Q4 2019 Earnings Call
Greetings and welcome to Horizon Technology, Finance Corporation's fourth quarter and full year 2019 earnings call.
At this time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
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Please note this conference is being recorded.
At this time I'll turn the conference over to make it Bacon.
Speaking you may now be good.
Thank you and welcome to the Horizon Technology Finance fourth quarter and full year 2019 conference call representing the company today, our Rob Pomeroy, Chairman and Chief Executive Officer, Gerry Michaud, President and Dantrolene, <unk>, Chief Financial Officer, I would like to point out that the Q4 earnings press release and form 10-K.
Hey are available on the company's website at horizon will check finance Dot com.
Before we begin our formal remarks I need to remind everyone that during this conference call Horizon technology Finance will make certain forward looking statements, including statements with regard to the future performance at the company.
Words, such as believes expects anticipates intend.
Or similar expressions are used to identify forward looking statements. These forward looking statements are subject to the inherent uncertainties in predicting future results and condition.
Certain factors could cause actual results to differ on a material basis.
It was projected in these forward looking statements and some of these doctors are detailed in the risk factor discussion in the company's filings with Securities and Exchange Commission, including the company's form 10-K for the year ended December 31st 2019, the company undertakes no obligation to update or revise any forward looking statements.
Whether as a result that deal information future events or otherwise at this time I would like to turn the call over to Rob Pomeroy.
Good morning, Thank you all for joining us.
The fourth quarter capped off an excellent year for horizon.
Our many highlights for 2019 include growing the size of our venture debt portfolio.
Increasing our navy.
Completing a 100 million dollar securitization, allowing us to lower our cost of capital and increase our capacity to make new venture debt bombs.
And successfully raising more than $50 million from our equity offerings and our at the market offering all at a premium to any abbey.
Importantly through all of our efforts we generated net investment income in 2019 that exceeded our distributions by a record 27%.
It was a banner performance for horizon, and even more exciting is that we believe we're better positioned to grow our portfolio and increase our net investment income that we I've ever been.
As we execute on our strategy in 2020 and beyond.
For the fourth quarter, we produced net investment income per share of 43 cents.
Our anti included accelerated and fee income from liquidity events as anticipated by our predicted pricing strategy. As we've mentioned before are predicting pricey predictive pricing strategy is based on our historical experience that are dynamic borrowers will experience an event, which reserve.
Also on the prepayment of our loans and additional income to arise.
Events may include a sale of the borrower refinancing of our debt achieving development milestones or raising additional capital.
With respect to event driven income as part of the structure of our investments we typically receive warrants in our portfolio companies warrants or a cashless investment for horizon, which serve as an additional value generator. Several strong outcomes in recent quarters have proven their value.
From early 2019 through today, we have received approximately $10 million and warrant and equity proceeds from 11 of our portfolio companies through the exercise of warrants in connection with M&A transactions and through the sale of public shares.
Turning this event driven income on a regular basis validates our long structuring expertise and the overall, earning power of our portfolio and is an integral part of the design of our predictive pricing strategy.
We continue to hold warrants and equity positions in 75 portfolio companies.
In Q4, we also grew our portfolio for the seventh consecutive quarter, achieving a record total of $320 million as of the a year end 2019.
Our asset quality remained stable as we continue to proactively manage our portfolio.
Debt investment yield for the quarter was 17.6%.
And 16.7% for the full year.
Our debt investment yield takes into account regularly scheduled interest and fee income as well as income from liquidity events.
Assisted by our excellent and I I performance, we ended the quarter and 2019 with an N. A b of $11, an 83 cents up 16 cents from the prior quarter end.
Accordingly, based upon our earnings and outlook our board declared monthly distributions of 10 cents per share through June of 2020.
Additionally, because of our very successful 19 performance and our current levels spill over income. We are also proud to declare a special distribution of an additional five cents per share payable in April.
Turning to our investment activity in the fourth quarter, we funded seven new loans totaling $65 million and increased our debt investments on a net basis by $34 million from September Thirtyth.
Our committed backlog and overall pipeline continue to be robust while demand for venture debt remains strong.
With respect to our joint venture during the fourth quarter, we added three new transactions totaling $1.5 million, an experience to prepayments totaling $10 million based upon our liquidity and capacity. They charters yeah, we do not plan to fund additional investments and our JV going forward.
Looking ahead in 2020, we remain confident in our ability to further grow the horizon portfolio, well, achieving an anti that exceeds our distributions are competence is supported by the fact that demand for technology health care Tech and life science investments remain active in strong and.
The fact that our debt to equity ratio a 0.84 to one is below our targeted leverage of 1.2 to one.
Thus, we retain the ability to expand our leverage and have ample capacity to fund new investments and grow our portfolio.
We are also growing our team we're pleased that Diane Earl has joined horizon as its chief credit Officer.
Diane brings a wealth of experience in venture lending and will provide strong leadership as we continue to grow the horizon platform.
I'm proud of the entire horizon team for their hard work and effort. They have contributed to make 2019, one of our most successful years ever.
We will continue to focus on growing our portfolio, while ensuring the stability of our credit profile, which should lead us to continuing to generate anya above our distributions. We remain confident that we will continue to generate additional value for our shareholders.
I will now turn the call over to Jerry who will update you on our business development efforts and market environment, and then to Dan who will detail, our operating performance and financial condition.
Thanks, Rob good morning, everyone.
Fourth quarter was another exceptional one for horizon as we made additional and significant progress and growing our portfolio in a disciplined quality and profitable manner.
We made investments to five new portfolio companies and made additional advances to tour of our existing portfolio companies, all totaling $65 million transactions, resulting in or onboarding yield for the fourth quarter of 12.2%.
We experienced two loan portfolio exits totaling $22 million during the quarter once again contributed to our anti.
Mission and prepayment and accelerated income from these events helped drive a debt portfolio yield for the quarter, a 17.6% a second consecutive quarter and has yielded great at 17% and further evidence of the success of our predictive pricing strategy.
We continue to maintain a premium yielding portfolio reflected by our leading young position in the BDC industry.
Finally, our generates a predictable income stream as we continue to grow our portfolio and investments with no EGPC prepayment opportunities and warrants.
Q4, we cost 88 million and no loan commitments and approvals and ended the quarter with a committed backlog a $50 million compared to 63 million at the end of the third quarter.
Pipeline of new opportunities as of today, a 650 million, which includes over 95 million of term sheets and negotiation.
We remain well positioned with our committed backlog and pipeline to continue growing our portfolio and and I.
Enhancing and I through our predictive pricing strategy of prepayment fees accelerated income and other pricing enhancements.
As of December 31st, we held warrant and equity positions and 75 portfolio companies with a fair value of $14 million during the fourth quarter, one of our warrant portfolio companies since tech completed M&A transaction and horizon received approximately 2.3 million and warrant proceeds from the sale.
Assist stack loan had been repaid in 2017.
Post year end four of our portfolio companies are being or have been sold and would like to provide brief updates on each.
First in late January iOS, and Australian Public company announced its plans to purchase yes at some Odyssey for 6.75 million.
Consummation of the acquisition and take several quarters and is contingent upon certain regulatory events, which are not within the control of horizon or the acquirer.
Based upon timing and contingencies horizon has kept its odyssey loan on nonaccrual as of December 31st and carries the lawn and fair value of 1.5 billion.
Ignition one another horizon portfolio company recently sold its operating assets for a combination of cap cash and stock of the acquirer.
At year end horizon, some onto admission one was valued at par at 11.5 million.
The first quarter of this year in connection with the sale horizon receive cash which reduced horizons on balance to 7.6 million as of February 29 2020.
Hi, rising at a secured first lien position on the remaining assets of ignition one which include stock of the acquirer stock is valued at a significant multiple of horizons debt. However, it will likely take some time for horizon to receive any proceeds from the liquidation of the stock.
January 2020.
Wireless entered into a sales transaction that has since closed at closing horizon received $450000 and based on the transaction terms horizon anticipates, receiving the balance it is owed during March at year end 2019 horizons on to her was valued at 2.3 million.
Yeah.
Finally on February 5th Intercontinental Exchange announced it had agreed to acquire bridge to solutions. The transaction closed on February 21st Horizon received repayment of its principal balance and accelerated income and fees. In addition, horizon seat received warrant proceeds of approximately.
2.9 million in connection with the M&A transaction.
No over the last 12 months Horizon has received 10 million and warrant proceeds from portfolio M&A transactions.
All of equity and horizons public portfolio companies.
In addition year to date, we are funded for additional transactions totaling approximately 25 million based on current pipeline and repayment activity in the first quarter, we expect the portfolio to reflect modest growth for the quarter.
Turning now to the venture capital environment.
According to pitch book, approximately 34 billion was invest in VC backed companies in the fourth quarter of 2019, allowing industry to soar well past the 100 billion dollar VC investing mark for a second consecutive year falling just short of last year's record total.
Terms of VC fundraising 16 billion was raised in the fourth quarter, bringing the total raised in 2019 to 46 billion, which was the second highest year, a fund raising on record and well above the five year average.
In terms of VC backed exit activity there were 13 venture backed ipos in the fourth quarter.
Leading to a total exit value in the quarter of 19 billion and for the full year record breaking 256 billion and total exits of which 80% from VC backed Ipos healthcare life science sector Ipos continue to dominate the overall IP IPO market.
We believe will continue for the foreseeable future 2019, IPO has allowed Pcs to generate returns and the opportunity to reinvest their capital, which will potentially lead to higher VC fund raising and investing in 2020.
Turning now to our core markets in the fourth quarter.
We saw greater activity in our tech sector. During the quarter, we provided funding to three new portfolio companies, a $20 million benchmark of bumping into a leading provider of relocation technology services.
In 12 million dollar venture loan twin develop our smart ticketing glass products at a 9 million dollar funding twin online learning community.
We also provided a $5 million venture long term revenue eight and a 5 million dollar ventral onto a cloud infrastructure software provider both existing portfolio companies.
Demand for financing in the life Science and healthcare technology markets also remained strong during the quarter. We funded 10 million dollar venture loan to keep farms, a medical nutrition company and also funded 4 million to see us a medical Afirma Horizon life Science portfolio company.
Demand for venture debt generally.
Products, specifically was consistently active and strong throughout 2019, particularly in life Sciences as we continue to utilize our brand name and relationships to aggressively compete for and win deals that meet our underwriting standards.
We also continue to take a cautious and selective posture with respect to potential tech related investments, particularly given elevate evaluations for internet related companies.
As we look to 2020, our outlook is positive for the markets we serve.
We continue to expect strong demand for our venture debt products, we will continue to source and identify attractive opportunities to add to our pipeline and apply our knowledge base ability to win investments further our ongoing capital markets activity, including lowering our cost of capital and issuing equity at a premium to NV ESPN.
Thanks, Dusty and a stronger competitive position to deliver additional long term wells well priced portfolio growth.
With that said, we're very aware of some potential near near term risks that could impact our markets into 2020.
This would include the ongoing corona virus epidemic and us election year distractions, either or both could impact investor confidence in our own otherwise positive outlook for 2020, we will be monitoring these events as we move forward in 2024 any changes to our outlook for the year and our regular quarterly invest.
After calls with that I'll now turn the call over to Dan.
Thanks, Gary.
Good morning, everyone.
As Rob noted in his remarks, it was an excellent 2019 for horizon.
Significantly enhance the strength of our balance sheet and the capital structure throughout the year.
During 2019, we completed 100 million securitization, which lowered our cost of capital freed up our credit facility, an increase that capacity for making loans.
We also successfully raised 23 million in an accretive capital rate in the first quarter of 19 combined with our ATM program, we raised nearly 50 million in 2019.
Specifically in the fourth quarter, we issued approximately 1.1 million shares and received $14 million of net proceeds and subsequent to year end.
Raising an additional 15 million in the first quarter of 2020.
As Robin Jerry indicated we left 2019, a much stronger position than we started the year and we are poised to continue to build on that success in 2020.
Now, let's turn to our financial results for the for the fourth quarter of 2019.
Brian or in total investment income of 13 million for the fourth quarter, a 47% increase compared to 8.8 million in the prior year period.
This increase was primarily due to higher interest income on investments given a larger average size of our loan portfolio and a higher average prepayment fee rate earn.
For the fourth quarter of 19, we achieved onboarding yields of 12.2%.
Above the 11.9% achieved in the third quarter.
Our loan portfolio yield was 17.6% for the fourth quarter, just under last quarter's 17.7%.
In an increase from 16.7% from last year's fourth quarter.
Turning to our expenses for the fourth quarter total net expenses were 6.3 million compared to 4.8 million in the fourth quarter of 18.
Our interest expense was up 374000 compared to their prior period, primarily due to an increase in our average borrowings which was partially offset by 10% reduction in our effective cost of that.
Our net incentive fee expense increased 623000, due primarily to higher pre incentive fee net investment income, while a base management fee Rose 322000.
Driven by an increase in the average size of our portfolio.
As a reminder, and our investment management agreement Horizon pays a two tiered management fee, which include the management fee of 1.6% on noncash asset above 250 million.
Non cash asset over 250 million for the entire 2019 year. Our shareholders are now benefiting from the lower management fee rate will increasingly increasingly benefit as we grow our assets.
Net investment income for the fourth quarter was 43 cents per share.
Compared to 42 cents per share in the third quarter of 19, and 34 cents per share for the fourth quarter of 18.
The company's undistributed spillover income as of December 30, Onest increased to 42 cents compared with 29 points as of September Thirtyth.
Just to note that the first quarter typically our lowest quarter for Eni as we usually see lower prepayment activity in the first few months for the year. That's we do not currently expect to see Eni similar to what we generate in the back half of 19.
For the full year 2019, we generated eni of $1.52 cents per share well above our distribution to shareholders.
Based upon our outlook for and I are board declared monthly distributions of 10 cents per share for April may and June 2020, and given our very successful 2019. The board also declared a special distribution of five cents per share payable in April.
You have now declared monthly distributions of 10 cents per share for 42 consecutive month.
We remain committed to providing our shareholders with distributions that are covered by our net investment income overtime.
Our and Navy as of December 31st was $11, an 80 cents per share compared to $11.67 as of September Thirtyth and $11.64 as of December 30, Onest 2018.
The 16 cents increase in any maybe on a quarterly basis, but primarily due to higher net investment income generated in the quarter and net unrealized gains on investments.
Summarize our portfolio activities for the fourth quarter, New originations totaled 65 million, which were partially offset by 4 million in principle payment and 24 million in principal prepayments.
We ended 2019 with a record high investment portfolio of 320 million.
Consisting of debt investments and 35 companies with an aggregate fair value of 288 million a portfolio of warrant and equity position and 75 companies with an aggregate fair value of 14 million and an equity investment in our JV with a fair value of $17 million.
As we've consistently noted nearly a 100% of the outstanding principal amount of our debt investments bear interest at floating rates with coupon at a structure to increase as interest rates rise.
Any specific interest rate floor.
As of December 31st 62% of our portfolio was at or above their specific floors.
Provide and just say margin protection in a decreasing rate market.
And the balance sheet as of December 31, Horizon had $40 million available liquidity, consisting of 60 million in cash and 24 million in funds available to be drawn under our existing credit facility.
As of December 31st there was 17 million outstanding under our 125 million Keybanc credit facility.
Our debt to equity ratio stood at 24 to one as of December 31st.
Lower than our targeted leverage of 1.2 to one and based on our cash position in the capacity on our Keybank facility a potential liquidity was 124 million at December 31st.
We continue to have ample capacity at the company to grow up portfolio further in 2020 and beyond.
This concludes our opening remarks, we'll be happy to take your questions. You may have at this time.
Thank you.
We'll now be conducting a question answer session. If you like to ask your question. Please press star one from your telephone keypad and a confirmation till indicate your line is in the question Q.
You mean press star too if you like to move your question from the Q.
Participants you think seeker equipment, maybe necessary to pick up your handset before pressing the star Keith.
One moment, please so we pull for questions.
Thank you.
First question comes from the line of Tim Hayes with B. Riley FBR. Please proceed with your question.
Hey, good morning, guys, congrats on a strong quarter.
My My first question, Yes of course, my first question here, what drove the dividend from the JV. This quarter was it a function of of growth and committing more capital or were there any repayments there that drove yields higher just wondering how to think about this going forward now that you will not be committing more capital there.
Yes. Good question as Rob mentioned, we invested another million in half to three deals in fourth quarter, but we also did receive.
Prepayments in the amount about $10 million and so that those prepayments just like we mentioned in our portfolio accelerates income in the period. So the the balance going forward is about 35 million in the JV and that's the kind of run rate you should be thinking about going forward.
Understood.
And then can you just give some more color on the non accrual this quarter signets, what triggered you, placing it on non accrual and marking down pretty significantly and maybe you could just touch on the outlook and path to recovery. There I know, it's a small a smaller investment, but just curious there.
Yes.
This is Jerry so sanex has been kind of a two rated credit for us for quite a while they had been.
Turning to raise capital and look at other strategic opportunities and we just felt that.
It got to a point, where our confidence level in their ability to get some of these things done.
And particularly strong there are some assets that we have as collateral that we certainly believe have value but.
Given their inability to have been able to get something done by now we decided that to look at the underlying collateral value in kind of put that at a level that we felt we had some confidence in.
Okay got it and then I assume that's one of the two one rated investments is the other Odyssey or can you just remind me with the other one is.
Yes, that's correct.
Got it and then you know as it relates to kind of virus outbreak.
Are there any companies in the portfolio that we should be keeping an eye on that you would say have more director even indirect exposure than others and then just on the flip side is there a silver lining here for you guys in terms of increased demand from drug drug makers or medical device companies et cetera.
Hi, This is Rob Tim Thanks.
First of all our companies are mostly in the development stage R&D.
Not directly many of them.
By consumer demand there are some that have supply chain issues that go back to China. So we certainly are watching those.
The same thing on the drug development side, though yes.
Certainly draws focus too.
Companies that can develop.
Both vaccines and cures and rapid fashion.
We will take time to make that happen.
And.
Could you maybe just trying to estimate what percentage your portfolio companies have the supply chain issues.
So weve been canvassing all of our portfolio companies and speaking them directly about this.
Of course, you know we're no different than the rest of the market, which is it's it's not so much the virus. It's the uncertainty of of where this is all going and so everyone's trying to top.
You know.
Kind of gas it where there.
There are issues might be.
To Rob's point.
Since most of our companies are in a development stage.
Even even the supply chains are.
Not as big an issue as they would be in a middle market company that was relying on product to have significant revenue sales. So we just based on the information that we have received back there is no company in our portfolio today as we sit here that believes it over the next two quarters.
Their business will be materially impacted by the virus.
Again.
I think that risk is is out there for the whole world in every market and so we will continue we.
We we are aware of this obviously and.
We will continue to monitor and be in discussions with all of our portfolio companies, but specifically those that we think have any risk whatsoever, but as we sit here today.
What we have heard is that basically there was no immediate impact to our portfolio our portfolio companies related to the virus.
Okay got it that's helpful and so if I could just pick on that a little bit more then I'll hop back in the queue, but can you just based on these conversations are you seeing any changes in demand from your portfolio companies are prospective portfolio companies.
You know to take on more dad, and then on the other side you know you've had some issues in the past VC sponsors maybe not being as supported as you would have expected with some of their portfolio companies through some stressful times, just wondering if communications with vcs today or how those are going and if you're getting any.
Positive affirmation that they will continue to support the portfolio companies if the economic impact from this outbreak escalates.
Yes, So I think what are the things were looking at that helps I think has helped US is that we'll be in our pipeline as we're looking at new transactions. This is obviously an issue as well as as its an additional risks that historically, you know hasn't hasn't been there and so as we do deep dives into some of these portfolio companies and speak to the.
Investors, you know I think where.
We're getting the sense that doesn't awareness.
That it is a risk factor and to the extent that.
There is.
There is a real potential that 8.8 potential perspective.
Transaction could be impacted I think that in fact might cause some hesitation in the marketplace not just on the debt side, but on the equity side as well.
Because of the unknown.
But as it relates to our portfolio companies the discussions we've had.
Everyone is still very supportive and you know as we look back and I want to deepen as bad as we look back at 2008, you know, we our portfolio I think I'm actually.
Performed significantly better than middle market portfolios, because our companies were development stage company. So yes, you know there was a capital constrained it was all kinds of issues going on in the marketplace, but our if portfolio company was doing well otherwise in other words executing otherwise.
They receive funding and and the portfolio did fine.
We are we're not seeing any anything in that portfolio today.
Talking to customers talking to investors.
Suggest is immediate our risk potential here in our portfolio, but again, we are going to keep continue to monitor this very closely.
Okay understood. That's helpful. Thanks, again for taking my questions.
Thank you.
Next question is from the line of Ben Zucker with Aegis capital. Please proceed with your question.
Thanks, and congratulations on a on the nice 2019 as well.
I hate to belabor the point, but I think it's on everyone's mind right now coming up the Corona virus just from a different way you've mentioned you know you've reviewed your portfolio companies and looked over them and and Theres minimal exposure, which I think is nice to hear but you also spoke about the uncertainty going forward and from your perspective as someone who's.
Kind of a capital allocator, I mean is that potentially causing you like you know to kind of pause on on or hold back or really be a little bit more careful and where you're deploying capital as we look ahead over the next call. It few weeks potential month until the shakes out or is that kind of just the same old study.
Course of business.
Well I, it's bit of a double edged sword right because on on the supply chain issues all of our portfolio companies. The U.S. based company. So we don't have on companies overtime. So so we're not we don't have a particularly internationally risk issue, we have a supply chain, we could potentially have supply chain issues with.
Our technology companies the other side of that thought it was on the life Science side. There is obviously significant amount of capital being deployed.
Just for Corona virus vaccines, but the recognition now and this is generally when it happens is when something like this happens that you know we have to as again.
Being the world's leader in drug development, we have to do a better job at both on the both the therapeutic side in the vaccine side of developing products and so this more capital going into that side of the market and so.
Yes, we are in fact to answer your question, specifically I think we are being more cautious as we look at our our pipeline of new opportunities. We are doing a very deep dive on the Corona issue right out of the gate to see if that risk is something that may be.
In today's market isn't isn't worthy of of taking at but on the other side on the life Science side. We are also seeing.
Some.
Significant investment going into that side of the market relative to developing vaccines and so we will I think we're in and it's very interesting place as it relates to the Corona biased meeting aren't the markets that we served.
Right and I suppose there is all also always an element where you know it if everyone else is being conservative in a niche market like that perhaps on the want to put words in your mouth, but perhaps there's a chance to even get some some outsized yields from guys you really need to capital in a timely manner as well.
Got it it's reasonable point.
Let's just looking at all just underlying credit I. Appreciate your comments on the on the risk rated one loans I did just noticed a slight minor uptick in the risk rating to loans are not asking you to call anything specifically out there or identify the company's but could you just maybe just speak to underlying credit.
Broadly across the portfolio real quickly.
Yes.
Really I think.
Yes.
I'll take that one band is Rob.
I think we yeah, we feel like we.
Constantly in our portfolio there are companies that need to raise money or that are under some stress and if that.
Persists or is a little bit higher than we will downgrade that the loan to a rated too and that's I think the bucket you're speaking of specifically in this case I think we mentioned.
Ignition one in particular, which represents a major increase in the dollar amount related to that.
As I've said in my comments that.
Joe maybe Jerry did that that.
We're in a senior secured position secured by.
Collateral that.
Is multiples of our debt so we feel like.
There is no potential for real loss there that's why we rate that it too.
Gotcha.
One thing I'd add to that.
As a 12 31 that loan balance was $12 million and that's when you see us what's in there in the 10-K, but as Jerry mentioned, we collected over four and a half million of principal in the first quarter 2020. So that principal balance has been reduced has already do rest a little bit and just from my own out of curiosity. If you had a company.
That was risk to just because you thought they needed money, but it's a company you're familiar with they've been in the portfolio and you're comfortable with the underlying credit could you guys. In fact be willing to extend or you know extend more money to that from it if everything else seems to be going fine with the underlying business.
I think the way.
Any more general and specific but generally the way that that that that works. It's very good question is.
We generally will sit with the equity investors when companies get to that point.
End of the accented equity investors.
I feel the same way, we do that the company is viable and should be and generally speaking we will work with them.
Where we they will actually putting the money, but we may provide some interest only or something like that to help the company get through whatever the trough is there in with the great expectation that they're going to.
They're going to come out of that I think a good example.
Verb was a two rated credit in our portfolio at the end of Q3.
We knew they were working on a strategic transaction, we worked with them relative to that.
That transaction as I mentioned was consummated in the first quarter, just recently and that it was upgraded to a three at the end of the year because the deal was actually signed by the end of the Aaron we knew we'd be getting.
Fully repaid or it was a high likelihood and that's exactly what happened. So that was that an interesting transaction. We moved it to a two in the third quarter. When there was some stress and there was uncertainty about whether a deal would get done and as that transaction happened over the fourth quarter in the first quarter, we moved back two or three and we've already seems seen some.
Proceeds and we'll see the rest of the proceeds on that deal.
Including Oh, the interest and.
Fees by by the end of this month.
Understood and then maybe lastly for May I was looking over your year over year results and I saw NIM DNA section that kind of all the fees, particularly prepayment fees were up big It was 85% maybe total fees year over year, whereas the portfolio was higher by 22%. So I'm just kind of wondering was there any specific.
Dynamic.
At play in the market that led to this kind of outsized jump in prepayments and fee income relative to the total size and of the portfolio and if that's the case could that dynamic still being in place as we think about 2020 or is that kind of my over thinking this and this is just a reflection of how idiosyncratic huge discrete investment as.
Now I'll figure over thinking it's a a good analysis. The as we mentioned we have prepayments every quarter just can't really determine exactly how much each quarter.
In 2019, and we mentioned that in the third quarter of last year, we had a significant prepayment that that we structured it a bit differently as as we always say, we structured deals to meet with the underlying portfolio company is sensitive to and and protect our red.
So we had in the third quarter revenue base payment that was a bit outsized than normal and so that kind of led probably to the higher percentage.
Then you would normally see.
Got you that that's helpful. Dan Alright, well that was it for me again, congrats on the strong here and also a welcome a diane to it to the horizon too.
Thanks Brent.
Thank you as a reminder to ask a question for me Press Star. One. The next question is from the line of Ryan Lynch with KBW. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my questions I wanted to follow up with a couple of questions on the JV. So you Ben should strong prepayments in a in the fourth quarter, increasing the few use.
For for that vehicle, so it's a more reasonable to expect.
Income from the JV each to more look like what we saw in the second and third quarter of 2019 going forward.
I would say that would be more consistent and just think about a 35 million dollar portfolio and our and our normal yield out for that.
Okay.
And then also on that so can you do you provide a little more and more detailed color for.
Process I want to make sure I fully understand it doesn't sound like you plan on funding any additional investments both on the balance sheet of the JV as well as making new investments into the JV. Please correct me if it's on mischaracterizing Matt.
And also can you give me a little background of why you're not intended to continue to grow that vehicle.
So you have it correct, we're not going to place any new loans into the JV, nor invest any additional equity into the JV.
Just to put this in perspective, when we originally.
Pursued the JV.
It was pretty October 2018, before the to the two to one leverage was approved and so this was a vehicle by which we could attach a higher yield I mean.
Benefit from a higher off balance sheet leverage.
Frankly, we didn't grow as fast as we'd like but at this point, we've just decided to.
Put the transactions on our balance sheet and I think Thats also a function of the capital we raised.
It is pretty efficient capital both debt and equity at the.
Right.
And so on balance sheet.
So effectively overtime, we will see that that that JV as prepayments and repayments come in that died down if you will effectively just wind down.
Exactly.
Gotcha, Ned I know you've talked about a lot, but just regarding the corona virus I just wanted to kind of a higher level question on your guys thought process.
With deploying new capital into the market today.
Obviously were very uncertain times, you know the kroner buyers could end up being a big deal it could end up being a a very little deal.
That kind of changes day to day in certainly week to week. So you know as you guys are looking to deploy new capital in the market and given just the fluidity of the of the situation. How were you guys evaluated deploying new capital and when you guys are looking to deploy new capital at a companies what sort of baseline.
In case are you guys using to kind of.
Evaluate you know.
Whether you're going to have a you know whether to make that investment or not I kind of a baseline case of what the U.S. economy looks like you know three to six months from now.
So again I would use a longer perspective about how we invest in the environment in which we invest Ryan.
These companies that we lend to our in long development stages based on.
Strong support historically from their bdcs.
We are out being absolutely cautious, especially as Jerry said on new opportunities, but saw the investors and if the investors are.
Putting the capital in our horizon of when we invest is really we look out.
18 to 24 months, so we're going to be cautious were impacting.
We see the impact potential.
For us the U.S. economy.
But.
I think the ecosystem, which we work will dictate how for how much we can right how much we want to right.
And what the impact is on our existing.
Do you want to add to that or.
No I mean, I think that that's correct on the ground level, where you know every transaction. It comes in the door Nowadays the it's the you know top top of the top was if one of them it's going to be the first the first risk question, we're going to look at before we get too deep into the other qualities are qualifications of of an opportunity.
So you know, it's it's not something that that you two years from now we're gonna be looking back and say wait we should have we should have been aware of the corona buyers potential impact we are aware the market's aware and a you know it's it's still a you know it's very early.
Early in this process. So you know, we're taking a pretty fairly cautious approach, especially the new investments and so we'll see how it goes I could impact.
Overall, you know market demand overtime, but right now we're still seeing great demand as I mentioned earlier, especially on the life science side.
Which is less impact in fact, there could be you know ultimately some economic benefit.
On that side of our markets.
Okay.
Got it those are all my questions I appreciate the time today.
Sure.
Thank you.
At this time Weve reached the end of our lot of time for question and answer session for today and I will now turn the call back to Rob Pomeroy, Chairman and CEO for his closing remarks.
Thank you all for joining us. This morning, we appreciate your continued interest and support and Horizons and we look forward to speaking with you again soon.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.