Q1 2020 Earnings Call

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Good day, ladies and gentlemen.

To harvest capital credit card <unk> courseware, one tiny tiny earnings call. At this time all participants are in listen only mode. Later weapons that acuity session and instructions will be given at that site.

Let's turn to come over 2 million outlet Chief Financial Officer of carbon credits Corporation, Sir the floor is yours, great. Thank you operator, good morning, everyone and thank you for participating this conference call to discuss our financial results for the quarter ended March 31st 2020.

I'm joined today by our Chairman and Chief Executive Officer, Joe Jolson, and by Richard Buckanavage, Our President.

Well, we start I'll provide a disclaimer regarding forward looking statements that we make during this presentation.

This presentation contains forward looking statements, which relate to future events or harvest capital credit future performance or financial condition.

Statements are not guarantees of future performance condition or results.

And involve a number of risks and uncertainties actual results may differ materially from those in a forward looking statements as a result of a number factors, including those described from time to time in our filings with the Securities and Exchange Commission, including in our most recently filed and report on form 10-K and core report.

On form 10-Q.

This capital credit undertakes no duty to update any forward looking statements made herein unless required to do so by law now I'll turn the call over to Joe.

Thanks Bill.

Given the severe negative impact on the U.S. economy from the Cobot 19 pandemic since late February.

We quickly shifted our strategy from growing our investment portfolio to increasing and preserving our capital while actively managing our current investments.

The limit the negative impact from the downturn, we continue to negotiate with our lenders to extend our revolving line of credit which.

Until the end of July or at a later date.

Otherwise it will turn out over the next 18 month period, unless further extended or were placed with the new agreement.

Because we will likely be in this mode for the next few quarters, our board of directors decided to preserve our cash in capital into further payments.

Our March and April cash dividends, and suspend future dividends until we have better visibility to the depth and duration of this economic.

Crisis.

Builds going to take you through some of the financial results from the quarter and then ritual provide some color on our portfolio before it makes some concluding remarks bill.

Okay. Thanks, Joe.

Net investment income for the quarter was $1 million or 17 cents per share compared to zero point, eightmillion or 12 cents per share in the first quarter 2019.

Net investment income increased by zero point to mean in 2020 period as compared to 2019, primarily as result of an increase in investment income.

Net operating loss for the quarter was 3.7 million or 62 cents per share compared to net operating income up $61000 or one cents per share in the first quarter of 2019.

The decrease in net operating income of 3.8 million between periods was primarily attributable to an increase in net unrealized depreciation and our investment portfolio, primarily due to the effects to the economic impact of cobot 19, and continuing uncertainty regarding its long term impact.

We recognize fee amortization income of $150000 into three months ended March 31st 2020, as compared to $250000 in the comparable 2019 quarter.

The higher fee amortization in 2019 resulted from higher prepayments in 2019, our fees our deferred into like they are either earned amortized into income over the life of the investment using effective yield method or fully recognize when an investment pay off occurs.

As a result, our fees and other income will fluctuate quarter to quarter, depending on portfolio activity.

During the quarter ended March 31st 2020, we placed one additional loan on nonaccrual, bringing that tone to three non accrual loans, representing approximately $17.7 million about portfolio at fair value at March 31st 2020.

As of March 31st 2020, the fair value of our portfolio was 111.1 million, but the cost base about 122.3 main reflecting $11.2 million of cumulative net unrealized depreciation in the portfolio as of the ended the quarter.

As of March 31st 2020, when a debt balance of 72.8 mean, consisting of $44 million of bank debt in $28.8 million in 2022 nodes for an asset coverage ratio of approximately 85% compared to approximately 192% at December 31st 2019.

At quarter end, we had $20.8 million of cash unrestricted cash. In addition on April Thirtyth 2020, the revolving period under our credit facility ended and as a result, we're no longer able to borrow additional amounts under the credit facility. We're currently in negotiations with the lenders to extend the revolving period from April Thirtyth 2020.

To July 31st 2020, or some other date, but there is no assurance that the lenders will agreed to do so far as to any timing.

As of March 31st 2020, our net asset value was $10.37 per share down 86 cents per share from December 31st 2019, primarily as a result of paying 24 cents per share in distributions for the quarter ended March 31st 2020, recording 79 cents, a realized and unrealized losses.

Offset by 17 cents of net investment income for the quarter now I'll turn the call over to rich will provide an update on a portfolio.

Thanks Bill.

As you May recall from last quarters earnings call, we had three mandated transactions in various stages of diligence.

In the early warning signs of the impact that the current a virus was likely have on the U.S. economy, we decided to place those transactions on bolt to allow for additional time to pass in order to understand the order of magnitude. This fives was going to have on the out on the economy.

As of today all of these transactions remain on old so that we can focus our efforts on portfolio management and maintain maximum liquidity for our business.

Since mid March we focused our resources on dealing with likely portfolio issues. We've been actively engaged with all of our portfolio companies on a regular basis since that time.

I'm pleased to report that 15 of the 16 directly originated financings in which we have a debt or equity investments have been approved for loans under the paycheck protection program.

Many cases have already received the proceeds from such loves.

The single company that was ineligible for the PPP loan program was excluded by virtue of its ownership I appreciate private equity sponsor and restrictions due to the affiliate rules governing the program.

The significance of this accomplishment accomplishments should not be understated.

The proceeds approved or received by these 15 companies range between approximately 500000, almost $6 million, providing critical liquidity during these challenging economic times.

But these loan amounts in perspective, the PPP proceeds represent between 4% and 28%.

Individual portfolio company enterprise values, providing harvest was some mitigation against future unrealized depreciation.

In addition to the liquidity provided by the PPP program. We have also benefited from equity infusions by private equity owners and three of our portfolio companies.

It's also worth noting that as of quarter ended March 31st we received approximately 87% of total interest payments due from borrowers not on nonaccrual status.

And that percentage remained above 84% as of April thirtyth.

While we did place one additional debt investments on nonaccrual status this quarter, our interest or borough as required by debt providers senior to us in the capital structure as part of a 45 day forbearance.

Ill debt providers, along with the private equity owner working toward a longer term solution during the forbearance period.

With ongoing financial support from this private equity sponsor and the subpar financial results come almost exclusively from the impact of coded 19, we remain optimistic long term.

Ultimately receiving all past due interest along with our full principal repayment once the economy recovers from the current virus situation.

Overall, we're pleased with the performance of our portfolio due during these unprecedented times.

We attribute this outcome in part due to the fact that 74% of our portfolio is in the senior secured asset class and in many cases, where the sold that provider to the company.

This dynamic enables us to control, our destiny and manage to quicker and more favorable results then club or syndicated financings.

As we look forward to the remainder of Q2 2020 in terms of deployment activities will be limited to advances under committed revolving lines of credit for which borrowers were made eligible for further draws.

With that I'd like to turn the call back over to Joe for some final thoughts.

Thanks Rich.

In closing, we're working very hard to help successfully guide or portfolio companies through this difficult environment, while at the same time working with our lenders to extend the revolving period in our bank facility until economic conditions improve.

We can attract alternative funding sources.

Otherwise the bank facility will term out as Bill said over the next 18 months given our current cash position in some visibility to potential monetization events within our portfolio. We believe we can whether the current economic crisis and could be in a position to commit to new investments after the economy starts to improve.

In the fourth quarter the latest.

One of the thank our team of hard working professionals, all of whom I've been working remotely for the past few months and our shareholders for their patients and support.

That operator, we'd be happy to try to answer any questions. Thank you.

Ladies and gents on many of you have any questions. At this time. Please press Star then the number one on your touched on telephone if you wish.

Moving to soften Vicki.

Please press the pound.

Your question comes from the line of Mr. Ryan Lynch. Your line is open Sir.

Hey, good morning.

Thanks for taking my questions and hope you guys are all doing well in.

Challenging times [laughter].

I did have a couple of questions. The first one oh.

Why are you guys wholl be I guess $20 million of restricted cash senior credit facility on on only 44 million drawn why not use that justice to pay down those debentures right now.

Well I think maybe bill answer that yes that that just happens to be at a point in time, our cash balance.

He has been reduced our bank line is down to 27.5 million as of today.

Cash is about $6 million. So so we've used that cash to to pay down our bank line.

Okay.

Given that you guys it paid down the bank line.

A little bit.

What is the did that early dialogue that as bandwidth with with your lenders on getting that extended I mean, obviously.

You know were weren't kind of unprecedented times do you have any early feedback from from those conversations and your ability to get that extended and why.

You know at least in your prepared comments in your your 10-Q, you talked about getting extended can really seemed like it gave us maybe July.

Why not try to get that for a longer gave some clients through there's this downturn.

I think.

I'll start with that Brian and then bill might have some follow up but.

You know we are the unfortunate luck of having our normal.

Credit line mature or at least the revolving period expires.

On April Thirtyth. So obviously that was just unfortunate luck, we were already well long getting that renewed.

For at least another year or so.

Going into March.

When you know all the stuff occurred so I think we've been working pretty well with our two bank lenders and they've got obviously their own kind of things internally to deal with side as it relates to.

Just or overall loan portfolios, and where we fit into that and kinda theyre kind of strategy, perhaps to matters their own businesses through this kind of.

Uncertain time, but we've have active dialogue.

I think you're now we're hopeful that weekend.

Got something accomplished in the near term, but if we have to manage the business on the premise that that we won't be able to do that in this environment, but maybe we can do.

It can do that as the economy starts to.

Reopened in people get more comfortable with with the credit metrics out there but.

So that's how we're managing the business, but I think we're in good shape as Bill mentioned we.

Six plus million of cash and we.

We forecasted out or cash needs and as well as potential draws on our.

Committed.

We don't have lot of committed lines of credit, but the draws on that so I think.

You know were pretty good shape to whether this.

A storm, but essentially.

Respectful of the fact that that our lenders or have their own internal issues with <unk> credits that have nothing to do with us and our unfortunate bad luck of just having ours.

Our revolver top into mature right in the middle of this so.

Bill do you have any anything else to add to that no. I think you covered it all Joe we we do have an active dialogue going on and we're well hopefully we'll be able to do extended but again. These are unprecedented times and everybody's a you know treading water very cautiously.

Okay.

And then on that point, though with your unfunded commitments you add back 2.9, or so listed as of March 31st are those all revolvers or are there any delayed draw term loans or or any other.

You know I did that 2.9 or any those those loans have any sort of restrictions that that would not make them eligible to be drawn down solely at the borrowers discretion.

Rich you want to you want to take that one.

Sure.

The majority of any undone unfunded commitments, we have today.

Our revolving lines of credit nature. There is one small exposure to a delayed draw term loan.

But to your point about the gross unfunded commitments versus what might be available that the number that's actually available based on continued covenant compliance is a million and a half dollars. So thats not the full 2.9.

Okay, and also might want to add to that that.

One of those revolving commitments actually expires in September so just to give you some additional information on that.

Okay. That's helpful.

And then regarding the dividend obviously, you saw you guys delayed payment a two dividends demand right now it's kind of on on pause the board of directors is waiting to see.

Liquid position, how that that that plays out.

Have you guys considered.

With that with the dividend I was already declared that you have on the two eights and dividends are already declared and paid if you guys considered received some other bdcs do a combination of stock units and a smaller percentage of cash dividends has that been on the table and then also.

When you think did you guys will have some more clarity around the dividend if you were.

Changes in the economic environment, which obviously is you know is very fluid and uncertain or is it more.

More acted you with your guidance further clarity around getting your your credit facility advance or extending agents just any comments on on online dividends in the future and when you guys are looking to make any further now not announcements of when those would be paid how the.

It will be paid and the ability to pay any future dividends.

Okay. The first part was.

Changing what we already declared in the cash dividend to some combination of stock in cash and.

Once you declared the dividend.

In cash.

Legally you can change so.

And less and less you.

Unless you're in such a distressed situation that.

You know that you're not really worried about like the legalities, but right in terms of being sued or something.

So I think that in terms of we're going to comply with the Rick rules.

We had and I have 17 cents this quarter.

We've declared.

Bill Correct me, if I'm wrong 32 cents year to date right.

So on a comply.

Yes, yes, Joe correct. Okay. So we're going to comply with the Rick rules Ryan. So we'll see how we do in the next few quarters and if we you know start to exceed by more than that 10% allowance you know for retaining and I.

Well, we'll then look to catch up okay.

And.

Unfortunately.

It won't be kind of a consistent dividend it'll be more of a probably lumpy type of thing is a catch up right.

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In terms of stock versus cash at that point in time, we would look at that I think they recently amended the rules to say you could pay 90% of your dividend in stock. If you wanted to just for this year.

Versus the.

80% at that.

On the books before.

Bdcs, but.

We'll see where we are in terms of the credit line.

Sure.

If it's just keeps getting renewed for a couple of more months at a time.

You know we'll probably.

Do what I said at first but if we can.

Negotiate a longer term solution there.

We'll probably.

Revert back to our normal practice at that point.

Okay.

Thanks for that commentary.

Those are all my questions I appreciate the time today I Hope you guys all stay welfare.

You too Brian Thank you for your.

Interest in our company.

Again, if you would like to ask question its size and the number one on your telephone keypad.

Learn all my questions from the Q presenters see Macon thing.

Okay well.

Thank you for your interest and we're around if there's any follow up questions. The.

Let us know and you know we're working hard for.

Very favorable result relative to.

Our current stock price has been trading so I think.

Stay tuned and hopefully we'll have updates and they're not too distant future. Thank you very much.

That's it.

This concludes today's conference call. Thank you everyone for joining you may now disconnect have a great. Thank you.

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