Q3 2020 Earnings Call
Welcome to me.
This conference call.
Oh, Hi, Chris Jansen Rocco Delguercio operating system is about 100, that's all I can start here. It question answer session with all the presentation.
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Correct.
You may begin thank you operator.
Oh, you for joining us here.
I'm joined by Christianssen My code, that's been officer Rockwood yogurt.
Before we begin Walker <unk> <unk> married disclaimer regarding information and forward looking statement Rocco.
Thanks, Mike I would like to remind everyone that today's call is being recorded and that the well it's a property of credit that can be.
Any unauthorized recording of this call.
[laughter].
A replay of the call will be available by visiting our Investor Relations page on our website at <unk> P. Hem B D E.
I'd also like to call your attention for the Safe Harbor disclosure in our press release.
Well, we look information and remind everyone. Today's call may include forward looking statement projection.
Actual results may differ materially.
Okay.
We will not update forward looking statement unless required by law.
Okay copies of our latest SBC filing please visit our Investor Relations page on our website at this time I'd like to turn the call.
<unk>, Chairman and CEO Michael Mauer.
Like brought though.
I want to buy what Mike.
We live in today.
Good good 19.
I would call it's incredible covering all over the world.
Secondary economic effect.
Let's see for both businesses.
We pounder calls among accordingly.
No.
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My view on underwriting.
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Lenders.
Hello.
Hello.
The vast majority of or more room, that's no liquidity.
Well I suppose.
The average corporation.
Should not violate.
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I'll conclude.
Commentary about.
Our investment.
Good.
Mark.
Maturity or leverage.
That's cool.
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Yes.
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Even though.
With that.
Alternative.
Thanks, Mike.
For the portfolio companies this quarter, including four new portfolio company.
All of our investments were personally.
These additions were made between early January in early March.
We also had two full realization during the quarter three partial realization.
After quarter end, we made two investment.
Okay.
One of which we funding under an existing revolving commitment.
Correct.
For additional investments in existing portfolio.
That's it opportunistically in ARPU yeah.
In one of our best performing borrower.
Our p. actually paid a majority of its term loan assets. So.
In December 2019.
And we purchased from the loan.
Without a fraud.
The yield on the food purchases from 3.1%.
You see products refinances facilities in February.
On a full realization of our existing position and made an investment in the new terminal.
Our IR are on the realization was approximately 14.3%.
Our yield Cos.
Lower.
20%.
As I mentioned on the last call. We also invested in office equipment.
Oh, the is the largest integrated equipment viewership platform.
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Required by Uh Huh.
Our first lien loan yields approximately 12.2%.
Yeah, that's sitting at first lien loans itself specialty solutions.
Total company of Lindsay Goldberg.
In fact, the acquisition to paper mills from birth, though.
Itself is a leading producer specialty grades of paper.
Are you all the costs of approximately 2.3%.
We also participated in the club deal for Gexpro services.
Which is owned by 13 path.
This first lien loans appears in our schedule of investments.
Operator.
Dextrose distributor a few part.
Which includes fasteners.
Wow.
Moving.
That's the part.
Another high that's how you count.
You play.
Our yield the costs of approximately 8.9%.
Our fourth new portfolio company investments also.
If you will see an overstatement of investment listed on the W gap.
Also through the convenience store and gas station operator.
Our yield a car on this first lien loans approximately 8.3%.
We had to pull realizations during the quarter.
I already mentioned the repayment over a month and see product.
Second realization was touched.
Let's move on the second lien investment.
And are fully realize morar was 11.7%.
We have three loans restructure during the quarter.
Fusion come out.
World Technology.
Right.
Also known as Empire resorts.
Fusion exit bankruptcy in January.
We had a realization of our position in the dip loan, which generated an IR of approximately 33.2 per se.
As discussed last quarter, we are a lender under the new first out first we terminal.
This quarter, we received our pro rata portion of the second out loan.
In exchange for pre petition turmoil.
The yield on the second out first liens was approximately 12.6%.
Although I would note that the majority of the coupon is paving cod.
We also hold the position infusion exactly.
For all technologies now known as well over technology also emerge from bankruptcy.
The exit loan yields approximately 9.6%.
Hi, fusion, we also hold position including for exactly.
Finally on trains loans also restructuring during this quarter.
Unlike fusion and Clover.
Not a chapter 11 process.
Rather very positive partial refinancing.
Change of our prime position.
Received a significant pay down of approximately 70% and the new one year alone, which you 3.9%.
With the substantially improve collateral and guarantee package.
Despite the decrease in yield.
Freezes our position here.
Especially in light of covert pandemic, which I shudder to casino for an indefinite amount of time.
This quarter and we made a small loans in fact before.
This was to provide liquidity in advance of the company filing for bankruptcy.
Got it early this month.
Mike will discuss second fluff later in the call.
Using the kicks standard.
As of March 31st.
The largest industry concentration was.
Energy equipment and services was 11.2%.
Followed by construction and engineering of 11%.
Professional services offered 11%.
Yeah, that's 6.8%.
Trading companies and distributors.
21%.
Our portfolio companies are in 26 different industries of this quarter and.
Including our equity Morphosys.
As of March 31st our portfolio Company Count was 38 versus 35 at December 31.
These accounts are unchanged today.
I'd now like to turn the call over to Rocco to discuss our financial results.
Thanks.
For the quarter ended March 31 2020.
Definitely come with $3.4 million or 25 cents per share.
Add value about portfolio was 274.9 million compared to 305 men at December 31.
Holyfield net decrease.
Great and this quarter was approximately 24.2 million.
Hi, Newport on new investments during the quarter had an average yield of 9.1% that exited during the quarter patent having yield of 11.2%.
Realized or 11.6%.
Good yield Inc.
Hopefully was 10.5%.
Equally up 36 basis points from December 31.
As of March 31.
Although consisted of 38 portfolio companies.
4.9.
Investments personally 11.3.
The portfolio was second investment.
One, 7% Wasnt a unitranche investments.
98.1% by debt portfolio wasn't that thing floating rate loans.
1.9% fixed.
Investments.
Our average for the company investment was approximately $7.2 million.
Hi, good portfolio company investments within the mall at $14.9 million.
We were 1.4 times Levered as of March 31 to 1.23 times leverage.
December 31.
Finally, with respect to liquidity as of March 31, we had 11 naming cash 21.1 million unrestricted cash and 18.3 million of capacity under our revolving credit facility yes.
Once a quarter end, we reduced the term loan by 20 million and as of today, we have 16.3 million in cash 2.1 million in restricted cash and I fully drawn on our $30 million Alibaba.
Additional information regarding the composition of our portfolio is included in our form 10-Q, which was filed yesterday with that I'd like to turn the call back over to Mike.
Thank you Rocco.
I'd like to provide updates.
Deeper.
Hello.
On profitable disruption loans off market ultimately.
On investments.
You up on through a rig count has declined by more than 2%.
Right.
Okay.
Oil and golf.
As a result on the global.
And the well publicized.
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In Russia.
Resulting work on.
Even productions.
And the impact or close.
Liberty.
And program and also will yield water weaknesses as well.
Current we're on track.
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Okay.
Correct.
Well, we couldn't be.
Okay.
Liberty.
Low levels.
Liquidity.
Along.
Public school now.
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Good.
Current market.
We.
And we'll move on.
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Yeah, Hi pump.
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So lots of liquid.
Yes.
Additionally, the looks good.
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No.
Willingness for the company.
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Last week books.
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The public companies, but we.
Good volumes.
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Yes level.
Providing additional months units.
On for clean Blenders.
Maybe these offerings and challenging problem.
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Driven primarily by decrease.
With that said the Bloom Burton.
So when you come into Oh.
We have been focus on cutting costs and the most important relationships.
Also the benefits.
Uh huh.
The loan program.
Okay all right.
A few offering costs.
Mhm.
Inflows.
We'll have adequate liquidity, who 2025.
Hello.
Leaves the company moving over leasing school score.
Mccain oil field water resistant or who's going to be wells.
There's very little additional growth could lead to support the business as a company revenue.
Sure.
No production from existing wells.
WL munis.
Helane.
In cost until it's no more clarity.
Even in this environment.
We are comfortable.
Revenue.
Well because customers the companys literally.
Okay.
Well, you know scaling the business through the current marketing.
Yes.
Hey, guys decay of Liberty in poker.
Comforted by the company pardon.
We have one investment on nonaccrual ticketfly.
Taking a password, perhaps most impacted by work stoppage of any of our portfolio companies.
Although flags both girls ULA into virtual seeing Phil.
That's the type of company, we've gone from public from that.
That would have involved.
Cool globally.
As a result, we pump.
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Lots of liquidity.
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Hi.
In the form.
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And the substance.
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Including all.
Also funds.
No.
Over the long term we believe.
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Incremental funding.
Almost all supervises comps.
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Although production we thought.
From a profitable.
Migrating off portfolio.
We are also taught by both in terms.
Total number.
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All three.
Oh, Hi, Mark.
Our guidance on lovely.
Pardon.
One quick one law palms last quarter. We were please go ahead.
We would swing from a volume Oh.
Oh, the upper right.
Pardon.
Publicly.
In December quarter.
What's going on now.
No we wait because portion.
Moving fees over one well.
Our board of directors Cleveland.
In conclusion.
A quick from.
We'll go onto wise.
Going to one.
Okay.
Ah Lisanti.
We're also declared supplemental dividends.
Cents per share payable on those things.
Well, we're not hundreds.
We use in London economic turmoil card global came down.
The dividend.
I think a variable supplemental component.
Path forward.
That's correct has made.
Purchase year insulin CMB.
Person that court has made open market purchases under.
Tenbfive program has bought 113200 shares between doing work for imports.
In 272130 course year since inception program.
Secondly, underscore our commitment to purchase.
In the Corpus purchased 113500 shares between January and March search for.
227000 shares.
Okay 19 has.
Disruption Walmart.
We don't claim.
Perhaps even coming for our portfolio management teams looking at the top of the capital structure.
That said more resilient sectors put us in a fortune in place.
We don't have investments in restaurants hotels traditional retail transportation earlier, maybe to type portal, which were structured products.
We know that the market volatility of the past several months later.
We will continue.
We will remain disciplined managing our personal in first.
Foremost preservation.
No.
And with that operator.
Please open the line for Q1.
Ladies and gentlemen at this time, we will conduct a question answer session. If you like state. Your question. Please press star one on your phone now and we've taken to Accuen RBC. Please this is beginning to be announcing and be prepared to ask a question. One pumping once again ask your question. Please press star one on yourself now.
No.
Our first question comes from Christopher Nolan. Please state your question.
Mike what is the plan in terms of lowering the lift the leverage ratio going forward.
Yeah, Chris.
First I'd like to apologize to everybody I assume you had the same quality I had in well apologies for that so to extent that anything wasn't orderable. Please chime in and asked me to clarify because at least on my end it was not as clear as it has been historically.
I'm leverage.
Chris we are targeting to be more in a 1.2 times not the 1.5 times in our one two to one five we're at 1.6 in change because of the write downs in in a b.
That also del deals with you heard we had paid down some of the revolver, we're using the term loan and we're now using the revolver, because we don't need as much.
Between terming revolver, when we were targeting a little more leverage in the current environment. We will continue to run at the lower and all that having been said were at a higher multiple today because of the write downs will be troops around that.
We're not going to sell just to sell but we're going to manage that down.
So is it.
To just so is it fair to say that.
Priority right now would be lowering the leverage as opposed to and not growing the portfolio.
Yes, I would say.
Yes, So let me say slightly different which is the priority is to manage the existing portfolio not growing.
To make sure we preserve capital selectively as we get any repayments, we may be deployed but it is not targeted on growing the portfolio today.
And then techno plot pick the plus was that a new non accrual in the second quarter.
Excuse me so since April.
Yeah, so technically TEGNA plots would not non accrual at 331 it is today.
So when we said we have one non accrual that's today they paid their interest through the March quarter.
And it was about to have a very nice influx of capital from a sponsor and when coal did happen all of that fall apart and we are in bankruptcy restructuring. It now so it was not nonaccrual before.
Great. Thank you I'll get back into queue.
Thank you very much.
Our next question comes from the Love It Dod Please state your question.
Hi, guys out on the dividends has obviously.
The base since it took 15 and then that reset supplement any any color you can you give us on.
Well when does that supplemental is gonna be formulaic board described I mean that begins for discussion, but in terms of how the two components is going to win Tonight I'm going forward, especially there.
Well right.
Yeah, Robert we spent a lot of time around this I'm not sure. There you know right. We do we think we're doing it the right way.
We know that over the next six months and hopefully it's not 18 months that.
Global economies in the U.S. economies are going to recover at some pays.
Yeah, we are being at a somewhat prudent in expecting that to be a slow pace, we hope its quicker.
All that having been said looking at Eni in managing the portfolio, we want to have a base level that we're comfortable that we will cover and thats. The 15 cents. We believed there should be some above that where that will play out with time, and we will reassess that quarterly odd the supplemental will be.
Formulaic is meant to be a proxy for what we expect.
That to be at each quarter, and maybe a little above or below but he will be formulaic off expected in <unk>.
Got it.
And then on liquidity not yet that will probably a companies I mean, thank you for that the coal the color you provided on on the energy investments and then techniques such as well as we look beyond that into that matched to the portfolio could you give us.
Any any assessments okay.
How much.
The main doing the portfolio, but all the on those called on assets has what you call again, no more modern mitt.
Bye.
Hi.
Skew exposure to Kobe done and lead to some combination of [laughter] operational expose your question is liquidity I mean, obviously, if the business has no revenue, but has 24 months on liquidity, it's less flames and.
And then another so any color you can given them and that kind of thought process.
Yeah, Hey, Robert It's Chris Hey, Chris we've done.
Some really detailed analysis on the portfolios you would expect we look at about.
25% to 30% of our portfolio as being.
More severely impacted by coal bid.
Including the all of our oil and gas exposure and there's an argument you know how much of that it's cool, but how much is not.
All those we have probably about a half for that amount as lower liquidity.
So roughly 15% of the portfolio and some of that was including Texas applause switches as Mike mentioned is filed for bankruptcy last week and the the Bondholder group is supporting that.
Through the bankruptcy process and add to ones.
Got a I appreciate that color and then why endpoints I can't.
Got it such [laughter].
Robert.
To add to that I don't know excuses you know part of your question when we think about.
The question relief from covenants you know, we have just shy of 40 investments in less than a handful of them.
Ask for Covenant relief, where you know.
Almost two thirds, 60% plus or minus have covenants. So we're not sitting with the 90% Covenant Lite.
Basket here, we've got vast majority our.
Promenade and we've only had a handful of request I'd expect we get more requests for some covenant relief as we go out further but we have not seen people coming with lot of amendments and ask your liquidity to date.
Got it I I appreciate that and then all on on.
Yes so.
Your liquidity.
16 million in cash today, and that's the fully drawn to evolve I mean.
I I presume you think that's not sufficient to to fun then the liquidity request that do come in from portfolio companies. Even if you do do not get additional repayments, but what's the.
The Batu avid that in terms of it if you do get more.
A question of elite questioned the liquidity if this trend situation drags on on loan gosh, what are your resources to incrementally add to the liquidity to own balance sheet.
Yeah, there's there's two or three ways that we have bought about that number. One is you know revolver claims on I know, it's you know two $3 million of revolver claims that are truly outside of our control as the lender group. The other ones have a lot of gaining a lot of all require.
Our mentor discretion on the lenders. So it's we do not have significant revolver exposure by design on you nor could fully that's number one number two is on when we think about self help and all the things I'd be included.
What we know about in that number number three is we do expect that there will be at least 10 to 20 million of repayments.
Over the near term I.E. before 630, all we will accept liquidity needs over that period of time, and whether or not we pay down were walgreen keep some extra liquidity there and then lastly on.
Yes, as you know is our liquidity provider and they basically said they want to talk who is about you know extending and other things and we're kind of waiting and I think it'll probably be mid summer before we get into those because of a lot of baldor disruption away from the BDC sector actually it's not even in the.
Corporate it's more in a lot of the mortgage sector. So we think we've got more than adequate liquidity today, we've got cushions on top of that in or leverage facility with yes, and we think are less adequate and we had some liquidity today.
Hi, I appreciate it thanks guys.
Thank you.
Our next question comes from Paul Johnson. Please state your question.
Hey, guys. Thanks for taking my questions, Hey, a one more on the credit facility [laughter] as far as here and availability. Those today I think you said you had about a incredible from around 21 million Tron today on that I don't recall her in the second quarter.
What is the or how does the is the capacity completely available there for you to read to draw on or are there any sort of borrower restrictions and the facility that limit the availability.
Just to clarify I think.
As of today, what we've done is we have drawn under our revolver that add to BDC and pay down our term loan. So we are drawn under the revolver. There's not additional capacity. There. We've got about 15 million of cash on top of all their bunkers that we've got but the actual cash is about $15 million.
Yeah.
So varies not additional revolver capacity and we don't think we need.
Okay. Thanks for that.
And then as far as far as the fair value marks this quarter I'm, just curious think talk little bit about your process. I mean pinch you. When you were going through this process us marking these companies did you incorporate any sort of forward looking projections over these.
Primarily based off the more historical performance plus market spreads adjustments.
Yeah, Hey, Paul It's Chris Jansen, we did more the latter you know it's hard it's really difficult to crystal ball get to gets a little foggy.
Depending on how you know companies come back so when this first we started first hearing rumblings of this we did.
[music].
Some really thorough analysis on what we felt the liquidity that our individual investments had.
So not really looking at enterprise value, but it looks like right what a comp what two companies have in their coffers to sustain themselves against us.
And for men, we went on to say, Okay, which companies do we think they're going to be most impacted and wise, so with that as a backdrop.
We went through the portfolio and said.
You know, we what we did more a bar traditional valuation analysis to say the companies that we felt very confident would would make it through this which was the vast majority of them.
And we did some spread widening.
More or less let the market spreads have widened versus where we think you know companies will be performing.
In the coal in the new coal that environment.
It was pretty similar to what we've been doing before but with you know our cobot analysis and liquidity analysis as a backdrop.
More specifically.
Sure. Okay [laughter], thanks for that detail and I guess the last question I had just had to do more with the broader platform. I'm curious you know as as we entered this crisis and then we're entering a you know potentially what's very likely them session. How have you guys.
Shifted any sort of [noise].
Resources at the firm too.
Focus on you know potentially or you know highest liquidity need companies or credit.
Trouble in the portfolio.
Yeah basically just you know how are you are shifting knows the personnel around or resources to help support your portfolio today.
Yeah, I think it's a great question. We are you know a team of about 10 people. We all get involved we do take specialists bike industry.
And by restructuring expertise and given that the portfolio is less than 40 names were not dealing with you know 150 200 names, we're able to take all the people have deep industry expertise and senior Chris and myself are involved.
Literally down in the new show each and every name all that he is having any type of discussion around without the amendment restructuring.
With advisors lawyers et cetera. So we are nimble enough that we can shift based upon the industry and restructuring expertise.
Good.
I'm going to standardize 18 days, where Mike literally roll says sleeves up on that credit more than anybody else on the team.
So you're my kids vast experience.
Yeah.
Greetings and refinancings from those prior career, so I think he understands his ability to do that.
[laughter].
Sure great. Okay. Thanks, Thanks for that those are all my questions today.
Our next question comes from David Rothschild. Please state your question.
Yeah, I'm, a private investor Cranking for taking my question.
Yeah.
As far as your market prices, but so far below your net asset value [laughter] and I hate car care a lot about your your credit.
That does your your guidance line of credit allow you to buyback more shares and if so why are you doing that at this kinda discount.
So from bar or line of credit we are we're barred against that and so liquidity is very important Mr. Rob jog around all the investments and at this point I.
I think it's important to make sure that were made change overall portfolio I understand your question about the trading level versus the Navy.
I'd say, we've got a lot of company across the a BDC sector in discount whether you're at 30 or 60 cents or the deep discount.
I think part of it is making sure that you maintained the liquidity to maintain your investments the second is the.
The next stage beyond that.
A rebound and to appreciate DNA B and I think if we do that right. We should get our trading levels back up into that 60, 70, 80, plus range and that's really the primary and we we absolutely are focused on the share price.
But buying back stock right now is not a good use of our liquidity.
Yeah. It seems like 50% returns are good return that's it thank you.
Okay.
Once again, if he would like to question. Please press star one on your phone now.
At this time, we have no further questions.
Thank you everyone. We appreciate your talking and look forward to talking to you in future.
This concludes today's conference call. Thank you for attending.
[music].
Oh has ended this call goodbye.