Q2 2020 New Mountain Finance Corp Earnings Call
Good morning, and welcome to the New Mountain Finance Corporation second quarter Twentytwenty earnings Conference call.
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Rob Hamwee CEO. Please go ahead.
Thank you and good morning, everyone and welcome to New Mountain Finance Corporation second quarter earnings call for Twentytwenty.
On the one with me here today are Adam ones the board member of NFC.
John Cline, President and COO, NFC and Sharav catchy Seattle NFC.
Our chairman, Steve Klinsky is unable to join the call today.
Well, we join us on future calls.
Before diving into the business update we do want to recognize that we continue to live through a public health crisis that is taking significant human coal in our community.
Our country and around the globe.
We hope everyone is staying safe and that you and your family's remained in good health.
Turning to business, Adam Weinstein is going to make some introductory remarks, but before he does I'd like to rise to make some important statement regarding today's call.
Thanks, Rob good morning, everyone.
Before we get into the presentation I'd like to advise everyone to today's call and webcast all being recorded.
Please note that the other property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited.
Summation about the audio replay of this call is available in August earnings press release.
I would also like to call your attention to the customary safe Harbor disclosure you know press release and on page two of the slide presentation regarding forward looking statements.
Today's conference Cold and wet past may include forward looking statements and projections.
After a foot tall, most recent filings with the FCC for important factors that could cause actual results to differ materially from those statements and projections.
We did not undertake update forward looking statements hope rejected unless required to Bible.
So think copies of our latest FCC filings to access the slide presentation.
I'll be referencing throughout the school.
Please.
Please visit our website at Www Dot your mountain finance Dot com.
At this time I like to turn the call over to Adam Weinstein well give some highlights beginning on page four dislike presentation Adam.
Thanks, Ross, Steve apologizes, he's not able to join this call and as Rob said he will return on the next quarterly call.
It's great to be able to speak to all of you today as both the manager of any messy and as a fellow shareholder the cobot pandemic has caused a Greek crisis for the nation, both in human and economic terms.
I want to express all of our hopes that you and your families are safe second I want to summarize the overview charts on page four and five to explain how NFC itself is working to stay safe and secure throughout this period.
New mountain as an organization has oh, we sought to explicitly emphasize downside safety and risk control as well as upside returns and therefore has emphasized defensive growth industries that can best survive unexpected market downturns.
New Mountain started with private equity 20 years ago, and now manages over 25 billion of assets, including both private equity and credit.
Risk control was part of our founding mission happily we have never had a pea portfolio company bankruptcy or missed an interest payment in the history of our private equity effort.
Similarly as of today, we have had only $74 million a realized default losses for just a 0.4% loss rate on the nearly 8 billion of total debt. We have bought since beginning our credit Harbin 2008.
Meanwhile, we've had significant gains both in private equity and credit.
And MFC has paid $781 million of total cash dividends since and MFC went public in 2011 for about $12, a 97 cents of dividends per share at all.
As investment managers, our general belief is that the greatest mistakes in private equity your credit come when the industry melts beneath you.
We have sought to avoid such mistakes by being laser focused on our sector deep dive process, where we proactively identify and study sectors years in advance of making investments so that we understand the dynamics of the industry well.
I believe and MFC was built with defensive growth industries and risk control in mind long before cobot hit.
The great bulk of NFC is loans are areas that my best be described as repetitive tech enabled business services, such as enterprise software.
Our companies often have large installed client bases of repeat users who depend on their service day in day out.
These are the types of defensive growth industries that we think are the right ones in all times I, particularly attractive in difficult times.
With that background, let me turn to slide five and the specifics of this earnings report.
Adjusted net investment income for the second quarter of 2020.
Ended.
June Thirtyth 2028 was 30 cents per share fully covering our dividend of 30 cents per share at the higher end of our guidance.
27 cents to 31 cents per share.
Only one new asset dental practice management company Benevides, which we discussed on last quarter's call has been placed on nonaccrual every other borrower paid their interest for Q2 2020.
We currently do not anticipate any additional portfolio companies going on nonaccrual in Q3.
The regular Q2 2020 dividend of 30 cents per share was paid in cash on June thirtyth.
Our June Thirtyth net asset value was $11.63 per share an increase of 49 cents per share from the March 31st and Navy of $11 in 14 cents per share.
Notably the change in book value was primarily driven by stable credit trends portfolio wide interest rate spread movements and company valuations in the economy overall.
The regular dividends for Q3 2020 was again sat at 30 cents per share and what we've been payable on September Thirtyth 2020 to holders of record as of September 16th.
Mmm sees liquidity position remains strong as we currently have approximately $200 million of cash and immediately available liquidity to handle future needs.
New mountain as the manager has been highly supportive NFC and if it wants to become necessary has significant resources, including a strong balance sheet to further support at MST.
Steve and I and other members of New Mountain continued to be the largest shareholder of the company with ownership of approximately 13%.
In conclusion, we had no way watching minimize the cobot crisis with that said, we remain proud of the work that our credit team did in carefully building a portfolio to withstand a crisis and I remain hopeful about NFC his own competitive advantages and future prospects with that let me turn the call back to Rob Hamwee.
CEO of at MFC.
Thank you Adam.
Well he quarterly highlight and our standard review and then if the are detailed on page six and seven respectively. Once again this quarter I would like to focus my time I'm getting into more detail on the crisis is impact on asset quality net asset value wouldn't leverage migration liquidity and.
Net investment income.
As detailed on page eight in order to is that how the prices impacting our borrowers throughout the quarter.
It's had extensive conversation with both company management and sponsors.
Based on those discussion we have updated each portfolio companies score on the two metrics, we use to generate our overall risk rating.
As a reminder, the first metric cobot exposure rent from one to bore the degree to which a company has been directly impacted by coated.
The second metric overall company right.
The combination of three sub metrics pre coated business performance liquidity and balance sheet strength and sponsor support which we rank on a scale APC.
Based on our rankings for the two metrics and the resulting risk rating for each company. We once again plotted the overall portfolio accordingly to create the risk rating heat.
The updated heat map showed that risk migration has been largely positive as summarized on page nine.
$377 million, an asset at improved their rating.
I mean $90 million assets have worsened in writing.
One primary driver of these changes is the significant we opening of our retail health care portfolio company, where average utilization is now generally running at 70, 595% pre cobot level.
Another driver is a method, which as a leading provider of distance learning and credit recovery software and services at the large benefit in the current environment.
Offsetting that to some degree is ongoing covidien due to weakness primarily at unit.
And our one small hospitality.
Overall total green assets have increased from 78% to 83% of the portfolio and red assets have decreased from 6% support that.
Risk migration details are shown on page 10, and the updated heat map itself is shown on page 11.
As you can see if somebody that given our portfolios strong biased towards defensive sectors like software business in federal services and technical health care. We believe our assets are very well positioned to continue to perform no matter, how the public health economic landscape the though.
Page 12 attempt to describe what we believed it to a significant degree a temporary decline net asset value largely driven by market spread movement and comparable company evaluation not underlying credit problems.
In Q2, we recovered 49 cents of the dramatic decline we witnessed in Q1.
$52 million remain at yield driven price movement in our green and yellow rated loans.
Which if our risk assessment is correct should continue to recover you coming quarter as the world normalized.
Even in our arent and Red current pay security, representing another $50 million potential any the recovery. While risks are clearly elevated we would expect the significant majority of those to continue to Paypal interest and principal.
Finally of the remaining roughly 77 million dollar value chain restructured security the bulk of the value change is indeed, menton unitek and Bennett.
As mentioned is performing particularly well then if it continues to have cobot risk, but is recovering quickly and well coping induced risk remained elevated for unitek. There's also a path toward value recover.
Page 13 shows the significant success, we have had bringing down our statutory leverage ratio from 1.56 to 1.29.
The primary driver of this move was the debt pay down to our lender of 234 million dollar.
Which in turn was largely driven by $259 million, an asset sales and repayment.
Given the high quality and strong ongoing credit performance of the vast majority of our acetate.
We were able to realize an average price of 98 cents on the dollar on these disposal despite the volatile market environment.
I would also note that revolver activity was a source of cash as revolver repayment excluded any drops we had and delayed draw activity was a modest use of cash as a number of are well positioned portfolio company, we started acquisition activity.
Finally beyond the debt repayment tour lender.
We ended the quarter with a significant cash balance of 56 million dollar.
On a net basis. If this balance sheet cash was applied to further pay down debt our pro forma statutory leverage ratio would be 1.24 times.
While our first priority in this price it has been to focus on our asset liquidity and leverage. The also want to continue to maximize net investment income while preserving enterprise safety throughout the current prices. However, long it may lie.
Page 14 gives a bridge from our Q1 net investment income of $34 million were 35 cents per share to Archie too and I have 29 million dollar or 30 cents per share.
You can see the of the 7 million dollar decrease in growth and I prior to the offsetting impact of lower SDN agencies.
Only $2 million is a function of non accrual from last quarter and this quarter, primarily benefited unitek in Permian, while the rest is from deleveraging rate changes and generally lower activity.
While we expect the full quarter impact of de leveraging and lower base rate remained a headwind into Q3, we are confident absent a dramatic change in market condition and our ability to generate approximately 30, Stan and I per quarter going forward to support the dividends.
With that I will turn it over to John fine to discuss market condition and other elements of the business.
Uh huh.
Thanks, Rob.
Since our last call market conditions have continued to materially improve while direct lending deal flow continues to be sluggish secondary trading levels in a broader sub investment grade credit markets have nearly returned to pre cobot levels.
This is particularly true in many of our core defensive growth sectors, such as software healthcare technology and technology enabled business services.
Well, it's hard to entirely explained the market strength clearly all risk assets are benefiting from tremendous liquidity in the system the expectation for more federal reserve support.
And the fact the base rate is almost zero.
Given these factors asset classes like direct lending broadly syndicated loans and high yield remain obvious places to receive enhance yield or the risk over the risk free rate.
With regard to new deal flow, we believe the timing of new issue sponsor backed deals remains somewhat uncertain as predicated on a decrease in infection rates and a resumption of more normal business activity.
Turning to page 16, we show how potential changes in the base rate could impact and M.S.C. future earnings.
As you can see the vast majority of our assets are floating rate loans with our liabilities evenly split between fixed and floating rate instruments.
As of our last call on May three month, LIBOR was 54 basis points. Since then it has declined to 30 basis points as of June Thirtyth, and approximately 25 basis points today.
Well this decline has been an earnings headwind for our business in 2020, M.S.C. has benefited from 1% LIBOR floors on 75% of its assets.
Given where rates are today, there is negligible downside from further rate decreases.
Conversely, if rates rise over time, the earnings power of NFC could materially improve.
Page 17 addresses historical credit performance on the left side. The page we show the current state of the portfolio, where we have about $2.8 billion of investments at fair value.
71 million of which are on non accrual.
This quarter as mentioned earlier a portion of our Bennett. This term loan was added to non accrual representing 33.9 million a fair value.
On the Rightside the page, we show NMS season cumulative credit performance since inception, which shows that across nearly $8 billion of total investments. We have 600 million that had been placed our watch list with 220 million a bad them out migrating to non accrual.
Oh, the non accruals only 74 million have become a realized losses.
The non accruals that have not become credit losses represent about 145 million of cost.
Well some of these troubled names have risk of becoming permanently impaired we do have optimism that overtime with the ongoing support of our private equity group, we'll be able to take actions to achieve material credit recoveries and in some cases gains on these assets [noise].
Page 18 is it your credit performance based on underlying portfolio company of leverage relative to LTM EBITDA.
As you can see the majority of our positions have shown performance that is very consistent with our underwriting projections exhibiting either very minor leverage increases or in many cases leverage decreases.
There are four names that have more than two and a half turns of negative leverage drift.
Three of these names, including Unitek mentioned benevides recovered in Rob's comments.
Fourth name is company C E, which is a marketing services business does underperformed over the past 12 months due to various internal operational challenges.
Still companies see he continues to receive sponsor support and has benefited from recent management upgrades and strategic acquisitions.
The chart on page 19 tracks the Companys overall economic performance since its IPO.
The top of the page we showed that our net investment income as always cover our regular quarterly dividend.
On the lower half of the page we focus on below the line items first we look at realized gains and realize credit and other losses.
As you can see looking at the real highlighted in Green, we've had success generating real economic gains every year through a combination of equity gains portfolio company dividends and trading profits.
Moving down the page the Orange section of the chart shows year to date realized losses of $36.2 million 30.
32.3 million of which were crystallized in Q1.
In Q2, we've experienced just 3.9 million of additional realized losses related to our balance sheet de leveraging program, which is now complete.
As a result of this activity, we now have cumulative net realized losses since inception highlighted in blue of $16.7 million.
While we do everything in our power to avoid them over the long term, we do expect to incur realized credit losses on our investment portfolio.
Which we hope to largely offset was realized gains just as we have historically accomplish throughout our nearly 10 years as a public company.
Looking further down the page we show the material impact from unrealized portfolio, Mark downs of $187 million since inception, and cumulative net realized and unrealized losses of $204 million highlighted in yellow.
This bottom line number represents a 49 million improvement compared to last quarter driven by the positive change in our portfolio marks that we discussed earlier in the presentation.
We continue to believe that most of the cumulative net realized unrealized loss is reflective of temporary market conditions and will recover in time.
Page 20 presents a stock chart detailing animosities performance since IPO.
While the performance of our stock inclusive of our quarterly dividend. The dividend has historically been very strong compared to relevant benchmarks over the past five months NFC stock price has had soft performance versus certain benchmarks still our overall track record remains strong relative to the high yield index and the.
Index, a bdcs that we have followed since our IPO.
Page 21 provides a final look at the stock performance compared to the individual stocks of our peers that had been public at least as long as we have.
While we seek to improve our performance going forward. This chart shows that we remain a top performer among this cohort of competitors.
Finally, we break down MSC is total return attribution since inception on page 22.
We're in the far right side of the page we show that the core of our value creation has been cash distributions of $12. A 97 cents per share supported by consistent income from our defensive defensive growth oriented lending portfolio.
Offsetting this dividend performance has been a two dollar and 45 cents per share decline in book value most of which says that has occurred in 2020.
And the two dollar in one cent per share decline related to the contraction of our price to book multiple since our IPO.
As we've mentioned we believe the NFC has good prospects to improve in both areas of underperformance, while maintaining a compelling and consistent dividend.
Turning to our investment activity tracker on page 23, we show a detailed schedule of the sales and repayments, which support our post cobot deleveraging plan.
As you can see we were able to exit a number of positions at or around par even during the height of the crisis.
Additionally, we had two of our high quality kobin resistant portfolio companies repay as a result of M&A during the quarter.
In aggregate, we raised $259 million of cash exiting assets, an average price of 98.1.
While the quarter was highlighted by our exits we didn't originate 49 million of assets, primarily consisting of delayed draw fundings supporting M&A for our clients.
Overall, we believe the success of this deleveraging initiative is reflective of the quality and safety of our portfolio, which is populated with loans issued by a diverse group of highly defensive recession resistant businesses.
On page 24, we have several detailed breakouts of NFC industry exposure.
The Center Pie chart shows overall industry exposure, while the charts on the right and left give more insight into the diversity within our services and healthcare verticals.
As you can see we have successfully avoided nearly all of the most troubled sectors, while maintaining high exposure to the most defensive and structurally advantaged sectors within the U.S. economy.
On a lower half the page we show the portfolio continues to have a high degree of first lien exposure with nearly 70% of our portfolio invested in senior oriented assets.
Additionally, we present, a breakout of risk ratings that matched the heat maps shown at the beginning of our presentation.
Finally, as illustrated on page 25, we have a diversified portfolio with our largest single name investment at 2.7% a fair value and the top 15 investments accounted for 34.5% a fair value.
With that I'll now turn it over to our CFO draws khadzhi to discuss the financial statements and key financial metrics Trust.
Thank you John.
For more details on our financial results and today's commentary. Please refer to the form 10-Q that was filed last evening with the FCC.
Now I'd like to turn your attention to slide 26.
The portfolio had over $2.8 billion in investments at fair value at June 32020, and total assets of $2.9 billion.
Total liabilities of 1.8 billion, which total statutory debt outstanding was 1.4 billion, excluding $300 million of going SBH guaranteed debentures.
Net asset value of $1.1 billion or $11.63 per share.
49 cents when the prior quarter.
As of June Thirtyth, Oh statutory debt to equity ratio was 1.29 to one.
And as Rob mentioned net $56 million in cash and the balance sheet the pro forma leverage.
Ratio would have been 1.24 to one.
On slide 27, we show our historical leverage ratios and our historical any of the adjusted for the cumulative impact a special dividends.
On Slide 28, we show a quarterly income statement results.
We believe that our Eni is the most appropriate measure of how quarterly performance.
This slide highlights that I realized and unrealized gains and losses can be volatile below the line. We continue to generate stable net investment income above the line.
Focusing on the quarter ended June Thirtyth 2020.
We on total investment income of $67.7 million and 9.5 million dollar decrease in the prior quarter.
$7 million. This decrease was due to asset sales low base rates unless fee income and only $2 million of the decrease was the result of non accruals.
Total net expenses will approximately $38.8 million it full point $6 million decrease due primarily to lower debt service costs from a lower base rates and less debt outstanding.
As in prior quarters, the investment adviser continues to weigh certain management fees.
The effective annualized management fees this quarter was 1.31%.
It is important to note that investment adviser cannot recoup fees previously waived.
This results in second quarter, adjusted NII of $28.9 million.
But 30 cents for weighted average share which is at the high end AFFO guidance and covered our Q2 regular dividend of 30 cents per share.
As Rob touched on earlier due to the continued negative cobot impact to energy services company permit.
We took an additional $2 million pik interest right off the income accrued in prior years.
This was offset by a 0.4 million dollar incentive fee rebate, bringing our GAAP eni per weighted average share for the quarter to 28 cents per ship.
As a result at the net unrealized appreciation in the quarter.
For the quarter ended June 32020, when an increase in net assets, resulting from operations of $78 million.
Slide 29 demonstrates our total investment income as recurring in nature and predominantly paid in cash.
As you can see 97% of total investment income you're correct.
Cash income comes in at 82% this quarter.
We believe this consistency chose the stability and predictability of our investment income.
Turning to slide 30 as discussed earlier, our Eni for the second quarter covered our Q2 dividend.
Based on preliminary estimates, we expect our Q3 2020, and I will be approximately 30 cents per share.
Given that our board of directors has declared a Q3 2020 dividend of 30 cents per share, which will be paid on September thirtyth 2020 to holders of record on September 16th 2020.
[laughter] on slide 31, we highlight old various financing sources.
Taking into account Sps guaranteed debentures, we had almost $2.3 billion of total borrowing capacity at quarter end.
As a reminder, both our wells Fargo and Deutsche Bank credit facilities covenants, I generally tied to the operating performance of the underlying businesses that relented.
Rather than amongst all investments at any given time.
Finally on slide 32, we show a leverage maturity schedule.
As we've diversified our debt issuance, we've been successful at Laddering I'll maturities to better manage liquidity.
We have one near term maturity in May 2021.
And evaluating multiple avenues to address that maturity in the most efficient manner.
With that I would like to turn the call back over to Rob.
Thanks Rod.
In closing, we remain cautiously optimistic about the prospect for animosity in the months in years ahead.
Our longstanding focus on lending to defensive growth business is supported by strong sponsored should serve us well the uncertain environment likely to characterize upcoming quarter.
Well refer more elevated but in the path and we cannot unequivocally discount more challenging scenario. We believe our model is well suited for the current environment.
Once again, thank you for your continued support interest and he's difficult time wish you all good Hill and look forward to maintaining an open and transparent dialogue with all of our stakeholders in the days ahead.
I will now turn things back to the operator to begin to an operator.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing Vicki.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Bryce Rowe with National Securities. Please go ahead.
Hey, Brian.
Rob how are you.
Thanks.
Sure. Thanks for having me today what.
I wanted I wanted to ask about some of the comments you made about the candidate that de leveraging a plan, having been executed and and passive how pasta, possibly being kind of finished here.
So just kind of curious if yet if you plan to.
Operate the BDC. It. This this level of net leverage here going forward.
And then maybe maybe speak to.
You know any any thoughts on.
The debt capital structure.
And if you're considering any changes in terms of.
Secured versus unsecured just to just to give you more flexibility.
As we as we move forward.
As we move forward here. Thanks.
Yeah, Yeah for sure. So we're generally comfortable at this point in time in the sort of low one twenties net although where we're still monitoring things right. It's a function of how the environment continues to develop and as we see you know naturally payments continue to come in you know we can manage.
Relate that if it makes sense to be lower than that.
Certainly have that that path available to us so it's really sort of a dynamic.
Equation and obviously, we're also tracking values that drive up the other part of the leverage equation, what the asset values are.
So I think we're going to continue to probably err on the side of being a little bit lower and just make sure. We had maximum safety until the world returned to a more normalized.
Environment.
But right now where we're feeling pretty good about where we at where we're at the levers. We have you continue to react as at the best Warren.
And then in terms of the the leverage mix, yes, I mean, we're definitely you know evaluating the tradeoffs between cost of different forms of capital and flexibility of different forms of capital.
And again, we'll continue to that to monitor that and similarly last environment evolves.
What will make some of those decisions, but we certainly appreciate.
The flexibility that comes with incremental unsecured versus versus the journal Logan Weve through the crisis, we had a pretty good experience working with our secured lender. So.
You know, where we're going to try to get to the right the right.
Is that helpful but.
That is that as.
Hi, one one more unrelated question, just looking at the balance sheet and and the liability side.
It appears the.
Management fee and the incentive fee payable continue to go up.
So just curious how your how you're thinking about maybe liquidity relative to that and.
At what point do does do those fees get get paid in cash to to the advisor.
Yeah, So I mean post quarter, we didnt pay some of those fees based on our liquidity and the comfort we have we talked about over $200 million of liquidity and you know a visibility.
So we paid some of those post quarter, which you'll you'll see in the next quarter's results.
But you know we continue to put to use that as the at the liquidity buffer.
And it's just another way that the manager and support the BDC just to make sure awareness comfortable but at the position as possible.
Great that's helpful and I.
I'm sure the at the market participants appreciate that so appreciate a appreciate the comments Rob absolutely. Thank you.
The next question comes from Finian O'shea with Wells Fargo. Please go ahead.
Hey, Ben.
The leverage migration slide you provide is.
Always very helpful.
I would've expected it all to you know still being the negative.
You know given your.
Working on.
Through April may financials, now assuming across the portfolio.
So how did leveraging who for you know about half the names does that reflect the sponsors putting money in or or something else.
Well.
Remember the leverage migration slide is from.
Beginning of loan to present.
So when you see improvement.
It's not just last quarter to this quarter.
So it's improvement from when the loan was extended.
And so that's part of what's going on and then the other part is.
Many of these businesses have have actually continued to increase their earnings and generate cash to decrease that throughout the crisis, because they're either positively positioned or on impacted on enough lot of the enterprise software some of the business services in health care name. So it's a combination of of those two things.
Thank you I I knew it was a dumb question.
[laughter] on you.
Listen to 200 million liquidity.
I think that's as of July 31st According to the slide does that reflect.
An additional portfolio sales or does that reflect.
Your cash plus a borrowing base.
Yeah that that reflect a cash plus immediately available on the revolver.
So that's immediately available liquidity, it's obviously not inclusive of.
Excess borrowings as per the credit facility that their maximum sizes.
So and it really the it does not reflect a lot of incremental.
Post quarter disposals.
[noise] [noise] do you mean, the revolver by the advisor revolver or all of the revolving facilities.
Sorry, all that yes, all of the you know we all of the available revolver, including the advisor revolver availability, but all of the all of the again immediately available revolver facility.
Okay.
That's helpful and yeah. The next.
Logical question is that's that's.
So far shy of your available commitments.
What it looks like from the bank. So it doesn't <unk> is this a reflection of.
The banks valuing.
The assets at a much much stricter stricter.
Framework or are they haircutting the borrowing base meaningfully.
For your availability.
It's not really that it's just we don't have we've always wrong with more commitment. Then then assets the sort of pulled about fill the bucket right because we just thought they'd been and just growing.
So it really reflects that hey, you know tomorrow, we could just.
Call all that cash without any change to the borrowing base, but on top of that if we bought some incremental asset we would generate incremental borrowing base.
That we have availability credit commitments if that makes huh.
Oh, yes, it does and.
Final question on the.
Debt profile breakout you do does the the maturity you.
Do you provide does that reflect.
The revolving period or the the final maturity of the facility.
Oh and reflect the.
Final maturity of the facilities.
So it's always the that's safe to say that.
You know your revolving period and I mean, they're all about you know two two and half years out does that mean, you're revolving periods or are pretty short.
Yeah on the him in the major facility right, which is the big wells facility. The revolver period is coming up before the end of this year and you're not surprisingly, where we're pretty far along in extension conversations around that facility.
Okay, Great. That's all for me. Thank you for all the color again, you've been providing.
Corrupted.
Covert environment, we're in appreciated and we'll speak to say.
Great. Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Ryan Lynch with KBW. Please go ahead.
Ryan.
Hey, Rob good morning, and thanks for taking my questions aggressiveness last call, but I just want to reiterated again I think the slide that slide deck and you guys provide is the best one out there regarding kind of the cold bid detailing and that's in your portfolio. So very much appreciate that.
I've got some tell you got to provide there.
Hi, thank.
Yeah, and then I did have a question though.
And maybe I missed that I didn't see the quarter to date activity.
Third quarter I think you guys, usually provide that I don't know bits that or or not but could you provide an update on on kind of figure originations and sales repayments for the quarter to date third quarter.
Yeah, I know, what we yet we don't have it in the deck because it was de minimis or we can get to those does numbers, but it was we had to pay as you look at its like there's nothing on it. So we just we just took it out but that activity been de minimis through.
The beginning of that their car.
Okay. Yeah. This is John essentially on page 23, because of the unique nature of the quarter. We we detailed the you know the sales and repayments and that the bottom we show the originations as Rob said, we didn't break it out because it was a a bunch of as I mentioned.
Generally delay draws that that we did in support of our sponsor clients in Q2 I think the question was around Q3 to date Britain Yep.
We had that and we looked at that analysts single digit millions of activity.
Okay. No. That's that's helpful. It's all just.
And then can you walk me through exactly the adjustment that you made the 1.6 million of nonrecurring interest and incentive you adjustment related to Permian.
Do you walk you through document the nature of that adjustment and you expect a dose adjustments to occur again.
In the third quarter.
Yeah, I can take a first crack at it and it's Rob can jump in if I'm missing anything, but but effectively in prior periods right. So not in Q2, not even I don't think here, but if you go back in the last couple of years.
We were accruing some income in Permian post the risk the original restructuring of Permian, which goes back them year.
And then we we've got to the point with you know the energy market appeal screwed up where we deemed that accrual to be uncollectible. So we've written it off it was $2 million of historically accrued income in prior periods not in this quarter.
We wrote it often this quarter because we collected incentive fees on that 2 million at the 20% rate so $400000 of incentive fees, we refunded those incentive fees in.
This quarter I could within earned and India and and that's how you get the 1.6 million net and we then we'd because we always track our cumulative actual and I. We then reflects those prior period adjustments.
On the in the chart on page.
Yes 19.
So that at that cumulative adjusted and I reflects that the period.
Where the increment stripped out retrospectively.
Does that make.
Yeah, I think so.
So if that is expected to continue those reversals. When you guys provide the 30 cents of Ocgs operating earnings guidance. In there is that Bush liked is is that 30 cents guidance. What do you guys expect to earn from an adjusted.
Operating earnings.
So so yes. It is although right now we don't expect incremental.
Historical reversals might because if we did we would've put it into this quarter like things can change the next two or three month, but but sitting here today.
I would say that we do not expect any prior period.
Right all right down.
But it obviously things can change the next two three months between now and next quarter's earnings announcement.
Got it.
And then you've mentioned the one non accrual or benefits, although it seems like things are actually improving a little bit there because this quarter can just talk through.
[laughter], how many loan modifications or amendments were made this quarter.
What what is your guys philosophy in providing knows what do you guys hope to get as far as he or structures in order to provide those modifications and for the modifications that occurred this quarter or what was where any of them or what level of that world.
But the sponsor a willing to provide additional capital in order gets it to make those modifications.
Yes, sure. So so we really only had a handful of modifications and you can kind of see it's sort of mapped to the to the heat map on page page 11.
And you know the the significant of the majority are do not need modifications, because they're paying their in compliance with the covenant et cetera.
Obviously benefits with the full restructuring so I wouldn't necessarily call that a modification if you're looking at the heat map on page 11, just starting in the in the upper right hand corner.
The retail healthcare name that still up there we did a a modification there where we're getting some some some extra interest in some fees.
And that's a continued negotiation Permian, obviously with the full restructuring or the education products. There was a modification there and the sponsor put incremental capital in and we gave a blending with gave a covenant relief in exchange for that and earn compete.
Hospitality management.
We're still working through the modification there, but there that will be completed this quarter.
And.
That will result in some covenant relief.
And a few quarters of.
Interest picking.
Moving to the Orange talked about benefit.
Unitek, we're working through.
Some some.
Modification work, there that will probably come into effect this quarter. The marketing services business highlighted there there was a really modification to lead provided this quarter, a where the sponsored did but some fresh capital then and err on the other retail.
Okay and then there there was also modification where the sponsor put some compression money.
That's pretty much yeah.
And so that gives hopefully a sense of what what that that looks like.
Yeah.
That is extremely helpful color and again next week.
I appreciate all the comedy provider on the call as well as though the significant do tell you guys provide a in your slide deck. So I appreciate the time today.
No happy to do it thank you.
The next question comes from George Bahama Windows with Deutsche Bank. Please go ahead.
Hi, Good morning, I I'm, just wondering hey, I'm wondering if.
You can help provide some clarity around upcoming maturities. So I know you have.
Roughly $30 million of unfunded commitments, you reference roughly $20 million liquidity. So it seems like.
That's covered with what you have.
Just curious to get a better sense, maybe what you expect to kind of come due and mature over the next 12 months on the portfolio.
On the on the asset side.
Correct.
Yeah. So so we have.
A number of things that are that are coming due but the most part you know our RV payment come from from.
Early.
Activity, whether it's the company gets sold or the sponsors of the refinancing transaction. So we've actually got visibility to a couple of those that we expect to close.
In either this quarter or or or are in the following quarter.
And then I'll say 2021, there are a number of maturities that that occur I don't actually have an exact number at my fingertips.
And then obviously on the liability side as Rod mentioned, we have the 190 million dollar a note that matures in 20 to 21 and we are.
Pretty far down the path on figuring out a yeah, the most efficient rifai path option for that.
Right and.
Yeah. The question I had was on on amendments others atop.
I guess it you know the next when I'm looking at the credit performance Slide misled 18.
You see a few of these hubs.
Maybe just set up significantly just wondering if you can kinda give me a sense of.
Well, what the covenants are around some of these and when they kind of break through that that level you see some of these that are it failure fairly elevated from window or purchase.
You know what sort of benefits you get from doing that at imagine, there's some sort of maybe fees that you're getting or kind of how how are.
Have you kind of think about leverage and kind of folks staying within whatever covenants or are the docs on this is underwritten.
Yeah.
Good question. So so clearly the ones that are most elevated and you can see them you know kind of in the bottom right on page 18, and we can call most of those out by name to they're already been restructured right Edmentum benefit unitek Permian right. So those are all had been restructure.
Company CE, we talked a little bit about John mentioned that that the the marketing services company in the in the Orange a that I mentioned the other comments is.
Sponsored put the money and we gave some covenant relief Gadaffi et cetera, and that was this quarter and then beyond that if you go up the company CDC CCB et cetera, the drip becomes much more modest between.
One to two turns of drip, which will typically not yet trigger a covenant. They're typically you know two to three turns before the company gets trigger I believe one of these are less covenant that was triggered and we we negotiated a appropriate.
And then I think we'll see a couple of things that you know some some weaker quarters roll through in the now you know that's one to two quarter.
But that.
The the each situation is going to had its own pretty unique dynamic that's hard to generalize about.
What were the specific covenant will be triggered and what the result of that have that trigger would be.
Got it it's not how could it kind of here a bit more on how this works behind the scenes. That's it for me. This morning I appreciate you taking time.
Great. Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Chris Kotowski with Oppenheimer. Please go ahead.
Good morning, and Hi, and good morning, and thank you.
Last quarter, you know looking at your chart on page 11, which I really like as well you know you said that in particular.
For.
Some of the moderately impacted or a companies that you took comfort and you know the tremendous liquidity that they had on their balance sheets and I'm. Just wondering I mean, if we stay in this kind of you know half open have closed semi locked down whatever we're in.
State for you know another.
All right into the middle of next year or I mean, due to the Companys generally have enough liquidity to to get through this and I guess just as a general rule do you think most of the portfolio companies.
You know can continue to operate if this isn't this kind of environment. If it goes on lot longer than we all think.
Yeah I, it's it's a very good question and it's the same exact question, we have and the answer is broadly yet you know that we've actually been pleasantly surprised the degree to which companies have maintained and even enhance liquidity.
And show.
<unk> cash runway measured generally in years not months from quarter to that point.
And part of that is the burn has just been less because these things have you know even in this kind of like you say half open have closed environment things and again for US is primarily the retail health care. They just open.
More quickly and to a greater degree in their forgotten to cash flow breakeven and beyond much more rapidly than we originally model and two they just entered the the crisis mode and very well capitalized.
With available.
Both revolver balances that they drew upon and just just just cash on the balance sheet.
So we feel generally better than ever about the runway. Obviously you know it has to get.
Fully resolved at some point at that point to be one or two years from now as opposed to own three months, we're going to hit some cash flow across these companies.
Okay, and then secondly, just a when you're discussing the income statement highlights on page 28 did did I hear you said that the if you look at the like roughly 8 million dollar linked quarter decline in the interest income did I hear you say that only 2 million of that was the non accruals and not the rest was too.
The movement in rates.
[noise], yes. It was it was that's generally right I want to maybe reference you to page page 14 is probably the best way to look at it.
Where you can see that that 2 million was the non accruals or and then it was a combination of lower rate the de leveraging from the asset sales right. We just have left you know assets earn on track.
Little bit of lower fee income and then that Uh huh.
But the the bridge.
Right, Okay, and I guess, that's it for me that'll be it. Thank you great. Thank you.
Hi, Dan if you have a question. Please press Star then one.
At this time there are no further questions.
Oh. So this concludes our question and answer session I would like to turn the conference back over there Rob Hamwee for any closing remarks.
Thank you operator, and thank you everybody as always appreciate the time the interest a good question.
As always were available any any follow up.
But again some of the kind of a funky time, but but we do feel pretty good about where I just want to keep being a transparent with people as we can be and look forward to staying in touch in talking to everyone in the weeks and months that so thank you and have a great rest of the debt.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.