Q1 2020 Earnings Call
Good afternoon, welcome to various capital Corporation first quarter March 31st 2020 earnings Conference call.
This time all participants are in almost all the you know.
As a reminder, this conference call is being recorded on Tuesday may.
2020.
If you require operator, please press Star then zero.
I'll now turn the call over to Mr., John Stilmar, managing director of Investor Relations.
Thank you let me start with some important reminders comments made during the course at this conference call and webcast and accompanying documents contain forward looking statements and are subject to risks and uncertainties.
Putting the impact of co they'd like to related changes in base rates and significant mart market volatility on our business and our portfolio companies.
Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should make it similar such expression.
The companys actual results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its actually see filings Aeris Capital Corporation assumes no obligation to update such forward looking statements.
Please also note the past performance or market information is not a guarantee future results.
During this conference call. The company May discuss certain non-GAAP measures as defined by FCC regulation G such as core earnings per share <unk>.
The company believes the quarterly P.S. provides useful information to investors regarding the financial performance because it is one method. The company uses to measure its financial condition and results of operations.
A reconciliation of course, the P.S. to net per share increase or decrease in stockholders' equity was holding from operations. The most directly comparable GAAP financial measure can be found any accompanying slide presentation for this call.
In addition reconciliation of these measures may also be found in our earnings release filed this morning, what the FCC on form 8-K.
Certain information discussed in this presentation, including information relating to portfolio companies, what derived from third party sources and has not been independently verified and accordingly, the company makes no representation or warranty in respect of this information.
The company's first quarter ended March 31st 2020 earnings presentation can be found on the company's website Www Dot Aeris capital Corp. Dotcom by clicking on the Q1 20 earnings presentation link on the home page of the Investor Resources section.
Aeris capital Corporation's earnings release, and 10-Q are also available on the company's website I'd now like to turn the call over to Mr. Kipp Deveer Ares capital Corporation's Chief Executive Officer.
Thanks, John Hello, everyone and thank you for joining us I'm joined on the line by our co President Mitch Goldstein and Michael Smith, Our Chief Financial Officer, Penni roll and several other members of the management team.
We want to start by recognizing this very challenging time for our country and we send our thoughts and best wishes to those most affected by the code that 19 pandemic, particularly those who suffered from the virus and the extraordinary folks on the front lines, we're allowing us to get by at least trying times.
We're fortunate that our employees are safe and healthy and we successfully navigated the transition to a remote working environment without experiencing significant disruption in our day to day operations.
We'll now begin to provide highlights on the first quarter results for Aeris Capital Corporation, and then provide some thoughts on the company's position in light of the current market conditions.
This morning, we reported first quarter core earnings of 41 cents per share, which has a strong result, given the current economic and market disruptions.
As will discuss in more detail later, most businesses across the U.S. had been impacted by the economic consequences of cobot 19 to varying degrees and our portfolio companies are not immune to the consequences of this pandemic.
However, we do believe that we're operating from a position of relative strength as our portfolio is highly diversified and well positioned in larger upper middle market franchise businesses in defensive industries like health care services software and business services.
Furthermore, we remain under way to the most impacted sectors such as energy travel.
Restaurants, hospitality and retail.
A recent focus.
Then on working with our portfolio companies, our management teams and private equity sponsors to determine each company's liquidity needs an operating plans to manage through to the recovery as we bridged to a time when the economy can restart.
We're finding that each company has a different set of circumstances and our close working relationship with each company and often their private equity sponsor, there's a significant benefit.
One key benefit in managing our portfolio in these difficult we have one of the deepest and most experienced indefinitely teams in the business.
We have more than 130 investment professionals, including 25 dedicated portfolio management professionals.
Keep in mind that Aeris capital does not have investment professionals solely focused on origination.
All of our investment professionals are involved in the underwriting and risk management aspects of our investing activities.
Periods like this.
This allows us to but all of our investment professionals into risk management roles and break very significant resources to bear on the portfolio.
The size and breadth of our teams capabilities and experience allow us to be early active and throw in these volatile markets.
As many of you know we have a long track record of significant success managing through difficult economic environments, including selected workout situations with borrowers.
In addition to working with portfolio companies, we believe we're operating with relative strength due to the way that weve constructed our funding and liabilities.
We believe that our philosophy of fortifying the balance sheet with significant unsecured long dated financing has a very well positioned to navigate volatile markets.
Our debt maturities are well Laddered no maturities in 2022 and in this case total 2022 maturities are less than 12% or current total debt outstanding.
With regard to our secured credit facilities, we're significantly over collateralized due to the predominantly unsecured nature of our capital structure, which gives us full access to these facilities.
Today, we have approximately $2.6 billion available liquidity, which is more than two times, our aggregate unfunded revolver and delayed draw term loan commitments of $1.2 billion.
We believe this deep liquidity position will be important enabling us to support our portfolio companies and to invest in the recovery.
Given the strong position, we declared a 40 cents per share quarterly cash dividends for the second quarter of 2020.
Even as we factor in a cautious outlook for a possible slow an uneven recovery. We're confident we can continue to support a steady dividend level for the foreseeable future.
As we look ahead, well, there's a high bar for investing new capital. During these uncertain times, we're seeing increasingly attractive opportunities to invest.
Our focus will be on making new investments in existing portfolio companies and select investment yes.
Investment spreads have widened and documentation terms and leverage have improved materials.
Our view of attractive investment opportunities includes investing in our own stock, which is trading well below net asset value.
During the first quarter, we repurchased $100 million of our stock at an average price per share of $11, an 83 cents, implying a 13% annualized return using the most recently declared dividend.
During the strength of our liquidity in balance sheet will continue to consider acquiring our stock at attractive levels.
Before I turn it over to Penny, Let me reassure you with one additional thought.
We do not foresee didn't need if you any dilutive equity capital due to the current situation.
I'll now turn it over to Penny to provide more details on our first quarter results.
Thank you Ted and good afternoon.
Our core earnings per share were 41 cents for the first quarter of 2020 compared to 45 cents for the fourth quarter of 2019, and 48 cents for the first quarter of 2019.
We had a GAAP net loss per share for the first quarter of 2020 of one dollar and 42 cents, which compares to GAAP net income per share of 48 cents for the fourth quarter 2019.
And 50 cents for the first quarter of 2019.
Our GAAP net loss per share for the first quarter of 2020 of $1.42 includes net realized gains of eight cents per share and net unrealized losses of $2.04 per share.
These net unrealized losses reflect the macro economic impact of coven 19 on the fair value of our portfolio.
Largely driven by the widening of credit spreads and represented approximately 5% of total assets at fair value and 12% of net asset value.
Our total portfolio at fair value at the end of the quarter was $14.4 billion.
As of March 31st 2020, the weighted average yield on our debt and other income producing securities at amortized cost was 8.9 for side.
And the weighted average yield on total investments at amortized cost was 7.9%.
As compared to 9.6% and 8.6% respectively at December 31st 2019.
The first quarter yield on total investments at amortized cost was down from the fourth quarter largely due to further declines in LIBOR.
At March 31st 2020, 85% of our total portfolio was in floating rate investments.
Additionally, excluding our investment in the SDLP certificates.
79% of the remaining floating rate investments had an average LIBOR floor of approximately 1.1%.
Which is above today's current three month LIBOR rate.
Moving to the right hand side of the balance sheet, we've continued to be active extending our liabilities and building our liquidity position.
During the first quarter, we expanded air Ccs borrowing capacity by more than $1.3 billion led by a five year $750 million unsecured note issuance with a three in a quarter percent coupon.
This issuance was the lowest cost unsecured note execution and BDC history, and the timing of the race demonstrates our ability to execute when markets are favorable.
In addition to this successful transaction, we added a total of $565 million of incremental committed bank borrowing capacity and extended the final maturity to 2025 on $5 billion of our secured credit facilities.
As a result, we ended the quarter with approximately $2.6 billion of available cash and borrowing capacity, which we believe positions us to have more than sufficient available liquidity for the existing unfunded loan commitments and to capitalize on the improving investing environment in it.
Addition, we have embedded liquidity from our existing portfolio through investment repayments in sales, including through sales of loans to Ivy Hill asset management.
With meaningful available liquidity in place.
No term debt maturing until January 2022.
And the earliest maturity of our bank credit facilities and 2024.
We believe the strength of our capital structure represents a distinct competitive advantage for us in today's environment.
An important component in the strength of our capitalization is having a balanced mix of secured and unsecured funding sources.
At quarter end.
86% of our borrowings or from the unsecured notes.
Which resulted in over three quarters of our assets being supported by unsecured debt and equity.
This approach to maintaining a largely unsecured capital structure provides for a significant overcollateralization of our secured credit facilities.
Who demonstrate this at quarter end.
Our credit lines had more than doubled the required assets to support the commitments under these facilities.
Positions us well to fully access the total borrowing capacity available if we choose.
Even if there were to be further depreciation in the portfolio.
Now, let's shift to discussing our shareholders' equity.
March 31st 2020, our stockholders equity was $6.6 billion.
Belting in a net asset value of $15.58 per share.
Versus $7.5 billion or $17.32 per share.
Year end 2018.
The decline in our net asset value was primarily driven by the net unrealized losses that we recognized in the first quarter of 2020 that I mentioned earlier.
However, our NAV benefited by eight cents per share from our creative stock repurchase activity during the quarter.
As of today, we have $393 million remaining of our $500 million stock repurchase authorization.
As of March 31st our debt to equity ratio was 1.26 times and our debt to equity ratio net of available cash a $430 million.
1.19 times.
Compared 2.95 times, and 0.93 times, respectively at December 31st 2019.
We ended the first quarter of 2020 toward the higher end of our previously stated debt to equity target range of 0.9 to 1.25 times.
<unk> increased net investment growth and the net unrealized losses to shareholders' equity at quarter end.
Depending on the level of net investment growth in any further impacts to shareholders equity from fair value changes in upcoming quarters.
Good to see our GAAP net debt to equity ratios temporarily increase above the high end of our target leverage range.
Given our strong liquidity position, we feel comfortable temporarily operating above the high end with a range, which would still provide a significant cushion to our regulatory and bank leverage covenants.
Before I conclude I want to discuss our undistributed taxable income and our dividends.
Currently estimates that are spillover income was $408 million or 96 cents per share at the end of 2019.
As we've said many times in the past, we believe having a strong and meaningful undistributed spillover supports our goal is maintaining a steady dividend through varying market conditions.
As Kent mentioned this morning, we declared a regular second quarter cash dividend, a 40 cents per share, which is consistent with the regular quarterly dividend paid in the first quarter.
This second quarter dividend is payable on June Thirtyth 2020.
Stockholders of record on June 15th 2020.
Now I will turn the call over to niche to discuss our investment activities and our portfolio in more detail.
Thanks, Ken.
Mike Smith, and I tend to do at this point I would like to spend a few minutes, providing more detail on a first quarter investment activity and portfolio performance and then hit upon some post quarter end activity.
During the first quarter, our team originated 1.3 billion of new investment commitments of cost 37 transactions, 85% of these commitments for senior secured and 54% of these transactions were to come in borrowers most of these new transactions closed prior to March 1st.
We also funded existing commitments during the quarter in support of the liquidity needs of our portfolio companies you. The funding of 650 million <unk> revolver borrowings and delayed or term loans is important to point out with minimal market M&A activity. We expect continued modest delay draw fundings as these commitments will generally Quinn.
Place to support borrower acquisition.
As of March 31st 68% of our revolving commitments were drawn and 25% of our CTCL commitments were dropped.
Since quarter end, we have not seen any material changes to those levels.
Prior to the impact of Cnineteen I'll portfolio companies demonstrated accelerated EBITDA growth of approximately 5% over the prior 12 months as compared to 3% reported last quarter, which bought them into this environment and a strong position.
However, since the outbreak of Cnineteen, we have had to be in frequent dialogue with a portfolio companies to evaluate their earnings power and determine their liquidity needs.
As expected certain companies in our portfolio, we're experiencing challenges associated with the shutdown.
Our approach the downside protection begins with the fact that we are we seek to be the agent on our deals and the largest Linda.
This allows us to drive the discussions embedded controller outcomes, our portfolio, 76% senior secured 83% about portfolio companies are controlled by private equity firms that we believe have the resources to support these businesses.
Where additional support is required from us we've been using any required amendments as an opportunity to tighten loan documentation.
Sure additional equity and reprice already.
Given our view of the long term value of our portfolio. We believe that liquidity is paramount for our company.
Keep in Penny described we are in the enviable position of having significant liquidity at ELCC to support our borrowers.
Additionally, the Fccs recent Coinvestment relief will enable other areas managed funds to provide capital to our borrowers along with a RCC.
We view this additional potential support for the portfolio as a positive sign as it provides even greater access to our capital.
While the impact of seen 19, I've taken a toll on some of our portfolio companies. We believe our portfolio is well positioned for these turbulent times.
During the first quarter, 99% contractual interest payments for the quarter were collected.
Three new companies were added to the non accrual status in the first quarter, bringing on non accrual rates, a 3.1% and 1.7% on a call.
Fair value basis, respectively as of March 31st 2020, and increased from 1.9% and 9% respectively at year end 20 my team.
Before I turn the call back over to Kip, Let me provide a brief update on a post quarter end investment activity.
Well first through April 29, 2020, we made new investment commitments totaling 169 million.
Hub, which at 130 million were funded and we exited or where we paid on a 137 million of investment commitments, resulting in a net realized loss of 1 billion.
The weighted average yield up debt and income producing securities funded during the period was 14.7% at amortized cost and the weighted average yield of debt and income producing securities exited or repaid during this period was 8% at amortized cost.
As of April 29 backlog and pipeline stood up roughly 210 million and 140 million, respectively with more than 90% focused on senior loans and heavy bent towards existing portfolio company.
Note that our backlog campaigns investments that are subject to approval the documentation and may not close or we may sell a portion of these investments post close.
I want to note that the investment exited or repaid since quarter end included 61 million of loans sold to funds managed by Ivy Hill asset management.
I am sources middle market loans from Aeris capital and other leading middle market credit managers to build new or maintain existing filos sports investors and throughout our history. We have sold personally senior loans and ordinary course to I am I fair value on an arm's length basis.
In addition to alone sold to on April we have an additional 395 million of loan sale in process and we currently anticipate that I him Mad managed funds will have additional capacity to acquire more loans from us throughout the rest of the year.
Ill now turn call back over to get some closing remarks.
Thanks, Mitch in closing, we recognize that we're an unprecedented economic times and faced the prospect of a lasting economic recession and rising default rates. However, we remain optimistic with regards to Aeris Capital Corporation. Today has discussed we have a defensively positioned portfolio with.
A lot of control over our own destiny in terms of risk management.
We benefit from the highly seasoned and cohesive team, which has significant experience managing through challenging times and our robust portfolio management and restructuring infrastructure supports these efforts.
Additionally, we believe we have a strong balance sheet that provides a unique advantage in today's market.
We have access to all of our Undrawn liabilities and this provides robust solutions to support portfolio companies.
We view liquidity in this market as a strategic asset that allows us to remain supportive.
Our existing sponsor relationships and portfolio companies well many others are retrenching.
We also have no near term debt maturities to satisfy so we can focus our capital investing to support portfolio companies.
So in closing, although the current market environment is extremely challenging for some we're encouraged by the opportunities we see in this market for a RCC.
We'd like to thank all of our shareholders for their loyalty and confidence in us through these very difficult times I'd also like to thank the entire team for all of their hard work and dedication through this difficult periods.
That concludes our prepared remarks, we're happy to open the line for questions.
At this time that you would like to ask a question. Please press Star then one on your Touchtone phone.
If you would like to withdraw your question. Please press Star then too. Please note as a courtesy to those who may wish to ask your question. Please limit yourself to one question and a single follow on.
If you have additional questions you may reenter the queue.
Investor Relations team will be available to address any further questions at the conclusion of today's call.
The first question comes from parents, you got a bunch of Citi. Please go ahead.
Thanks, you know you've been through this type of.
Scenario in the past and you have worked through the great recession.
Coming out stronger.
Maybe you talk little bit about how this differs compared to what you've dealt with in the past given that it's kind of just.
You know so broadly impacting across the entire country.
And what things you're doing to helps support some of the portfolio company in what levels of support you're willing to give in terms of payment really fun on some of your borrowings.
Sure and this is kept I'm just checking to make sure you can hear me.
Yeah, Yeah can you.
Super Thanks for the question.
I won't go too much into comparing and contrasting the last go around to this go around but it's it's very different the last go around I viewed as I think we all viewed as a liability driven issue. There is concern that the company didn't have liquidity or couldn't finance itself had a mismatch of assets and liabilities et cetera and.
Maybe our collateral would get taken away. This one is very different right. We've tried emphasized in the prepared remarks that we feel great about having long term financing having access to all of our borrowings and having lots of liquidity, which is what we've been emphasizing because I think it's always been our view that the next credit downturn would be a liquidity driven downturn, where having exceeded.
Oh, and having dry powder around would be very important.
Yeah. This one is very different we obviously have certain companies that are better not operating writer have no.
Attendance or revenue if your restaurant, that's close not doing take out for instance.
A whole new reality so.
The way we're looking at it is we've got a tremendous amount of liquidity to support portfolio companies Mitch made the remark in the prepared comments and we did call at 99% the contractual interest payments and in March which was a very good outcome from our perspective, we did make some modifications to a few portfolio companies pay.
And but it was really a small number you know less than 10. So what we're doing right. Now is just digging in on the asset side with each company and if their private equity on with these private equity sponsor to figure out how to create enough liquidity for the companies. So that they can get to the other side and and re emerge.
I guess on that last point, how how has the how have the private equity sponsors that you're working with.
I would imagine this is a very kind of joint effort to provide support or they also willing to.
Provide additional support along with you guys.
Yeah for sure I mean, a lot of its in process right and that it was three hours to figure out how to get through quarter and then a few circumstances I mean in some of those circumstances equity from private equity firms did come into the Companys knows obviously hugely helpful.
But yeah, it's it's a joint approach and you know the discussion we're having around the most highly impacted names is exactly that and it's kinda ongoing.
You know right now I eat.
How much liquidity headroom to the company have where can we create some some additional liquidity if if needed.
But it's just so uncertain, it's difficult to forecast because we don't have a very good sense, then and the private equity firms we deal with in those circumstances don't have a great sensitive you know when we reopened and and how we reopened what the ramp looks like so.
Well I'll try to work through the same issue together, but I'd say generally the private equity clients that we work with had been very supportive.
Okay. Thank you.
You're welcome back.
The next question comes from Rick Shane of JP Morgan. Please go ahead.
Hey, guys can you hear me.
Yeah, I can hear you Rick.
It's like kept.
So look this is a very unusual quarter in terms of the fair value process given the degree of uncertainty I'm. Just curious as you went through the process did you find that your approach was any different in terms of either mark to market or mark to model.
Or some sort of.
Qualitative overlay in terms of your valuations.
Sure No a exact same process Rick you know typically there's a little bit of a lag right. So when you're doing a march valuation you'll have January financials for the most parts you're not going to see the pulling back. So we had to take some qualitative view as to you know kobin impact specifically in those companies there.
Most impacted so when we did do was companies that were closer to the epicenter of the pandemic I'd say, we were of course, having very real time conversations with all the way up to the ended the quarter and we incorporated those both quantitatively and qualitatively you know when it.
Sample of that wouldn't be a convention that we took upon ourselves that if we thought it company would have a liquidity need of say, 10% of the outstanding debt, we actually factored that into the valuation.
Were there or where there were liquidity needs, but from a process perspective, you know nothing changed at all.
Got it okay great.
Thanks, so much I hope everybody as well.
Thank you to read appreciate it.
The next question comes from John <unk> of Jefferies. Please go ahead.
Good morning, good here, but his voice.
You guys gave US you know a pretty good picture what was going on through March I'm wondering can you give us an update.
On April I'm, just because that was the full month of activity, where there was the shutdown largely in place.
And are you seeing that certain categories of your portfolio were maybe things are bottoming and you can kind of see return thresholds are im just wondering if he can give us yeah. What you seem to the course of April I guess [laughter], Yeah, I mean, hey, John how are you by the way I think the them right because you're doing well the the month of March I think.
It was better [laughter] during the month of April and that obviously people are still sort of doing things.
And maybe the first week or two of March and the places that you know require attendance you know whether its restaurant or retail or whatever probably had tougher april's than they had marches.
But again not not materially different and no change in our approach yeah, we're literally talking to private equity firms in our borrowers you don't want a weekly basis, if not a daily basis.
But yeah. The biggest issue now it's just the duration of how long this goes on and obviously the longer it goes on for certain of these companies the more support they're going to require and that's just you know where we have our hands today.
Okay, and then you guys didn't mention spreads are up and obviously you guys are in a good position to take advantage that at the right time in place.
How how much do we yeah I guess, maybe can you give a sense of how wide spreads got since the end of the <unk> how much did widen since the end of the quarter.
Yeah, I mean, it's so hard to tell and that you know, there's really not not any new deal flow.
I would say you know when a regular way deal, which weve, which we've quoted on a couple you know there are few things happening, we actually had to redo of them an existing portfolio company that sold sponsored a sponsor right around quarter end I would say with yeah. It's at least 200 basis points for companies that are probably not cove it impacted.
And we don't think this one was it was one of our software businesses.
But things that are coven related seemed to have you know double digit type yields on them now even in large cap land and we're looking at a lot of new capital in that range for existing companies were looking at the secondary opportunities, where we can buy you know first lien positions, where we have investments at a discount.
Yeah. So it's it's 200 basis points at least in a kind of regular way unit tranche much better documentation you know no [laughter] no response from sponsors on term sheets. There just happy to get them I think for the most part and see that there are folks willing to finance the transaction if they find something.
Okay.
Yeah, we did lay out one one number obviously that Mitch referred to in April where we invested from capital and the average you know rate of return on that capital was almost 15% I think Mitch said it was 14.7. So there's some things to do here. If you have capital when you have liquidity that are pretty Uh huh.
Pretty interesting.
Yeah I imagine.
Give me I imagine I appreciate the update and that good luck with everything.
Thanks, John well.
The next question comes from Kenneth Lee of RBC Capital markets. Please go ahead.
Hi, Thanks for taking my question.
I'm just wondering broadly if you could just comments on whether you could see any kind of potential benefit within your portfolio company.
On the on any of the federal reserve loan programs.
Yeah, you know remember that's not usually our decision to make right. We're a lender to these companies.
We've seen that some of the company is where we are a lender of actually taken advantage of the P.P.P. program for the most part its a small number today and I think as most people know it tends to be in the you know non private equity owned portfolio companies.
So there have been some management teams there.
You know those businesses are typically their family owned are owned by entrepreneurs, where those folks who own those companies have chosen to apply in some of that success actually I'm getting capital under those programs, but we don't have a lot of influences to whether they acquire or how that all works for them.
Gotcha very helpful and just one follow up it if I may wonder if you could just provide any updated expectations on near term loan originations just given all the I'm.
Kind of environment. Thanks.
Yeah, it's really hard.
You know, we typically don't provide guidance in any fashion I would say that we do expect yeah. We had maybe busier you know originations quarter in Q1, having glanced at some of the research. This morning, and maybe people thought Mitch made this 0.2, we funded a fair amount of revolvers going into the end of the quarters to that.
That is a big portion of it.
We also had the one deal that I mentioned, which is.
Likely to syndicate that'll that'll.
Make that that gross number lower on enough basis.
But it's really difficult I don't think that there's going to be the flurry of revolver drawings and as Mitch mentioned unlikely delayed draws will get funded because they're typically for acquisitions, which are difficult to do in this market. So look I wouldn't be surprised to.
You know do a couple of new deals.
But it's really hard to pick a number and certainly the focus remains existing portfolio companies and and financing where where that's most needed.
Got you very helpful. Thanks, Thanks, again, and hope everyone stay safe.
Yeah. Thanks.
The next question comes from Finian O'shea of Wells Fargo. Please go ahead.
Hi, Good morning, hope everyone's doing well I want to ask a question on the Exemptive order I think Mitch mentioned, where you can now take a follow on Swiss.
More funds unrelated.
Pursuant to that relief can you give us context on the nature of planned investments under this strategy.
Would you be engaging in in new follow ons or given the scale and some of these issuers would you buy out investor positions in the club or syndicated markets.
Thanks, and I hope you're doing well you know I think we couldn't do both right so follow ons or find secondaries.
Permissible and all of that I think the big picture takeaway for US has been it gives us.
More liquidity right. So in the past that the BDC was invested in a company.
Or exemptive relief allowed for co investment at the same time and at the same.
And the same security right. This actually gives us additional capital to help kind of protect physician support portfolio companies et cetera et cetera. So it just gives us a bigger war chest to the extent air sea ever had any.
Issues doing follow ons, which again to the point in the prepared remarks, I don't think we will it just brings additional capital to bear.
Yes go completely agree.
Yeah.
To follow on for Ivy Hill.
This came down a little debt.
Can you.
Give any any breakdown or context on balance sheet investment. The Ivy Hill holds is is it mostly celo equity in those vehicles or is it a breakdown of siloed debt and see a low equity and then if I can just do a two part on that.
When you generally sell down to Ivy Hill. Our these are you selling down in new commitments, you make or do you sell down from.
The existing Aries balance sheets.
Yeah. So Ivy Hill, you know we have investments in loads of funds that they've raised over the years.
Those investments are typically in see although equity as a reminder, they're not the traditional large cap COO that lever you know 10 or 12 to one they typically have much less levered spend a typical CLL.
But you know the marks in the quarter, obviously in anything its yellow related were down so the.
The marks an Ivy hill were down a bit too.
In terms of the assets that we're selling to them. We typically are selling them you know existing investments that we've made.
So they will more often than I'd be happy buyers of a first lien transactions that we've done most of the time, we sell them.
It was part of a general syndications that with telecom reasonably soon after the closing of a new transaction.
Mitch reference that in the prepared remarks.
You know by paper from Us, but look most of the paper that they buys from is from others.
Okay. Thanks, so much Kip <unk>.
You're welcome take care.
The next question comes from Ryan Lynch of KBW. Please go ahead.
Hey, Good afternoon Hope you guys are all doing well.
Thank you.
Yeah I'm at a question on the and maybe you said and I missed it but of the $1.8 billion did you guys funded in the first quarter, how much of that was from existing either revolving or delayed draw unfunded commitments through existing portfolio companies.
Yeah, It give us the second and I may kind of wave it penny here on the look through some of my notes were obviously trying to do this remotely not on the same room, but let US look real quick you couldn't come up to that number if we cannot follow up with you.
And then you know if I look at your guys see it because you know over.
The last several quarters I mean, it can fluctuate you know anywhere as high as north of 40 to you know kind of in the best Thirtys range.
Obviously that fee income is highly dependent on the level of I would think new originations that you all make in a quarter and that seems like that's coming to a dramatic change in the second quarter a at least for the near term can you just talk about out of that that.
The income that you guys record on a quarterly basis, you can structuring fee income is any of that recurring that that that just recurs every quarter or is that all based on restructuring.
Structuring in origination fees that you guys talk again and also as part of that when you guys or find a ah either are evolving.
Undrawn revolving facility or a delayed draw term loan that you guys have to an existing borrower.
What are the typical fees, but those are those the same level of fees, but did you guys get on the on it on a new commitment or is it something substantially smaller or <unk> or did you do not exist at all.
Yeah, I mean, the felines really two things right, it's kind of new deal fees, which I think you're right. There will be fewer out you know for the remainder of this year.
It's also amendment fees, which I think there will be more out there has been historically penny was just texting to hear that the number we actually did sandwiches section I'm, sorry, if I forgot to to run so don't feel bad with we find at 650 million under revolver and delayed draw term loan fundings.
The fees on those are typically paid at closing so the fees and this quarter really don't reference those fundings.
They're coming from other places.
Okay.
Delayed draws are a little bit different you know revolvers typically upfront delayed draw sometimes we'll have a partial fee a closing in some pay that funding you know they can they can they can differ.
Okay.
Thank you for the time today.
Thank you take care.
The next question comes from Chris York of JMP Securities. Please go.
Kipp can you hear me.
Now I can Chris how are you.
Hi, well thank you.
Right. That's my structuring T. question, so moved to high level question. In this environment I think relationships are probably more important than ever to achieve good outcomes for partners, but they probably can be tested from competing interest during stress. So the question for you.
Good day again here, how are you evaluating they need to protect shareholder capital by forcing your rights as a lender wind portfolio company conditions deteriorate versus the risk of impairing sponsor relationship for future business.
Yeah, I mean look.
We've been doing this for 20 something years, and obviously, we built our company in our reputation on being a responsible counterparty.
So I'm not everything for us as a simple onetime negotiation and we obviously have.
Sponsors you know, where we finance five to 10 transactions in the portfolio today.
I think our relationships are really strong and I think you know we have shared incentives right now with our private equity partners just to find solutions for these companies right that being said.
I'm a little bit.
A little bit concern that you know the current situation for private equity is difficult because you know high prices had been paid for companies on you know highly adjusted EBITDA, I think lessen our portfolio than others, but.
That discussion can be more challenging and and if need to we can come in and you know own a business. It's it says we've said all of our private equity CLI and certainly not or preferred outcome, but we know how to do it and that's where it gets will obviously.
Roll up our sleeve began with a 130 or so people, one and own companies and get them through and we think you know achieved good recoveries. So certainly a balance you know we're not in the business of making loans that we hope turn into equity Stakes in companies right, that's really not our business but.
We have a oh, we have an ability to do that where it's needed.
Perfect. Thanks for the color no investors appreciate 28 years for two decades more long term relationships.
A follow up question is on T. G, which was the largest portfolio company write down in the quarter and then I think it was the top five investments. So its business model I think faces a threat from coded airline travel may be severely altered obviously, there's tons of uncertainty here in the future operating.
Increment, but how comfortable are you in the company's liquidity and then your marks and all your investment.
Yeah, I mean, I don't want to provide a lot of commentary on single names, but I'll provide a little bit on Oh TG to answer the question look I mean they operate.
No at a fraction of the workforce that they've are operated on in the path with the amount of passenger traffic going through airports.
We think we've got the situation under control for now.
But trying to forecast air travel for the back half of the year and get to a reasonable forecast.
For 2020 is tough right I mean, the good news is you know their current on their interest payments. So they've done you know everything right and they have sufficient liquidity today to deal with the situation. We're obviously working with them in some advisors as well to figure out the best way to get through.
That's good color is helpful. That's it for me Thanksgiving.
Yep. Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Casey Alexander of Compass point. Please go ahead.
Hi, good morning, and I hope everyone. There is doing well normally I would ask a question like this but I think it's the answer can be really instructor for all of us as we look across events across the space over the next few months, so Oh I'm going to ask if you can explain why.
What made you reclassified those three loans into non accrual I mean was it toward forbearance or a past interest payment or pick and in conjunction with that kind of what was the response from the private equity sponsor was it in a fund that was out of capital.
I mean, I think the answers to questions like that can be very helpful to us looking out over the rest of the cycle.
Yep Yep. Thanks, Casey look I mean, our policy or Nonaccruals remains unchanged, which is if a company doesn't make an interest payment.
It goes on non accrual.
In terms of pick if a cash is converted to pick income that pick income will not a crew.
We want to crude that pick income if we deem it to be uncollectable right.
So the policy hasn't changed at all Q1 was better than expected as I mentioned.
In Q2 is gonna be you know and ongoing challenges, we look forward, but as I mentioned, we made fewer than 10 modifications in Q1, and we're working on solutions. So I hope that answers. The question. If you want to follow on please.
Yeah that was the only part do they didnt answer was on those that are.
That were placed on non accrual kind of what was the communication flow with the private equity sponsor.
Yeah, I don't I don't think they you know non accrual for us is pretty black and white right. So it fits.
If we think it's not collectible et cetera, even if it's not pass due we won't collected but I don't think private equity firms spend a lot of time, you know thinking about whether we have alone on accrual or not.
Yeah, Okay I appreciate it thank you for it.
Right. Thank you.
Yeah. Thanks for taking my questions I appreciate it [laughter]. Thank you sorry about that.
[laughter] question comes from Robert Dodd Raymond James. Please go ahead.
Hi, I hope I mean, I've been he can hanmi and I'd be glad to have everybody's doing okay. So a couple of quick question. One first kind of a follow up on John <unk> April I mean, yeah. Keep you told US 90 in mall in the first quarter, 99% of the contracted interest payments were collected and that you only amend that essentially 10.
ER structures in the first quarter, but obviously a pull is now.
Behind us so full for those that are contractually monk see pay as such I think it's the bulk what percentage of the portfolio paid the contracted interest payment in April.
Yeah I don't we don't have many monthly is you know we do have companies that have multiple term loans that you know roll different LIBOR contracts right. So we haven't I'd say generally we haven't experienced any material changes and people, making interest payments in April versus the end of March got it got it and then on any.
Any changes in the pace maybe of I mean, 10, only 10 changes a amendments whatever you want to Coleman and Q1's pretty good any change in the pace that you're seeing those come across the desk right now.
Well I mean, I think the longer this last the more impacted you know companies become right. So.
I'm trying to stay optimistic that we can work through solutions with folks, but the longer. This goes you know the tougher it becomes and you know we need money from private equity firms and yeah part of that will come I think with concessions from us which were willing to make to be part of the solution.
But yeah, I mean look we're hopeful that.
We're moving towards some sort of limited reopening and I think that a lot of these companies in early March didn't really have a plan because no. One was expecting this and the good news everybody's hunker down whether its private equity lenders management teams et cetera.
I'm trying to figure out you know.
How to deal with us and most of the company's adult pretty effectively I mean, it's unfortunately included things like Furloughing workers and having a talk to the government about programs on capital et cetera, but.
Yeah, I think it's it's about the same and it's just so difficult to forecast where we go from here.
That said Oh, all next question, Mike I'm sort of follow up I mean in the past when you go back to away nine except that we got one way back that you've been pretty opportunistic and back that buying portfolio as a deep discounts, obviously that hasn't happened yet, but if I look at you know one asset that stands out to me it's.
I'd like but systematic power border pennies on the dollar towards the end of the quota.
Yeah.
With the liquidity that you have available what's your appetite to be really opportunistic in terms of maybe not even large portfolio. So this almost 1.7 million that had at cost up quite a half haul.
Being opportunists in picking up I'm, not necessarily liquid loans, but but opportunistic portfolio pieces from maybe some of the about distressed I'm all for all stressed.
Sutton's or potentially even bdcs out that looks like you've already started that process a little bit.
Yeah, I mean, we think you know we know how to do that we've obviously bought two I'm reasonably large.
I would argue underperforming bdcs in the past we bought portfolios, we're absolutely open to it.
And I think we have enough capital to really be serious and in doing that but but it's early you know I know that they're a series of BDC earnings calls this week, but I think people probably pay a fair amount of attention to and I'm not sure we know.
Exactly how everyone is truly position today, but for sure we love buying thing to what we think is a discount to fair value and and we'll absolutely look at that you know there had been a few single name trades that we've done in the secondary markets and a few you know direct trades that we've done.
With some with some counterparties that you guys might be familiar with.
But it's been small it's been pretty limited so far.
I appreciate that.
Thanks, Ron.
The next question comes from Rick Hewitt of Bank of America. Please go ahead.
Good afternoon, everyone, Hey, I'm, just just could you provide a little bit more color on on some of that credit statistics other than non accruals. It looks like the net leverage went actually went down in interest coverage improves so could you talk about that dynamic.
[noise], Yeah, I mean, it take the numbers or the numbers speak for themselves. There is nothing nothing there Derek other than just you know the mix and running that count I mean, if anybody from the portfolio management team has any great thoughts feel free to feel free to jump on but if I remember correctly. It was it was yeah Jeff.
Early in the same a neighborhood as it's been in the past.
Okay, Great. That's all for me. Thank you.
Yeah Okay.
I'm sorry question answer session.
Let's turn the conference back over to Mr. Kipp Deveer for any closing remarks.
Well, let's say thanks to everyone. After first remote earnings call I think the company is pretty well position and we've just got to get back to work.
Dealing with all these portfolio companies, but certainly wish everybody on the line well I. Appreciate you for taking the time today to listener to what's going on at the company and will keep working hard for the shareholders through to the end of Q2, and we'll be back and talk in August.
So thanks.
Ladies and gentlemen, this concludes our conference call for today, if you Miss any part of today's call an archived replay of the call will be available approximately one hour. After the end of the call may 19th Twentytwenty at five PM Eastern time to domestic callers bye.
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