Q1 2020 Earnings Call
Ladies and gentlemen, this is the operator today's conference it should be good momentarily until that time lines will again be placed on.
Thank you for your patience.
[music].
Good morning, and welcome to.
Capital Corporation's first quarter Twentytwenty earnings call.
To remind our listeners that remarks made during the call may contain forward looking statements.
These statements are not guarantees of future performance or results and involve a number of risks and uncertainties.
The company's control.
Actual results may differ.
Materially for buildings in forward looking statements as a result with the books doctors, including those described from time to time in the overall corporations filings with Securities and Exchange Commission.
The company assumes no obligation to update forward looking statements. As a reminder, this call is being recorded for replay purposes.
Sure David <unk> earnings press release, and puts to bed earnings presentation for the first quarter ended March 31st Twentytwenty. This presentation should be viewed in conjunction with the company's form 10-Q filed on may fit with the FCC.
The company will refer to the earnings presentation throughout the call. Today. So can you talk that presentation available to you.
As a reminder, the earnings presentation is available on the company's website.
Well now turn the call over to Craig.
Chief Executive officer, with the whole walk capital Corporation.
Thank you operator, Oh, good morning, everyone and thank you for joining us today for first quarter earnings call. This is Craig Packer and I'm C O about rock Capital Corporation co founder of all Roth Capital partners.
With me today, as Alan Kirshenbaum, or CFO and COO.
Dana quantity, our head of Investor Relations.
Welcome to everyone, who is joining us on the call today, We hope you and your families are safe and well bring is unprecedented times.
And I'll walk we've been incredibly focused on managing our portfolio, while taking the necessary steps to ensure the safety of our team maintaining full operational continuity.
Our team has been working remotely for two months, we're proud and appreciative of their approach to engage closely with our borrowers partners in service providers always striving to be accessible to all of our stakeholders.
Recognizing this environment is markedly different than any anything and you must have ever see I will start todays call briefly discussing our investing activity financial highlights for the first quarter.
But then spend the bulk of our time and what we're seeing across our portfolio and our response to these challenging conditions.
Then after Allen covers our financial results I'll conclude by discussing our outlook and what may come back.
Getting into the first quarter highlights net investment income per share was 37 cents for the quarter the same amount as a fourth quarter.
We ended the quarter with net asset value per share of $14.09 down 75% versus the prior quarter primary primarily reflecting the unrealized losses across the portfolio, resulting from the significant spread widening we saw in the market at the ended the quarter.
Looking forward for the second quarter. Our board has declared a dividend of 31 cents per share. The same amount we have paid each quarter since our IPO and which is in addition to the previously declared a special dividend of eight cents per share.
Moving onto our investment activity in the quarter, we completed 731 million of new investment commitments 616 million of new investment fundings and 198 million net funded investment activity, which was net of 418 million sell.
In line with my comments on our fourth quarter call. This quarter, we did see lower than average origination levels, which reflected lower levels of private equity deal activity.
In addition, we saw an increase in prepayments.
We added seven new portfolio companies this quarter with investments across four firstleap facilities.
Three of which were unittranche facilities.
Two small second lien term loans for companies and software space.
And one modest sized equity investment.
The weighted average spread of the new investments was 610 basis points. We're pleased with the spreads we were able to achieve this quarter.
We also increased our investment in 11 portfolio companies, largely reflecting add on facilities used to support acquisitions.
We had full pay downs on four portfolio companies, bringing the total portfolio at the end of the quarter to 8.9 billion across 101 borrowers.
Well this reflected a lower level and then activity in previous quarters in light of the change in the market environment. This is proving to be a silver lining is it leaves us with that much more dry powder to weather. The storm that is right. It could take advantage of future opportunities.
Well, we're pleased with our investment performance for the quarter and we'd be happy to discuss it further during the Q and discussion.
In light of the dramatic change in the environment due to the cobot 19th endemic we thought it would be most useful to share as much perspective, as we could about how this environment impacts our business.
To start I want to offer some context, we believe we entered this unique period in a position a relative strength.
Our portfolio consists primarily of first lien term loans to upper middle market businesses with an average EBITDA of $83 million.
We tried to assemble our portfolio in a defensive minded manner by focusing on large stable recession resistant businesses.
We are well diversified across 27 industries with no industry, representing more than 9% of the portfolio.
Top 10 positions, representing 24% of the total.
Since inception or poor portfolio performance has been very strong and coming into this crisis biomarker most of our companies were performing very well at or exceeding our expectations.
We focused our portfolio on financial sponsor backed companies because we believe that sponsors can provide financial and operational support their portfolio companies, which can help them weather challenges and preserve their long term value.
On this no one benefit of having a relatively younger platform is that roughly two thirds of our sponsor backed portfolio companies are owned in private equity funds with either a permanent capital or relatively recent vintages.
Generally in funds that have closed in the last four years.
And that these investments tend to benefit from the dry powder available in these funds, meaning that sponsors have both the motivation and the ability to continue to provide financial support to these portfolio companies.
In addition to well performing portfolio. We also entered this period with a strong balance sheet.
Alan will touch on this later in the call, but we believe we have one of the strongest balance sheets in the sector, which provides us with superior level of flexibility to navigate the challenges ahead.
But all that said I'd like to turn now to our response to the unique challenges posed by the cobot 19 pandemic.
Given the sudden and dramatic change to the U.S. economic outlook, our focus across all the al rock, that's been on protecting our portfolio and or balance sheet.
With respect to our portfolio, we have taken a number of steps to enhance information flow communication and to prepare for the needs of our companies. So that we can protect our investments.
In addition to our normal underwriting and portfolio management process, we have rolled out enhanced portfolio monitoring and management.
Since the scope of the crisis became clear we embarked upon a re underwriting of each name in our portfolio to assess the potential impact the stay at home environment.
We've been closely monitoring portfolio exposures to co. Good they knew portfolio heat not focused on risks in both impacted sectors as well and tax to individual names.
We have spoken with each of our borrowers in their sponsors to understand what is happening on the ground at the portfolio companies and what May come next and the strategic and operational steps being taken.
These conversations are ongoing happening weekly or even daily as updated information he mergers.
As our investment teams undertake this work they share the latest update with our leadership team in real time.
In addition, we are holding weekly meetings to discuss portfolio company developments in greater detail the full investment committee.
This effort has been led by a portfolio management task force of our most senior underwriters, which was created to provide enhanced level of support for each investment.
This task force is led by our Chief underwriting officer in our head of portfolio management.
We also continue to add to our workout capabilities in April we brought on board a new head of workout, who previously held this role at another direct wonder.
With more than 55 experienced investment and portfolio management professional professionals.
Many of whom have <unk>, who have spent years in the direct lending space and have experience investing through a credit cycle.
We believe we have olden necessary resources to manage the portfolio through this difficult period.
We have asked several senior members more team with significant workout experience to dedicate their tied to portfolio management, including workouts as they arise and we plan additional hires in this area.
We have a portfolio of companies, which were quite healthy prior to the crisis.
However, the nature of the economic shutdown has created pressure on many companies needs for near term liquidity. So we are focused on that for each of our borrowers.
Given the uncertain outlook, we are running downside scenarios in which the economic impact is felt for a sustained period of time.
I will touch in more detail on our current investment posture later in the call, but our focus right now has shifted to primarily preserving significant capital to support our borrowers should they needed. So that we can protect the value of our investments.
On that note I'd like to touch on the revolver activity that we saw this quarter.
The first quarter, we net funded approximately 215 million under our outstanding revolving credit facilities.
Resulting in approximately 60% of our total revolving credit facility commitments being drawn.
Some of this was for normal course operational funding. However, some borrowers chose to draw down on the revolver to shore up their liquidity.
This was an orderly process and we have seen this activity level off.
Alan will spend more time on the shortly but I would highlight that we have multiples of the necessary liquidity to fund the entire balance of our undrawn commitments should we need to.
Beyond funding revolving credit facilities, we also have ample financial resources to provide financing to our portfolio companies, where we feel it's crude.
Lastly, the financial sponsors we back typically have substantial funds available to support their portfolio companies.
We are discussing with many of them what the support might look like and we expect they stand ready to provide it should their companies need it.
Now I'd like to discuss the current state of our portfolio.
First let me state the obvious U.S. economy is going through an unprecedented dislocation and it is simply not impossible to tell how long this will last and what the impact will be.
But we can give you a roll them sense of what we see as the positives or of our portfolio and areas of greater concern.
I would point you to page 12 of our earnings presentation with our sector exposures for more detail.
Since inception, we have focused on building a diversified and defensive investment portfolio.
Our sixth largest sectors, our software professional services insurance health care providers distribution, and food and beverage, which collectively comprise approximately 46% or more portfolio.
Generally speaking we think this is a solid core group of sectors that should hold up better than most in the current economic environment.
Software has always been one of our largest industries. We believe our software investments will be amongst our strongest investments and the most resilient in the pace of the economic environment.
These products are used by their customers as part of daily operations and these companies often have contractual revenue streams and high customer retention as customers are unlikely to cancel their technology solutions as long as they remain business.
So while we believe these software companies may see a decline in revenue from a decrease customer base. Overall, we think revenues of these businesses will be cushion from declines in the economy.
All of our distribution businesses have been classified as essential businesses and continue to operate albeit at reduced levels and our professional services businesses have largely transition to a work from home environment.
Oh insurance businesses, which address health and other risks are often sold remotely and typically have a predictable recurring annual renewal process.
In our health care businesses, while some names have seen a slowdown due to the temporary restrictions on non essential medical procedures, the underlying business operations remain fundamentally sound.
Further many expect this will be one of the first areas to reopen and we expect these businesses will return to more normal operating levels.
Many of our food and beverage businesses are actually benefiting from increasing at home food consumption.
That's not to say there won't be any idiosyncratic impacts felt in these sectors, but we do think our companies in these sectors should hold up better than others.
Now lets turn areas of greater focus in aggregate aggregate, we have modest exposure to the sectors that have been most impacted.
We have limited exposure to oil and gas at the sector, which represents only 2% of our portfolio and within that sector. We focused on companies, providing midstream services with less impact from falling commodity prices.
That said I certainly want to be candid with you. We do have companies that are experiencing a direct impact from the economic shutdown.
Oh, we do not have direct exposure to the travel and hospitality sectors. We do have several names, but sure the travel or hospitality end markets.
In addition, some of our companies have ultimate end markets in the leisure and personal care space, which we are seeing which are seeing a direct impact from store closures.
We have a couple of investments in the aerospace sector, which are materially impacted by the drop in aircraft production and commercial airline travel.
We have several smaller investments in quick service restaurants, which may still have doors open or seeing a significant drop in same store sales.
In addition to these focused sectors, we certainly expect the significant drop off in economic activity, probably impact or portfolio.
You can see these developments reflected in our internal credit ratings for the quarter.
We downgraded investments representing 4.8% of the portfolio to a four rating on our internal rating scale.
This is the first time since our inception that we have investments in this rating categories, which we define as alone where the risk at the risk has increased materially since origination.
A portion of the portfolio that is three rate increased to 6.8% from 5.3% last quarter, bringing the total of three and four rated investments to approximately 12%.
We ended the quarter with no names on nonaccrual status consistent with our results since inception.
Through the end of March each of our 101 portfolio companies were current on their contractually obligated interest payments.
For two of our borrowers, we and the other lenders and those deals agreed that the interest payment could be made as pick in order to enhance the company's liquidity.
In addition, after quarter end, we have one company national dentists that remains in an Uncared covenant default.
This company remains current on its interest and we're in discussions with the company sponsor on next steps.
Later in the call I will make some further comments on how we're approaching the portfolio.
But I would remind you average loan to value of our investments is approximately 50%.
This means on average our companies could lose 50% of their value and we would still not be impaired.
While we don't want to minimize the magnitude of the challenges ahead as they are significant we entered this period with a healthy portfolio of businesses, which we believe will come through the crisis rotating meaningful value.
We are focused on working with the sponsors and ensuring our borrowers the financial wherewithal to make it through these challenges so that we as best we can realize the full value of our investments in each case.
Before I turn it over to Alan I want to touch on two events that occurred following quarter end.
The first was the expiration of the second tranche of our share lock up.
As a reminder, 100% of our pre IPO shareholders were subject to a lock up on approximately 375 million shares outstanding at the time up or IPO in July 2019.
On April 14th second tranche of 125 million shares became freely tradable, increasing our public float to 270 million shares.
Final 125 million locked up chairs will become freely tradable on July twentyth.
We also announced on April 1st that our board of directors unanimously approved a reduction of the company's minimum asset coverage ratio from 200% so 150%.
Once effective we plan to target a debt to equity range of 0.9 times to 1.25 times, which would allow us to operate with an increased cushion to the record regulatory threshold.
I want to underscore that this decision was not driven by any recent changes in the market or economic environment, but rather it's a part of the natural evolution of or Ccs balance sheet over the past few years. This was primarily driven by our desire to have an increased regulatory cushion from our target leverage level.
Not to operate with significantly higher leverage over time.
From the inception of RCC, we have worked hard to build a strong reputation and track record with our stakeholders, including equity investors lenders bondholders and rating agencies and feel this was the right time to take this step.
To that end, we're pleased that each of the rating agencies affirmed our investment grade rating and outlook. Following this announcement.
The reduced asset coverage will enhance our ability to deliver attractive returns to shareholders, while continuing to prudently manage risk and maintaining a strong balance sheet.
Now I'll turn it over to Alan to discuss our financial results in more detail.
Thank you Craig Good morning, everyone first and foremost we hope that you and your families are all safe and healthy.
These are certainly unprecedented circumstances and we want to thank you for your continued partnership and support.
There's a lot to cover today, so I'm going to hit the numbers for the quarter now and then we'll get into a series of other important topics.
To start off and you can follow along on slide seven of our earnings presentation.
We ended the first quarter with total portfolio investments of 8.9 billion outstanding debt of 3.6 billion and total net assets a 5.5 billion.
Our net asset value per share it was $14 a nine cents as of March 31st compared to $15 in 24 cents as of December 31st Fanapt decline of approximately 7.5% quarter over quarter.
Our dividend for the first quarter was 31 cents per share plus an eight cents per share special dividend and our net investment income was 37 cents per share.
On the next slide slide eight you can see total investment income for the first quarter was roughly flat at a little over $200 million were 52 cents per share.
Although our total funded par the principal amount of loans, which is what interest income is calculated off went up approximately 500 million quarter over quarter. This was largely offset by the decline in Libra expenses were also flat quarter over quarter, leading to Eni flat at $56 million or 37 cents per.
Our share.
Our cost of debt continues to come down driven largely by the decline in library. Our other expense ratio continues to be among the lowest in the industry at 25 basis points on a trailing 12 month basis, and we have 14 cents per share in undistributed distributions as of March 31st.
There are a number of key topics I want it to cover today first when I pulled the lens back the first thing I think about as our financial philosophy.
Having been a CFO in the BDC space for a long time now I've seen a lot of financing structures and different ways folks have chosen to build their financing landscape at the end of it all coming into this crisis or probably any crisis I think of there being three pillars that are very important that are really key that can put you in a significant.
Position of strength. The three pillars are one a low level of leverage to a lot of liquidity and three having issued unsecured debt, which prevents you from being overly reliant unsecured debt.
So for RCC, we have one of the lowest leverage levels in the industry at 0.60 times debt to equity we have $2 billion of liquidity.
We have issued a billion and a half of unsecured debt.
So to sum this all up we entered this crisis from a significant position of strength.
And we are in the process of adding to that position of strength by creating more cushion to our regulatory cap with a decrease in our asset coverage requirement to 150%.
Our our shareholders are set to vote on this at our annual meeting on June eight. We also had been in discussions with the lenders for our senior secured revolver to amend the covenants in our credit agreement, allowing for the 150% asset coverage level I'm pleased to announce today that we now have the approval we need to complete tests and we'll close.
This amendment this week.
Another key topic is our liquidity position as I. Just noted we ended the quarter with $2 billion up liquidity and cash and undrawn debt capacity.
We have point 6 billion in Undrawn commitments to our borrowers 2.8 point 2 billion in the form of Undrawn revolvers and point 4 billion in delayed draw term loans, most of which is tied to acquisition financing.
So to describe this another way we could fund that these undrawn commitments to our borrowers almost three and a half times over.
Another way to think about our liquidity position is to say we have enough liquidity based on today's now.
We go to one times debt to equity without raising another dollar.
And from a leverage perspective, we have a very large comfortable cushion to our regulatory cat. That's a very good position to be in right now.
Now to cover our funding profile, we're very well capitalized with attractive financing structures, which are well matched to our assets from a duration perspective and diversified across financing facilities and lenders are weighted average debt maturity is over five and a half years and we do not have any debt maturities until December.
2022, we have for investment grade ratings. This has helped us tissue billion and a half dollars of unsecured bonds.
This means that 40% of our funded debt capital is an unsecured debt.
Which provides us with significant unencumbered assets and meaningful over collateralization of our secured credit facilities.
And we have limited exposure to mark to market across our secured credit facility.
As an example of how over collateralized our balance sheet is if we were to draw down all of the remaining capacity under our senior secured revolver, which we have the full ability to do at any time, we would have approximately 6.4 billion a fair value of investments supporting.
Collateralizing outstanding debt of 1.2 billion on our recall that's over five times collateral coverage. That's also very good position to be in right now.
Also key here, our asset liability rate sensitivity.
As LIBOR has continued to decline due to recent actions by the Federal reserve. We are focused on how lower rates will impact our operating results.
At average yield on our debt investments at fair value in the quarter decreased from 8.7% to 8.4% driven largely by the decline in LIBOR.
However, our debt investments are subject to LIBOR floors, and the weighted average LIBOR floor is 86 basis points, which should minimize the impact to Eni a further material declines in Michael.
Similar to last quarter the impact of the current decline in live where it was partially mitigated due to the floating rate nature of our liabilities with our weighted average cost of debt declining 40 basis 0.4, 0.2%.
Today, approximately 80% of our debt is floating rate, which means we are well matched and generally allows our overall borrowing costs to move roughly in line with broader Martin with broader movement in rates.
To the extent LIBOR decline below our debt investment floors, we should experience modest NIM expansion.
And finally, my last key topic, our valuation process as a refresher we implemented from day, one a best in class valuation process here at al right across our entire platform and independent valuation firms spends a lot of time with us throughout each quarter and at the end of every quarter independently marking every.
Position they provide a point estimate for each investment not a range and that point estimate is provided to our board of directors for board approval as part of this process. There are two major drivers a fair value one change in spreads what we call market adjustments, which is the impact of credit spreads widening or tightening and can make fair value.
Go up or down and two credit adjustments, which can also make fair values go up or down for the first quarter. Our total unrealized loss was one dollar and 17 cents per share approximately 75% of this amount was due to credit spread widening.
Okay. Some other notes before I wrap up as a reminder, we put in place a number of shareholder friendly structural features in connection with our IPO that included a fee waiver and a series of special dividends.
During the quarter, we weigh 42, and a half million dollars Duffy.
In total so far since going public we have waived over $115 million a fees. We continue to pass this fee waiver onto our shareholders in the form a special dividend that our board has previously declared eight cents per share per quarter throughout 2020.
So the terms of our programmatic buyback program through April Thirtyth, we purchased 10.3 million shares, which equated to approximately $122 million given the programmatic nature of the plan repurchase amount is governed by a preset buying formula and as a function of liquidity in our stock as or am I.
Under the plan is nondiscretionary active on any day the stock trades below our most recent NAV per share and operates within the parameters of rule Tenb 18, which that's a maximum daily volume restriction for buying back stock at 25%.
Okay. So now to wrap up a few quick closing comments first we answered this crisis from a significant position of strength and continue to be in a very strong position structurally we are at a very low level of leverage we have a substantial amount of liquidity and due to the unsecured bonds, we issued our secured.
Lenders are very significantly over collateralized.
Next we have for investment grade ratings, none of the agencies have changed our rating or outlook. Since the crisis has started or following our announcement for adopting the lower asset coverage requirement of 150% and finally, given everything I just discussed we wanted to point out that we're not making change any changes to our debt.
I'm policy, nor are we making any changes to our previously declared special dividends.
Thank you all very much for your support and for joining us on todays call Craig back to you.
Thanks, Alan I.
I want to spend the last few minutes discussing our current activity and outlook.
Not surprisingly new deal activity has slowed private equity firms are focused on their existing portfolio companies and in this environment. It will be difficult for buyers and sellers of assets to agree on prices.
In addition, most companies have pause there acquisition plans.
Given our strong balance sheet and sponsor relationships, we are seeing some very interesting opportunities to provide financing to companies seeking enhance liquidity.
However, given the economic uncertainty our bar to invest in new situations is extremely hot.
And until the environment stabilizes, we don't expect to invest significant capital in new portfolio companies.
While we have highlighted our liquidity available capital.
We're focused on preserving that capital primarily for our existing portfolio companies. So we can protect the value of our existing investments.
Clearly we are preparing for the results of our portfolio companies to be significantly impacted in the second quarter. This will reflect the full impact of the economic slowdown.
We're focused on each company's liquidity profile and already close dialogue with them on the steps there taking to reduce costs and managed near term cash flows.
In the second quarter, we expect to see an increase in discussions with our borrowers and their sponsors around the need for covenant amendments request for additional support.
We are entering this period, the financial and portfolio management resources to be a resilient source of support but with the clear objective of protecting each of our investments with the goal of getting back par on our original investment.
While we always expect some level of loss in our portfolio. We remain focused on this goal of getting back part even sitting here today.
We have been encouraged by the tone of the conversations with many of the private equity firms.
Expect a number of them to continue to invest equity in their companies.
I'll not our preference and a last resort should there be hopefully a limited number of situations, where we need to achieved that goal by taking over ownership of one of our companies, we're resourced and prepared for that.
Given the strength of our platform and the depth and experience of our team. We feel this will be an area, where we could defrayed differentiate ourselves and optimize outcomes for our shareholders.
We believe many of our borrowers while struggling today are fundamentally attractive businesses that will recover in line with the eventual broader economic reopening.
I'd note that the vast majority of the unrealized losses and NAV decline, we reported this quarter reflect the impact of the spread widening in the markets.
Since quarter end, we have seen market spreads tightening.
Which if sustained will increase the value of our portfolio. However, what ultimately matters. Most is getting repaid on our loans at par.
For now we are focused on working with our borrowers to get through this near term period in order to preserve the long term value of the company I continue to protect the downside case for our investments.
These events have highlighted the size and resources of our platform and our balance sheet. We believe we will be one of the lenders the private equity firms will increasingly turn to given our ability to provide sizable customized direct lending solutions are large high quality team and our differentiated relationships.
We also believe that the value proposition of direct lending is that much more attractive as the syndicated loan and high yield markets have seized up.
Banks are unwilling to make new commitments.
The economy eventually recovers from this crisis, we believe we are well positioned to take market share, it's where merge and improve market position.
As we gain better confidence around the needs of our portfolio companies. We believe we will eventually be able to shift our focus more towards new investment opportunities.
Given the market disruption, we believe these new opportunities will offer very attractive economics covenant packages and structural protections.
As we think about capital deployment in the context of returning to our target leverage level. We still expect that will we will be at or around <unk> 0.75 times around the middle of the year.
It's important to note that we're not in a rush to increase leverage instead, we are focused on deploying capital defensively and situations in which we have high conviction.
Longer term, we feel there are several areas that will allow us to increase returns on our capital.
We expect to maintain our focus on primarily first lien investments, including Unitranches, we expect new loans will have improved economic terms, including spreads although I'd call protection.
Given our platform attributes, we hope to increase market share for the most attractive credits.
While we were no rush to increase our leverage should our shareholders approve our request to increase our regulatory cap. The two to one times, we will eventually be able to modestly increase our leverage to target a 0.9 to one of the quarter times, resulting in improved returns.
As conditions improve an existing loans are repaid we will be able to reinvest proceeds at more attractive spreads.
I would note that we have a significant amount of high quality lower spread first lien term loans in our portfolio. There currently at a spread of L, plus 500, or less which as repaid <unk> would provide an opportunity for increased spread.
In closing I want to reiterate a few points.
Economic outlook is extremely uncertain and there was much hard work ahead for us.
We believe our portfolio and our balance sheet or is well positioned for the current challenges as we can be.
We have the resources and expertise to manage through these difficult times and we're highly focused on managing each loan to minimize the risk of default and should that to occur to maximize our recovery.
We take our responsibility to our shareholders our companies in our lenders incredibly seriously we're focused on taking the necessary steps each day to live up to the trust you have placed in US we look forward to keeping you apprised of more progress.
Thank you for joining us today and on behalf of the entire Al Rock team. We hope each of you and your family's remain safe and well operator. Please open the line for questions.
Thank you if you would like to ask a question at this time. Please press star one on your telephone handset.
Our first question comes from Casey Alexander from Compass point.
Go ahead your line is open.
Hi, good morning, and and certainly hope that everybody is doing well I have a couple of questions and then I'll jump back in the queue and circle around at the end.
If necessary.
First of all I think shareholders really appreciate the aggressive nature with which the share repurchase program operated I mean, we knew that it had been announced at the IPO.
But nobody was really certain until it came into practice how aggressively it might operate depending upon the environment with only 27 or $28 million a left on it.
Eight its likely to be used up a fairly soon what's the appetite to reload at the management and board level.
Sure Casey Thank you.
Yeah, we got a lot of questions on the share buyback during this period of time.
Shouldn't have been that uncertain because as we had said at the time of the IPO. This was a programmatic buyback that was taking place along the stock traded a penny below NAV, we didn't disclose the amounts but.
It was very clear from our disclosure that any Dave is that the shares are trading a penny below NAV that the buyback which would be in place. So there was nothing aggressive or not aggressive about it was just mathematical based on shares that were trading on days, but the stock was trading a penny below NAV as you know most of this period of time since our IPO that's not in the case.
But with the recent market disruption has clearly been the case and so so this so the buyback has been operational we haven't disclosed the formula, but but I can share that the program. The regulatory program that it operates under has a cap on any given day of 25% I'm, so that can't be above that.
We haven't disclosed the exact percentage, but but you can do some math around the 25% it can't be above that so.
So thats a little bit of the context around it.
In terms of going forward.
As I indicated in our in our call.
Focus right now is on being defensive with the portfolio and preserving our liquidity for protecting our existing investments. We think the most important thing we can do for our shareholders is getting back par on all of our investments in our dry powder and the capital we have for that.
Is critical to that because we may need to provide liquidity for these companies onto to ultimately improve our prospects are getting back part that's really our goal overtime onto the extent that the programmatic buyback runs out we would certainly engaging the discussion with the board and about weather.
We should do a different type of program. The programmatic program was really put in place on the context of the IPO and trying to make sure. The IPO is successful we may consider that or others, but I would say, it's not a big focus for US right now and I would not want to set expectations that you should expect to see an additional buyback program.
In place I'm in the near term. So you know that's as bad as best I can give you color on it right now.
Okay. Thank you that's that's very fair and secondly, as I kind of work through the math where rates have gone, which is sort of been and anticipate a bull and the likelihood that at least for a while here we're in an environment, where there's not a lot of deal activity.
Okay, and making deployments at the rate that you had in the past might be somewhat difficult.
Do you kind of run through the math and it could be that when the management and fee waiver is run out having net investment income that exceeds the base dividend could be challenged by a penny or two or three would the company consider partial.
Incentive fee waivers to make sure that and I covers the base dividend if that event where to evangelize.
Oh sure somebody come back to the guts of your question in a second but I think we can all agree that the most important thing we can do for our shareholders right now is making sure that we get back part in our loans you know our we obviously have experienced.
A reduction into out which is was primarily driven by spreads widening.
Spreads have now tightened since the end of the quarter you know if that sustains we hope that NAV will go up on the markets, obviously basic baking in an expectation of loss our goal is to avoid those losses.
And experience and get our stock back to back to NAV and in the short term our focus is on that but you're right longer term, assuming we do a great job on that assuming rates stay low you know looking out past some pretty on unclear and uncertain train on you make a fair point, given where LIBOR is on sustainability of uptick.
Then.
We think we have a number of levers to address our ability to cover our dividend. We first and foremost we think we're gonna have the opportunity to improve spread in our portfolio I would say that comes from two factors one as I highlighted in my prepared remarks, we had a significant amount of loans on our books that are sub L. Plus 500 that was very deliberate.
On our part as we assemble the portfolio to do that in a very conservative manner as those companies.
Get repay our loans, which will happen over time, we can redeploy that capital at market spreads that will be an excess of that sub L. Plus 500. In addition in this environment, we think we're going to have.
Opportunities once we have more confidence in deploying capital to get meaningfully increase spreads.
D Covenant packages on new loans, you know as I tried to make the distinction in my remarks, I think new deal activity, new buyouts by sponsors will remain modest on but you know we are getting calls all the time right now from sponsored asking us to finance their existing portfolio company.
Who have liquidity needs and they'd like companies would like to be able to two to boost their liquidity and frankly the amended many of their incumbent lenders are not in a position to provide that liquidity. We are we can provide that liquidity and frankly the up the terms that are out there that we can get are very attractive. We're just choosing not to do so because we want to save our powder.
At this moment in time, but over at some point when we got more visibility, we will be able to take advantage those opportunities and that's another way that we can improve our returns and improve our ability to cover our dividend blast last two pieces I would highlight a modest increase some leverage we're obviously well below even our previously targeted leverage.
And so we've got approval to go to the two times the will have the ability to increase our leverage over time, a bit higher that will also increase our dividend coverage and prepayments fees. We've had really modest prepayment fees in the context of a portfolio of our size given the relative on use of our platform.
Some point, that's going to pick up and that will generate on net income for us that will help. So we think we have a number of levers on in the short term.
It's about defense, but over time, we can pull those levers in comfortably cover our dividend.
Well, that's really helpful color I will step back and let others ask questions and if I have more I'll come in at the end. Thank you very much.
Thank you.
Thank you next question comes from Brian Lynch from KBW.
Please go ahead your line is open.
Hey, good morning, Thanks for taking my questions and hope you all are doing well.
I'm just wondering.
Get some commentary online you spoke about your guys focused right now is to focus on your existing portfolio companies, but but you guys do you plan on selectively making new opportunities in the market and you're talking about your leverage.
Going up modestly.
Kind of kinda back. This year. Just wondering you also said in your prepared remarks that you know, it's really not possible to tell how long this unprecedented economic downturn will last so when you guys are evaluating new opportunities what are the criteria that you guys are using anda Anda companies that you guys are focus.
Moving on to actually deploy new capital and in economic environment that has has such great uncertainty.
Sure Ryan.
So I as I said, our bars very high.
That's that's driven by we just don't know how long the skin, Alaska and we don't know what the needs are going to be per existing portfolio companies and we think that it's prudent to real use our dry powder to the extent that those companies are going to needed because we want to try to make sure we get back par.
We will do new deals there'll be pretty limited the bar will be very high what's the criteria look I think first and foremost its about credit selection and I think that in this environment, that's very difficult given the lack of visibility on when the medical environment will improve when the economy will start to improve there.
Our sectors, where you can gain confidence on to underwrite. Despite the current environment. We've highlighted some of the sectors that were large and are the kinds of sectors that we could consider underwriting software happens to be one we think software will hold up well in this environment I'm insurance is another food and beverages another sectors that were larger.
Generally are sectors that have you know reasonable visibility even in this environment. So we see opportunities in those spaces, where we feel confident in the ability to underwrite the alone and we have economics and future economic features on the equity cushion that we like.
You can consider doing that and we will do it but I think it'll be a pretty limited number until we get greater confidence on the broader needs for the portfolio, we'd see the way every new deal opportunity against what the what that liquidity may be used for down the line in some of our existing companies. So you should expect to see us do limited none.
Over we can do a couple add ons to our existing businesses, but I think it's going to be modest until we gain more more conviction.
Okay, and I look at year.
Unfunded commitments speaking of existing companies when you're you're unfunded candidates.
Pretty good base of secured revolving as well at delayed draw term loans you talked about are there any.
Specific provisions and every garden to delayed draw term loans that that will make them accessible for for certain reasons like like acquisition or M&A or those free to be assets by the your portfolio of companies that well.
Yes, yes, they do typically delayed draw term loans have are tied to typically use of proceeds related to an acquisition.
In addition, they may have other financial tests, such as a leverage test or other credit metrics that needs to be met for them to be drawn so.
So that's typically the case, it's not the case and every every situation, but some but you know those those get those conditions are met them. We will fund the delayed draw I would say Mr environment.
The sponsors I think are being very cautious about doing additional acquisitions at their portfolio companies for obvious reasons.
And so.
I mean, I think they'll have the same caution that we will about whether they will be I'm trying to keep trying to grow through acquisition right now given.
Their own concerns about visibility into companies, but there may be some and we we stand ready to submit our obligations under those it's not a.
Massive number in the context of our overall portfolio, but.
As we as needed will provide them. They also are time based on like the revolvers. The revolvers typically five six years. The delayed draws are heavy time based limit on typically year or less sometimes as long as two years. So over time over the next year or two they will all roll off if they're not use.
They just go away unlike a revolvers, where they can be drawn and we paid over time the delay draw just go away.
Okay, and Ryan I guess, what I, what I would add to that is about two thirds as I mentioned of our undrawn are in delayed draw term loans.
Yes, and we do disclose all of our unfunded commitments, we don't just disclose the ones that were required to fund immediately so you see the full population there.
Okay.
Got it.
And you mentioned that two companies. This quarter you guys switch their interest payments that could pick what were those two companies I've had a chance to define them in your scheduled investments number one and then what what default with with switching to take obviously that you.
You do that in order to preserve cash and liquidity and get that that company.
Better runway that Ted Ted to navigate this unprecedented environment, but what was the thought process behind also keeping those on accrual status that obviously, you know if you're going to record that its income that.
And that kind of speaks to your guys.
Thoughts behind your ability to essentially like that it just given your economic environment. It seems so uncertain can you just talked about.
Felt the switch over to take but also keep them on accrual.
Oh sure I'd say, it's a good unfair question. So if you if you look through you'll see there were two one was a very very small amount for a company that shows up on arrest Elias C.M.S.
Excuse me C.M. seven restaurant.
We we it does business under Mitra, it's a restaurant.
It's a KFC a franchisee so less than 40 million dollar investment. So it's very small and so the other one is a company called STS, which we approved postum post quarter end. So I am not positive that shows up and scheduled investments, but somebody that's the other one I'm referring to STS is in the aerospace.
Space and that's a bigger investment is closer to $200 million.
We would go through all our names and determine nonaccrual or not based on our expectation of collecting interest or expectation of collecting principal you're out you're right to ask the question. We obviously.
You know went through that analysis on these on these couple names as well as you know all our names, but certainly the ones that Tom or a true or have lower valuations.
And we determined and in consultation with our orders determined that we expect to get or interest payment and interest overtime and we expect to get our principal back at par. So we and the short term thought it was prudent so while the company have the additional liquidity, but we believe that.
We expect to get back par on our investments and therefore and back or interest and therefore, it's appropriate to keep them turn obviously liquidity in the short term you know it's measured in millions of dollars and add and recovery arm is you know as measured by enterprise value and certainly can be situations where companies have when.
At the short term liquidity, but have lots of enterprise value and therefore, we thought as appropriate to keep them current.
Okay.
Thanks for taking my questions are you guys, all stay safe and I'm going to hop back in Q.
Great. Thank you thanks, Ryan there as well.
Thank you I next question comes from Mickey Shelly him from Ladenburg. Please go ahead. Your line is open.
Yes, good morning, everyone.
Just a couple of question I've seen some reports that.
Partners in other words the platform is looking to raise a billion and a half dollar opportunistic debt funds to invest in no small and medium sized companies looking to help bridge their liquidity gaps.
It sounds like from your previous comments that the BDC will co invest with such a fun, but I'm interested in understanding what sort of structures those investments could take in today's market.
Could that turning to deal flow for the BDC down the road when things normalize.
Oh sure show a look we're really hear focused on RCC I'm as you know we manage we manage for funds I'm not just RCC and so it's really not the place to talk about other funds that we manage you know we have since inception, you know have.
Opportunities, where multiple funds can invest in the same deal if the deal is appropriate for those funds you know it has to meet the investment criteria for for the specific portfolio. That's something we've done since inception, and I think it's an advantage for us and.
And our platform to be able to offer that out, but but we're very careful about making sure. Each investment is is appropriate for for that specific fund. So we are to the extent we had other funds and they had deal flow that was appropriate for for RCC just as we've had in the past we would.
We would operate as we have in the past on but the strategy for RCC remains the same high quality upper middle market sponsor backed well performing businesses and regardless of any other strategies that al rock offer Susan other funds that strategy is not going to change.
Okay, I understand and.
One housekeeping question I apologize you may have already mentioned.
The prepared remarks, but what does the portfolio average LIBOR floor.
Hey, just so we.
Yep.
I'm sorry.
Hey, Mickey its Alan.
On the left side of the balance sheet, it's an 86 basis point average weighted.
Okay. Thank you for that.
My question.
Thanks Mickey.
Thank you and our next question comes from Robert Dodd from Raymond James Your line is open.
Hi, guys, Yeah, and I hope everybody is doing okay. A couple if I can't I mean, obviously.
Comments about.
Uh huh.
Incremental.
Tend to take on new investments at this point in the cycle makes sense, how does that matched with the fact the asset classes everything happens so fast the platform that may.
Commitments and obviously I lost you see implicit within that certain commitments on on transactions.
Before.
Just a bit so.
Those being.
In the context of the market spreads.
Obviously whitened for new investments today, how does that fit with your.
You'd be obviously certainty of close commitment. So what do you made versus the color. You just gave in terms of being that anybody has some about making new investments right now.
We.
Oh, it's just not a big I think it's not a big factor for us to have spent a lot of time on I mean, obviously, if we make a contractual commitments any any borrower we're going to live by that commitment regardless of the change in economic environment Omar commitments don't don't allow for us to change our mine based on the economic environment, having said that it's a.
I don't want to.
It's a it's a really low amount a number of deals in dollars and just not not consequential suits are really and gauge of the discussion we're not sitting as our first quarter was a relatively modest amount of deal flow given the slowdown in sponsor activity on that activity only slowed down during the quarter and as only slowed further in the for it begins.
The second quarter, so its theres not a large pipeline of deals that we've committed to that we haven't yet closed on and so it's I wouldn't have any great concern over that.
Got it thank you and then.
The conversations you're having with companies sponsors ongoing.
Can you give us any kind of how much the feedback you're getting from them is safe qualitative. This is quantitatively if I mean I get to fit where a company can say things okay, but.
See being you know.
In recent pitch customer <unk>.
Yeah.
Cash flow numbers.
Yes.
To date.
Quantitative just.
Qualitative discussion that the.
That's been the focus and the feedback you've been getting recently.
Sure look this is I think one of the big advantages of direct lending versus the public markets. I mean, we get you know a much heightened level of information versus whats available in the public markets in our teams get to know the company's extremely well and and beyond any required financial information I would say mostar.
A bar most of our borrowers most of our sponsors want to make sure that the lenders are well informed and provide us a lots of information quantitative and qualitative I'm. It varies by company, but in specialty times and stress I think that the companies.
Want to make sure that lenders are well informed you know we have covenants in our in our documents the vast majority of our personally terminals have covenants.
And so the companies recognize that in this environment. They may be bumping into those covenants at some point in the future and think they recognize that they owe it to their lenders to make sure we're well informed and what the prospect Saar for bumping up those covenants and share that level of information. So you know we our teams are doing a great job of getting that information, obviously you want to.
Make sure you than was the first for the treason getting daily financial information, you know isn't going to necessarily improve your decision, making but I'd say we got.
A good quantitative sense of what's happening on the ground what the outlook will be and we feel very well informed you know not every single company, but I would say the picture as we feel very well informed on what's going on with our businesses.
Okay I appreciate that thank you.
Thanks Robert.
And our next question comes from Kenneth Lee from RBC Capital Markets Go ahead. Your line is open.
Hi, Good morning, Thanks for taking my question I'm, just wondering if you could frame the potential expansion for net interest margins, just given where library currently is sitting at thanks.
Or you are.
Are you asking about.
About.
Spread or are you asking about pennies per share.
Ideally pennies per share.
Or even spread.
Fine.
I mean look Directionally, we think that and again. This is this is really directional answer and there's there's not a precise analysis around this but we think that just by or improved spreads in the current market environment.
By replacing lower spread loans as they roll off of higher spread loans, we can be easily add a couple of pennies a share to our net income per share.
Before you know per quarter.
Can you cannot look it is right.
Oh, yes, sorry, the only thing I would add to that is if you're looking to to crunch numbers can the interest sensitivity table in the back of our Q in the back of the DNA.
Might be something you're looking for.
Okay, Okay, but happy to happen it ticked up more offline.
Great and just one follow up if I may just in terms of a I know, there's there's been ongoing efforts.
In diversifying the funding mix and just wondering if you could comment on.
Whether we could see a potential change in either the pace of the efforts given the kind of environments or whether there is any potential changes and plans.
Yeah. Thanks.
Generally speaking no no no change in plans, it's obviously more challenging environments to go out and raise debt, but we continue dialogues with our lenders are mix is not going to change. If anything you certainly can continue to see a lot more unsecured and the future as weve telegraphed on prior calls.
But no no nothing nothing generally has changed there.
Great. Thank you very much and hope everyone stay safe.
He was okay. Thank you.
Thank you. Our next question comes from George but how about this from Deutsche Bank. Please go ahead, Sir your line is a good.
What are you going after a while yeah. Thank you for taking my questions.
I'm wondering if you can give us a sense for the number of borrowers will be shot for really for just stay engaged in conversations around loan modifications in the first quarter.
Give a sense.
I would say well how can give us I can give you some metrics, we had less than 10 amendments for the quarter and less than half of those were four.
Material amendments.
There were number of borrowers that I'd say engaged in discussions that you know Didnt end result in any any substantial amendments.
But.
That number I haven't seen sat back and kinda it up but the teams we're always having kind of informal conversations but in terms of like substantive amendments less less than 10 and less than half of those were meaningful amendments. The others were more technical in nature, there's probably another.
10 to 20 on top of that that had informal discussions that didn't result in anything obviously that number is going to pick up materially in the second quarter.
But in terms of what happened in the first quarter, it's fairly modest in the context of 100 and portfolio.
Thank you for that color you just I guess started said just my my next question is it's how you've seen that number maybe evolved to through April and yet the beginning of May.
Have you seen in order for a noticeable difference I imagine it would pick up so I'm wondering if you can share any color there as well.
I don't think I could really divided difference between.
What happened in the last couple of weeks in March versus the pace in the <unk>. Most recent couple of weeks I'd say, there's a steady stream of conversations obviously, our companies generally report compliance with covenants on a quarterly basis, and so and so at the end to be.
As as companies look out to where they expect the quarter to come in you know that's when when those conversations ramp up to the extent they think there's going to be an issue. So I would expect it to be.
I think this isn't specific dorsey see any direct lender you know, it's going to spend a lot of time in the second quarter talking to their borrowers about how they're doing compliance with covenants I've tried to be very forthright about about addressing areas of concern I just want to make sure I'm, giving you. The proper picture, we have a lot of companies actually do.
And just find in this environment and that aren't engaging us with covenant requests and think they have plenty of liquidity and we were staying on top of them, but but I would say there are many companies that we don't expect to have any.
Any amendments at all it's hard to predict because the environment is just unpredictable you know and we're prepared for whatever comes our way on but I think that our greatest intensity, it's going to be focused on those three and four rated names those sectors and I've highlighted that are gonna be afraid or concern and and.
It's a relatively limited number in our portfolio on 12% at this point, but its conditions continue to be week. It's just there's a chance that number increases from there.
So just having an amendment is not a daunting proposition that's why we're maintenance covenants as to how that seat at the table and said to work through it with a companies and you know I don't think the number of amendments in of itself is going to be necessarily an indicator of risk of loss for us. That's why we haven't covenant packages, but.
It is going to be an indicator that I'm going to see that table and we're focused on preserving the value of our loans.
Great and I appreciate the color today and.
Thats all for me.
Great. Thank you George.
Thank you. My next question comes from Finian O'shea from Wells Fargo Securities. Your line is open.
Hi, open everyone's well thanks for taking my questions I'm first going to fall and I think what Robert touched on earlier on commitments.
Looking at alone for Scout.
<unk> Louis you as leading the $440 million loan subjects to close upon the completion of the debt marketing period.
Can you provide context on on what that means for your commitment to the deal was there any flex language in this one off work or did you not commit to the whole tranche, perhaps any context would be helpful.
Thanks, and for Scott's a public company I'm not in a position to make any comment whatsoever on on for Scott.
Okay, I understand and.
I I guess, a little higher level, then you talked a bit about.
Rotating out of lower spread loans L plus 500, or I think was the number you threw out.
Looking at Warner here larger investments this quarter Cas management was L. for 25 so.
In that context, how much incremental spread do you anticipate being Eagle Creek on and.
So what should we think about the risk in return for for that specific credits.
Yes, it's a fair question in the context of the comments I made.
The that particular transaction was a deal that we had committed to a fair bit ago, <unk> I don't remember, but it was months ago and so you're you're right that my comments about increasing spread or not consistent with closing on that deal, but that deal was committed to.
Last year I don't remember all caught my head, when but but months ago.
So in in sitting here right now I don't think you'll expect to see us do new cash management type deals at that spread at the time, we committed we thought it was a very attractive deal very high quality on health care provider and so and so we did it then but I think given how the portfolio has evolved on.
We would do other deals in that and that's spread range Miss environment. So, so where where would we I guess, maybe that bags that wasn't where would we deploy capital you know I think that we unitranche pricing today is substantially you know is higher than L. Plus 600, let's call. It you know L plus 650 to 70 50 that.
Type of spread range. So that that's gives a sense of where that piece of the marketplace is on so I don't we won't do too much you shouldnt expect to see us do.
Anything meaningful sub L plus 500.
[noise]. Thank you Craig.
[laughter].
Thanks again.
Thank you I know that's question for today comes from Chris York from JMP Securities. Please go ahead. Your line is open.
Good morning, guys. Thanks for taking my question is obviously a lot that Scott. So I just have one question.
Craig in this environment health care relationships or who to achieving good outcomes for for partners, but they can also be tested from competing interests. During stress. So the question for you is are you thinking about the need to protect your par value by end of course, and you're right because it will lead lender today.
Formants deteriorate versus the risk of impairing the trajectory allow rocks franchise value.
Market share you created over the last five years.
Sure Chris So again fair question.
We.
Our our role and our job is to protect the value of our investments and our shareholders capital period Postop now we I appreciate the this the why you're asking the question because we've built our business around being a partner for private equity firms you know we very deliberate.
We built that that business by having a large pool of capital.
Very large team and a broad set of relationships and you can go through our our portfolios and you can see we finance lots of different sponsors were not dependent on any one two or three and we cover hundreds of private equity firms.
And I think we've done a nice job I I know the private equity firms are degree of becoming a valued partner to the private equity firms, we're going to approach. Our this period of time in it and as constructive as we can be on but certainly we think constructive means listening to the sponsors being rational about what we're being asked to do.
But but make no mistake, our job is to protect our loans and I think that.
The private equity firms are fiduciaries of capital, where fiduciary capital and he sophisticated private equity firm that raises institutional capital understands the difference of where we sit in the capital structure and and what that means for us and I believe and I'm very close my partners are close to folks running private equity firms.
They understand that difference. So we think we can do both we think we can protect our investors and maintain our franchise as be preferred partner to private equity firms and for the solutions that we can provide I don't think it's an either or inevitably theres going to be there may be situations, where we need to take.
Action in the there maybe a frustration level, one particular private equity firm for that action, but I think it when they take a step back they'll understand it and the context of a big broad platform. We can afford to have you know some unhappy specific situations and still have a great business on our hands. So you know our teams are prepared for that.
And and I think the sponsors understand that that's that's part of this environment. However, you know just to leave on us on a positive note I think the tone of the conversations with sponsors had been very constructive the sponsors have significant capital. When these businesses. They added significant dry powder and they want to protect the businesses and help the companies and make sure they have enough.
To get through this period of time in a sponsor stand ready to do that provided additional capital we stand ready to work with them and helped businesses get through it.
And get back our investment in have the sponsors or get a nice return on their equity. So I don't think its mutually exclusive and I'd say the tone that we've heard and the last for six weeks has been very constructive and I'm optimistic that will all worked through this together.
Great. That's very helpful color inside one follow up I know you guys have been building out the portfolio management resources at the platform over the last year. So I'm curious dedicated investment professionals Lexus have to support the platforms restructure or portfolio.
Management expertise and then what did that maybe year over year.
Oh sure look I think like most direct lenders in this environment given my comments about new investments you know these higher investment team is essentially focused on portfolio management. So it's not.
You know, it's the resources, we have right now or are significant there's other handful folks whose job. It is day to day to work through specific portfolio management issues as I mentioned in my comments, we've taken additional folks who were investment professionals, but essentially.
We said put that aside and just become additional resources and we'll continue to add to those overtime.
But it's and we have plenty of resources and won't continue to add not so much about the number of people, but adding a couple of a couple of people that have some very specific technical experience that might benefit us in this and this period of time.
Sure makes sense that's it for me thanks, Craig thank them.
Great. Thanks, Chris.
Thank you and at this time I'd like to turn the call back to Craig Parker for closing remarks.
Okay, well look thanks, everyone for your time I know this went a little longer than our typical calls we've really tried to share as much information as we could about what we're seeing and talk about the future. In this uncertain time. Appreciate the questions were obviously available for follow ups really sincerely wish everyone on the call I'm good health for.
You and your families and look forward to coming back and updating you on our progress in the future.
Thank you for joining us today, ladies and gentlemen, we appreciate your participation. This concludes our call you may now disconnect.
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