Q1 2020 TCG BDC Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to see TPG Bdcs first quarter 2020 earnings call. At this time, all participants are any listen only mode. After the speaker presentation, there will be a quick.
<unk> answer session.
Yes. Good question during the session you will need to press star one on your telephone please be advised that todays conference maybe recorded if you're acquiring any further assistance. Please press star zero.
I would now like the hand, the conference over to your host head of Investor Relations Daniel Harris, Sir. Please go ahead.
Thank you operator, good morning, and welcome to TC GBDC first quarter 2020 earnings call.
Last night, we issued an earnings press release and detailed earnings presentation with our quarterly result.
Many of which is available TCG Bdcs Investor Relations website.
Following my remarks today, we will hold the question answer session for analysts and institutional investors. This call is being webcast a replay will be available on our website.
Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on that.
Statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor section of our annual report on form 10-K that could cause actual results could differ materially from those indicators.
You see GBDC assumes no obligation to update any forward looking statements at any time.
With that I'll turn the call over to our Chief Executive Officer, Linda pace.
Thank you Dan.
Good morning, everyone. Thank you for joining us on our call. This morning to discuss our first quarter 2020 results.
Joining me on the call today, it's our Chief investment Officer, Teller, Boswell, and our Chief Financial Officer, Tom and again.
The current global health economic crisis, it's unprecedented.
Before we focus on our business.
I want to start by thanking all to frontline workers health care and N.S. professionals for keeping assays and our communities operating.
Our thoughts are with all the people in families across the globe that have been impacted by this how crisis.
Okay already has been remains the health and safety of our investments and operating teams at Carlisle and equally as important our focus remains on supporting our portfolio companies.
I'd like to focus my remarks today across three areas.
First highlighting the strong position of our company as we entered the crisis.
Second discussing how we're benefiting from our relationship with Carlisle.
And third a quick review of our quarterly results with a focus on the actions you're taking over the last month.
To improve our financial leverage and flexibility.
I'll start by discussing the strength of our platform as we entered this crisis.
Our company implemented significant changes over the course of 2019, as we worked hard to optimize our portfolio and improve our investment process.
That's a result, we began 2020 in a strong position with good momentum.
Our portfolio construction approach remains unchanged.
To maintain a diversified high quality first lien portfolio.
Currently comprised of 73% first lien loans with an average out before size less than 1%.
Yes, strategically positioned our portfolio to have passed the exposure to cyclical sectors in the market indices.
As a result, as we entered this crisis, we had no direct exposure to upstream oil and gas and just over 1% invested in the retail sector.
And in addition, it is worth reiterating what we highlighted on last quarter's call, which is that we nearly eliminated our exposure to the last out up Unitranche program.
The driver of historical credit underperformance prior to this recent market turmoil that is not to say our portfolio one experienced some level of realized losses over the longer term of course it well.
U.S. economy is in the early stages of sharp deceleration and there is a high level every meeting uncertainty.
That said as at the end of the first quarter, 98% of our borrowers made regular payments.
We would not be surprised by some level of payment volatility over the next few quarters.
Ultimately the duration depth of this crisis will dictate the impact across our portfolio.
But as you sit here today, we like our positioning.
Second our Carlyle affiliation provides us access to world class investment and operational capabilities, most bdcs simply can't match.
For instance, we benefit from a deep and experience team of dedicated work out professionals.
We possess competitive advantages in accessing capital on attractive terms.
And we benefit from Carlyle's centralized economic and government affairs teams, which help us effectively navigate rapidly changing economic and regulatory environments.
In addition earlier in April Carlyle's head of global credit Mark Jenkins joined our board of directors.
With over 30 years credit experience across several cycles marks appointment brings a tremendous amount of experience to an already strong team.
And we view it as a clear benefit for both our company and our shareholders.
Finally, let me move onto an overview of results for the quarter.
Our dividend and capital position.
You know, we pre released ranges for several earnings metrics for our first quarter and generally finalized results at the top end of the ranges.
We generated net investment income of 42 cents per share alongside our previously declared regular first quarter dividend of 37 cents.
Net asset value per share declined 14% quarter over quarter to $14.18 from $16.56 last quarter.
Our portfolio experienced $2.57 in realized and unrealized losses.
With nearly two thirds of that loss due to spread widening of market yields benchmarks.
The accretion to anybody from share repurchases. This quarter was 14 cents per share.
During the quarter, we repurchased $16 million in chairs and since inception through today have utilized $86 million or 100 million dollar authorization.
However, we believe that preserving capital in the current environment, It's a primary objective.
And we expect to slow or pause our repurchase activity in the second quarter.
That said, we continue to believe our current share price does not capture the significant value.
See gbdcs, earning stream and balance sheet and represents a significant investment opportunity.
Let me shift to discussion on our dividend.
As we've previously mentioned our company has earned net investment income in excess of our regular dividend every quarter since our IPO a trend which continued in the first quarter.
For the second quarter, we are announcing our regular dividend 37 cents per common share.
And Tom will provide additional color, how we are evaluating future dividend levels.
Regarding leverage and capital positioning the severe mark to market impacts of marches sell off temporarily moved us outside of our target leverage range at quarter end.
However, we are pleased to report that we have taken significant proactive steps.
Including selective asset sales over the last month to reduce our leverage.
And as Tom will detail, we are now on a net basis operating back within our target range of one to 1.4 times.
We feel that our liquid well capitalized balance sheet will position us to both whether downside and also take advantage of attractive new investment opportunities.
Furthermore.
We announced yesterday that we closed the 50 million dollar investment TGP gave at Carlisle.
This will be in the form of convertible preferred equity with the conversion price struck at $9.50.
We believe this instrument is extremely attractive economically to CGD added shareholders with no immediate dilutive impact.
The dividend yield inside out of our common shares.
Furthermore, as preferred equity the instrument significantly increases CGD spansion flexibility.
Creating capacity under our existing debt facility.
Requiring no cash payments.
No meaningful covenants.
And position positioning us well to assets third party capital markets and the future if needed.
Finally, with an as converted ownership stake of approximately 17% held by Carlyle its employees and founders. We believe this investment strongly reinforces carlyle's alignment with CGD shareholders.
Given the environment, though you plainly state that neither the asset sales at the last month or yesterday's capital raise for conducted under any form of stress or direct.
Rather we have been moving pro actively and aggressively since the onset of the crisis to ensure that CGD balance sheet maintains ample flexibility to maximize value even in the most severe economic scenarios.
Well, we do not know with future holds we do feel strongly that we were we are currently very well positioned.
I'd like to thank each of you for your time in partnership.
Let me now hand, the call over to our Chief investment Officer Taylor possible.
Thank you Linda.
And thanks to everyone on the call. This morning for their interest in and support of CGD.
Our last earnings call was in late February and what a difference two months has made.
At that time covert 19 was a vastly underestimated health and economic threat.
Credit markets were at their tightest in years.
Now we are experiencing the largest economic shock in 70 years, accompanied by the second largest sell off in the history of leverage credit markets.
The severity of this crisis has been compounded by suddenness.
With a sharp reversal from an up into the REIT world to today's contractionary economic environment.
Despite the rapid recovery in asset values in recent weeks, we remain cautious at Carlisle on the trajectory of the fundamental economy.
As we are seeing not only significant disruption to the earnings power of corporations directly impacted by this crisis, but also the beginning of downstream impacts across the broader economy.
Immense uncertainty remains but from what car allow can see it is our expectation that the recovery will progress in fits and starts and take longer than we all would hope.
In credit while marches liquid market sell off was by any measure severe markets function reasonably well throughout characterized by orderly concern, but not panic.
With economic uncertainty and deeply discounted secondary trading levels March primary deal volumes in those liquid and private credit markets effectively came to a standstill.
In April we have seen early signs of healing in primary markets and emerging demand for private credit solutions.
While traditional M&A financing will likely slow significant capital will be required across the economy to allow borrowers to bridge through the cobot 19 environment.
We see a compelling investment opportunity forming.
At the same time.
Perhaps most consequentially for our business competition has stand as for a variety of reasons a significant number of competitors have been forced to pull back from the market.
This supply demand imbalance will accrue to the benefit of competitively advantage platforms with staying power and we expect CGP shareholders to benefit materially from the same.
As regards the crisis impact on existing private credit portfolios.
Expect it will have three distinct stages.
First a liquidity squeeze.
Characterized by unprecedented calls on revolving credit facilities for borrowers and significant mark to market valuation impacts.
Without a properly constructed balance sheet these pressures could significantly strain liquidity.
Happily this stage appears behind us and as you heard from us and our pre release CGP. The navigator did extremely well meeting all calls on our cap on our capital in a timely fashion.
Seeing no amendments from our lenders and requiring no emergency funding.
In stage, two we consider it likely that the severe macro economic impacts of this crisis will generate significant amendment activity across covenanted, levered credit portfolios, including our own.
We expect this will play out over the coming three to four months.
This is not a bad thing as covenants allow lenders to come to the table early and preserve value.
That said depending on their quantity magnitude in nature. These amendments could impact income generation and borrowing base eligibility of assets.
Therefore in this stage it remains critical to maintain flexibility on the right hand side of one balance sheet.
Our desire to remove downside risk as we pass through stage two of this crisis is why we have taken proactive and decisive action over the last month to fortify our already strong balance sheet position.
Specifically since quarter end, we have sold over $150 million of assets at attractive prices and as announced yesterday, we raised $50 million of preferred equity on compelling terms.
These actions have allowed us to rapidly reestablish leverage within our target range, despite marches mark to market shock.
And ensure CGD will have ample flexibility to absorb even the most severe economic downside cases.
Stage three entails the hard work of value maximization.
Partnering with our borrowers to preserve value and maximize realized proceeds at the individual position and portfolio level.
This is likely a yearlong exercise and it is far too early in this process for us to call any shots here, but as Linda mentioned, we very much like our relative portfolio position as well as the performance of our portfolio out of the Kate.
To provide more color on our approach to stage three.
We have since early March been engaged in a deep assessment of our portfolios exposure to this crisis.
Focus on the earnings impact liquidity profiles and normalized valuations of each of our portfolio companies.
As you would expect we have been and continuous contact with our borrowers management teams and owners throughout this period.
Immense effort has been deployed here. The team has performed fantastically. We're confident we have our arms around this critical work stream.
Our focus credit exposures in this effort will be our investments in hotel gaming and leisure and food and beverage each below 5% of our portfolio as well as our investments in aerospace and defense at 6% of our portfolio.
On the whole while operating disruptions will be significant proportions of these exposures. We are confident we've invested in businesses with persistent enterprise value.
And we have seen strong cooperation and support from the owners of these businesses.
As such our focus is on ensuring these borrowers can bridge through the coming quarters without impairing long term value.
Going forward you can expect us to continue to be as proactive as we have been thus far and with the resources of the Carlyle platform, we feel exceptionally well positioned to drive value.
Finally, while portfolio was the focus of this call. It is worth also saying that we're doing far more than just maximizing the value of our existing assets.
We're also on the hunt for compelling new investment opportunities and we believe the current environment offers exceptional risk adjusted returns.
Having rapidly reestablished our target leverage profile, we're well positioned to capitalize on the current market.
Where we see decreased competition expanded pricing lower leverage and improve documentation.
We believe each of our prudent approach to balance sheet management.
Focus on portfolio value maximization, and our ability to access attractive new investment opportunities position us well to drive shareholder returns in the coming quarters.
Thanks again for your time I'll now turn the call over to our Chief Financial Officer, Tom that again.
Thank you Taylor.
Today I'll begin with a review of first quarter earnings than drill deeper into three important topics the portfolio valuations and our balance sheet position.
As Linda previewed we had another solid quarter total income generation.
Total investment income for the first quarter was $50.5 million.
Down from $53.5 million in the prior quarter.
The decrease was driven by a few factors.
Lower interest income primarily due to lower LIBOR.
Decrease in OLED, the acceleration due to lower repayments.
Lower total income from the JV.
Total expenses were 27 million in the quarter down from 28 last quarter, driven primarily by lower management and incentive fees and lower onetime credit facility fees.
This resulted in net investment income for the quarter $24 million were 42 cents per share which remains in line with the average quarterly results since our 2017 IPO.
Our mid fourth our board of directors to clear the regular dividends for the second quarter 2020 at the same 37 cents per share and that's payable to shareholders of record as the close of business on June 30.
That is Linden noted likely see future pressroom, achieving the same level of net investment income per share given the in the cat pact of the broader economic downturn on our portfolio.
The sharp drop in LIBOR since February.
And lower levels of income typically ties overall M&A refinancing activity.
We remain confident in the current positioning of our portfolio right now is quite frankly too early to predict uncertainty the duration and subsequent impacted the economic disruption.
At this time, we're not position to give guidance from forward earnings.
Expect to have a clear picture by next quarter's earnings call.
Moving on to the Jvs performance the dividend yield on our equity was 11% in the first quarter down from 13% from the past few quarters.
Lower yield compared to prior quarters were driven by a few factors declining lie more lower oil I'd acceleration from led to repayment activity.
And our decision to run the vehicle at lower leverage given the broader economic backdrop.
Given the lower leverage at the vehicle, we expect the dividend yield to be in the 9% to 11% range over the next few quarters.
Regarding the overall portfolio, it's early days, but we're pleased so far with our performance.
We've had a limited number of payment issues or material amendments, although we certainly anticipate this will accelerate in the coming quarters.
Our dialogue responses regarding future amendment, thus far has been constructive.
And we recognize in many cases, both sides, we need to contribute to the solution.
Specifically, our expectation is going to borrowers require material comparisons from lenders to.
To sponsor who will be supported with additional equity.
I want to some of the metrics.
In the first quarter, we added one new bar were to non accrual status and total non accruals stood at 2.2% at fair value and 5.4% of cost.
The weighted average internal risk rating remain 2.3.
As an inherent lag and when we will see the impact to pandemic flow through to our borrowers financial results.
Even when our borrowers report March quarterly results. We've stepped in many cases is somewhat muted impact at the current environment.
So we're taking a closer look at our risk rating thats it for the June quarter.
The view towards making it more forward looking number to provide greater clarity and transparency.
On devaluation or total aggregate realized and unrealized net loss was $145 million for the quarter.
The primary drivers would market yields in quotes that contributed about two thirds of the decline as yield the gap out by 300 400 basis points across both the large cap and middle market.
Across our portfolio of first lien loans valuations declined about five points well second liens were down about 10 points.
In addition, we had some further markdowns on certain watched with deals with historical performance issues, who were exacerbated by the current market environment.
You'll also see a markdown on our equity investment in the JV.
This was due to changes in our base valuation assumptions, such as the discount rate default rate reinvestment rate, but not underlying credit performance at the JV.
So far the second quarter, we've seen rebounding market yields.
However, we remain cautious that our macro outlook to anticipate further valuation in NAV volatility in the coming quarters.
This was a deeper dive into our financing facilities and liquidity.
Total debt outstanding was about 1.3 billion at quarter end, although at 85 million from prior quarter and statutory leverage was 1.58 times, we're closer to 1.5, though after giving effect to excess cash that we opted to hold on the balance sheet at quarter end.
At the beginning of March we were tracking to be inside 1.3 times by quarter end well within our target range.
But the combination of the mark to market impact on valuations, which alone contributed about two tenths of a turn of leverage combined with the higher revolver draws from our borrowers and our excess cash cushion resulted in leverage falling outside our target range.
That said, reducing leverage is one of our top priorities and as both Linden Taylor highlighted earlier, we've already made significant progress.
Following the recent asset sales or statutory leverage will be back inside our target leverage range on a net basis.
After factoring in anticipated debt repayment from the preferred equity proceeds.
Our net financial leverage which reflects the preferred investment is true equity given its conversion rights will be below 1.3 times.
Along with this recent deleveraging unused commitments under our credit facility plus cash will increase from $320 million at quarter end to over $400 million.
We believe this is more than sufficient flexibility to meet unfunded commitments to our existing borrowers to protect the current portfolio of additional capital is required and to further whether.
Mark to market declines.
In conclusion, we work to aggressively manage leverage and solidify our overall capital liquidity position.
Which positions us well for any challenges we may face over the next few quarters.
With that let me turn the call back over to Linda for some closing remarks.
Thank you Tom.
I'd like to conclude by thanking each of you for joining our call. This morning, we at Carlisle truly both you and your families are healthy and doing well.
Without a doubt these are uncertain times, but our goal at TCG BDC is to work hard to ensure our portfolio and balance sheet.
Our is well positioned as possible to manage through future volatility and take advantage of opportunities to deliver shareholder value.
With that we're pleased to take your questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound King.
Please standby, while we've compiled the Q when a roster.
Our first question comes from a line of Rick Shane of JP Morgan.
Your line is open.
Hi, guys. Thanks for taking my questions. This morning on look at the transaction to convert transactions very interesting transaction.
It they.
Obviously from a capital perspective in a period of uncertainty.
A very positive to have a capital infusion.
Even if it is at a cost I think there there's a benefit to buying insurance in this in this tape.
It's also a very good signal.
That your affiliate committed and sees the value in the entity.
But I am curious from a governance perspective.
How you thought about pricing both on the coupon and on the convert.
Hey, Rick it's a Taylor Boswell thanks for the question.
You know we.
Really are held to a standard that we transact on a very fair basis vehicle and that's a standard that we take very seriously as both the company and the manager and I'll tell you that we went through very thorough process over the course of the month of vapor.
Role.
And we looked at a lot of options reviewing them in depth with our board.
And at the end of the day, everyone felt very comfortable that the capital that was being offered.
Was on superior terms to what was otherwise available in the market and what we did specifically.
As we took both reverse inquiry and sought feedback on what terms might look like for various other terms of financing whether it be unsecured debt convertible debt rights offerings or otherwise and ultimately the board concluded that this instrument.
What's most favorable because it achieves the flexibility impacts you mentioned before but also comes with a relatively low cost. So if you compare it up against other alternatives at structurally attractive it meaning it has a pick option for payment. It has no covenants. It has a long duration those characteristics not generally available in the other financings.
Offered in this market and then economically attractive with a dividend rate well inside of the common and a strike price up 30% first the last closing over 50% first of the Wap and so ultimately.
We think the construction of the instrument.
Really demonstrates plainly.
That itself they are conducting a favorable basis for CGD shareholders relative to other financing alternatives.
Yes look I think I think thats all totally fair in their end, there's one thing I hadn't even thought about until you started answering the question, which is that I'm, having a transaction.
Executed without any perceived overhang in the market in the period of Volatilities another.
Advantage as well in terms of being able to do that with a higher degree of secrecy.
Yeah. I mean, you know we really spent a lot of time as I said chasing all the alternatives we have seen.
Unsecured debt rights offerings and alike, and really in terms of flexibility and nothing matches an equity instrument ultimately.
And the dilutive impact of this transaction is far less than the other equity raise alternatives that are available in this market. So.
I think it came pretty clear for our board and the independent members of our board as we work through the process. The this would hit the flexibility goal.
And sort of be an optimal economic outcome for the shareholders.
Hey, Thank you so much for taking my question I hope everybody as well.
Thanks.
Thanks, Rick.
Thank you. Your next question comes from Arren Cyganovich of Citi. Your question. Please.
Thanks, I was wondering if you talked a little bit about how portfolio companies performed in April.
End of March obviously quite a bit different them into April and whether or not you had.
The chance to look at the financial performance and the ability for them to pay at this point.
Quarter.
And Tom.
So far it's a little early in terms of receiving any second quarter results. What we can say is we're in very close dialogue with our borrowers in our sponsors regarding their liquidity forecasts.
And in most cases, I'd say that the initial loss from the sponsors and companies a lot of cases, hey, here's our port Here's our liquidity forecast and one of those cases as we received subsequent updates.
Those forecasts are looking better as the company's really focus on their liquidity positions.
In terms of actual financial performance is a little bit early I think we're going to get a more significant round of we'll get the March financials for many borrowers in the next week and.
It's a little bit early in terms of of April results, but I think that a bar was a very much focused on liquidity and so far I think that they're making good strides to manage costs to manage liquidity and you know we certainly anticipate in terms of asks.
We had a limited number of amendments at the end of the first quarter, we anticipate that that's going to likely accelerate in the next six weeks as we head into the June timeframe and borrowers even if they have liquidity that they may be looking for some relief to integrate additional liquidity to get through the current market environment.
And what what type of amendments are you willing and able to provide to the companies as you know we cover pretty broad cross section of companies in.
Consumer finance, obviously are giving a lot of.
Pearls in moratoriums on payments commercials little bit more.
More focused on the individual opportunities, but they're still.
Thanks for giving giving deferrals as well, what's your ability to work with the borrowers to to help provide some relief.
Yes, we have I'd say significant flexibility to work with our borrowers and certainly with showing up to count on our our liquidity position capital structure.
In the last month, we are even even better we went from a good decision to even better position not knowing to what extent or bar was going to ask for amendments whether it be for pick amendments.
Or a covenant release, so we're looking for in our amendment conversations is a fair deal and for example for private equity sponsor is going to write a significant check to support liquidity. Then we will obviously be more likely to offer or to be agreeable to pick amendment were let's say for short amount of time, we will convert some of our cash.
Interest into pick and then that's what we see some of these liquidity situations where companies are more strained where if the sponsor is going to support the business. We think the lens you should be part of the solution and we're certainly willing capable and have the flexibility to offer an amendment, where we would take some over interest in pick.
It have you treat that from a non accrual perspective, if you if you'd give them an amendment to change to pick for a short period of time that doesn't put that.
Particularly one on non accrual status.
Thats correct it would be situation by situation, but certainly to the extent weve, a private equity sponsor who supporting the business that's.
Putting a stake in the ground in terms of.
They see equity value will we see equity value in the business and it will also factory is we look at those situations as well. So long terms you business and if were current on payments. There is no payment default and we believe that we will have full recovery on the loan that thats, a situation, where those loans with irrespective of the pick status those would not be on that.
On a cool.
Okay. Thank you.
Thank you again to ask a question press star one on your Touchtone telephone.
Our next question comes from the line of Finian O'shea of Wells Fargo Securities. Your question. Please.
Hi, Good morning hope everyone soon well thanks for having me on.
I first want to go back to the.
The converts a forgive me I missed the beginning of the coal.
And.
Appreciating that the terms are better than market terms out there for sure.
What was curious to me is the conversion premium.
How you arrived to that.
Is this based on any sort of market read or is it balanced in conjunction with the.
The terms in spread or or just any.
Color you'd give on why.
Well I think it was a 57% to average premium reduced.
Yeah.
Ben its Taylor really we pull through.
A lot of comparable transaction work or whether they be core corporate converts financial converts and we receive some indications over the course of the month available where people would be willing to transact from a conversion premium perspective.
And yeah without taking too far into the details what I'd say is.
As as comp first financial converse BDC converts and what we were able to see as indicative terms over the last month. These conversion premiums are well outside of what the market would've otherwise asked for so I think we feel pretty comfortable with this this level and to your.
To to your point to the prior point I mean, I think embedded in here.
Is hopefully a strong message for the shareholders of both the support of Carlyle of the vehicle, but also carlyle's view of value ultimately.
The stock.
Okay appreciate that and.
On the the case where or.
Where are you know you don't reach that share price.
Would you plan to do.
The leverage to redeem that or is there any other sort of scenarios that you're able to work with.
Well you know between the BDC and the parents if.
Becomes timing.
Do you think you'll still want to maintain that capital ROE prolong it or pay it down.
You know our intention here is to for this to be a long term investment in the vehicle and you'll see when you peel into the details of the instrument.
That.
It has a put right in year seven.
So it is well outside of our other financing maturities and the like and what you'll also see is that that put right is.
Settleable.
Unlikely to be settled in the in the form of equity.
And so that's one of the key reasons that underpins what Tom referenced before which is our view is that really this is an equity instrument and the capital structure.
And while the 40 act considers this as.
Leverage on to that definition.
Pretty much by any other standard it's an equity instrument that we expect to be settled with equity. So that's how that's how it's constructed in that respect then but a long term investment.
In the vehicle and that is that as the intention in the structure.
Got it appreciate it I didn't catch that earlier.
As an example worse.
[laughter], just one more for Com b.
SPV balance it come down a little.
Are you able to give any color on.
On how that came about was that are repaid or did you pay down with cash.
I think it was a combination I think it was a decided markdown or sorry pay down in that position.
Yeah and that balances it was a combination of repayments or.
Loans, just in managing our balance sheet amongst our various credit facilities loans moving in and out of that vehicle.
Overall that Nicholas.
The format on the total outstanding size.
Okay.
Then just one final one if I may or quarters like this this is well.
The.
Middle market.
And then we'll see.
Any it seems like you're keeping.
The dividend at a reasonably consistent range a little bit down.
Any.
Isn't just looking in the surface they were both pretty much equity positions the mezz loan.
The the southern interest.
Does this.
Materially.
Sure Yeah I assume this was in some respect to conservative move right can you can you tell us like what that does for for the BDC your or the MLC.
Yeah, what you see this is similar to what we did at the end of 2018, when the market dislocated to a lesser extent, we opted to run the vehicle at a lower leverage level, so effectively with the materially lower leverage level, you're right. The total investment is the same but we really there's them.
Higher level of equity and lower mezzanine, so that's where you'll see beginning in the second quarter kind of a flip where the the mezzanine we should pay down zero will be.
Much lower.
Income, but you'll see the dividend from the GDB higher as it just as a as theirs.
More income, but on a higher equity base and that's why you see that the the yield that we had in 13% range will now be lower yield percentage, but a higher dollar number for the dividend yield in the aggregate, we see the dollar amount coming down somewhat and one of the things with with the JV.
Earnings at least in the near term is the most put our liabilities are tied to 90 day LIBOR interest based on some anomalies in that market. The resets on a lot of our contracts in early.
April timeframe, we're now at higher were hired a higher level. When LIBOR is today, so we'll see a little bit of pressure, particularly based on LIBOR more pressure then the simple rates would dictate the markets at the rates having done on the market just based on the times when would we said some of our rates, you'll see a little bit of depressed earnings, particularly in the second quarter now that that will contribute to over.
Overall, lower JV income for the second quarter.
In does your when you.
Hey, down you know so to say pay down the.
And then we'll see.
The Mezz you provides a form of a revolver agent, which is looking at the the language there does that.
Does that automatically convert to sub interests or do you use do you sort of habit, but choice there or.
You get what I'm asking.
He gets it should calling equity is a board decision. So it's a 50 50 between the two members.
Of the JV Jose our BD gifts NTS peak.
Okay. That's that's all for me thanks, so much.
Thanks, Ben Thanks, Thank you.
Our next question comes from Ryan Lynch of KBW your.
Your line is open.
Hey, good good morning, and hope you guys all are doing well.
Energized by I missed the.
Beginning I hopped on a little late but.
Can you speak too.
Both the securitization that you guys have on your balance sheet as well as the Securitizations in your your middle market credit Sun regarding your.
Comfort.
With some of the covenants of those specifically the triple C bucket or the the C cushion given the dramatic kind of swings we recently added in the market.
Sure Ryan It's Tom first I'll start with the went the deals at the JV those easy visible static close so.
No issues at all with with those vehicles in terms of various tests based on the static nature.
On the BDC other bdcs on balance sheet CLL.
Key points on that vehicle is given that's a traditional middle market COO you have much higher triple C baskets of about 17.5% versus your regular broadly syndicated deal that would have 75%. So no doubt we're seeing triple C.
Sensitivity just like the broader market, but we've got such a much larger bucket and were much with much more insulation from triple C issues, because it's a traditional middle market CLL and then from an LLC test perspective, we've got we've run sensitivities on that we have significant cushions, we have to worry about any oversee or other.
Key Covenant test.
And I think I think Brian its tail or what I might just layer in is yeah. We've chosen to run our balance sheet with a very diversified funding structure, so sort of using each of the tools available to us and we like that mix very much.
And it's performed very well for us through this crisis and continues to perform.
So hopefully what you're also hearing from US on this call is we do have a view that the world is very uncertain.
We have a really prioritizing removing downside or over the case over the alternative of trying to pin a base case and absolutely optimize and so is CNS take these actions over the course last month with some selective asset sales with the convert raise to really.
Take what was a very good position from a liquidity perspective, and fortify it and drive ourselves back into.
Our target leverage range, which which were happy to be at right now.
And also have a bunch of flexibility to accommodate for.
Any number of scenario that might play out from here. So I guess, that's a long way of saying, we're not seeing those kinds of issues in our financing vehicles today, we're not anticipating them with what we see but we are making sure all of our bases are covered given the absolute level of uncertainty in the marketplace.
Okay, and then with your your preferred mid June issued I believe it adds up 7% coupon and cash or 9%.
Groupon and pick.
Have you guys determined and maybe you said doesn't and I missed that have you guys determined whether you guys are going to pay that and cash or do the 9% pick yet.
The the board hasn't made a determination yet for the for the for the coming quarter.
Okay.
And then on the the asset sales that you made in April I think you said over 150 million I guess you know.
How is that determinant of what assets you were going to sell where those more.
Liquid loans and then also.
I would think that you know the loans, if you're getting attractive prices to exit those on some of the stronger ones that are closer to par are going to be some of the more well established better performing recession resistant loans in this environment.
That's the case, then you know you're kind of selling off some of your best assets and even some I think though the.
I know, it's a small portion, but but some of the more troubled assets on your books. So can you just talked about you know.
115 over 150 million of asset sales, how would those selected in NAND.
I guess, how those those assets were selected.
Yeah.
It's a it's Taylor again.
The assets, we sold were representative assets amongst our first lien book I would say in the portfolio in line from a leverage.
Yield perspective, and generally pretty diversified by sector.
So I don't think Thats. Good net result of those hundred 50 million of sales out of the $2 billion portfolio.
It is any sort of significant skewing the risk factors in the book.
And ER and they work actually.
Hundreds of them, we're not liquid loans or or BSL loans. They were mainly traditional middle market credits, which we're really really pleased by yeah. We've got a well develop capital markets capability at Carlisle credit in it lets us find.
Liquidity and good bids even in very challenging markets. So those asset sale sell some a shade below some a shade above our shade above our 331 marks but generally.
In line and attractive so I think I think we feel good about that activity and don't feel like we either.
The significant amount of NAV.
Or skewed the risk in the book as a result of those actions.
Okay.
Those are all my questions I appreciate the time today I Hope you guys all stay well.
Thank you at this time I'd like to turn the call over to Dan Harris for closing remarks, Sir.
Thank you all we appreciate your time and attention this morning.
And we hope you and your families stay safe and healthy please call Investor relations directly or we will contact you. After the call with any follow up questions. Thank you very much we'll look forward to talk to next quarter.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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