Q2 2020 Fidus Investment Corp Earnings Call

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When I look at hand, the conference over to your speaker for today Jody Burfening you may begin.

Thank you for that and good morning, everyone. Thank you for joining us for five this investment Corporation second quarter 2020 earnings Conference call.

With me this morning, our AD Rod Vitesse investment Corporation's Chairman and Chief Executive Officer.

Shelby Sherard Chief Financial Officer.

This investment Corporation issued a press release yesterday afternoon.

Sales of the company's quarterly financial results.

Copy of the financial press release is available on the Investor relations for each of the company's website at <unk> dot.

Dot com.

Like to remind everyone that today's call it seemed recorded a replace available.

All the numbers and conference I'd like earnings press release.

This is an archived webcast replay will be available on Investor Relations page of the company's website. Following the conclusion of this conference call.

I'd also like to call your attention to the customary safe Harbor disclosure regarding forward looking information included on todays call.

Conference call today will contain forward looking statements, including statements regarding the goals strategies Toby teach a sequential operating results in Flashblade apply this investment Corporation.

[laughter] believes these statements are reasonable based on estimates assumptions projections as of today August seven Twentytwenty. These statements are not guarantees of future performance time sensitive information. They know wants to be accurate tonnage any telephonic and webcast replay actual results may differ mature.

Really the result of risks uncertainties, and other factors, including but not limited to successes that sports in the public filings with Securities Exchange Commission.

Artists undertakes no obligation to update publicized.

What was it.

With that I would now like to turn the call. It was.

Good morning.

Mm Hmm.

Good morning, Jody and good morning, everyone.

Welcome to our second quarter 2020 earnings call.

I hope all of you and your loved ones are doing well.

Given that the pandemic continues to create uncertainties around the timing pace and strength of an economic recovery like last quarter's call.

Going to focus my remarks today I'm discussing the credit quality of our portfolio and the impacts both positive and negative.

The pandemic on the financial performance in outlooks of our portfolio companies.

Shelby will cover the second quarter financial results and our liquidity position.

Once we have completed our prepared remarks, we'll be happy to take your questions.

Well, we held our first quarter earnings call 90 days ago, we did not know how long or how the b. komen 19 induce pause in economic activity would last nor what the path of an economic recovery would look like.

Portfolio companies had prepared plans to ensure business continuity and to manage through supply and demand challenges.

We had structured our portfolio to handle severe economic stresses and we believe that are investing strategy and our underwriting discipline would help us weather the storm.

Nevertheless, we knew the portfolio contain elevated levels of risk and we proceeded with a great deal would caution working closely with the senior management teams and sponsors of our portfolio company.

I'm pleased to report our portfolio companies I've been thrown a curve ball.

Our for the most part holding their own.

Since last may the overall risk levels of the portfolio have improved from a liquidity perspective, our portfolio companies are doing better than expected and are currently well positioned for their position for the remainder of the year.

They are paying their interest without stretching their cash flows and their resilient business models and capital structures are providing them with ball works against the storm.

Overall, our portfolio companies are finding their way through the crisis adjusting their business operations, conserving cash cutting costs and maintaining spending discipline, even as their circumstances may differ due to what do the patchwork of rules and regulations and to varying degrees of economic Act.

Devotee.

After shelter in place restrictions were lifted some of these companies reopened to find a less competitive environment, others reopened define softened demand.

These latter companies are working hard to find their way back to pre pandemic levels of business.

A few of our portfolio companies have identified pockets of opportunity because the pandemic, while others are using this period of reduced activity to focus on improving business efficiencies and profitability.

In addition in terms of non accruals, we ended the second quarter and an improved position relative to last quarter. When as you may recall, we had proactively place two portfolio companies on nonaccrual, even though they ultimately made their interest payments.

Since then our initial concerns about those two companies have ones in Virginia Tower company have not been realized and we ever move them from nonaccrual status.

Debt investments in accent Foodservices remain on non accrual and Mirage trailers remains on Pik non accrual.

As a result, we ended the quarter with Nonaccruals, an aggregate of $21.4 million, 2.9% of our portfolio on a fair value basis.

With the exception of one nonaccrual our assessment of portfolio risk across the board based on the company operations and valuations has improved materially since last quarter at that time, our view was that a little more than 80% of the portfolio on a fair value basis was in the low to medium rich range.

Today, our view is that about 88% at the portfolio is in the low to medium Russ range and about 68% is in the low risk category.

Given the stability of our portfolio even in the face a tough economic conditions, we reported adjusted net investment income defined as net investment income, excluding any capital gains incentive fee attributable to realized and unrealized gains and losses of $9 million or 37.

Centsper share compared to $8.4 million.34 per share for the same period last year.

An $8.5 million or 35 cents per share for the first quarter of 20 Twond.

[noise] after writing down the fair value of our portfolio last quarter by approximately 5.7% in response to elevated risk in the economy, our net asset value held steady and we ended with the second quarter with a net asset value $15 and.

39 cents per share compared to $15 in 37 cents per share as at March 31st 2020.

On June six our June 26, 2025 has paid a regular quarterly dividend of 30 cents per share to stockholders of record as of June 12.

On August 3rd 2020, the board of directors declared a regular quarterly dividend of 30 cents per share which is payable on September 25, 2022 stockholders of record as of September 11th 2020.

During the quarter, we invested $16.9 million in debt and equity securities.

The all of which was for two new portfolio companies.

These were $12.5 million and subordinated debt and common equity in D.C.M. industries, LLC, a global manufacturer and supplier of electrical products through a wide range of premium brands and $2.5 million in first lien debt and I Protex LLC a provider of end to end.

And eat discovery and information governance software to top law firms corporations and specialty service providers.

Both of these deals when we're in our pipeline before the pandemic hit the U.S.

There were the remaining $1.9 million was for add on investments in four portfolio companies.

Although we hit the pause button on deal activity during the second quarter out of an abundance of caution we have sense reopened channels and our carefully evaluating select opportunities.

We intend to take a conservative approach to origination with a view towards protecting our capital and our balance sheet.

In terms of repayments and realizations, we receive proceeds of $2.5 million from 13 portfolio companies and recognize point $2 million and net realized gains.

Subsequent to quarter end, we receive payment in full.

$7.3 million on first lien debt, including a prepayment penalty in connection with the exit of who knew at LLC and we accident.

Our debt and equity investments in Microbiology Research Associates, Inc, where you see payment in full of $9 million honor subordinated debt investment, we exited our common equity investment for realized gain of approximately $1.4 million.

Turning to our portfolio construction in metrics the fair market value of our investment portfolio as of June Thirtyth, 2020 was $732.6 million equal to 98.2% of cost.

We ended the quarter was 64 active portfolio companies and three companies that have sold their underlying operations.

On a fair value basis, the breakdown of the portfolio by investment type as of June Thirtyth was as follows first lien debt, 19.1% second lien debt, 50% and subordinated debt, 20.7% and equity investments, 10.2%, we believe our portfolio.

As well structured with strong equity cushions to withstand negative events like the pandemics.

From an industry perspective or portfolio of high quality lower middle market companies remain remains well diversified with oil and gas related businesses accounting for 4.3% and a little more than 3% in reach else unchanged from last quarter.

The portfolio companies that serve retail and leisure end markets are currently performing despite the fact.

They were.

Shut down 90 days ago.

We do not have any direct exposure to the restaurant or hospitality sectors other than one equity investment with a fair value of less than $300000.

Overall, our strategy of selectively investing in companies with defensive characteristics.

Resilient business model that can withstand economics dresses and generate strong free cash flows and that possessing strong our long term outlooks continues to work for US we believed that our portfolio companies will be able to navigate uncharted territory and their long term outlooks.

Remain positive.

At the same time, our priorities for managing the business during the extraordinary challenging time has not changed we're staying the course continuing to operate with an abundance of caution focused on maintaining liquidity in order to support our portfolio companies as needed.

Protecting our balance sheet and preserving capital in the long term interest of our shareholders.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results Shelby.

Thank you Ed and good morning, everyone I'll review, our second quarter results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter Q1 2020.

Total investment income was 20.4 million for the three months ended June Thirtyth 20, 20.4 million increase from Q1 due to a 1.4 million increase in interest income with approximately point 6 million of the increase relating to returning to non accruals I ones in Virginia tiles back to accrual status.

Fee income from investment activity decreased by $1 million.

Pik income as a person of interest income was approximately 5.9% for both the three and six months ended June thirtyth.

Total expenses, including income tax provision were 11.1 billion for the second quarter.

Approximately 8.6 million higher than the prior quarter, primarily due to the reversal of the capital gains incentive fee related to write downs in fair value in Q1.

Do we elected to waive 20% of the income incentive fee. The onetime be waiver was approximately point fourmillion, excluding the accrued capital gains incentive fee income incentive fee waiver total expenses in Q2 were 11.4 million in line with Q1.

As of June Thirtyth, the weighted average interest rate on our outstanding debt was 4.5%.

We had 381.8 million of debt outstanding comprised of 156.5 million of SBH debentures 182.3 million, a public notes and 43 million outstanding on the line of credit.

Our debt to equity ratio was one times or 0.6 times statutory leverage excluding exempt just be a debentures.

In Q2, the net loss on investments was driven by 1.5 million of unrealized depreciation offset by approximately point 2 million a realized gains.

Net investment income or anti for the three months ended June Thirtyth 2020 was 38 cents per share versus 71 cents per share in Q1, adjusted in <unk>, which excludes any capital gains incentive fee accrual reversals attributable to realized and unrealized gains and losses on investment was 37 cents per share in Q2.

Versus 35 cents per share in Q1.

Now turning to portfolio statistics as of June Thirtyth.

Our total investment portfolio had a fair value of 732.6 million our average portfolio company on a cost basis was 11.6 million at the end of the second quarter, which excludes investments in three portfolio companies that sold their operations are in the process of winding down.

We have equity investments in approximately 89.6% of our portfolio companies with a weighted average fully diluted equity ownership of 4.7%.

Weighted average effective yield on debt investments was 12% as of June thirtyth. The weighted average yield is computed using the effective interest rates for debt investments that cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual if any.

Now I'd like to briefly discuss our available liquidity.

As of June Thirtyth, our liquidity and capital resources included cash of 19 point Threemillion 57 million availability on our line of credit, resulting in total liquidity of approximately 76.4 million.

Taking into account subsequent events, we have total liquidity of approximately 94.9 billion.

We also have access to 161.5 million of additional SBH debentures under a third SB I see life and subject I see a regulatory requirements that approval now we'll turn the call back to add for concluding comments Ed.

Thanks Shelby.

As always I'd like to thank our team in the board of directors that fight is for their dedication and hard work and our shareholders for their continued support.

I'll now turn the call over to operator Twanda.

For Q in a fun. Thank you.

Ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone.

To withdraw your question first the pankey.

Again, it's still want to ask the question. Please standby Bobby compiled the Q and a roster.

Our first question comes from Milan, Rob Robert Dodd Raymond James Your line is open.

Hi, and congratulations on another good quarter, one one quick question maybe.

Question for one quick one so Shelby deep does it was that in the second quarter was 600000 old catch up income.

To that the two non accruals coming back up did you you've actually got nice to Q1 income in Q2 as well as a Q2 income was that just the 0.6 you mentioned was that just doesn't coming back on accrual was 70 catch up that.

So I'd tell you I've that 0.6 that I mentioned was in Q2 about a 100000 was catch up from Q1. The rest was all related to Q2.

Got it.

I know the housekeeping, one more sort of housekeeping upsell microbiology associates, which you exited.

After the quarter. After the end of the quoted the equity was mall down about 100000, but then you had oh.

Realized gain of 1.4 million after the quarter, that's obviously significantly in excess of them all so should we.

Read anything into that about how conservatively give mocking the equity positions right now or was that just stuff.

Uh huh.

Fortuitous that post quarter end.

Hey, Robert how you doing.

The.

<unk> is unique situation you know quite frankly, we were unaware of the.

The transaction was going on I think it happened quite quickly it was a strategic transaction.

Meaning a strategic buyer a this company was benefiting from coded actually and I think someone saw that and.

And ultimately ended up being a very nice outcome from a debt in an equity perspective for for everyone quite frankly so.

So it's kind of <unk>, a one off it just its a company that was benefiting in I think has a very good long term outlook in someone's all that and wanting to participate.

Got it.

Thank you and then kind of just a board yet question about pipeline and you said you've kind of reopened.

Channels now one of things you mentioned in your you'll.

You have to Pedra box as well was that some companies.

Uh huh.

That's come out of that and seen which use competitive and Bob.

You know and some have seen Hello antibody. So all what you all way you me up in channels would we expect that to be more more add on acquisitions of you'll.

Quite successful completion.

Looking to file we could competitors potentially or is it more upside.

Tight.

Obviously.

Was a platform acquisition, but that was done in the pipeline to full coverage so kind of what what do you more willing to look like I mentioned, the due diligence difference on the on an add on purchase and you platform that some different dynamics that.

Sure sure. It's a great question. Robert you know I also just I'll just touch on the market for a second because I think it's instructive to your actually your question and that is that you know over the.

First two months or so of the pandemic two and a half months you know we had hit the pause button I think the world it into bonds, but none other than maybe a couple add ons that were in process and there were completed and then in June we started to see.

Oh, we started to see you know a variety of folks are looking at.

Add on type of acquisitions, you Didnt see a lot of M&A activity, but what I would say is over the last you know four weeks or so we're continuing to see add on activity.

Four portfolio companies, whether our portfolio companies are as sponsors, but we're also starting to see Oh auction activity and so things are starting to pick up I do think that create some interesting due diligence hurdles.

Potentially there are some types of businesses that you can maybe get more comfortable with you know through zuma and a lot of hard work and probably working with the sponsor that you know.

But then there are others, you think about manufacturing companies, where you really want to see the plants you really want to see a the people in the operations in understand there you know their strategic advantages and that gets a little more difficult. He may have to getting the car and going a long long right you know.

But we're willing to do that as well. So we are we are entertaining both at this point in time, but what I would say to you is we are continuing to operate with an abundance of caution.

And.

While the same time, we've kind of picked our head up and we're looking for interesting opportunities, but we're not in a rush, we're going to be very patient and now we're going to try to yeah, obviously preserve capital and do the right things for our shareholders.

Got it I appreciate that color.

He stays healthy.

Thank you Robert catching up.

Thank you next question comes from a lot of Bryce Rowe with National Securities. Your line is open.

Thanks, a bunch good morning, Ed in Shelby.

Good morning, Bryce learning.

I wanted to ask about the about the dividend actually add and relative to to where Eni is so so obviously 37 cents here in the quarter.

And I guess, there's some potential for from four for revenue to drop off with with some level of prepayment activity.

But your sense of credit and they certainly better than it was last quarter. So you you've got a bit about I guess, the classy problem here with.

Hi, well above the dividend and then plenty of spill over income.

Sitting on the balance sheet. So I'm just curious how you think about.

No the dividend level here going forward do you think about maybe a.

Base dividend plus supplementals structure to your to account for any variability just just wondering how you're thinking about it.

Sure No it's a great question.

And quite frankly is a discussion this week obviously at a at the board meeting you know what I would say is you know we continue at this point in time to believe it's in them.

Long term interest in best long term interest of our shareholders to do operate within abundance of caution that you know includes artist or dividend distribution policy.

You know, we've always operated the business with a conservative mindset.

We're very focused on maintaining a strong balance sheet and we're also equally is focused on maintaining a very strong liquidity position.

The naval support of our portfolio companies and also obviously a drive shareholder value.

You know and Al just mentioned in the portfolio because you brought it up we believe it's you know it's a minute I to high quality portfolio, it's pretty resilient and it's going to serve our shareholders well over the long term you know it's been constructed with an eye towards investing in companies that we believe have you know very defense.

<unk> characteristics that possessed long term long term cash flow.

Abilities, and then obviously has strong outlook so over the long term as well. So we feel like we're very well positioned today, we do recognize from a dividend perspective, we may need to you know I.

Think about some things in the future.

We do what we like the idea of waiting a little longer a in finding a place of a little bit greater visibility and then I would also say you know depending on how things go we may need to make special distributions in order to meet some Rick spill over distribution requirements, you know over the medium term.

But you know quite frankly, we need to probably play a couple lettings a couple of more innings first to up to figure out the the old equation. So hopefully that's helpful.

We're thrilled to be in a position where do we can actually start having this conversation.

But we want to we want to be patient and wait on it.

Excellent Okay. That's it that's a good answer and one that I would've expected from you.

So the other other question I have or maybe other topic, you mention auction activity starting to pick up.

You clearly have a.

The portfolio with what's still.

Healthy amount of equity in it that go along side your debt investments.

And it sounds like it did almost 70% of your portfolio isn't that lower risk category. So I would assume that.

Some of your some of your companies.

Our garnering some level that of attention.

If auction processes are starting to kick to flare back up again, so just curious what what the outlook might be for prepayments or some of that some of the company's within your portfolio finding finding that option block.

Sure Great question Brides, and I think I.

I think you hit the nail on the head I do think we have you know this morning, we've had to repayments one was a full sale items as we discuss the other one was a a division of a company was sold and obviously generate cash to where they can pay off all their debt, including ours and they did so it was the first lien investment.

And that was a the who knew it debt investment.

And we do have a a company that is in the middle of an auction process right now.

And Ah I think there's a decent chance that comes to fruition here sometime in the third quarter, but you never know, especially in today's world.

So yes repayment activity is picking up a little bit and I think I would expect incremental activity in Q4 and and so.

And I would expect I know you didn't ask this but there's probably this quarter repayments will exceed a new investments I would have and that's our current expectation but.

The same time, we're working hard to find some interesting opportunities that we are comfortable with obviously, putting new dollars Alvin and getting them you know risk adjusted returns that work well for the shareholders. So there's a there's a balance here, we're trying to strike, but you're right. There is some repayment activity that I think will happen the rest of the year.

Excellent. Thank you for for the answers.

Good talking to you.

Yeah, good talking to you. Thanks Bryce.

Yep.

Thank you. Our next question comes from the line of Ryan Lynch with KBW. Your line is open.

Hey, good morning, guys. Good morning, Shelby Thanks for taking my questions.

Yeah.

Right.

First one I just wanted to Scott you know you gave some I think pretty positive commentary at least directionally about how your portfolio is tracking game several new in best several investments have not come all non accrual I think you mentioned as a percentage your portfolio the medium to low risk.

Bucket has increased.

From the prior quarters, that's all positive commentary so.

I was curious why do we not see that positive commentary those positive actions reflected.

In the valuation.

And any potential gains.

Realized gains in your portfolio. This quarter you guys actually wrote the overall had some some some portfolio unrealized losses in this quarter. After following a a big drop in Q1 is most bdcs did that but why did we see any sort of recovering those portfolio valuations in the second quarter.

Sure Great question Ryan.

You know we have a I think if you look at the stats if you.

Our depreciation came primarily from one asset and that is accident or one non accrual and accent.

As a franchise business a very good business.

And but having said that we're up you know a second lien lender in it we're not getting paid.

And quite frankly, the company has been impacted by the children place orders and also it's you know its geographic locations in particular as big as locations in Texas and so that's a large majority of the well have that represented.

A point or I guess over $9 million of depreciation this quarter fewer to exclude accent. The total portfolio appreciated $8.1 million, our debt portfolio appreciated by a couple of million Bucks and our equity portfolio appreciated by almost.

<unk> million dollars so.

Yeah, I would you know accent. Unfortunately is the is the reason for that but what I would say absent accident. The portfolio did appreciate very nicely and quite frankly is holding its own in a in a very you know an admirable way if you will in something.

You know we used to it.

Okay got just right.

A disproportionate impact versus the rest of the portfolio.

You mentioned that to a previous investments coming off non accrual status, which is very positive I see that occurring.

New loans writers to non accrual.

Can you just talk about though.

What level or how many.

Modifications are amendments were made to portfolio companies this quarter and how those you know if there have been any how those conversations that.

Sure Great question.

I guess I'll start with a couple of things one as you know we only have what I would consider to covenant light deals you know in our portfolio.

And so you know we when we do a new transaction. We obviously are underwriting to you know, whether it's 15%, 25%, 30% whenever it is something we'd give some questions obviously 'cause it's appropriate to through our borrowers but.

The and the intent is if things do change dramatically, we want to be back at the table and so we only have to where we don't really have covenants like that.

And so we would expect in times like this to have a fair number of conversations I would also say we also had fair number of conversation and you know amendments from.

P.P.P. loans or the cares Act you know and so those were when when.

People access those programs you know they had to talk to us about doing so and so it's a you know we're very active in involved in conversations and have the seat at the table in the portfolios designed to do that.

You know so what I would I would say at the end we executed.

For amendments that were really were cobot driven men amendments this quarter.

You know, we had sponsors and I'll give you I guess a couple of examples one as a company that has been impacted by the aerospace industry in there.

The reduction in activity there we're asset secured there in the second lien loan company wanted a little cushion didnt need a lot, but we obviously work with the company to do that.

And another case, we already had and then we were in a amendment discussion with a company and obviously.

Ah Cobot happened and didn't help things and you know the sponsor and US came to an agreement where they put into and a half million dollars and we gave the company you know some a covenant relief for the next 12 months and.

So that is the types of conversations that we're having I would expect to have similar conversations this quarter, but as I look forward I do not you know.

I don't see any you know huge headwinds or are huge concerns. It doesn't mean, we're not all over every situation because we are.

But we feel very good about the the outlook of the portfolio and working through these types of situations.

That's helpful that yeah, that's very helpful.

Color.

And detail just just one more for me.

You add the deal pipeline starts to pick back up a little bit from from obviously.

Extremely low levels.

Are you guys view, we'd risk any differently.

Willingness to take on risk any differently or.

Any sort of.

Yes, and age strategy at all.

You know as as you look at the U.S. potentially recovery from an economic standpoint.

Theres one bought that you can move and two kids more riskier industries that the terms and the structures are extremely.

Favorable or the other.

Side It is just.

Really stick.

To to really you know.

Quality companies that don't have as much Kobe impact, but obviously you know payout for those and.

Yeah terms and structure. So has there been any shift in your strategy you know kind of since environment is so different today and through the end of year versus where we were a year ago.

Sure.

Let me talk a little bit just about our strategy for a second you know what and as I think you're very where we.

You know what we focus on his situations, where there's a need of $20 million to $150 million of debt capital.

I'd say, our 20 to 100 million is really more of a sweet spot for us.

When we are evaluating companies in opportunities. We FERC is we first focus on the quality of the company.

How defensive it is its ability to generate cash.

<unk> outlook, then we focused on structuring and we've always provided first lien securities quite frankly, but a preponderance of what Weve you know our portfolio has then it is second lien and subordinated debt.

What I would say is over the past year, we have we have found.

You know that our clients are very interested in a lot of our first lien solutions, including first outlast out solutions.

In fact investments that you know over the last call. It 12 months had been close to 70% first lien investments when I think about the last 12 months. So first lien securities.

I'd say in environment like this make a ton of sense and it's something that we've been doing.

All along but I would say to a much greater degree over the past 18 to 24 months.

Having said that we're going to continue to provide second lien and sub debt financing solutions.

But we're going to do that obviously on a very you know careful basis as we always have so I hope that's helpful. I think we're looking at mostly you know companies that are a weathering the coldest storm quite well.

But you know there are others that are still great businesses and quite resilient that.

There will also evaluate if those situations make sense, but it's all about capital preservation and you know attractive risk adjusted returns from our perspective.

<unk>.

Yeah. Thanks for that is helpful I.

I appreciate the time today.

Thank you Ryan.

You're talking to you.

Thank you next question comes from Milan, Chris.

I'll tell ski with Oppenheimer. Your line is open.

Good morning, Thank you.

Just a follow up on the last question, you said executed or amendments in the quarter.

But we Didnt see amendment fees necessarily pick up so is the give get from that situation additional security or.

They weren't you know we didn't you know I don't have them in front of me, Chris, but what I would say to you is we did receive some amendment fees I'm no. They werent outsized are crazy.

And so they weren't in some cases and job. He can answer there's some cases they are.

You know tacked onto the end of a loan pay Dan So there's a variety of things that that could be impacting that.

But I would say you know if we gave covenant relief and its bonds or did not put any money and there's going to be an amendment fee of some sort you know in it and almost all cases, there's a little bit of a work fee, but we're not looking is a let's get our pound of flash. We're looking as we do want to get.

Paid for the risk that we're taking a but at the same John we're trying to work constructively with Ah you know our partners. If you will you know and they're providing something you know which were requiring and almost all cases.

Then obviously, we need to do obviously looking at you know with that in mind. So.

I think there and there is definitely there is an amendment fee income in the the p. in outlets just not huge.

Okay. So Chris what I would just that is the of the fee line item on the income statement actual amendment fees were roughly about 170, Gran which is pretty much in line with Q1.

Okay.

And just artists curiosity, if you can say on on the two loans that you risk returned to accrual status was that as a result of the actions that the sponsor took or was it just the economies kind of at least reopening a best and that that gave you more comfort that.

You know that they could oh.

Service that the debt.

Sure.

In both cases the companies were.

Greatly impacted by by shelter in place directives and in both cases.

The sponsors asked not to pay us and actually fought not to pass.

And you know, we're obviously willing to work with folks, but we wanted to get paid it was in our contract and the company's had to liquidity do so that ultimately did take place.

What I would say in both cases is the you know one was fully shut down the other one had one division that we shutdown due show shelter in place directives, but what I would say is.

Both companies are performing quite well post opening and I'd say over the last eight to 10 weeks you know it's been encouraging at a minimum liquidity is strong and so.

We feel.

Very good about the long term outlooks sponsors have not had to put money in them. So they're they're performing you know in much better than.

You know we all feared.

Including the sponsors at that point in time I mean, if you go back 90, 90 days ago or 120 days ago.

You know it was a little scary and you didn't have a lot of visibility visibility and today.

We do have much more visibility, it's not perfect as we all know.

But companies are operating generating cash in 'em, we feel good about their outlooks.

Okay Alright. Thank you that's it for me.

Alright, Thanks, Chris good talking to you.

Thank you.

Our next question comes from a lot of Mickey flying with Ladenburg. Your line is open.

Good morning, and Shelby hopeful as well on your end.

Just a couple of questions from me up.

Contingent to believes the performance of your borrowers will be from continued federal support perhaps such as the extension of the P. P. P program or maybe other programs, which which I imagine you know had some impact on the second quarter results, which were clearly.

Certainly better than than we expected.

Sure Great question Mickey.

You know I'd say two things one is the P.P.B. program was helpful too.

Some of our portfolio companies and so that is a positive.

Quite frankly looking at today don't see really immaterial need for incremental support as we sit here today at least in our portfolio.

The and that's as a whole but that that's generally what I think you know when I look at things like a stimulus I think that's health healthy for the overall economy and probably helpful to retailers in particular.

And so I think that would be a positive if there was a stimulus, but you know as I look at our portfolio companies today, including the retailers they are they're holding their own.

And I don't think it's a requirement for them to continue to perform well, but I think you would enhance their performance at the end of the day well that but it's certainly welcome news.

There was movement in your internal rating system, and frankly, I'm just trying to get to handle on credits just like to I mean, I know, it's early innings, it's difficult to have much of a crystal ball, but you had some credits move up into the one category you get some credits moved down into the.

Three.

Could you describe either which of those investments were moving or at least the medically what was causing those changes from Q1 to Q2.

That's a tough one and I'm not looking at it I.

I think I'll, just talk general General picture with yet like I don't think we Oh, we are continuing to operate and I think what you saw was actually.

Overall, a fair bit of stability in that.

Piece of the puzzle if you will.

And you know companies that you know were impacted you know a lot of companies are impacted in April and May.

But are performing great. Today, you know, we we still have them probably in the three category.

And so we didn't make moves just because the run rate is now getting to a point, where they were before cove, it or they're very close to that and obviously as a debt investor we're pleased with that and expected to continue but.

So and then if something move towards the one it was because you know we we thought there was.

A likelihood of repayment.

In the near term or just extremely positive performance and you know I don't know if I mentioned this before I had seven or eight companies that are.

Benefiting from the pandemic and in some cases in huge ways and so.

I think thats part of it as well.

But overall, we I think theres a lot of stability when you look at that.

Those charts and I think we feel very good about that but quite frankly as I look forward and there you know I think it'll get better from here as opposed to worse.

That's a big Mickey what I would atish system and looking at the named one of them more material dollar movements from <unk> ratings to a one oh it was related to the one transaction at kind of mentioned was.

Likely to transact here in Q3 still TBD, but kind of have in that line of sight latest more comfortable that you know there was a near term realization.

Okay. That's helpful and that companies also performing.

Very well in this environment right.

And in terms of trends at what are you seeing in portfolio EBITDA, maybe you could give us a sense of where the average borrower EBITDA stands and no debt to EBITDA. Just so we have some sense of the you know portfolios risk.

Sure. So that the mean EBITDA is about 11, we have some couple larger portfolio companies that have the average being more than the mid teens, but the mean EBITDA is 11.

$7.3 million.

And what was your other question I'm, sorry leverage debt to EBITDA leverage is up 4.7 times this quarter, so inline with last quarter. Okay. That's that's helpful and the interest coverage cash interest coverage was 3.7 times.

Okay.

And my last question, maybe for Shelby, if I'm reading the Q correctly.

You amended the credit facility, but it doesn't look like the amendment allowed you to use the 150% regulatory asset coverage ratio.

I mean, the language frankly, it's difficult am I reading that correctly.

You are but the one thing I would highlight is that the test is based on a regulatory basis and so from a regulatory basis given the SK debentures, we have we're at point.

Six times leverage until we have ample room and so we just haven't pushed on getting that amended.

Okay, so, but but in terms of the pricing there was no meaningful change right or commitment fees or anything like that.

No no change in interest pricing that we did have to pay a modest amendment fee, but there was no other change in pricing okay.

So those are all my questions. This morning, I appreciate your time and hope everyone. There stay safe and healthy. Thank you.

Thank you. Thank you good talking in hope your family's doing well that's awesome. Thank you.

Thank you next question comes from the line of Tim Hayes with B. Riley Your line is open.

Hey, everyone. This is actually Mike Smith on for Ken Just one question for me can you provide a little bit more color on the competitive landscape of anyone there steps away or back into the market and how to yields on new investments, you're making look compared to pre cobot.

Sure Great question Mike.

The yeah from a competitive landscape I think it's a little bit of.

Mixed bag I think there are some.

Providers that have a obviously a slow down there originations are kept them at all if you will and are really focused on their portfolio and on de leveraging.

Those types of things.

So more and lot of those are more COO type funded.

Players.

But it also it could be just folks that have been a mature funds and or just trying to navigate through the the portfolio.

So there is less competition, having said that I would also day there our lenders out there that have capital and that are looking to deploy it in companies that are.

Yeah, I have not been impacted.

By cobot into material way and you know to the extent they may even be trying to take market share type of thing. So it's a mid of a mixed bag I think there's fewer players, but theres still some aggressive players out there.

And you know I think there's a flight to quality in the market and that's what that's what we're seeing in that seems to make a lot of sense to me from a yield perspective I do think that's a moving target right now interestingly I'd say, if you want to talk about it eight weeks ago. You would have said 150 to 250 basis point increase.

For in in a lower leverage point for most investments I think that's moderated a little bit and again I'm talking about companies that haven't been impacted by cobot in a material way.

And and so I'd say anywhere from 50 to 150 basis points is more the norm that is being talked about today I do think leverages come down some of that makes a ton of sense, but.

The idea of 250 or 500 basis point increases you know it is not what's going on in the market today.

That's helpful. Thanks for taking my question.

Sure. Thank you thanks, Mike.

Thank you.

I'm not showing any further questions in the queue I would now like turn call back over to Mr. Ed.

The remarks.

Thank you Todd.

Thank you everyone for joining us. This morning, we look forward to speaking with you on on our third quarter call in late October.

Have a great day integrate weekend.

Ladies and gentlemen, this concludes todays conference. Thank you for your participation you may now disconnect.

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