid mid fours to low fours debt to EBITDA zone. We think it's you know really good risk adjusted.
In the market, where people are saying Gee its.
His cycles long into 2000 multiples are high and what do we do.
You know, 8% to 9% on first lien for four or five times debt to EBITDA to us seems like a really solid place to put money and then you you put appropriate leverage against that asset.
Had a very solid airing a which is kind of kind of the game plan.
Okay. That's very helpful <unk> along those lines.
As you shift toward you know it'd be more senior and more secured.
You know I get the sense that part of that is more opinion of.
Where the conditions all right now and where we are the credit cycle, but it also seems to be that it's it's where you're advance rate is.
On on what you underwrite and how you can change to leverage of your balance sheet. So.
You just need a fair to say that it just probably equal parts of those that are driving the decision to underwrite washing your secured.
Right.
Really good question I I think you know if you if you think about we P.N.T., we like to say.
As you have being across the capital structure when firstly when that we think that's best will be at the top.
And time secondly to mess is really attractive logo there when that's really attractive. The biggest driver has been you know the elevated leverage levels on second lead imagine ending obviously subordinated you know so.
P.N.N.T., we do do a second leaning mess periodically the bar is really high now because.
We want to see you know reasonable leverage and it's six math times leverage or whatever them for the market in general seems to be.
In general we're not we don't really like going that deep in the capital structure those elevation leverage levels occasionally we see a company that just really clears the bar that we love noble do on that basis, but as a general proposition once we get much about five times in any security we start to get a little nose bleed you know as a general proposition, sometimes will go a little bit.
Above when we see a you know very strong growth or 50, leveraging but generally don't forget about five times, we start to become a little allergic. So that's the primary thing now fortuitously roughly the same time, the BDC rolls changed and.
<unk> more than one the one.
So that puts us in a position a lot of B.D.C.'s in a position to say Okay. You know you can move higher in the capital structure be safer and put more leverage in and you know when it all comes out in Los you have a very attractive are we so that was <unk>. This all happened roughly the same time and and for now we think this.
Is appropriate for P.N.N.T., there may be a time, a year or two down the road when we say Gee that second lien deal you know is at 12 or 13% at four and a half for five times that <unk>, it's really attractive we're going to do more of those so that's kind of how we think about it.
Oh, that's great health and I know, that's that's the way that you thought about it coming out of the class credit cycle.
So then if you did contrast that when you know with the F.B.I.C. loans that you're making you know it's great that you're making progress on your license congratulations on that front. However, I think that it's it's it's probably fair to say that you're not going to be doing senior secure floating rate loan.
With the S.B.I.C. underwriting so can you talk a little bit about how you're working in that dynamic where.
The ability to go up and down to capital structure is more limited B.S.B.S.D. and how you're going to underwrite you know against the backdrop of the high leverage that you're talking about on the subordinate.
Yeah. It is it is true that the S.B.S.C. does not discriminate between first clean and secondly to know so that's true. So it is a very good vehicle to send you see good secondly them as deals that's totally accurate that's at first and foremost we have to be good investors and if we can borrow it three or 4% from the F.B.I.C. or anyone else input.
Senior dead into it attitude, one leverage that makes sense just as well. So most importantly for us as we have to make it loans with me good investments.
And then we have to match with the financing the F.B.I.C.D. gives us the optionality do second reading and mess in that bucket and and give us the same advanced rate, but it's not it's it's it's it's not necessarily what we're going to be doing it will depend on the facts and circumstances.
<unk>, especially financing is a 10 year facility your wrap it over five years, so who knows what's going to happen over the course, you know assume we're hoping we get a license here in new X. three months.
You know you got five years of investment ramp from then we'll see you know most importantly, they have to be good investors and.
And input good good risk adjusted returns on analogy.
<unk> would and I know that this is five years and long time to think about but.
<unk>, saying the current environment that it's probably.
Likely that you won't Ram this license assuming you get it as quickly as a previous ones.
Subordinated loans are carrying some it's going to leverage.
No I mean, I think <unk>, you know I think.
<unk> once we get the license if it to solve if it's a solid deal first lunar second lien or otherwise and fix the S.B.I.C., we're going to put it in there.
You know, it's attractive financing and it's one month long term money and if we end up filling up with firstly man of filling it up the first thing. It's still are we are we a creative to our shareholders.
Okay, great. Thanks for your out <unk>.
I had a parasite enough or their questions. At this time I'll tend to call back over to arc for any additional are closing comments.
Thanks, everybody I just want appreciate <unk> everybody from being on the call today, we appreciated and we will speech you in early may.
<unk> will be next quarter recall, thank you very much.
That that's going to today's conference. Thank you off of your participation you may now disconnect.
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