Q4 2019 Earnings Call
At this time I would want to welcome everyone to the Whitehorse Finance fourth quarter 2019 earnings Conference call.
Our host for today's call, our Stuart Aronson, Chief Executive Officer enjoy some Thomas Chief Financial Officer.
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It is now my pleasure to turn the floor over to Sean Silva of Prosek partners.
Thank you Maria and thank you everyone for joining us today to discuss Whitehorse finances fourth quarter 2019 earnings result.
Before we begin I would like to remind everyone that certain statements, which are not based on historical facts need during this call, including any statements relating to financial guidance, maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Because these forward looking statements involve known and unknown risks and uncertainties.
These are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements.
Wait worst finance assumes no obligation or responsibility to update any forward looking statements.
Today's speakers may refer to material from the Whitehorse Finance fourth quarter, 2019th earnings presentation, which was posted to our website. This morning at www dot like worst finance Dot com.
With that allow me to introduce what we're saying, it's a CEO Stuart Aronson Stuart you may begin.
Thank you Sean good morning.
And thank you for joining us today.
As you're aware, we issued our press release. This morning part of market open and I Hope you've had a chance to review our results which are available on our website.
I'm going to take you through our fourth quarter operating results and choice and Thomas Our Chief Financial Officer will review our financial results before we open the line for questions.
During the first quick fourth quarter, our strong fundamentals and opportunistic approach to a disrupted marketplace produced a record setting quarter for Whitehorse finance.
Our hundred 50.6 million in gross deployments was an all time high.
GAAP net investment income for the quarter was 7.7 million or 37, and a half cents per share.
In court and I O I was 38, and a half cents per share, which continues to exceed our quarterly dividend of 35 and a half sense.
Or in AG was 15 23 per share.
As you know in addition to our regular quarterly dividend, we issued a special dividend of 19, and a half sense in the fourth quarter hands on an adjusted basis, excluding the special dividend and Avi would've increased to 15 43 per share as compared to 15 36 at the end of the third quarter. It is important to note that.
Our NPV per share exceeds our IPO price in December of 2012 or $15 per share.
As I referenced last quarter, the liquid loan market experienced a disruption during the second half a 29 team, which did normalize by the ended the year.
This partially drove our elevated origination activity during the quarter.
Within the confines of our disciplined approach to underwriting we sourced an unprecedented number of high quality originations closing 13, new deals in three add ons 10 of our 13, new deals were sponsor deals and all three of our add ons were also sponsored deals.
All of our deals and all of our add ons were first lien transactions and we did not close any second lien transactions and all of 2019.
The 13, new originations totaled $137.8 million and the three add ons totaled 12.8 million, resulting in a record gross investment activity offset by 68.3 million in sales from repayments with an additional zero zero additional 0.2 million of net repayments on revolver.
Commitments.
Our weighted average effective yield on income producing investments decreased from 11% in Q3 to 10.4% in Q4, which included a 21 basis point market decline in the base rate.
We also meaningfully increased our leverage from 0.75 times to zero <unk> 0.97 times and we are now approaching our target target leverage range of one to one of the quarter times.
To that end, we increased our leverage capacity with JP Morgan this quarter, while reducing our interest rate from whiteboard to 75 to 250.
Joining will provide more details on that transaction shortly.
Turning now to our joint venture vehicle during the quarter, we transferred for deals and the remaining investment in an existing deal into our JV totaling $31 million at the end of 2019 White horses total investment in the JV was approximately 33.3 million representing a 60% intra.
Yes.
The Jvs portfolio had 10 total issuers with an aggregate fair value of 97.3 million and the yield on our investment in the JV continues to approach the targeted levels of 12% to 15% as we ramp the vehicle and increased leverage.
Turning now to our capital structure.
At the beginning of 2019 private funds that are managed by HRG also known as the Bayside funds held 51% of all of our shares that were outstanding.
Investors have inquired about this majority shareholder position and its impact to the liquidity within our shareholder base with that in mind, we proactively address the liquidity in our shares during 2019 during the year. We conducted two offerings one in June and one in December to reduce the ownership interest of the based side.
Funds without diluting existing shareholders.
Also the Bayside funds executed additional non dilutive private block trades to further diversify our shareholder base.
We're pleased to report that as of December 30, Onest 2019, the Bayside funds position has been reduced from 51% to 23.7% of shares outstanding.
This is proof that we are rigorously committed to understanding at addressing investor feedback in a way that enhances shareholder value and we expect to work with the Bayside funds in the coming year to further reduce their position and enhance long term shareholder value.
With that I'll now turn to our investment portfolio.
At the end of Q4 2019, the fair value of the portfolio increased to 589.7 million compared to 527.5 million reported at the end of Q3.
As mentioned this increase was due to 13 newly originated loans and three add ons totaling 150.6 million in gross deployments.
These were all first lien deals with strong credit quality and within our portfolio, 88.5% of loans are now first lien and approximately 55% of the loans are sponsor backed.
Total repayments and sales of 68.3 million were primarily driven by five realizations.
The most notable of which was stack path.
On last quarter's call I mentioned that a large strategic investor had made a cash investment into stock path at a level that was a multiple of our loan balance, allowing us to put the loan back on accrual at the end of Q3.
Since then we are pleased to report that sack path was repaid at par. In addition to a success fee premium generating an overall internal rate of return of about 16% and which positively impacted our results and accounted for 1.2 million a fee income out of the 2.1 million a fee income we recorded during Q4.
While we are pleased with our successful outcome for stack path, we continue to experience headwinds in our position in AG Kings, which we marked down for the second consecutive quarter from 65 cents to 58 cents on the dollar we are working hard to resolve this credit in a manner that is favorable to lenders. However, the process has been to.
Lead more than we initially expected.
Our portfolio had a fair value average debt investment size of $10 million with only three of our portfolio companies falling above our target investment size range of four to 20 million.
We've also significantly improved our leverage ratio over the past year from 0.57 times in Q1 of 2000 19.97 times in Q4 as a reminder, our target leverage ratio is between one to one in a quarter times and management fees on assets over one times leverage will drop by 70.
Five basis points.
Thus far in Q1, which is historically, our slowest quarter. We've closed one first lien senior secured sponsor deal with an additional seven deals that are mandated as always there can be no assurance that those mandated deals will close.
Already in Q1, we have recorded a partial pay down of our second lien investment in Oasis legal finance.
Turning now to our market overview during the second half of 2009, we saw a disruption in liquid loan market and capitalized on this by sourcing a record level of gross deployments by the end of 2019. The disservice disturbance was result, naturally and markets normalize to the previous condition.
However, the recent growth of the Corona virus epidemic has created new and significant equity market disruptions that are just now spreading into the debt market. We will continue to closely evaluate these evolving market conditions, we have historically been opportunistic in the face of market disruptions with a focus on maintaining credit discipline.
And we'll continue to do the same in the markets that we're seeing today.
Ill now turn it over to Joyce into speak in more detail about our financials Jason.
Thanks Stuart.
We recorded GAAP net investment income of 7.7 million or 37.5 cents per share.
This compares to $8.7 million 42.1, centsper share in the prior quarter.
Core NII was $7.9 million for the quarter or 38, and a half cents per share covering a quarterly dividend of 35 and a half centsper share.
This compares to $8.3 million were 40.3 cents per share in Q3.
Core and I adjust for 0.2 million of capital gains incentive fees accrued, which resulted from earning $1.2 million in net portfolio gains this quarter.
We reported a net mark to market losses of zero point $4 million, primarily driven by markdowns on AG Kings as your point Eightmillion Mills Fleet farm zero point, Sixmillion, partially offset by $1 million markup on narrow parent inc. doing business I think sort.
Realized gains this quarter were driven by the realization of our crews of California warrants for $1.5 million, which occurred in conjunction with their related loan payoff in crews during this quarter.
After considering our net realized and unrealized losses, we reported a net increase in net assets, resulting from operations approximately $8.8 million or 42 cents per share for the fourth quarter.
As of December 30, Onest 2019, net asset value was approximately 313 million or $15.23 per share, which compares to $355 million or $15.36 per share as reported for Q3.
The decrease in NAV is attributable to the special dividend of 19.5 cents per share paid during the quarter. Excluding this dividend and maybe would have been $15.43 per share.
As it pertains to our portfolio and investment activity nearly 85.6% of our portfolio carries either two or one risk rating on a scale of one to five were NASA region to chew is performing according to our initial expectations and NASA rated one has performed better such that the risk of loss has been reduced relative to those initial expectations.
[music].
Turning to our balance sheet.
During the quarter, we amended our credit facility with JP Morgan to first reduce the interest rate spread from 2.75% to 2.5%.
Second increase the facility size from 200 million to $250 million with an additional 100 million dollar accordion option.
Third increased the advance rate from 57% to 60% and finally change the minimum borrowings requirement to 70% of the facility size.
We had cash resources of approximately $27.5 million as of December 30, Onest 2019, including 23.3 million restricted cash and approximately $11.1 million of undrawn capacity under our revolving credit facility, excluding the accordion under the revolver.
We continue to closely monitor asset coverage ratio and feel comfortable with our leverage as of December 31, 2019, the companys asset coverage ratio for Bard amounts as defined by the 1940 Act was 203% at the end of the fourth quarter, well above a reduced requirement under the statute of 150% our net effective debt to equity ratio after adjusting for cash.
Cash on hand, this 0.8 times as of the ended the quarter.
Next I'd like to highlight our quarterly distribution on December nine we declared a distribution for the quarter ended December 31, 2000, 1935, and a half cents per share for total distribution of 7.3 million to stockholders of record as of December 19th 2019 distribution was paid to stockholders on January Threerd 2020. This marks the company's 20.
The ninth consecutive quarterly distribution since our IPO in December 2012, it all distribution to the rate of 35.5 cents per share per quarter. In addition, as mentioned earlier the company's board of directors declared a special distribution of 19.5 cents per share which was paid on December 10, 2019 to stockholders of record as of October three first 2019.
Expect to be in a position to continue our regular distributions.
I'll now turn the call over to the operator for your questions operator.
Thank you Sir the floor is now open for questions again in order to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from line of can Hayes of B. Riley FBR.
The.
Stuart Thanks for taking my questions My first one.
Just wanted to touch on your commentary I appreciate the quarter to date.
Update there, but just around the recent volatility in the credit markets. I know this is a seasonally slower quarter for you, but do you expect that this volatility will impact originations in the near term and should we read into what you've closed so far.
Around that at all and then similarly would you expect increased repayment activity given the rally in interest rates.
So I'll answer the second part first Tim.
Because.
LIBOR is the basis for all of our loans in their floating rate.
The decrease in interest rates should not have any impact on repayment activity.
Although if LIBOR continues to decline that does put some pressure on our earnings per share.
I will highlight in that that we get LIBOR floors on our deals.
Virtually all if not all of our deals do have LIBOR floors. The range between one and one of the half percent. So we have some exposure to declining interest rates.
But below 1%, we have virtually no exposure.
In regard to.
Deals in the quarter.
In the equity market volatility our equity market volatility in of itself does not have any impact on the deals we close or don't close.
But the reason for the equity market volatility. According to most folks is of course, the corona virus and there are transactions.
That we have had in pipeline specifically in the travel industry or the event industry.
Where over the last couple of weeks our view on those credits has changed and so things that we might have closed up four weeks ago six weeks ago.
That had a event risk.
He the concept of people attending events are things that we're taking a much more cautious view on.
Given the the risk of pandemic. So we are rolling that in now.
There are many deals where there is of course general economic.
Volatility that could come from a pandemic.
We are still carefully evaluating those I would say, it's particularly in the travel and event oriented businesses, where if there was pipeline flow those deals are less likely to close but other than that I would say our pipeline looks.
At the moment pretty normal.
Okay got it yet and when asking about the credit market volatility. It was really the underlying factors there driving that so I appreciate you making that distinction.
Yes, I guess just just following up on that though are recap and all of it sounds like you could have some more fall out in the pipeline. So what are your expectations for.
For growth over the course of the year was a very strong year for you guys. In 2019, Dan do you see origination stacking up to the same levels and has sentiment from any of your portfolio companies.
Changed as a result of the the current virus and underlying factors driving this volatility.
We are bigger and stronger than we have.
Ever been.
We're now up to a with accepted offers 44 people.
We are now located in 12 cities across North America would be a two newest offices that we've opened being in Toronto and in Portland, Oregon.
We are actively involved in potentially adding additional offices in the Midwest and southeast.
And so our direct originations model continues to be extremely robust and.
We anticipate that deal flow on average should should be as good as or better than it was last year with the caveat being the disruption in Q4 did throw a couple of things into our lab that.
We won't get this year unless there is another disruption and again it may be that we're experiencing that disruption right now it may in fact be starting as of last week.
In terms of estimating where we end up you know we took leverage from 0.57 to 0.97. This year, we really don't want to take leverage anywhere beyond one in the quarter times, So frankly in terms of portfolio growth.
We have.
Less that we need to get done to get to our limit than we achieved last year and we will do our very best subject to credit considerations to increased deployment to get to that one to one of the quarter times leverage but again.
We do not anticipate being more than one during the quarter times leverage by any significant degree.
Got it got it okay. That's helpful. I appreciate those comments there and then just on the weighted average effective yield down 70 basis points quarter over quarter I believe.
Clearly the base rate played a part in that but how much would you attribute to be competitive environment and the impact on spreads I also you mentioned the mix of sponsored deals looks a bit higher this quarter and in the portfolio than it was a year ago. Yet is that played into the yield degradation at all as well.
The first thing that impacted yield beyond the decrease in LIBOR.
Was the fact that several very high returning deals repaid.
Cruiser, California was on our.
Portfolio list for a long long time.
That was a credit that was.
As evidenced by its LIBOR plus 11 yield on a first lien deal.
Hey, riskier credit.
And we felt it was time.
To exit that credit and let another lender take it out.
So that was a exit that we were.
Supportive of.
We also had a second lien loan.
To a company.
Name Suntech.
That was a very good performing company and the company was sold to that loan got repaid.
And took down our second lien concentration even further.
I would say if I.
I was successful at getting our second lien concentration backup the 20% to 25%.
That would help boost the yield on the assets, but as we take the portfolio more and more into into first lien.
Which we've done based on on.
Credit considerations that has continued to put pressure on the average return of our deals.
In addition, you're correct that on average sponsored deals are priced lower than non sponsor deals that said most of our sponsor deals are targeted for the JV and the JV.
Equity that we invest in returns.
Experts to expected level of 12% to 15%. So the goal for the success of the BDC is to continue a robust mix of sponsor a non sponsored deals where many of the sponsor deals will be funded in the JV the non sponsored deals.
Priced at LIBOR 650, an above will be funded onto the the BDC balance sheet, and we will try to create as stable a high yielding portfolio as we can.
With an ultimate goal at one of the quarter times leverage to try to be earning the dividend on a quarterly basis from our core income without reliance on wafer fees amendment fees and prepayment penalties, which all of you have seen happened almost every quarter. It's a very natural occurrence in a non sponsored book.
To get wafer fees amendment fees and prepayment penalties.
But the analyst community in the shareholder community have asked us to try to get to a basis, where core earnings generate that 35, and a half sense and the wafer fees amendment fees and prepayment penalties give us access to the 35 and a half sense.
And the leadership of the BDC is working hard to get to that end game.
And I know it's tough to.
Given there's so many different elements around that but is that something you believe you can achieve in in 2020 or is it possible it takes a little bit longer than that.
I.
I don't know what's going to happen this year, especially given the fact that we have had seen the volatility.
In the markets over the past couple of weeks and given that we don't know what's going to happen to the economy with the current a virus. So I can't predict the rapidity with which we get there all I can say is if 2020.
Behave like 2019 than than we would make very good progress, but but I have no idea of 2020 is going to be anything like last year sure fair enough alright, great I'm going back into queue. Thanks for taking my questions Stewart Nice talking to you Tim.
Our next question comes from line of Mickey Schleien of Landenburg.
Good morning, actually good afternoon Stewart Trey Mickey.
Hey.
So most of the questions I think that are most people's minds have been asked previously, but just a few more if I may.
Stuart.
I understand that forecasting what may or may not happen related to the client of ours is very difficult right now, but I imagine you started to reach out here management teams of your borrowers to take there.
Pulls on what they think is happening to their business are there any specific credits in your book that you're particularly concerned about right now related to that.
So the.
Credit that I would say has the most exposure to the virus.
Is our credit quest.
Quest.
Does draperies very simple thing.
At events that range from corporate events to weddings.
The company is it we think a very good company with a very long good long term value proposition.
But if there were.
A period of time, where people were no longer holding corporate events because.
People were afraid of the virus than demand for the draperies that this company provides would dip during that period.
That said quest is owned by a private equity firm.
There is nothing about what they do that's going to go away ultimately because of the virus and I am personally of the opinion the private equity firm would support the company.
Through whatever the krona viber virus period would be whether that's three months six months or nine months.
So we don't view there being our particular concern on that credit.
Other than the fact that again it would at least temporarily be impacted.
Nothing else in our portfolio has.
That level of what I'll call event risk.
Other than than that credit.
There's a very small amount.
Of China sourcing exposure.
In our portfolio, but but but I think much less than the average BDC because we're focused on the lower mid market and the lower mid market is much more an American focused market and not so much linked into China, which is why our portfolio companies really have not been impacted by the trade war to any.
Measurable degree.
So we do have credit resources.
That have taken a look across our portfolio for the level of krona virus exposure.
And in general at the moment, it seems pretty low and there has been no feedback from any of our management teams that out as a moment, they're seeing any economic weakness.
In the U.S., resulting from the current a virus.
That's really that's interesting unhelpful Stuart I appreciate it.
Just a couple more questions more housekeeping sort of questions were there any one time adjustments to investment income either positive or negative.
In the quarter for example from stack pads for anything else.
Joyce and I'll, let you answer that.
Yes, Hey, Mickey this is Jason So we did have some nonrecurring fee income recognized during the quarter from decide exits I think as we mentioned earlier on the call $1.2 million were fee income was driven on front from stack math and that was largely due to essentially that success fee premium.
So I think in terms of onetime adjustments for the quarter.
Again.
Only boils down to the non.
Nonrecurring fee income elements.
I understand choice and help out interest income, sometimes we see.
Versus or accruals for past interest income that may have been deferred for something that was on non accrual for example, anything like that.
Nothing in relation to interest accruals. So we did put stack that back on Q3, there was little bump up in interest income in the prior quarter as it relates to that so.
So there wasn't any adjustments related to that of course, we would have a little bit accelerated.
Recognition on deep discount amortization from these prepayments as well.
I understand.
I will highlight by the way since stock path was brought up.
Just as it gets into how we mark troubled assets.
We tried to be very transparent quarter to quarter.
Stack path ran into a problem.
There were a lot of people that have the view that the stock path asset would be good, but but we view there is being downside risks so in Q.
Two I believe we had it marked at 75 cents on the dollar.
But but you know the final outcome of that highlighted that we obviously had a lot of upside in that mark as well and we're really happy that the sponsor who manage that credit ended up with such a good outcome for themselves and ultimately for us for our BDC as well.
Yes, absolutely that's that's welcome news and.
Congratulations on that.
Lastly, Stuart can you just remind us on the JV, what's the jvs target leverage on its own balance sheet and sort of what are your expected return on equity metrics for that vehicle.
The JV will in general run at about one of the half times leverage on the JV assets that are all expected to be first lien assets and the projected return on the JV Junior capital to US is 12% to 15% terrific. Those are all my questions I do appreciate your time. Thank you no problem.
Have a good they Mickey you too.
Our next question comes from line of Chris Kotowski Oppenheimer.
Good afternoon and thanks.
Most of mine were asked but just you were going a little fast when you're talking about the.
Amendments to the.
Revolving credit facility and.
Can you just go through looking at page 13 of the of the deck what.
What the availability went to is a two to 250 and are there is there any conditionality of.
On the 100 million dollar accordion feature and I guess, what I'm getting at is the is your current leverage and liquidity and leverage capacity is sufficient to get you into the middle or upper end of your targeted leverage ratio or or is there something else you need to do.
So all right right hand side of the balance sheet.
I'll answer the last part of that and then pass the balance of the question back to Joyce and.
We could hit our targeted leverage just using the JP Morgan facility.
That said fixed interest rates have.
Dropped to all time lows and so we are also aware of and entertaining the possibility of issuing more unsecured debt as opposed to using more secured debt and the decision as to what to do will be driven by a combination of the expected asset deployment in Q1.
And also what spread the debt can be issued at.
At this point point in time, so again, we do not need anymore unsecured debt.
But unsecured debt is a option that is open to us and it may be attractive given where were five year in 10 year.
Treasuries are now sitting.
Okay.
Hey, Chris This is choice and I'll, just summarize again, our changes on the credit facility. So the interest rate spread was at 2.75% we've reduced tend not to 2.5%.
Facility size the.
Core facility size was 200 million with the $35 million accordion. It's now we have $250 million capacity with an additional 100 million of accordion. So again 350 internal capacity.
The advance rate on.
Collateralized assets will go an increase from 57%, 60% and then again the borrowings requirement.
As stated percentages, 70% of the facility size, so that equates to 175 million based on the 250 million.
Current capacity, okay and to drawn the accordion are there any special wells bells, and whistles that you need to go through to do that or is it just kind of like drawing on the initial toxicity, yeah, it's going to.
Take a few.
Little bit of lead time in terms of.
More than just a couple of days right, but it is basically submitted some paperwork and then.
That just beat.
For approval in terms of formal approval with the committee, but we don't foresee it as as kind of long largely time on that.
Okay. Thank you thats it for me.
Our next question comes from one of Rick Shane of JP Morgan.
Hey, guys. Thanks for taking my questions just one question and one follow up.
We've seen a decline in increased in the percentage of sponsored deals over the last year I'm wondering if that's opportunistic or there's something strategic that we should be thinking about going on.
Rick the business itself has ramped up very significantly.
And we have a breadth of reach into.
The sponsor market that candidly, we didnt have two or three years ago.
We're very careful about what we do on the sponsor side as people are aware.
In the general sponsor market leverage multiples are at five and a half six and a half seven and a half or even more.
And those leverage multiples are being done off of adjusted Synergized EBITDA, such that we believe the actual lending multiples or even higher than those five and a half to seven and a half times ranges.
We're calling primarily on smaller sponsors are what we call off the Ron sponsors and the sponsor deals that were doing are almost all in the range of three and a half to five and a half times leverage.
With equity checks that are 40% or greater.
The directly originated sponsor deals we're doing we're doing with covenants were much of the market has gone covenant lite.
And so from a credit perspective in terms of leverage loan to value and.
Covenants.
What we're doing on the sponsor side, we think is very consistent with the risk that we're taking on the non sponsor side.
That said non sponsor lending is.
A very different endeavor.
It is much harder to find the non sponsored deals.
Because there's no place you can go to just sort of get them.
We directly organically originate the vast majority of our non sponsored deals in the 12 different regions, where we're situated.
And those non sponsored deals are typically between two and a half in four and a half times leverage and.
Often price while they almost always price between LIBOR 650, and LIBOR eight on first lien deals.
We would love to keep our mix about 50 50.
We're hiring more people on the non sponsor side than we are on the sponsors side to try to keep the mix at about 50 50.
But any given quarter, there's just a lot of variation in terms of what we find what we get mandated on what we closed and in Q4 in particular.
Because of the disruption in the marketplace a lot of the things that came our way.
We're sponsored deals and frankly, a number then were sponsor deals that would have ended up.
No.
At much lower pricing in the broadly syndicated marketplace that ended up getting clubbed up instead, and we joined up in those clubs. So.
I'd say in the case of a market disruption you.
You're going to see more sponsor deals.
But in the case of our normal.
Sourcing activity.
Plus or minus 50, 50, with any given quarter being 40, 60 or 60 40.
Got it Thats very helpful. Thank you.
And then just as a follow up.
We're now two thirds of the way through the quarter, it's been a volatile quarter back of the on will look what do you think the asset marks would be quarter to date, given the volatility that we've seen not even on a levered basis, but just on a sort of.
Asset basis.
Well the good news for US is the vast majority of our assets are lower mid market assets that don't vary with the large cap marks.
So we have a couple of largecap assets in a couple assets that very that way, but.
Our assets are generally valued on the core performance of the underlying asset and so.
Based on what I've seen so far in the quarter I don't.
Believed that there is any materiality to the mark movements.
Also noting that the candidly even in the large cap debt markets, which are the most volatile.
Notwithstanding the multi thousand point moves in the equity markets the largecap debt markets have seen.
Very little price compression, a little bit, but very little other than in some of the travel names like the airline stocks.
Great.
Right.
I'm, sorry, I didn't mean to interrupt nor I apologize, but.
I know I was just going to take thank you for the calendar.
Thank you no problem always want to be helpful.
Our next question comes from line as Chris York of JMP Securities.
Hi, guys. Thank for taking my question.
Hi, Chris have Warren.
I wanted to elaborate on your comment or being bigger and stronger I noticed Whitehorse raised.
1.1 billion in a principal lending Condon through January view this as another positive development for the growth of the platform. So the question is should investors expect that you see will receive and direct or indirect benefits from the outside capital rate.
Yeah, there is a very clear linkage between our ability to win new business for the BDC and the additional capital that HRG Whitehorse has under management.
The Whitehorse principal lending fund.
As publicly announced was closed with a focus on sponsor deals.
It's one of the reasons that you're seeing more sponsor flow coming through.
But as an organization.
We can now underwrite $200 million of an individual transaction and that gives us the ability to be a sole source solution to the vast majority of lower mid market players.
In both the sponsor a non sponsor space. So if you go back.
Three years ago.
We really couldn't speak for more than $50 million.
We found lots of opportunities that were between 50 and 150.
And we weren't than a position to two land those opportunities for our shareholders and for our BDC.
Whereas whereas now we are positioned to do that and the other thing you're seeing is simply as.
Indicated to our shareholders several years ago, we're very significantly increasing diversity in the BDC.
A few years ago, we had positions that were upwards of 35 or $40 million on on four to 500 million of assets and now positions that we've been adding have been between four and $20 million on an asset pool that will ultimately get up to about 700 million, if we hit our deployment targets.
So it's a much better diversified.
Base of assets that come off of the fact that we're managing this pool of capital and we can we can win more deals and do appropriate allocations.
Great that's great color I think investors appreciate.
Knowledge of your scale and.
Thats It for me thanks.
No problem.
Our next question comes from the line of that cadence of Raymond James.
Hi, guys. Just a quick question on Grupo you must so on the Threeq you call I remember correctly, you said that you received some financial documents post quarter end that were a little bit weaker than expected and we're expecting to take a markdown on the asset and as far as I can tell the asset marks are the same this quarter.
As compared to the prior so any color you can give us on that.
That's a great question.
After getting the data that implied weakness, we got subsequent data that reversed that weakness.
And therefore based on the improved data that came.
And that we currently have.
We did not see any reason to mark that asset down further so we did see that as a risk.
With that risk abated and.
I'm pleased to be able to report that to you and hopefully.
You know Grupo Hemo, which is hospitals operating in Puerto Rico will continue to strengthen and hopefully that asset will.
Be a good outcome for our shareholders.
Okay, all right. Thanks for the color Thats. It for me Thanks, guys no problem.
Our next question comes from the line of can enhance does B. Riley FBR.
Hey, Stuart just had one follow up.
I know one of your strategic initiatives is to reduce the bayside footprint and increased liquidity in.
The flow to the stock.
But just wondering with this stock price trading below 90% of event Avi right now and then a tenant at 5% dividend yield just how you think about.
Executing on buybacks in the returns there versus where you're putting capital to work right now.
Yes.
So the Bayside shareholders are.
All the evidence we have a smart rational entities.
And.
They.
Understand the need to take some of the discount in order to exit as they have they have sold assets up low LTV.
But the recent market sell off.
Of course will make it less attractive for the Bayside shareholders too to exit.
There are a number of routes that we can take.
To ultimately address the overhang and then the question you know we've taken the overhang from 51 down to 23.7 at some point, which which all of you in the analyst community have to help me understand.
The overhang become small enough that in theory, it shouldn't even worry people anymore.
So we're trying to get a good gauge on where that should go.
But again, we're working closely with the Bayside shareholders to get to a.
A level that is not intimidating to the marketplace whatever that level be and all that will happen based on them viewing that the shares are trading at a fair value.
Relative to the overhang risk that their position creates.
Other than that there's really nothing to share on that overhang.
But we're going to do our very best.
To try to have that result in 2020, if that is possible to be done.
Got it I appreciate those comments comments I guess I just want to maybe clarify one part of that question that I asked is just how you feel about repurchasing your stock in the open market.
If the stock traded.
Back down to where it was very recently for what appeared to be no. Good reason.
The board of the company would.
Take it under advisement that a repurchase of shares could make sense.
But given the performance of the company absent.
Illogical trading levels. There is no plan at the moment to repurchase shares.
Got it okay, yes, it's been a nice day for you guys today, but I understand that thanks again for taking my questions no problem.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our next question comes from one of Bryce Rowe with National Securities.
Thanks, Thanks for taking the question Stewart.
Hey, Bryce.
I'm just curious some at some of the some of the activity. This quarter you flagged that L plus 650 might make its way into the JV. So just curious if we should expect activity from this past quarter can make its way into the JV here in the first quarter.
Up for the most part the assets that will go into the JV will be priced between LIBOR 525 in LIBOR 625.
Assets that are priced at LIBOR 650 for the most part will remain on the balance sheet of the beating BDC.
That said, we will with those assets that are at 650 seek to optimize deployment and returns.
Vis-a-vis the leverage and the earnings power. The BDC. So said another way the higher yielding an asset the easier. It is to have the asset on the on the balance sheet of the BDC.
But so far all the assets that have been transferred into the JV has been at LIBOR 625 and below.
Okay. That's helpful and then one one follow up to.
The comment about equity market volatility maybe starting to.
Make its way into the credit markets.
And with LIBOR or being being down here in 2020 or you are you finding yet you're finding the ability to offset that LIBOR compression with.
Possibly some some wider spreads on your deals or is that is that not seeing that quite yet we were hoping to see that.
But we have not seen that we were thinking that the market may self correct to the lower LIBOR.
But in general.
As of.
Let's call it two weeks ago before the Corona virus volatility what we saw happening in terms of January competition was pricing was very stable.
Not worse, but but but pretty much the same.
And we're right now in price discovery on several assets.
Based on the volatility in the market and by price discovery, what I'm trying to say is where we're trying to get more price and we'll find out whether other people undercut us or not.
Got it okay. All right I appreciate the comments. Thank you no problem.
That was our final question, ladies and gentlemen, and with that we will conclude today's conference call. Please disconnect. Your lines at this time and have a wonderful day.
Great. Thank you so much.
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