Q4 2020 Capital Southwest Corp Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Thank you for joining today's capital southwest fourth quarter.
Fiscal year 2020 earnings call.
Participating on the call today, I believe you CEO Michael Sarner, yes.
Chris Me Berger VP finance.
I'll now turn the call over to Chris We Berger.
Thank you I'd like to remind everyone that in the course of this call we will be making certain forward looking statements.
These statements are based on current conditions currently available information and management's expectations assumptions and believes they are not guarantees of future results and are subject to numerous risks uncertainties and assumptions that could cause actual results to differ materially from such statements for information concerning these risks and uncertainties seed capital southwest.
Publicly available filings with the FCC. The company does not undertake any obligation to update or revise any forward looking statements whether as a result of new information future events changing circumstances or any other reason after the date of this press release, except as required by law.
I'll now hand, the call off to a president and Chief Executive Officer Bowen Diehl.
Thanks, Chris and thank you everyone for joining us for our fourth quarter and fiscal year 2020 earnings call.
We're out our prepared remarks, we will refer to various slides in our earnings presentation, which can be found on our website at www Dot capital southwest Dot com.
We're pleased to be Woody this morning to announce our results for the fourth quarter in fiscal year ended March 31 2020.
I want to first say that I hope everyone their families and their employees are safe and well today, our prepared remarks will be a bit longer than is typical given the unprecedented times our country have been going through is we're going to try to provide you with a thorough understanding of the status of our company portfolio and an appreciation for the level of confidence we have in the future.
To that end I will discuss the company the portfolio and the market environment. Mike will then walk through some details around our quarterly performance and the Bdcs capitalization, followed by our opening up the lines for QNX.
We're meeting with you today in a far different environment, the any of us had ever lived through before.
The cobot 19 pandemic and associated shelter in place directives across the country. It impacted the U.S. and global economies negative negatively at an order of magnitude not seen in our lifetime and certainly in excess of the impact seen in the great recession of Oh wait no nine.
While we're certainly pleased with the early indications that the economy is beginning to open back up by no means as cobot 19 going away.
In response to the pandemic.
We have first and foremost prioritize the health and safety of the employees of capital southwest and up and add some of our portfolio companies.
I'm pleased to say that we have remained safe and productive because the team has done a fantastic job rallying to the occasion.
The capital southwest we have been working remotely since early March we immediately instituted daily called would be and her team to monitor portfolio activity, we instituted a cobot tracker sheet, which compiled salient performance data or of the portfolio companies, including actual and anticipated real time revenue and EBITDA effects of the economics.
Right now.
<unk> funding eligibility an application status.
Put any data set any anticipated liquidity needs and covenant breach.
This central repository allows real time access to the latest status of each portfolio company in a format that can be easily accessed by Michael and I and the team.
Well the pandemic has clearly had a negative impact on the market and on our portfolio as evidenced by the quarter over quarter, 9.6% decline and net asset value per share and the addition of one portfolio company to our non accrual lest we feel good about the quality of the assets and earnings power of the portfolio as a whole indeed, we ended the year producing.
Solid 40 cents per share and and I are in the March quarter.
Further as a well capitalize first lien lender with ample liquidity.
Capital Southwest is on a favorable position to provide financial support to our portfolio companies and where warranted receive enhanced economics for doing so.
While it is impossible to calculate the full and precise impact on our portfolio from the cobot 19 pandemic. It is important to note some key aspects of capital southwest and critical decisions that were made over the past two years did have positioned us well to whether this unprecedented time in our nation's history.
We've laid out these points on slide six.
First capital southwest balance sheet credit portfolio consists of 49 loans across 41 portfolio companies with 90% of capital southwest capital invested in first lien senior secured debt.
Moreover, the percentage of our at risk capital in first lien senior secured debt is even higher including I 45, given at 97% by 45 assets are in first lien senior secured debt.
Second despite the sale process for media recovery being long and difficult in a choppy global economy, we opted to close on the sale in November 2019, reducing the equity exposure on our balance sheet from 19% down to 8% as of the ended the fiscal year.
We've been able to distribute 75 cents per share in cash to our shareholders during the December quarter.
Next over two years ago, we started negotiating for higher LIBOR floors on our alone many as high as 2%.
As of March 31, 2020, the weighted average LIBOR floor across our credit portfolio with approximately 1.4% protecting our portfolio asset yield from decreases in live or below 1.4%.
And as a reminder, our balance sheet credit facility does not have a LIBOR floor, allowing our cost of debt to float with LIBOR or all the way down to a LIBOR rate of zero.
Next given that 84% of our balance sheet credit portfolio is invested in the lower middle market. Many of our portfolio companies were eligible for the payment protection plan or P.P.P. funding.
Provided within the cares act across our 550 million dollar balance sheet portfolio, almost 90 million of PPP funding has been applied for and received by 24 of our portfolio company.
On the capitalization front during the fiscal year, we grew our revolver commitment.
Our I Ngls balanced balance sheet credit facility from 270 million to 325 million.
The most recent increase of 30 million included adding two new lenders, which closed during the March quarter subsequent to the cobot 19 outbreak.
Our bank lender group has shown us incredible support and now stands at 11 banks.
As I have 331, 2020, we had approximately 170 million availability on the credit facility quality asset side, we had only 15.2 million in unfunded commitments across our loan portfolio, approximately seven and a half million of which was in delayed draw term loans or other revolving loans in which draw.
And conditions had not been Matt.
Including cash and Undrawn commitments on our balance sheet credit facility, we had drypowder of approximately 180 million, allowing us ample liquidity to both support our portfolio companies and seek new financing opportunities.
Unfunded commitments remain approximately the same today is we have had approximately equal draws and repayments since quarter end.
Finally, the fiscal year finally during the fiscal year, we completed a 75 million dollar institutionally placed unsecured bond issuance, allowing us to in the fiscal year 2020, with approximately 50% of our balance sheet debt capital provided by the unsecured bond market.
We also made the difficult, but appropriate decision to forgo a previously announced voluntary pay down of our December 22 Baby bonds. We originally announced the Paydown in February 2020, with the intent to proactively reducing our overall cost of debt, but determinant marks that based on the uncertainty in the market at the time.
The best course of action for our shareholders was to retain capital flexibility.
Future voluntary paydowns on the notes is certainly something we will we will revisit and the future.
Overall during the fiscal year, we continue to advance our credit strategy, achieving the final step in transitioning the BDC to solely a middle market lender with the successful failed to be the recovery.
We're excited to have achieved this final step and look forward to continuing to pursuit of our core investment strategy of building a predominantly lower middle market portfolio, consisting largely of first lien senior secured debt with equity co investments across the loan portfolio, where we believe significant equity upside opportunity exists.
Executing the strategy under our shareholder friendly internally managed structure closely aligns the interests of our board and management team with that of our fellow shareholders in generating sustainable long term value for recurring dividends capital preservation and operating cost efficiency.
Slide seven or eight of the presentation summarize some of the key performance highlights for the fiscal year and for the quarter.
We grew our portfolio over 6% year over year to 553 million as of March 31, 2020, and increased our credit portfolio by 107 million or 29% to 474 million.
This growth was driven primarily by 195 million in total commitments to 19 portfolio companies.
Including 6 million invested in equity alongside six of our loans.
During the fiscal year, we also exited five companies 400 million in proceeds generating a weighted average iron ore of 11.6%.
Included in the 100 million was 48 million in proceeds from the sale of media recovery, which generated a an iron ore of 11.8% measured back to our original investment in 1997.
Since the launch of our credit strategy five years ago. We have had 31 exits representing approximately 287 million in proceeds and generating a weighted average are on the exits of 16.4%.
Our net credit portfolio growth drove a 20% increase in total investment revenue for the year to 62 million.
Up from 52 million in a prior fiscal year well, while the generally fixed nature of our internally managed BDC cost structure improved operating leverage to 2.4% by the end of the year.
Achieving our previously stated goal upset sub 2.5%.
We will endeavor to achieve continued improvement operating leverage by growing our total operating expenses at a slower pace then the growth of our asset base.
The ability to improve operating leverage over time as one of the fundamental advantages of the internally managed structure.
These factors both contributed to a 17% year over year growth in quarterly regular dividends paid to our shareholders in total for the year in total for the year, we paid out 2.72 or $2, a 75 cents per share in regular special and supplemental dividends, representing a 21% increase over the $2.27 per se.
Share paid out in fiscal 2019.
Additionally, on the equity capitalization front, we raised 26.7 million in gross proceeds during the year fear our equity ATM program selling over 1.2 million shares at a weighted average price of $21.71 per share representing an average premium of 17% to net asset value as.
Measured at the time sale.
Our diligence in selling limited amounts of equity each quarter, when our stock is trading meaningfully above and maybe in lock step with our ability to deploy that capital was one of the key contributors to our financial flexibility in today's market.
Further our financial flexibility during the March quarter allowed us the ability to opportunistically execute on our share buyback program.
Amidst the extreme market volatility instigated by the Cobot 19 pandemic, we were able to repurchase approximately 800000 shares at a weighted average price of $11 a 57 cents.
Total accretion from the share buybacks to net asset value was 23 cents per share.
Additionally, the management team and board members were also active buyers in the market during the March quarter collectively purchasing approximately 107000 shares during the quarter.
Total shares owned by employees and board members now represents approximately 10% of art of the total shares outstanding illustrating further our commitment and total alignment with shareholders.
Turning to slide nine and 10, we illustrate our continued track record of producing a strong dividend yield consistent dividend coverage and the value creation since the launch of our credit strategy.
We previously announced that our board declared total dividends of 51 cents per share for the quarter ended June 32020.
Today, we're pleased to announce that our board has also declared dividends of 51 cents per share for the quarter ended September Thirtyth 2020, consisting of a regular dividend of 41 cents per share and a supplemental dividend of 10 cents per share.
In an effort to create some level of certainty in an otherwise uncertain world. We believe this announcement demonstrates our continued competent in our portfolio and the ability to earn our dividend at the current level overtime through net investment income.
Turning to slide 11.
As a reminder, our investment strategy has remained consistent since its launch in January 2015.
We continue to focus on our core lower middle market, while also maintaining the ability to invest in the upper middle market when tract of risk adjusted returns exist.
In the lower middle market, we directly originate opportunities consisting of debt investments and equity co investments.
Building out a well performing and granular portfolio of equity co investments is important to eating them migrant mitigation of credit losses over time.
Overall, we believe that maximizing the top end of our deal origination funnel in both markets is critical to generating strong credit performance over time as it ensures that we consider a wide array of deals, allowing us to employ our conservative underwriting standards and thoughtfully building a portfolio that will perform through any economic cycle.
No. We are currently taking a cautious and and extremely selective approach towards deploying new capital taking into account the new normal of potential pandemics among other risks.
We continue to find superior risk adjusted return opportunities in the lower middle market, where we can lend at lower leverage and lower loan to value levels.
While maintaining tighter covenants and other terms and the loan documents.
Over the past several quarters. This has been especially true as the upper middle market has been the primary source of any volatility in our portfolio.
Turning to slide 12, our on balance sheet credit portfolio. Excluding I 45 grew 4% during the quarter 474 million as compared to 456 million as of the end of the prior quarter.
We continue to heavily emphasize first lien senior secured debt lending and again this quarter. The vast majority of our originations were in the lower middle market.
As of the ended the quarter, we at 84% of our on balance sheet credit portfolio invested in lower middle market companies, while not having 90% the credit portfolio in first lien senior secured debt.
On slide 13, we lay out the 38 million of capital invested in and committed to new portfolio companies during the quarter all closed prior to Koby 19.
Thats included 32 million in first lien senior secured debt provided to three new portfolio companies and 6.1 million of additional capital to three existing portfolio companies, which included 4 million a first lien senior secured debt and 2 million a second lien senior secured debt.
Included in the 38 million was eight half million in capital to Q upper middle market investment one existing and one new.
Our net exposure to the upper middle market actually went down slightly quarter over quarter as we were able to sell one upper middle market syndicated credit realizing 12.6 million in proceeds.
The weighted average yield to maturity on debt originations this quarter was 9.6%.
On slide 14, we breakout our on balance sheet portfolio, excluding I 45 between the lower middle market in the upper middle market.
We ended the quarter, the total portfolio, including equity co investments was weighted approximately 85% to the lower middle market and 15% to the upper middle market on a fair value basis.
We had 34 lower middle market portfolio companies with an average hold size of 12.8 million.
The weighted average EBITDA of 8.3 million weighted average yield of 11.2%.
A leverage ratio measured as debt to EBITDA for the rest security of 3.7 times.
Within our lower middle market portfolio as will be into the quarter, we held equity ownership and approximately two thirds of our portfolio companies.
Our on balance sheet upper middle market portfolio consisted of 11 companies with an average hold size of 8.7 million weighted average EBITDA of seven beef 74.1 million.
The weighted average yield of 6.6% and a leverage ratio through our security a 4.2 times.
We should also note that our on balance sheet upper middle market leverage metrics are shown excluding our investments in American addiction, and Delphi behavioral health has the EBITDA, while improving in both cases on a run rate basis remains at levels that would skew the aggregate portfolio leverage ratios to a degree that would obscure the ratios of the remainder of the upper middle market portfolio.
Yes.
Turning to slide 15, we want to illustrate the cobot 19 impact on the portfolio as of the ended the quarter by providing commentary on the migration of portfolio risk ratings quarter over quarter.
Well the full LTM EBITDA effect of Coca 19 on the portfolio will be more fully represented in the June 32020 quarterly numbers, we believed that the risk ratings represented on this slide largely hold as of today based on our communications to date with our portfolio companies.
As a reminder, all investments upon origination are initially assigned an investment rating of too on a four point scale with a one being the highest rating and a four being the lowest rating.
During the quarter, mainly as a result of the cobot 19 pandemic and associated shelter in place orders, we had nine of our 49 balance sheet loans downgraded and one upgraded.
The downgrades included a one rated loan downgraded to a two representing 2.4% of our portfolio at fair value.
This is a company that has been a consistently strong performer since origination and we believe the company will continue its very strong performance. Once cobot 19 is under control and the economy opens becca.
We had six loans downgraded from a two to a three representing 11.4% of our portfolio at fair value.
Of these six loans fiber sponsored and to our past due on the principal and interest as of today.
In one of these past dues situations. The sponsor has proposed a meaningful meaningful equity infusion into the company. The terms of which are currently being negotiated.
In both cases the company performance is improving and we believe we will collect our interest and ultimately recover par for the loans.
Finally, we had two loans, representing 1.9% of the portfolio a portfolio at fair value downgraded from a three to a for these two loans are two investments in the addiction treatment space American addiction or AC holdings.
And Delphi behavioral both of which were put on non accrual in past quarters.
Both companies saw their patient admissions fall meaningfully due to the pandemic and both received PPP funding.
Subsequent to quarter end Delphi is capital structure issues were successfully resolved as the balance sheet was restructured out of court, resulting in the first lien lenders reinstating a portion of their first lien debt and owning the equity the company.
Capital Southwest now owns 10.8% of the common equity and has a board seat on the company's board.
The new ownership group and border working closely with the management team.
To streamline the cost structure protect their employees and maintain the company's track record are providing the highest level a patient care.
We believe that the performance of Delphi can and will improve significantly in the future and our equity position in the company should prove per ride a mechanism for meaningful in abbey upside going forward.
With respect to AC.
The capital structure solution is taking longer to achieve due to its additional complexity.
AC is a public company and it and a much larger enterprise and Delphi and the facility in which capital southwest participates broadly syndicated thus involving numerous other lenders.
These challenges are simple, it's similar to that of Delphi.
And AC his management team seems to be doing a good job managing its cost structure and protecting its employees walk while also continuing to maintain the highest level of patient care.
Both of these companies perform critical lifesaving work each and every day. They clearly have many important reasons to exist in both cases, there is significant upside and financial performance from where they are today.
The remaining company rated four is AG, which was put on nonaccrual back in December 2018.
Kings educate a grocery business in the northeast United States has seen a significant uptick in his performance given the extraordinarily strong demand for groceries during the pandemic.
Offsetting these downgrades, we had one balance sheet loan representing 2.5% of our portfolio at fair value upgraded from a two to a one.
Based on superior performance and de leveraging throughout the pandemic.
In summary as of the ended the quarter, we had nine loans rated a three.
In all cases, we think the underperformance is temporary.
We didn't place, California Pizza kitchen on non accrual this quarter as its short term performance deteriorated significantly during the cold in 19 pandemic related shutdowns of its of its dining room.
Now that the economy in many parts of the country appears to be opening backup most all its restaurants are now either own reopened or in the process of reopening. So we feel confident about management's ability to turn the financial performance of the company around and the ultimate recovery of our first lien senior secured debt position.
As illustrated on Slide 16, we have established a portfolio well diversified across industries.
Further our portfolio asset mix should provide strong security for our shareholders capital.
Portfolio remains heavily weighted towards first lien senior secured debt with only 7% of the portfolio and second lien senior secured debt and only 2% of the portfolio in one subordinated debt investment.
Shown on slide 17 as of the ended the quarter.
The I 45 portfolio was 97% first lien with diversity among industries in an average hold size of 2.3% of the portfolio.
The I 45 portfolio had weighted average EBITDA of approximately 65 million weighted average coupon of LIBOR, plus 6.3% and weighted average leverage through the I 45 security of 4.6 times.
We also excluded American addiction from these ratios for the Optimist after mentioned reasons.
Oh, the 43 portfolio companies and I 45, we would estimate that 11 of them representing 23% of the assets a fair value had been meaningfully impacted albeit temporarily by the cobot 19 disruptions to the U.S. economy.
For the portfolio companies, representing 7.5% of the assets a fair value are not current as of today on interest.
Interest of principle.
Which includes a C.
Three out of four of these past due situations are companies that are owned by financial sponsors.
Overall, we would estimate that approximately two thirds of the depreciation for the quarter was due to mark to market Coke volatility and approximately one third was specific to company performance.
We would also estimate that the company performance component of the overall estimate for the quarter was virtually all cobot 19 related.
I'll now hand, the call over to Michael to review the specifics four of our financial performance for the quarter.
Thanks.
Specific to our performance for the March quarter as seen on Slide 18, we earned pre tax net investment income of $7.4 million or 40 cents per share this compared to 44 cents per share during the prior quarter.
The reduction in net investment income per share for the quarter was mainly attributable to the onetime dividend and transaction fee received in connection with the sale of media recovery in a prior quarter, we paid out 41 cents per share in regular dividends for the quarter an increase from the 40 sent regular dividend per share paid out in the prior quarter.
In the near and long term, we have built it consistent track record of meaningfully covering our regular dividend with pretax and I as demonstrated by EUR, 105% regular dividend coverage over the last 12 months and a 107% cumulative regular dividend coverage since the launch of our credit strategy.
As Brian mentioned earlier, we also paid out a supplemental dividend of 10 cents per share during the quarter. As a reminder, the supplemental dividend program allows our shareholders to meaningfully participate in the successful exits of our investment portfolio through distributions from our Yutai balance overtime.
Due to the successful sale of media recovery, we were able to replenish our you CCI balance to the maximum allowable level, providing visibility on the longevity of the program well into the future.
The program will continue to be funded from Yuichi earned from realized gains on both debt and equity as well as undistributed net investment income earned each quarter in excess of our regular dividends as of March 31, 2020, our estimated you CCI balance was $1.44 per share.
Our investment portfolio produced $15 million of investment income this quarter with a weighted average yield on all investments of 10.6%.
This represents a decrease of approximately $950000 from the previous quarter as I mentioned earlier the decrease in total investment income during the quarter was primarily attributable to the dividend and transaction fee received from media recovery in the prior quarter and a decrease in LIBOR offset by an increase in weighted average.
Net investments outstanding.
As Brian mentioned, we did place, California Pizza kitchen on nonaccrual as of the ended the quarter. There are now for assets on nonaccrual with a fair value of $18.2 million, representing 3.3% of our total investment portfolio at fair value the weighted average yield on our credit portfolio was 10.5%.
The quarter.
Excluding interest expense, we incurred $3.5 million, an operating expenses for the quarter, which was $455000 less than the previous quarter.
The main driver of the operating expense decrease was a reduction in cash compensation for the year. The management team and board of directors determined that it was appropriate and the best interest of the shareholders given the current environment to reduce the cash portion of the bonus paid to officers in order to prior toys prioritized strong dividend coverage for the core.
Okay.
On slide 19, we illustrate our operating leverage which as of the ended the quarter was 2.4%.
Which puts us below our initial target operating leverage of sub 2.5% as referenced earlier, we're fully committed to actively managing our operating costs in lockstep with portfolio growth and have our long term sights set on achieving target operating leverage up to 2% or better.
Our operating leverage should continue to improve as the investment portfolio grows due to our internally managed structure.
Flipping to slide 20, the company's NPV per share as of March 31, 2020, let's $15 in 13 cents per share as compared to $16.74 per share at December 31, 2019, representing a quarter over quarter decrease of approximately 9.6%.
The main driver of the NPV per share decreased.
Depreciation and the upper middle market portfolio, including our investment in I 45.
Total upper middle market portfolio depreciation during the quarter resulted in a decrease in NPV of $1.37 per share and as bone mentioned earlier, we estimate that roughly two for two thirds of that decline was mark to market related with the remainder being performance related due to covert 19.
We also experienced 29 cents per share of lower middle market equity depreciation, which was mainly the result of decreased market multiples and increased cash flow model discount rates applied in our internal valuation model.
On slide 21, we lay out our multiple pockets of capital as we've mentioned on prior calls a strategic priority for our company is to continually evaluate approaches to de risk the liability structure of the company, while ensuring that we have adequate investable capital throughout the economic cycle.
We're pleased to report their liquidity is strong with approximately 180 million in cash and undrawn commitments and as of the ended the quarter sample borrowing based capacity and covenant cushions on our senior secured revolving credit facility.
In addition to approximately 50% of our current capital structure liabilities or unsecured with the earliest debt maturity at December 2022.
Our balance sheet leverage as seen on slide 22 ended the quarter at a debt to equity ratio of 1.11 to one.
During the quarter, we were able to utilize our capital flexibility by Opportunistically repurchasing shares through our share buyback program. During the extreme market volatility we saw in March during the quarter, we repurchased 794180 shares of capital southwest stock at a weighted average price of $11 and 50.
Seven cents per share, resulting in total and Avi per share accretion of 23 cents.
Cumulative date, we have purchased 840543 shares of capital southwest common stock and if reached the board approved 10 million dollar share repurchase limit.
As we move forward, we will continually reevaluate an upsize of our share repurchase program.
Our conservative management of the balance sheet overtime in terms of both capitalization structure and liquidity is key to our maintaining the ability to take advantage of extreme market volatility and repurchase shares when they are trading below book.
With respect to I 45, subsequent to quarter and the JV partners of the fund made a voluntary equity contribution of $16 million to reduce the outstanding amount on the I 45 credit facility.
Capital Southwest portion of the capital contribution was $12.8 million this contribution and and pay down has done proactively as part of a credit facility amendment, allowing to fund more flexibility to manage its loan portfolio during the coven 19 aftermath.
Finally early in the quarter, we sold 181500 shares of capital southwest common stock under the equity ATM program and a weighted average price of $20 in 61 cents per share raising 3.7 million of gross proceeds.
I'll now hand, the call back to Boeing for some final comments.
Thanks, Michael and thank you everyone for joining us today capital southwest has grown in the business and portfolio of developed consistent with the vision and strategy, we communicated to our shareholders five years ago.
Our team has done an excellent job building, both a robust asset base as well as a flexible capital structure the prepares us for tough environments.
Like the one we have experienced over the past couple of months.
As we have attempted to portray to you today, while we are not immune to the challenges the economy faces we feel good about our the health of our company and the opportunities at the environment will present to us as we consider places to invest capital in what should prove to be a much less competitive environment than it was only a few short months ago.
Everyone here capital southwest is totally dedicated to being good stewards of our shareholders' capital.
Continuing to deliver strong performance and creating long term sustainable value.
Even in troubled times as such as these.
This concludes our prepared remarks, operator, we're ready to open the lines up for QNX.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we compile the Q and a roster.
My first question comes from Tim Hayes with B. Riley FBR. Please go ahead.
Hey, good morning, bone and Michael Hope for both doing well and I appreciate the extra color on credit performance this quarter.
Just a couple follow ups there I know you mentioned that.
<unk>, 0.7% in the portfolios past due does that exclude a company that had been offered forbearance and have some form of interest or principal deferral at this point.
I think that yes, we've I think we haven't we have a couple of we have a couple of portfolio companies with the lenders I've agreed to push interest payments that doesn't include those.
Okay and can you maybe give us an update on on how many companies or like what that would bring that percentage to win.
And if there are any other.
I guess forms of four bearing that you've been providing aside from potential p. and I.
Deferrals, whether thats kind of eliminating covenants or anything else, yes, I would say I would be I would probably remover. Forbearance then it would include companies and forbearance, it's really just companies, where we've agreed to forego or or deferred interest payment.
And in those cases, frankly that the sponsors are supporting the company equally so the way we view it as if we're going to if we're going to push and interest payment.
Until later date, that's our contribution to the kidney if you will so we look for the sponsors to also put some money in the kidney to support the business.
So it's I think virtually always coupled with that so.
Okay as far as a percentage I don't have that in front me I mean, I would say it goes.
I don't want speculate week I can follow up you offline as far as what that percentage might be I, just don't have in front me.
Okay, No that's fine.
And then how much cash runway to operate their bid stage gear do you believe your portfolio companies have on average.
I think pretty much in pretty much across the portfolio certainly when you consider the PDP funding that's been injected across the portfolio. The runway is pretty healthy and most all the cases.
And so it's.
Well.
Well into August.
In September if you would it look at you know the run rate during the pandemic in project that forward.
Good news is as we see the autonomy opening up and we do see kind of run rate performance across some of these companies that were hit with a pandemic, we see kind of the run rate weekly performance. If you will improve in pretty meaningfully.
So.
And so that's that's obviously encouraging.
I think people are seeing that across the economy. So just cross our fingers hope that continues but thats. So I think that would extend obviously the runway in theory liquidity runway, we think across the portfolio.
No.
These are companies that are current with their interest which is the majority of them are are pretty healthy from a from a liquidity perspective.
No no no frankly noted across our portfolio. If you look at the unfunded revolvers. Fortunately for US it was relatively low going into the pandemic, but we had a couple few revolvers draw and then we've had like we've had a basically equal draws and repayment since the depth of pain.
Right.
Picking them up kind of what's going on across I think we were similar to a lot of other companies that saw early drives in March in early April and then it slowed down and then there were some pay downs and then the PPV monies coming behind it.
Sort of state right now.
Thank God send got to yes, we've got a couple of companies that are considering paying the PDP money back.
We have the majority of the company's that through it down needed it but we've got a couple of that have actually considering paying it back to the related neither.
Okay. That's helpful. And then you grew the portfolio a bit this quarter the credit portfolio, but this quarter, but the borrowing base capacity pretty much flat core quarter over quarter. Just curious if you had some fallout of eligibility this quarter and and what the primary driver behind that.
It is whether it's any doesn't sound like there is Jim any loan mods.
Occurring right now so I'm just curious if it is more a function of operating performance.
Leverage multiples or anything like that.
We actually I don't think we did see a reduction I mean are all CNG credit facility Thats predicated on fair value. So our advanced ability on the on the credit facility will be in advance rate times wherever the fair value as we did see some level of fair value depreciation this quarter.
But it really wasn't meaningful quite frankly approximately.
Absolutely, yes, it was actually repayments offset against originations were made us relatively flat this quarter I think within five okay.
Got it okay.
And then.
Just if you could maybe.
Provide a little bit more detail on your I guess your thoughts or your appetite to invest right now versus preserve liquidity for your existing portfolio companies. At this point I know you had based on your unfunded commitment balances and capacity have on the credit facility. It seems like you have some good liquidity to support portfolio companies, but.
So clearly a lot of uncertainty ahead. So just wondering what your appetite to ingest new companies looks like at this point and if you could maybe.
Just provide either a little bit more color on the pipeline, you're seeing and how.
Leverage multiples are trending or where you're seeing the best opportunities that would be appreciated.
Yeah sure.
So as far as.
Investing capital preserving liquidity I mean, we've always from the beginning wanted to maintain the flexibility in the capital structure.
No I didn't expect a pandemic of course, but just anything any any kind of black Swan event will disruption in the market. We wanted to always maintain liquidity and flexibility. So that we could do several things obviously support our portfolio companies, which is not particularly fun when the portfolio companies need that but thats something you need to be able to do to preserve value.
That's one thing you want to be able to do you also want to be able to do look at new deals because a lot of I'll come back to that in the second a lot of competitors move out of the markets as less competitive. So so spreads widen as a result, so that you ought to be able to do that and then you also want to have the I don't want to ever have to tell our deal guys. When they find an interesting deal that we can't that we can't do that deal because we.
I also want to buy back stock because there is a black Swan event in the market like we saw the code 19.
So we want to be able to do all of those things and we've been thinking about that type of flexibility. Since January 15, it's kind of core the way. We think so so here we are black Swan event don't love. It you know hate it matter of fact and water such as not funds right, but we feel basically got about our asset base. The whole, we're very happy that will Fortunately lenders.
And here, we are that the market is less competitive than it was a few months ago and so now the reality is so we're continuing to seek new deals.
We're not traveling.
You don't actually.
I have to work as hard honestly to find new deals because they find you.
Because people know that we have liquidity the network business into our phone rings and show.
So we see the vast majority of deals out there that would be relevant for our capital. However.
And the deal and the deals with the market. The spreads have widened you know, it's 100 to 200 basis points.
So, but we have to underwrite those deals in light of now what we know and that is that there has it.
Yes, there is very real pandemic out there that hasn't gone away a and b.
There are maybe future pandemics right I mean, it's something that we weren't.
The next 12 months ago right and so.
So it changes how you view everything right and so we're not only looking at hey, what are the performance and the great recession were actually now looking at will whats the performance in a pandemic. That's the changes a fundamental paradigm, how you look at investing dollars and so.
So naturally see we will see a lot of business models that you can't underwrite yet because you don't really know there's too much uncertainty rights for those of you don't you don't pursue those and so the number of business models that you can underwrite in the new paradigm decreases significantly.
So the deal flow are the deals that we would be pursuing naturally comes down however.
Returns that we have the opportunity to make on the deals we do do go up so.
So.
Your return on your equity if you will close up and so that's.
Good. So we are out there looking at looking at deals in fact, we closed the transaction last week, we you'll likely see appeal.
Press release in the next couple of business days that we closed.
The company that performed right through the Pan the pandemic.
And it's in the medical space, but that it performed ratcheting pandemic, we've got another deal we're working on.
Food documentation right now to should close in the next five to seven business days something like that.
And so we're not we are looking at deals and we are closing deals now. These these are.
No.
$8 million to $10 million hold sizes.
Kind of first lien loan.
Of situation.
But very interesting business models and one that we can underwrite the current pandemic.
To give you an ideal deal flow because I think it's kind of interesting because the numbers relatively significant so when the cobot 19 hit I went back and looked.
We had five five transactions that were signed up.
They were.
Total capital was 60 about $60 million.
That we basically put on hold.
Fortunately it all those cases that have sponsors of all the sponsors also put them on hold.
Like we had to break any glass to put them on hold but those are going to suggest you just wouldnt have wanted to do.
In the so those kind of $50 million of originations for us in March I mean that moves the needle on on.
On earnings that affected the March quarter.
But what im glad we didn't do look at every one of those deals and I wouldn't want to do it at least not yet.
One of them as one that the in the healthcare space that you probably will eventually do when it opens back up but but the other ones or any other ones you probably don't do in the current environment. So.
Lot of deal flow goes away, but we are guys were doing a great job.
Their relationships are calling on that they've got great flow of ideas.
And but a lot like I said a lot of more business model that we just can't understand underwrites and the situation, but we definitely are seeing.
Less competition on the deals that we want to pursue based on what we're hearing right now and so and the result of that is we're kind of seeing spread widening from where they were pre cobot somewhere in the 100 200 basis point range.
That's good color appreciate that Boeing.
Yes, I think all I.
I guess, yes, I mean, just quick follow up on that is it safe to assume then you highlighted that you closed one transaction last week in you're working on another one is that really the only update again for the quarter. So far and just curious if you've seen any repayments so far this quarter.
No repayments this quarter.
I was just normal amortization holverson stuff, yeah, I mean, we've probably seen $2 million to $3 million and amortization.
Got it.
Okay.
Well I appreciate the color guys.
Thank you. Our next question comes from Nicky screening with Ladenburg Saumen. Please go ahead.
Good morning, good morning, everyone.
Can you hear me okay.
Yes, Mickey good morning, good morning.
But when I realize that the portfolio was valued as of March 31st when the Pandemics impact was just beginning to be felt and strictly speaking the board's estimated value as of that date, but more information became available as time went by so I'd like to understand.
Much of a forward looking approach support took since there was so much uncertainty in the ensuing weeks.
Yes, I would say August you're right. The valuations were done as of the end of March.
The forward looking component of.
Of evaluation at that point in time.
This is Doug is looked at through its equity a DCF analysis.
You know in the intermediate term, that's going to affect intermediate you know and their me intermediate term it may not affect your five year projection on EBITDA, but it would affect your one year projection on EBITDA. Our two year. So there is some element of that that goes into the valuations on the debt side, you've got market indices.
That flow through the valuation equation, so and those are basically market perception of the future. So thats.
It flows through.
On an EBITDA basis as I referenced in my prepared remarks, I mean, EBITDA LTM EBITDA across the portfolio will more fully reflect cobot 19 in the aftermath and it did at the end of March and so I think.
I would expect.
So are we would certainly look across the portfolio and the BDC industry for that matter and just see LTM EBITDA coming down to reflect the full full effect of coven 19. So.
But the market is getting better so you'll have some EBITDA effect, you'll have market indices effect and so we won't know where valuations come out.
But the funded until we do the June 30, valuations, but theres different variables kind of going in different directions. If you will right now so.
Our equity portfolio multiples and markets, we'll see what the market continues to do with the market's been rallying multiples have been coming up.
You know risk.
The view of risk.
Right or wrong pandemic is mitigated from when it where it was a month ago.
So theres different things that will go into that calculation.
Net net longer term I mean, the opening up economy is really really good for our portfolio. So we'll see revaluation do but hopefully that helps you appreciate there's different variables that go into it.
I, certainly understand and you actually sort of preempted My my follow up question I was going to ask you.
Between spreads stabilizing or even tightening depending on the credit and equity markets rebounding would hold the fed stimulus, but as you mentioned borrower EBITDA I'm trying to get a handle on.
Which is going to have the most impact on a navy knows it is the EBITDA decline, which I agree with you. We know we can expect.
Some meaningful declines in certain credits will that overpower the movements in the markets and.
We could see some more attrition in the navy or or do you think the movements in the credit an equity markets are strong enough to to mitigate the decline in EBITDA.
Yes, it's hard to tell honestly I mean, the spreads have certainly come back and you can see it in the quotes you know we've seen that across our I 45 quotes.
You know EBITDA will come down certainly.
I would expect across the portfolio, although we have some companies that are performing really well.
Certainly or at least flat EBITDA EBITDA was down five or 10%, which doesn't really.
Matter, a huge amount from Accreditor perspective.
And we've got EBITDA, you will get companies that EBITDA going up.
And so it's hard to tell I mean.
EBITDA EBITDA on leverage I mean, I'm not going to im not going to I mean, I'm not going to mislead you I mean that is a negative leverage goes up thats all else equal negative effect on valuations clearly.
But we have kind of.
Portfolio companies are doing well are better than they were we have on some they're doing slightly worse, you know that kind of thing so and also the relativity from the 331 to 630 quarter.
Euro.
Hi.
I'll get back on it Mickey I apologize, yes, so I mean, yes.
Thats helpful. I mean, it's hard to tell but but I do think the market metrics are improving.
And the EBITDA levels of probably coming down to more fully effect because the Nike inc. because it was only through March.
You know maybe evaluations, maybe maybe it maybe the EBITDA overweight the market metrics I mean, it wouldn't that wouldn't be that wouldn't surprise me if I apologize upfront what else can say the upper middle market has really stabilized yields through the quotes majority of our depreciation that you've seen over the last two quarters has really been the upper middle market and a lot of its been Eni 40.
Five and so we're really we're seeing the mark to markets on a daily weekly basis, and that's really stabilized.
So I think from a relativity perspective, you wouldn't expect to see so much.
Movement, one way or the other this quarter, even though you perhaps would expect some level of depreciation due to the EBITDA drop.
I understand.
Michael you and I've talked to think about the.
Credit facility I 45 in the past.
The banks actually ask you to inject more equity.
Into into that fund.
As it was close to breaching some sort of covenant or did you do that too just from a risk management perspective.
It was the latter Mickey we proactively came too.
DB.
I was tightening in the facility and there is interest for us to be able to defend our portfolio to make originations.
And I 45 going forward, So us and main street came together and we thought it was good time to put capital to work to pay down that facility and by proactively doing so we're able to get some things in return.
We were able to get by making it a permanent reduction we actually got the prepayment penalty waived.
So thinking that we're not going to be levering up significantly in the next 12 months.
Having that cost come down means a lot of sense. We also dropped the utilization rate from 75% down to 60% or threshold for the unused fee that allows us flexibility to de lever is without incurring additional costs.
So we felt like these are.
As a good time to do it and certainly coming to them rather than waiting for them to come to us men have less leverage in the port in the negotiation made a lot of sense.
If you take a step back if you take a step back Mickey I mean, both us and our partner main street or are very and very strong liquidity positions and so you know what by getting some cushion in the I 45 facility you create you create flexibility so that you can make decisions more.
You'll have like I don't want to make a decision on whether company needs to deferred interest payment for a four.
Quarter, which isn't a big deal, but then that creates an issue with the borrowing base and so we just wanted to get the cushion we actually got we actually were able to lower the cost on unused fee thresholds and that type of thing as a result, as well because we were able to offer up.
We were able to offer up some cash and lenders in us in a scary market love that right. So that we use that to our advantage to.
To reduce some of the cost of facility.
But when you actually injected cash or or did you contribute some asset investment assets that we actually yes, I mean at the other day in part it's a financing vehicle right. So we took.
Some of our availability offer the LNG credit facility and we invested in the I 45 entity and pay down the Deutsche Bank credit facility. So it's really just moving moving availability from one facility to the other I mean essentially.
Just a couple of housekeeping questions did you reverse any previous interest income accrued on cpk during the quarter.
For the it it had a dead worry payment that it made so you actually reverse the month of March.
Only.
Over the quarter numbers.
Reversed one month and lastly.
Michael what's the required timing of the just the distribution of the dollar 44 in Utica.
So that would be by October 15th So just to be clear. It was a $1.48 was our balance as of 12 31 19.
We made a payment of 51 cents at the end of March and we've declared 51 cents for June.
So we had a 46 cents requirement for spillover.
By the October 15th and we've just declared a 51 cents.
Dividend for the September quarter I understand that's all my questions for today I appreciate your time.
When there's days safe and healthy thanks, Thanks Mickey.
Thank you your next question.
So with Jefferies. Please go ahead.
Hey, good morning, guys. Thanks, very much for taking my question a lot of been asked and answered, but I just have a.
Follow ups for you.
I wanted to get a sense for your outlook for.
For the portfolio yield going forward, obviously, you guys have.
The LIBOR floors, which which kicked in and it sounds like spreads on new issues, maybe widening but can you can you just thanks for your near term and more intermediate term outlook for the.
Overall portfolio yield.
Yes, I mean I would expect you know as we go forward assuming exact same set of companies that we would invest in the yields the average portfolio yield.
I should say spread should go up.
But then there's theres kind of different different things that go into that right. So for the same company the spread might be 100 to 200 basis points higher but then the spread for a.
Larger slightly larger lower loan to value company that might have price dead.
I don't know LIBOR or 500 might priced at LIBOR or 650 or 700.
Now and so that would be closer to kind of our average yield and so so you've got.
I guess, what I'm trying to say is for the same risk level companies spreads have widened and then also for lower risk categories. The spreads have also widen into an area, where we think it makes sense for us to invest in so you can either get the same you can either get the same yield on a lower risk.
Subset or and the higher yield on the same risks upset if the if you know what I mean, so so what does that mean for the overall portfolio it's not.
It's not it's not really it's hard it's hard to estimate, but I would have dinner I would guess that our yield average yield on the portfolio on on as we add new deals at the portfolio.
You know then of course absent our net negative being any kind of future non accruals or what have you, but the average deals that were adding to the portfolio yields should should definitely go up and they are now I also just add just from the yield migration we are.
It was about 11% in September 30.
December was less than a quarter, but that really included a little bit of default interest which was a nonrecurring.
So let it percent, it's been really where we've been at it dropped to 10 50 this quarter.
Partially to non accruals for cpk, but mostly due to the LIBOR drops during the quarter.
Got it so we we should see if it David it's just stabilized at 10 50, except for originations I've always said that may actually be above were our other marks have been in terms of 100 200 basis wider.
Okay, that's very helpful. Thanks.
And then.
You bet origination can you give us a sense for for repayments in this type of environment.
And do we ultimately start to see repayments pick up as the economy reopens.
So there's a couple of things going into that right.
The financing market has backed up still backed up less competitive when I talk about less competition for us that that's because there's less lenders that are active out there at least based on what we can see and so that means less at the margin less opportunities to refinance.
US out and so there's the factor that tends to lower decreased prepayments. Even on strong companies is is the dynamics in the financing market same dynamics that that allow us to charge wider spreads right.
So as the economy opens up.
Some of our stronger companies you know it could.
If the financing market opens white up in a very robust fashion and that company. The said company could actually refinance us out a lower rate.
Right. So the 200 basis points or 100 basis points expansion in yield tends to.
Insulate prepayments to as well right and so it's not obvious I think I think if the economy opens up robustly the funding.
Opens up robustly and risk premiums come in significantly then I think we would have I think we would have some of our companies get prepaid that makes sense.
Yes, absolutely that's helpful. One last one from me obviously your your debt to equity increased given the unrealized depreciation he just step back and give us a sense for where you envision your leverage going in this environment and what you think is appropriate.
Yes. So we've always we've always said our target leverage was kind of 1.1 to 1.21, and so I think I would tell you that in the lower end of the cycle.
When you don't want to lever up as at the high side of the cycle, where you might be willing to lever up more is that though towards the lower end of the cycle right and so we're always in this robust environment, where everything's everything, thereby just as always going up into the right. We're in a perfect no theres no risk.
It was kind of the market sentiment out there and it's like we're always like we'll look thats not.
That's not realistic we don't want to future holds and so we looked at leverage in that context, when you're in that you're in more of a recessionary environment or you're going to kind of theoretically towards the bottom end of the cycle you might be willing to lever up a little bit more in that side of the cycle and so what all that means is.
Our leverage goes above 1.2, you know, we're not going to stop doing deals I would tell you. We're we're comfortable with leverage.
We don't really anticipate getting here, but we're comfortable with it up to where our board policy is one and a half to one.
And so clearly we would be.
Opportunities opportunities willing.
Deals that we see et cetera, you know if we if it caused us to go up above 1.2. There is that we have some cushion above that and I would say I would tell you that Michael and I and the border comfortable with that leverage going up in that environment.
Yes, what we said earlier, we have capital flexibility to originate in a normal year, probably try a full year.
Based on Boeing's comments earlier, it's likely it we're going to be originating at less than a full throttle for the year. So we'll assess how much our deal flow is the overall health of the portfolio in terms of figuring out what that target leverages as well as the access to capital markets, obviously, the capital markets aren't opened today.
But as we assess where we are in our ability to access the ATM that'll obviously dictate that answer as well.
Appreciate it that's great color. Thanks, very much for answering my question.
Okay.
Thank you. Our next question will come from Casey Alexander with Compass point. Please go ahead.
Yes, hi, good morning, and thanks for taking my questions.
You made an allusion to this but I am I'm not quite sure I heard the answer that you had a number of portfolio companies that were able to access the PPP.
How did they get passed the affiliation rules.
So every one of them got their own.
The boards of those companies have to make that determination, but certain things like numbers of employees Qual EBITDA five.
Qualifying as a small business.
And then then then it they are subject to those doesn't affiliation rules.
However, you know there's number of number of companies in the portfolio, where our lender partners are FDIC.
Which was an inter ticket into the PPP funding. So each one unqualified everyone's a different we had we didn't have companies that are that we're sponsor owned and it looks up to the sponsor and they didn't otherwise have an FDIC. If you will in the in the capital structure and so they didn't qualify and therefore they didn't apply.
Okay, great. Thank you for that secondly, you gave some encouraging comments around the California Pizza kitchen, but I think we're all kind of wondering like California Pizza kitchen is not a big takeout, it's more of it dine in location that is.
At least for the foreseeable future going to be apps to be operating at a different capacity than it has been in the past in its dine in operations to what extent do they need to recover towards their prior business level in order to be able to sustain themselves given the capital structure that exist.
Prior to the covered 19 crisis.
Yes, so look I mean, I'm not going to I'm going to give you an answer you're not going to love and that is these are private companies and so I really can't and I Shouldnt talk I always try to walk the line as close as I can to help the shareholders understand what's going on our portfolio without crossing line and frankly I've been a couple of times over the last couple of years, where I've gotten calls from management teams because I said.
Too much and so you know and so we're always trying to find outlined. So this is one of those situations I will tell you that after listening to a bunch of calls with the Cpk management team. They are very impressive and their resume its very relevant and PPK has elements in our business that are there or you don't realize like a licensing business.
CCP cave Cpk is a product in the freezer all of the grocery store I mean, you have some things a lot of their stores in malls are.
Our actually outward facing as opposed to inward facing meaning the cpk restaurant opened up prior to the prior to the mall opening up they do have a takeout business in the take up business has increased a lot, but I'll just leave it at that I mean looking.
Every restaurant out there is challenged but this management team is very impressive and are doing some pretty impressive things to get the business going and so thats why I wanted to say some things encouraging because I would actually pretty impressed by some of doing in a tough environment. I mean, the other thing to note is obviously, we put it on non accrual as well so.
We are there other bdcs I think did not take that stance. So we are taking a cautious approach to it but based on the comments that Boeing has said and the management teams words, we do find that there's a lot there is a ramp light.
For that credit, we'll see we'll see.
All right. Thank you for that answer and my apologies if it sounded like I was trying to get you to cross the line that would certainly not my attention.
Lastly, and this is a small investment.
But I'm just curious.
What's the thought process was around blast shack I don't think I've seen a BDC makes coal investment in you know probably the last five to 10 years. So I was just kind of wondering what was opportunistic about that and watching what you guys were thinking there.
Yeah, Let me look I'll, even look at their website you see what they do they are anthracite coal miner and supplier to the Pennsylvania market a lot of it to the Amish community.
Burns the anthracite coal in there in there.
In their stopes you know so it's not like it's different than maybe a typical coal business.
And and so it's sponsor owned.
Very well respected sponsor on that.
It's not it's relatively low leverage its actually we have a first lien on the coal reserves themselves I mean, there's some things about that are that are interesting for creditor perspective, and that's a very well run company in a very strong sponsor that owns it.
So it's not that we.
We're not looking for necessarily more coal deals to your point, but but it's a pretty interesting company from that perspective.
It's a relatively unique situation.
And then they had some working capital needs of the company kind of ramps and so we provided some liquidity there and we got as you can see on our deal she some pretty attractive economics for our for what typical deals we do.
And so it's relatively unique situation I mean, you shouldn't expect us to do a bunch of coal deals going forward. We're not we're not we're not looking for that this was more based on a unique situation in a very strong strong private equity firm and a very experienced a private equity firms.
Great. Thank you for taking my questions I really appreciate it.
Take care.
Thank you. Our next question will come from Bryce Rowe with National Securities. Please go ahead.
Thanks, Good good afternoon now for me I'm on the East Coast.
Right.
Hey, Bob Bowen and Michael is just wanted to ask about about the dividend and Im sure the market appreciates.
The dividend being unchanged here for for the September quarter.
I understand that you had the distribution requirement new $1.48 here and it sounds like you've net debt.
How how do you think about leased a supplemental dividend going going over the next couple of quarters.
Given the level of uncertainty here.
With respect to ticketed 19, I mean do you think about.
Adjusting that temporarily or do you feel pretty comfortable with that that tencent level.
The supplemental.
Yes, Thanks, Bryce couple of things I would tell you first of all our shareholders that dividends very important to our shareholders. You would certainly agree with that we take very seriously so any kind of adjustments to our dividends is a very.
Debated subject and something we take very seriously and frankly don't want to do unless we absolutely have to.
The supplemental dividend program, we set up we set up a while at the end of last year. Its dollar 48 will pay out.
10 cents, a quarter, that's 14 or quarters or so just do the math easy for the shareholders look at that 14 quarters or longtime into the future and so the yutai that's the UK a bucket clearly.
You know that Yuchai bucket, we think is primarily there to pay a supplemental dividend program. Because we think over time will will earn our regular dividend to eni, but the reality as we have summed up at some.
Pennies.
To use their to cover our any particular dividend on any particular quarters. It matches DIY. So.
If we were to pull out a couple or few pennies or the next couple of quarters, we don't necessarily expect that but let's say it happens then that was shortened slightly the duration on the supplemental dividend program from $1.44 to $1.40, earning pick a number I mean, that's kind of a who cares. So you look at that and then it comes down to well do we have liquidity on the balance sheet.
To pay the dividends and we've managed the capital structure to be able to do that and so we look at where like okay.
As long as we feel like we have the liquidity.
And we have enough visibility on the supplemental dividend program, then we tend to be heavily biased towards keeping that dividend where it is.
And so again I mean.
That's what we so so if we look at the September quarter for example.
We didnt have to pay out a full 51 cents to hit our Rick requirements. As you pointed out we could have cut it by five or six cents I guess in September quarter, but when you look at our liquidity look at our situation overall health. It's like you know what Theres no reason to therefore, we're not going to do it. So why don't we throw out some certainty and an otherwise uncertain world.
And go ahead and declared a dividend from September quarter. So as we move forward again, I guess, what I would say is it the liquidity question.
And then ultimately what kind of visibility does does the yutai that's left provide the the.
The certainty or determine if you will or the future competence that supple dividend program going going well into the future and I'd also add it will probably keep the dividend relatively flat as we continue to grow and I don't mentioned earlier, we're still originating and we feel good about the overall health of the portfolio.
We ended the centrally the March quarter with a run rate of around 40 cents of Eni is a run rate going forward.
So we feel good about where our dividend is relative to our earnings power, but we'll probably hold that dividend constant relative to ever have making a dividend cut.
Got it okay. That's helpful.
And then one of the shift gears here, a little bit and talk about the I guess the weekly.
Performance tracker and really just the daily meetings that you've talked about but was curious.
What you've seen from a from a run rate perspective.
As the economies have had intact open up and maybe you can talk.
If you can two different in businesses as you've seen the economy reopened and then maybe.
What kind of differences do you see in certain geographies versus others. I mean, I don't know if you have any insight to that but could be helpful Associates.
Yes, that's just a question on the geographies generally speaking.
Condominiums, starting to open up we definitely are seeing green shoots to use the so kind of hokey term.
Across the portfolio and kind of weekly performance, improving I mentioned Cpk started open up dining rooms, those types of things.
Across the portfolio orders customer orders coming in.
Certainly stabilizing if not improving.
So that's obviously very encouraging I mean, less I mean honestly, it's early so we'll see right, but I mean, it's encouraging.
With respect to regions of the country I'm thinking about that.
Certainly we have regions of the country, we all see on the news you know certain regions of the company opening up faster than other regions of the country.
Seems like.
Personally kind of seems like it's more urban versus rural areas difference.
As far speed of the economy opening up but.
I don't really I don't really brought it to think about it more and I can give you some color offline and you can provide provided provided annual reports, but as far as kind of what we see across the portfolio regionally. It nothing has really strikes me as dramatically different.
Mike.
I'd like to southwest is room is dramatically different those portfolio companies improvement versus the northeast I don't really had a stat like that in my mind.
I am actually sitting here thinking through the tracker.
As far as what I, what I've seen and as we've talked about it really have anything.
Hello real sense to.
Tell you that I think we've more focused it on an industry like for our portfolio. We know obviously, the energy and travel lodging restaurants, and non essential medical providers, that's been certainly been headwind, but on the other side and we've seen some things do better obviously grocery stores. The behavioral health is starting to see some uptick stock trading platforms and community.
Communication technology and PON is another business that were in that's obviously unfortunately doing better. So I think we look at a more in an industry than we do on a geographic location.
Okay.
And then one last question you kind of called out AG Kings is.
A longer standing non accrual.
Uptick in performance because of the industry that is that it is and.
What what gets that that that company from us for rated two or three rated.
Anyway.
And maybe seen that that company's performance really improve throughout the decoded period.
I would tell you the performance approved a lot throughout the.
Throughout the pandemic.
And so is pretty pretty dramatic.
Given its grocery stores as far as changing the grade look what we'll probably going to be.
We want to be just as a general matter conservative when we start upgrading things so we'll see.
But the companies.
Right now is cash flowing well and doing much much better.
So we'll see as we go forward how.
What happens it's our it's hard to say, what what actually happens to upgrade upgrades or three.
Okay.
Thank you guys appreciate it.
The care Bryce Thanks Bye.
Thank you. Our next question comes from Robert Dodd with Raymond James. Please go ahead.
Hi, guys. Thanks for taking the questions just a couple more liquidity questions. If you haven't.
It's to speak to that I 45, I mean, do injectable cash paid down kind of changed to future and so on the facility and then also that.
Now for loans, including I see that are not covenant within the 45.
Yes.
I mean, basically do you expect it could it be any more needs to inject more cash within that vehicle.
Given given the performance that portfolio and Omidria 11, other what was at 23% hopefully a significantly impacted.
Yes, I would tell you right now we don't think so when we created enough space that we can invest as we see.
Necessary I don't think that's going to be something to do.
Mark to market doesn't impact our borrowing base at that facility at the park facility. So its revaluation events. So I'd have to do with companies either make a payment default deferred payments or have a material change in leverage.
I would tell you that lot of the company's that we've discussed that are probably children. There have already had those events and so the borrowing base feels like it's it is where it is it's obviously this potential with Calvin for there to be next round of issues.
We feel like we were pretty thoughtful about the dollars we put in to get us to a place where we're not in the near feature requiring any additional capital.
Appreciate it and then I'm not another one that you haven't talked about in a long time.
At Sep I see a license obviously, the PPP program kind of made it clear that having one could could be advantageous because.
Although it's from an FDIC, Tim can be functional so if if that all mall issues will pandemic issues more PPP program in future not necessarily isn't related to this one that could be advantages to having.
Such a license and I mean, you talked about eight years ago about potentially pursuing one could you tell us what the plan saw all or if that on your plans on that.
Because obviously also.
Doesn't we can get Exemptive relief doesnt apply the regulatory leverage 10 year fixed rate.
All the all the good things about it you already know so can you give us any update on on on what you're thinking on that front.
Yes so.
First thing I would say is agree with everything you said.
And I would say, let's just leave it off I'll tell you that were ahead of you on that and so more to come.
Okay I appreciate it thank you guys.
I'm showing no further questions in queue at this time I would like to turn the call back over to Mr. Boeing deal for any further than my.
Thanks, everybody for joining us today, we really appreciate it we appreciate the support and we thanks. Thank you for all the all the guys that had questions are great question.
And as what we as always we're always trying to.
Walk of close to the line as we can help you understand what's going on the portfolio without crossing into private company matters that may affect these companies operationally and though.
Hi, everybody appreciates that and.
We look forward to given you guys updates as we go forward. Thank you much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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