Q1 2020 Earnings Call
[music].
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stand by thank you for your patience.
Oh.
[music].
Good morning, ladies and gentlemen.
Line Gerson pro precedent.
Stephen Lily Chief Financial Officer.
Also joining us on the phone or co Chief operating officer drew O. tool and Ryan Wilson.
I will now turn the call over to Michael.
Thank you Robert and welcome everyone to F.S.K.K.R. capital courts first quarter 2020 earnings conference call leave a lot of information to cover on today's call saw jump right in.
This continues to be a tumultuous time at time of sharing emotion shared sacrifice in certain circumstances share a concern.
We appreciate that all of you like us continue to be concerned for loved ones friends and associates.
Companies investments are important.
Events of the last two months of help remind much of the world. It's truly important in a very tangible way.
Like many view on this call this morning.
F.S.K. care team has been working remotely since early March.
Thankfully, we were well prepared to operating remote environment, giving a given our prior investments in both technology and personnel.
Since the beginning of the F.S.K.K.R. joint venture in April of 2018, we've appointed defensive strategy with respect to investing do cap.
While we are pleased with revolt results of our new investments, we continue to face volatility in the performance of certain investments made prior to the establishment of the F.S.K.K.R. advisor.
Many of these investments face headwinds coming into this year, which have been exacerbated by covert 19.
In addition, the impact has been felt by all markets, an underlying operating companies with them within them to varying degrees.
As a result, our investment portfolio declined in value during the first quarter by 10.9%.
As we will discuss in detail later in the call, we estimate that 70% to 75% of our portfolio depreciation during the quarter related to the kobe's 19 pandemic unrelated market volatility.
With this portfolio decline arnett acid asset value declined to $6 a nine cents per share at March 31, 2020, compared to $7 in 64 cents a year and 2019.
From a general operating perspective, our net investment income was 19 cents per share during the quarter, which was equal to our first quarter dividend of 19 cents per share.
Stephen will provide details regarding our operating activities during his portion of the call.
From a forward looking perspective.
We recognize that environment as volatile as the one in which we are all operating it is impossible to predict the future.
As a result, we believe the most transparent communication with shareholders in investors regarding our dividend for neck for the next several quarters is to estimate our current level orderly that investment income and announced the dividend of 100 per cent of that them out on a quarterly basis.
For the second quarter, we expect Arnett investment income per share to be at least 15 cents and therefore, our board has declared a 15 cent distribution for the second quarter.
When we report our second quarter earnings, we will announce or a third quarter, just dividend, which we expect Willie equate to our estimated third quarter net investment income.
Over the long term, we continue to expect or annual dividends will eat like two A.N.A.B. yield of a proxy 9%.
So we acknowledge there will be certain quarters were annualized yield may be greater or less in this range.
For my capital structure standpoint, yesterday, we announced the issuance of a 250 million dollar unsecured bond with a private financing partner.
Our ability to place. This bond is a direct example, the strength of the F.S.K.P.R. franchise. It also helps as anchor capital structure.
Reviving incremental liquidity for future investment opportunities and to support our existing portfolio companies.
Well the interest rate on the bottom is higher than our previously issue bonds. We believe this strategic merits of accessing capital to preserve our strong liquidity position outweigh the incremental costs.
I also had noted the bond is horrible after two years.
Yesterday, we also now send a member of our bank revolver.
Whereby we <unk>, we amended certain financial coughing and seen other metrics.
No matter similar to our bond offering our credit facility Amendment provides this grader operational flexibility and cushion during this time of increase volatility.
With regard to the equity component of our balance sheet. During April we completed the remaining portion of our previously committed 200 million dollar stock buyback program.
And finally, we announced yesterday certain affiliates of F.S.N.K.K.R. have committed 100 million towards a 350 million dollar investment vehicle.
<unk> investment vehicle has been established to invest in time to time in shares of our common stock to open market purchases or other means such as the potential establishment of it can be five one purchase Brett.
We are pleased to announce the establishment of this vehicle at his further evidence of our core beliefs in the long term strategic value of the S.S.K.K.R. franchise.
And with that I'll turn the call over to Dan and the team.
Thank you Michael and good morning.
<unk> today will focus on three topics.
Some color regarding the quarter from an investment standpoint.
Second our current outlook for our but our investment portfolio and third a few forward looking comments with respect to our product to the market in the near term.
From an investment standpoint, the first quarter clearly was a tale of two markets.
While it's difficult to remember the quarter opened in January with one of the strongest credit markets in many years.
And while activities spread them pricing abated a bit during February most industry observers were still calling for 2020 to be a robust year for credit overall.
We did begin the year with the cautious outlook due to what we saw as froth in the market in fact of the new investments we close for F.F.K. during the first quarter over 90% or commitments made and carry over transaction from the fourth quarter of 2019.
Then came March and covert 19, with plunging oil prices as well as equity on credit market volatility not seen since 2008 or in certain instances since the 19 thirties.
Even our languages changes expressions like social distancing quarantining and working remotely have become routine.
Perhaps without surprise the high yield bond and senior secured loans, each indoors or worse month since 2008.
Ending marched down, 11.8% and 12.4%, respectively, and new deal activity beginning began to wings significantly.
As a result of our regular way origination activities as well as some on funding commitments on finding them and draws we saw in the corridor as borrower solidified their liquidity positions.
And the first quarter, we originated at $1.3 billion, a new investment.
We experience $914 million and repayments equating to net investment portfolio growth of $382 million.
First quarter sales and pay downs included $102 million of sales to our joint venture <unk>.
Excluding the sales.
Deployment was $484 million compared to $594 million in the fourth quarter of 2000 in 19.
We continue to make progress rotating our investment portfolio away from older Vincent's assets.
Towards at that K.K.R. directly originated assets.
Today over 50% of our investment portfolio with not compromise of assets originated by the assets take care adviser and roughly 81% total assets and the portfolio have been originated by the kick yeah credit platform.
This rotation will continue to remain a large focus for us incoming corridors.
As the shock of March has given way to the acceptance of a new normal during April and early may the world is grappling with how far reaching the implications of covert 19 will be.
The federal reserve and the federal government are providing support and stimulus to the market on level, even greater than during the great recession.
Given the trillions of dollars thing injected into the economy. There most certainly will be winners and losers.
More difficult to determine however are the future unintended consequences that will be created by the governmental actions as of today.
The congressional budget office <unk> protects the U.S. government debt held by the public will reach 108 per cent of P.D.P.
Exceedingly prior U.S. peak of 106% set during World War two.
In addition people 55 years of age and older now account for over 40% of consumer spending.
Segment of the population, which is which is that most at risk.
From Culver 19, and most impacted by social distancing measures.
How these factors and others play out over the coming quarters, we'll have a direct impact on operating companies of all sizes.
In terms of portfolio specifics, we like others have received requests from certain portfolio companies to convert cash interest payments to pick interest for a period of time.
We have also receive requests from certain portfolio companies to defer amortization thing.
Furthermore, we do expect certain portfolio companies will require additional capital to support originations throughout the balance of the year.
We were handling these portfolio requesting an individual manner based on specific facts and circumstances.
Including the ability of their financial sponsors to providing incremental capital as suppose as opposed to a one size fits all approach.
We feel that we are well staff to deal with these request both in terms of the overall team size and the fact that we have dedicated teams focused on general portfolio management and workout situations.
We have invested meaningfully in our platform over the last several years.
We believe this will benefit us in the corridors ahead.
As we work with borrowers on amendments and Deparle work was.
There will be a natural opportunity for our investment teams to review overall transaction structures.
Terms and pricing to ensure our investments more accurately reflect the risk of the current market environment.
This is important as little give us the opportunity potentially to potentially d. risk and reset our current lumber.
As Brian we'll discuss some more detail we have analyze our portfolio on a name by name basis to formulate of you a bar exposure to the impact of covert 19 on our investments.
This has been an expansive exercise and the largest focus for our vests and teams today.
It has been done both top down by sector or industry at bottoms up by talking directly with our sponsor.
With our sponsors management teams of our borrowers.
In terms of our four view of the market.
As you can imagine our primary objective is to protect the maximize the value of our investments and existing portfolio companies.
That said, we expect to leverage the strength of garbage nations, but friends to add selectively to our existing portfolio.
In our view the coming quarters will present, a great opportunity to to deploy capital on attractive terms.
We will be cautious and highly selective here.
Well, we do believe this will provide I say real opportunity to continue to invest our portfolio and highly a creative investments.
And now all turn the call over to Brian to discuss them investment portfolio specific.
Thank you then.
As mentioned from portfolio perspective, we've been doing a bottoms up analysis of each of our borrowers.
It allows them both business and liquidity risk associated to cope in 19.
Or analysis incorporate monthly or quarterly operating data.
The man analyses oral reports management and sponsored projections macro level industry assessments.
One of the biggest uncertainties today is the duration of the curve of 19 crisis on complete specific business plan.
Lobbies uncertainties have been reflected in our first quarter evaluations.
<unk> little meaningful percentage of the unrealized depreciation we experienced during the first four ultimately will reverse itself in the future as healthy companies begin to emerge from the probe in 19 downdraft.
Turns to Friday, even be earnings presentation at March 31, our investment portfolio, how to for about $6.9 billion, consisting of 184 portfolio companies.
At the end of the first quarter, our top 10 largest portfolio companies represented 22% of our portfolio Wood Lin line with our results for the last several quarter's.
We continue to focus on portfolio diversification, which sea view of the key risk litigation tool.
We also remain focused on doing your skirt investments as our portfolio with comprised of 70 per cent your secured loans.
March 31st.
The weighted average yield on accruing that investments with nine per cent at March 31, 2020, as compared to 9.7% at December 31, 2009 too.
The decline in our weighted average portfolio to yield was are truly the boat to the decline lie bore the repayment of Burton high yield any <unk> during the quarter and neat weighted average yield on our first quarter origination of 7.9%.
I was expected probing 19 is impacted certain of our portfolio companies financial position and ability to find feature interest payments.
At the end of the first quarter approximately 3.9% of her portfolio was on non accrual on a fair value basis.
8.3% on a cost basis as compared to 2.8% at fair value and 5.4% on the cost basis at December 31 2019.
Increased the Nonaccruals was primarily due to either volatility into commodity markets impact or historical energy investment or the direct impact of curbed nine cool I'm certain score based on your best friends, particularly in retail related companies.
Not a combined basis.
<unk>, new non accrual investment account for a little less than two cents per share a net investing income on quarterly basis.
During the first quarter.
Portfolio declined by 10.9% or $801 million, which includes $130 million realized appreciation in $671 million of unrealized appreciation.
Realize depreciation from created a 54 million dollar realize loss in our dad furniture, which coincided with the company's bankruptcy and plan of liquidation.
Other significant realize losses for related <unk>, which was evident in an opportunist excel.
Structuring or burned by submitting my chronic.
As well as assets old towards like venture.
The largest drivers of our 671 million unrealized appreciation or mark to market moves in our joint venture totaling $180 million, you 59 million dollar right down in our investment Belke 45 million dollar right down.
In our investment in J.W. aluminum any 41 million dollar write down and.
Oh now turn the color Stevens discuss our finance will result in more detail.
Thanks, Brian.
All provides you color with respect to our operating results for the first quarter. You can find this information story will slide four of the earnings presentation.
January on slides 15, 16 and 17.
Our total investment income during the first quarter was 179 million, that's compared to 186 million during the fourth quarter of last year.
Interest income decreased by $2 million quarter of a quarter to 131 million. That's the impact of our origination activity was offset by the decline in the weighted average yield if our investment portfolios that Brian mentioned earlier.
Reliable rates, the repayment of higher rate higher interest rate assets and the effect of our new nonaccruals during the quarter.
Being dividend income total 32 million during the first quarter.
Which was equal to all recorded level during the fourth quarter.
Dividend income grew by approximately 4 million quarter over quarter, primarily driven by an increase of approximately 6 million from our joint venture.
Partially offset by lower dividend income from some of our outset based finance investments.
Oh studying the growth and dividend income was a decline in c. and come up approximately $4 million versus the fourth quarter of 2019.
As our fee income was elevated during the fourth quarter of last year.
Two two large restructuring fees and one prepayments the.
During the three months ended March 31, 2020, or not investment income was 98 million, we're 19 cents per share.
Which compares to 20 cents per share in fourth quarter of 2009 to.
The decline in net investment income quarter of a quarter, primarily was due to the decline in total investment income during the first quarter about which I just spoke.
In terms of the details with regard to our instead of the looked back provision contractual agreements resulted in approximately 20 million of incentive see reductions during the first quarter of 2020.
Given recent portfolio depreciation we continue to anticipate that looked back provision will reduce insurgencies over the next several quarters.
Adding additional net investment income of around three cents per share recorder.
Our net asset value with $6.09 per share as of March 31, 2020.
Compared to $7.64 per share at December 31, 2009 tea.
The primary driver said the change in net asset value can be seen on slides six the earnings presentation.
These drivers include realized and unrealized portfolio depreciation.
The benefit of our share repurchase activity.
<unk> investment income equal to our quarterly distribution.
As Michael mentioned earlier, our board of Directors has declared a second quarter dividends for 50 cents per share.
Which will be paid on July 2nd 2020 to stockholders of record as of the close of business.
17 2020.
The 15 cents per share dividend equates to our estimate of what our net investment income will be during the second quarter.
From a high level perspective.
The bridge of our 19 cents and investment income per share during the first quarter to her estimated second quarter net investment income is as follows.
First we expect new originations would be materially lower in the second quarter as we focus on existing portfolio companies.
Reduction in new investment activity is expected to reduce our second quarter fee income by one to two cents per share.
The lower overall yield of our investment portfolios, coupled with the assets. We placed on non accrual are expected to reduce that investment income by one to two cents per share during the second quarter.
And the net additional interest expense associated with the bomb transaction, Michael mentioned reduce second quarter, none investment income by approximately half with any per share.
The input of all these activities equates to an expected second quarter that investment income level of at least 15 cents per share.
Aunts or dividends declaration of the same amount.
Turning for a balance sheet as of March 31, 2020, total investments a fair value for 6.9 billion total cash on hand was 193 million and total assets for 7.4 billion.
This compares to total investments at fair value of 7.4 billion total cache of 106 million and total assets of 8.2 billion as of December 31 2019.
At March 31, our total outstanding debt was 4.3 billion with total committed a 4.8 billion.
On secured debt represented approximately 37 per cent of our drawn death March 31, and approximately 40 per cent of our drawn debt.
Before the 250 million on secured debt.
We announced yesterday.
Or net debt to equity at the end of the first quarter was 128% as compared to 89% at the end of the fourth quarter of 2019.
Our net.
Up to equity is calculated net of cash on our balance sheet as well as the 194 million in that receivables representing sales to our joint venture into other paydowns.
Are affected weighted average interest rate on debt, that's approximately 3.7% March 31 2020.
As compared to 4.0% at the end of the fourth quarter of 2019.
Birth, former for our recent bond transaction or weighted average cost of debt would have been approximately 4.0%.
From Illiquidity perspective, our total available liquidity as of March 31, 2020.
Including the pro forma effects of our bond transaction.
Was approximately 1.2 billion the components of our liquidity include cash on hand of approximately 190 million receivables for assets sold of approximately 200 million.
Approximately 575 million of availability under our revolver.
And 250 million of proceeds from a bond transaction.
From an unfunded commitments perspective, the majority of our commitments are not traditional revolver based commitments, which can be called at any time, but rather acquisition for performance based commitments, which have a natural order of operations attached to them and as a result materially less likely to be called.
March 31 2020.
Unfunded revolver commitments totaled 34 million and our unfunded term debt or delayed drawl term lines totaled approximately 338 million.
Unfunded equity or asset based finance commitments totaled 214, though.
Together these unfunded commitments totaled approximately 587 million.
As we disclose in our 10 q. for a variety of reasons, we do not envision a scenario, where we would be required to fund 100% of these on funded commitments.
And without altering the call back to Michael for a few closing comments.
Thank you see even.
While the cold in 19 pandemic has dominated recent headlines and we all expect its effects to continue to shape, our global economy for many months to calm.
Continue to work toward our own strategic all of rotating our investment portfolio. The K.K.R. originated investments.
Also will continue to support our existing portfolio comes.
<unk> incremental capital, we raised coupled with our back amendment, well position us to carry out our goals.
Thank you for your continued support and we look forward to speaking with you and export.
It was that operator will open the call for questions.
Ladies and gentlemen.
So that's the question at this time. Please press start then one on your telephone to withdraw your question press the pound key please stand vine, while we compiled the q. and a roster.
Our first question comes from K.C., Alexander with Compass point airline is now open.
<unk>.
Hi.
<unk> to the.
Ah the F. escape franchise co investment vehicle I mean can you give us an idea of you know, whereas the additional 250 million is likely to come from and and just some sort of color on it you know the manner in in time.
Coming in which you you don't hope to enter the market or how you intend to run this vehicle.
[noise]. So our case, it's Dan [noise], I can take that and and good morning.
Yeah, I I think couple of things I mean, as you know we haven't been focused on accessing.
<unk> institutional investors for the last several quarters if not.
No longer duration than that and I think you can see from the numbers for that the affiliates the adviser or.
100 million of the of the 350 you know the other 250 is you know folks who are institutional investors, who are sort of you know well known to take care of platform.
In terms of how we honor the market you know it as per Michael's kind of statements. You know this is intended to be.
Okay.
The market purchases it can use for the 10 b. five programs, but I think that's the color we can share on the call for them.
[noise] <unk>.
So so it is intended to run sort of pro grammatical then and and would operate then through blackout periods as well.
Yeah, I mean, I think that's the intention I mean, it I think it can have some flexibility to do other things, but I would think about a program.
Okay, Great second leap Brian.
You went through a number of names pretty quickly zap or credit related marks in the corridor could I ask you to review that again, just slightly slower my A.D.D. kicked.
Yeah, and then I didn't quite get it off.
Yeah, no worries K.C.
So just you know taking a step back when you look at our our loss for the quarter.
Tennis, who is accounted for about half of this law.
The J.V. was the largest.
Mover in terms of about 120 million dollar movement in price.
That really related to move than an underlying investments within that portfolio.
The other top 10, we're really concentrated in certain industries.
We see being impacted disproportionately by coded.
Ease included you know retelling consumer energy and aircraft.
Within retailing consumer.
You know a couple of names pop out a belt and B.G. holding art van furniture.
So.
Talked about before is the style eastern department store retail or that business.
Has been pretty much decided because of the locked down because of coded.
And B.G. home also was marked down tells him to retailers health home furnishing product. So that's been impacted.
And art van furniture.
Also.
[noise] has gone through a liquidation processing and it was marked on a cord.
<unk>.
On the energy side, you know a couple of a name for pointing to them.
Been impacted by the decline.
And energy prices in commodity prices.
So those would come down during the quarter.
And on the aircraft side Global Jet was also marked down again this quarter based on <unk>.
Equity positions worked for about 6% of the portfolio, we're off to hit due to move in market multiples.
And those included games like J.W. aluminum <unk>.
Alright, Thank you very much I won't try to hijack the call I'll step out and let other people ask questions and if I have moral circle back at the end.
Alright, Thank you catch.
Thank you.
In our next question.
Comes from Rick Shane with J.P. Morgan.
Line is now open.
In.
Thank you for taking my questions I hope everybody is doing well.
When we spoke.
I guess now in the fall you were looking at the incremental leverage opportunities as opportunistic waiting for some sort of dislocation event or some sort of pull back in the market I guess, we now fall into the category be careful what you wish for it's obviously.
A lot of that.
Capacity was was used up by the marks but there is opportunity at this point for you guys to start deploying capital I'm curious as you look forward. How you think the markets for new investments open up obviously everything's closed right now what would the timeframe be and what.
Is that look like.
I'm going forward.
[noise] short records, then I'll have to take that there's a couple couple of points in there. So maybe we'll maybe it's not something then if I Miss anything you know circle back but the.
No I think you're right from a leverage perspective, I mean, we we started off.
You know the the quarter roughly sort of 0.9 net I think we're we're happy we recruit him with the leverage because obviously there was a lot of volatility here this quarter.
But you know and.
I think where where you said you know I think I'd point out sort of two things that do make us.
You know we'll call it excited about what the market opportunity could bear we've talked about the liquidity number I think we're happy with that $1.2 billion.
<unk> when.
You know the market will present more interesting lending opportunities over the near term than it has in the past several quarters.
It opens you know is probably a little bit T.V.D. I mean, you started to see.
Activity in the high yield market I think that's been off of a ton of October of activity in the investment grade market.
We do have you know transactions percolating through our screening and investment committees, you know I'll be it. The the volume of that is is dramatically lower as you would expect you know our number one priority is focusing on the portfolio you know maximizing are recoveries and getting back far on loans, there, but there will be landing.
Opportunities that will be interesting I think they will be.
Interesting from a pricing perspective, you know from a structure perspective, but also you know just from a an overall kind of risk reward perspective.
Okay, great. Thank you and we really do appreciate the transparency in terms of.
The dividend policy and sort of the build up to how you get there on a quarterly days or so thanks for that.
[noise] well good appreciate that feedback.
Thank you.
Our next question custom Finian O'shea with Wells Fargo Securities. Your line is now.
[noise] Hi, good morning, everyone, who.
Things going well.
First question for Steve on the the credit facility Amendment.
For first for housekeeping, what should we model for the the fee.
And the amendment see that is and next beyond the the shareholders equity Covenant and I know you wish you run secured as well so those both give your head room, but as to the enhance operating flexibility can you describe that you know what can you.
Do now that you couldn't do before.
Fan site, yeah for the question term <unk> sorry, Damn go ahead.
No you check it's even on Apollo.
Okay, well, if if I Miss something please please jump down in terms of the the fee. It was for US it was measured in.
So I used to wear a nominal basis points is these types of routine amendments or so.
For modeling purposes.
Somewhere in the.
Yeah.
10, 15 basis point range would be you know appropriate in terms of how you might think about it in terms of the the overall facility.
And you know basically what we did is reset the covenants on back to what they had them before so that yeah, obviously any publicly traded company wants to have.
Meaningful amount of cushion under operating covenants for credit facilities. So you know we're no different than anyone else there.
And it was an appropriate time to go to the banks in the sense of you know we just.
We were in the process with the bond deal that Michael mentioned in his prepared remarks, and so it made a lot of sense to have have that conversation.
You know with the banks about that points to the those are the primary points of it did I Miss anything beer.
Yeah.
No I I the only other thing I would I'd been just you have it as there was no change to the spread of the facility.
And when you think about you know yeah. We we do we are the opinion that in a in a market. Like this you know liquidity is very important I think we've used the word liquidity as king you know a bunch of time so us.
You know getting.
The unsecured deal done and you know on a very proactive basis, making these amendments the bank deal you know felt like a very appropriate thing to do.
[noise] Oh God. It. Thank you and I I guess <unk>, Dan is a follow up on the investment vehicle can you give us color on on any attendant economics, the third party might receive and.
Also how the shares will vote I assume the shareholders are able to vote, but trying to understand you know these are less common.
Circumstances, where one of your affiliates will be managing investment company that will hold your stock. So so will it <unk> steamed or or so forth.
Yeah, then I mean good questions.
In in in terms of of you know the the third party institutional.
Investors.
There are you know no fees sort of attached right. This is just an entity that where to buy their you know buying.
Or on their pro rata share sort of buying the stock. So there's there's no sort of you know.
Fee component to that you.
But in case I'm missing something kind of follow up with that sort of question you know in in in terms of of your voting points.
You know what we we can circle back I want to make sure that I I sort of get sensitive correct, but I I think yeah. We were that the holders of those shares on you know look through basis would be able to vote them in in in in you know the same matter that you would expect as if they on them, but I'll circle back they did it come from that.
Okay. Thank you and a final question for Mr for men.
You know first we appreciate the the credit look back mechanism that you've put in many B.D.C. still unfortunately don't have them.
But looking at.
You know the incentive feed trajectory, Steve mentioned it'll be several quarters can you talk about how the lack of incentive see impacts the the string for viability of your credit platform.
[noise].
Yes, we.
Implemented the Ah look back some time ago, and obviously, it's a bit binary. It's no can can be fairly negative in these down markets, but we have a strong team K.K.R. has a strong team we have.
Significant scale on and it has not changed the way we look at the portfolio, where the platform and we continue to devote resources necessary to operate matters to vehicles.
Yeah, and then just just that the that because I you know I mean, I I know I made the the the point in my sort of comments I mean, we've continued to build out the teams at a meaningfully on the K.K.R. side I mean, we.
We've had new joined her starts you know in the midst of the shut down you know I will continue to add people were needed. So I I think you should make a a simple assumption that whether or not gone to the in Tennessee. The incentive D. is paid and and you know we do we think the look back.
Yeah. It was doing his job here and you know that will not impact in any manner. How we you know staff and look after this portfolio.
Got it appreciated the color and thank you everybody.
Thank you then.
Thank you.
Or next question comes from John <unk> with Jeffrey's. Your line is now.
Good morning, and a good here everybody's voice I'm thinking for taking my question first one is is.
<unk> again like Rick set appreciate the right kind of bridge from Q1, B. Q2 dividend.
I'm wondering how do we think about the dividend policy going forward in the variability around that.
Yeah, No I I can start and then even can add to it.
You know I I think we felt this was the most appropriate sort of policy in Santa take you know considering the environment were in and and I think if you go back to Stephen sort of comments, you can sort of see the bridge from the.
From the 15 to 19, you know whether you know obviously.
Now, we're like where pieces are part of that obviously, we're expecting less fee income I prefer expecting them to the last you know new deal volume I think you should out you should have the expectation for the next you know several quarters that that we will be doing the same will be providing on this call. What we're expecting our you know sort.
Current slash you know.
For a quarter to be in terms of earnings and we'll look out to pay 100 per cent of that but but Stephen ads I believe.
No good summary, and.
You know John is Michael mentioned in his comments you know I think though.
If you look at that not just F.S.K., but lots of B.B.C.'s over the years dividends paid has.
Tended to equate to call it plus or minus nine per cent yield on net asset value over some sustained period of time and just so I think from our standpoint, we would continue to believe that in terms of how we might think about the dividend on afford basis and what the portfolio could produce from you know from an earning standpoint.
So that's probably a decent metric to work with again plus or minus you know every quarter one hit it exactly but over over the long term.
Okay. Appreciate that and then this is a kind of a higher level question.
Obviously soon as like you guys are now more.
Focused you <unk> you have good of liquidity short that up.
Since the end of the quarter.
It seems that you're focused inwardly about opportunities to help your portfolio.
Companies, but.
The same time I imagine in the out outside world, There's a lot of opportunity.
For whether it's restructuring.
Or or you know getting better spreads in the market I guess, what I'm. Just wondering is from you and your attached to very big your asset management platform that probably has a fairly broad <unk> broad scope of.
Of your eyes, looking like different opportunities, how do you kind of balance that and how do we think about that in terms of your ability to deploy capital and the next couple of course.
Yeah.
There's I think it's a very good very good question and there's you know maybe a couple different pieces to it.
We are very focused on the existing portfolio you know that that's not because we're trying to be solely sort of inward focus, but I think that's the prudent thing to do but we are looking to ensure that we maximize.
Value on those laundering there'll be there'll be work to do.
The amendments there will be situations that sorta need capital.
I think you're right, though I mean, there's there there will be plenty of of new opportunities. There you know as I mentioned, we have seen so the new deals low going through our screening and investment committee process I think we will be highly selective with.
With wrist that we sort of that we do put on by you know, we we feel quite good about our origination footprints and not just was inside the the team, but the access to the the broader origination footprint of the farm and.
We will see deal opportunities.
Guys that will be highly selective and make sure we're putting on the right you know risk adjusted returns.
Great appreciate that guy's, thanks very much.
Thank you are next question comes from Ryan lunch with K.B.W.
<unk>.
[noise] [noise] very good morning, guys in thanks for taking my question I Hope you guys over well.
My first one has to do where your unfunded commitments. You know you have about 34 million, which revolvers, which are largely at the the bar worst discretion, another 300 and.
39 million up to Lake broad term loans, which are typically with with with acquisitions or certain performance based pass.
Question is but the 250 million unfunded asset base finance commitments are those typically at the the the borrowers discretion or are there any certain milestones or performance tests that they have to meet before those can be drawn down or funded.
Yeah right.
And get them happy to take that.
I I mean your numbers are spot on ride a a revolver amount is $34 million a week, we've always probably take in you know last down on revolvers <unk>. So in this environment, probably happy that number is small and and when you. It is a fair assumption that the revolvers can be drawn at any point.
No the delay draw turn loans would be you know very much skewed towards them in a and would have leveraging currents tests. So.
Inside the current environment, you know, it's probably fair expectation that they're doing a fair amount of that number will not be drawn and those are you know traditionally for much shorter duration than the loan itself, you know probably ranging anywhere from six months to to two years from a closing date.
On the 240 million you know I I would probably think about it in in three buckets, you know fucking number one and it would be available could be drawn.
Assets were available so put that in the this in the discussion of the bar where on the other side you know the the second bucket being certain performance tests would have to be in that.
And the last bucket, which is you know probably closer to half of that number yeah, we actually have to approve the underlying risk decision.
Right. So it's it's dependent on dealing dependent upon asked that next but you know our our belief is is you know very much across the board that.
No we won't see anywhere near the total that 587 sort of drawn which is why that 1.2, instead of building and liquidity number not as it just two times. The 587, but you know it should be you know much more than that by what would actually be drawn.
Okay.
Okay. That's helpful.
And you you know obviously were wearing a very fluid situation. So I know things are subject to change you know a monthly weekly, but but just can you give any sort of updating outlook on on your investment <unk> I would just be interested to see kind of how to add add Ah you know by and slip model is is is operating you know given.
Given this unprecedented downturns fully knowing that that you know it's early on and things are subject to change and it's hard to I looked at you know far harder forecasts, what's gonna happen to future.
Yeah, no happy to do that.
No I think you're right. It is a fluid situation I think we may have moved on from it being.
Blew it on a daily basis to your words on a weekly and monthly.
Oh, we well we've seen his his until accent of a couple of things I one.
You know they did access the securitization market I want to say the deal price on March 10th.
I think it shows the strands of that platform. They they were able to do that it was the biggest deal they have they've ever done. It was you know an access a $400 million.
Yeah, we are expecting to see a a slow down and transactions. Obviously is as you know with social system thing and and.
Yeah. The other measures I think just housing sales will be down we haven't actually started to see that flow through a much yet as a lot of this was just sort of in the pipeline you know, but I think that that will slow on on the bigger macro point, though I think we remained yup constructive you know U.S. housing.
I see this is going to put put a dent and things, but you know if you think back to the last financial crisis that was almost housing led you had over supply everywhere you had tons of speculation.
Isn't that right I and I think you're going to see probably a bit of a nesting feature you're probably not going to see a ton of stuff available for sale. You know housing starts will be down.
So I think from you know the overall macro picture, we feel quite good about the risk and remember these are.
<unk> or 75, L.T.V.C. has a lot of downside protection on real estate value.
Yeah.
Okay.
Huh.
And then just the last one you guys right now are are above your your leverage range did you guys had kind of previously sat on I'm not sure. If I had missed this earlier in the call, which is kinda how're you guys thinking about I'm just C.D.'s ride started time, the you know D.D. after values or or B.B.C.'s, and then mark down significantly so certain.
I understand you know then the willingness need to to operate a ball you know historical targets, but can you talked about do you guys. Even thinking about elaborate drink right. Now are you guys just more focus on managing liquidity out of your balance sheet with you know flexible capital in in addition to you know.
Providing for your your I'm trying to commitments.
Yeah, I mean, I think it's it's the farmers you send it right I mean, yeah, we're very focused on on liquidity position. Hence you know all the work that was done over the core.
And yeah I think that's that's the most important I mean that was there's no change I would tell you too you know where.
We want our target elaborate numbers to be and you're right. I mean, we're we're slightly above that today, yeah. We will look to normalize that over time, but yeah. We're much more focused on I think we're in a good spot liquidating average can be focused on helping our topics are a bar, where it's got to the other side of it.
[laughter].
Fair enough appreciate the time today, that's all I had.
I think you're not going to talk to him.
Thank you are next question comes from Robert Thawed with Raymond James Your line is now open.
A morning, guys. Yeah. It does in India has been box you made some comments about let me see receiving you know pick talk or requests amortization themselves et cetera, I mean, no no big surprises that but can you give us any color on on kind of components that like what's what's this scale relative to decide Oh yeah.
That you seeing those requests come in maybe also any color you can get a some kind of the case I mean this at those requests still salivating of if they motivated I mean, what's kinda to the the the flow of off requests from from portfolio companies.
Maybe where it was a month ago.
Yeah, No happy happy to take that and yeah, I'm not entirely sure it's probably that different today than it was a month ago, because I think a month ago people were also just trying to figure out.
How long this was going to last and how long it was going to play out night, but in in terms of numbers.
We've gotten request on seven point this is through effectively yesterday, we've gotten request on 7.8% of the portfolio in terms of request.
And we've approved a 1.2% right. So roughly you know just under under a quarter of that I'll be it you know a handful are are still in discussion.
Oh, I will say they've taken a couple different forms just to give you.
You know the color I mean, we've gotten.
Request for interest Apparels for company to quite frankly have a very strong liquidity position.
We're saying no to those it doesn't make sense, we don't need to sort of do that now you know most of our deals have a cash flow sweep so above and beyond.
You know the regularly scheduled amortization, we've seen some or request the way that I think we're willing to consider that but we we we want to make sure it's kind of fair on both sides.
You know and then there are certain you know businesses that I'm, obviously been harder hit here.
You know where revenue has you know essentially evaporated that won't yeah, we'll need to be more accommodating there I think as it relates to interest, but you're on the other side. We we will be looking for or expecting you know the the you know equity to come into those businesses to assist as well so I think.
Here, we want to be a good part here, we want to be a good lender you know and we want to be supportive I think we'll just you know also be using this.
You know as an opportunity to make sure where thoughtful and we'll be looking for support from from you know sponsors on the other side.
Got it got it has been very helpful kind of hang on all just <unk> on the businesses, where you at essentially you know that you Oh.
Oh yeah.
Down to the symbol <unk>.
You know obviously that that <unk>.
Just.
Yeah.
According to <unk> positions I mean, how do you feel [laughter].
About the you know you'll liquidity position relative to you know where you think the portfolio.
Company need solved, particularly for were the ones in the highly smashed and since how long O.B.C.M.F.S.K. and they supported <unk> all of this could be could be <unk>.
Yeah, I mean, Greg Greg question, I, I think we feel quite good right, but yeah I think part of the reason why we were forward leaning and getting the unsecured bond deal Don and proactively working through the revolver is exactly that and and you know just go.
Back to the numbers right roughly $1.2 billion illiquidity as Stephen laid out on the call.
587 million dollar unfunded amount.
You know a lot less than that will actually be drawn so I think you're you're well covered there for these new money needs. So I think the simple answer is we feel in a good spot to address those and and like I said you know, we're we're expecting to be a supportive lender and work with people to get to the other side of this.
Okay, I appreciate that and if I can't <unk>, one kind of follow up on on on lines question about that obviously you seeing some initial ah.
I bet your nation opportunities, obviously volume way down given you are yeah.
The the target range, ignoring whatever happens to to to be bombs and knocks at the hot.
Quarter, that's a little too willing to talk about that <unk>.
<unk> I I would presume anything you would be funding would be on on you have it your nation's it'd be contingent on getting me payments in the door. So what do you expect <unk>, what do you expect from a piece of of that.
It's like that.
You too, but how do you think that repayment console activities is going to pick up through the rest of the.
Yeah, I mean to be honest I think is probably a little bit too early to tell that right. I mean, we have had some repayments come through the Bucks you know for deals that where you know already in process, Yeah, well before you know the beginning of March.
You know all of our deals generally have some form of amortization, whether it's you know 1%.
You know two and half percent for years, some deals and have as much as 10. Yeah. These these cash flow sleeps do work. So so you are things that have pay down from the book I think it's probably a little bit too.
Too early to figure out what you know exactly repayments might look like but I think the overarching point is I think the opportunities will be interesting, but we're going to do it prudently inside of you know what we think the liquid as he yeah, we have that's available and and the right Labradors number so it'll be a balance of all that <unk> <unk>.
<unk>.
Thank you.
I'm not showing any further questions at this time, Oh now like trying to call back over to Dan Peters Ferny closing remarks.
I don't know thank you what you're gonna. Thank you off of your time today.
We hope that you all remain safe and healthy and the team is available for any follow up questions is needed, but thanks again for your time.
Ladies and gentlemen, just conclusive days conference call. Thank you for participating you may now disconnect.
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