Q3 2020 Fidus Investment Corp Earnings Call
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I'd now like to hand, the conference over to your speaker today Mr. Yu broadening. Thank you. Please go ahead.
Thanks, Jamie and good morning, everyone. Thank you for joining us for by this investment corporations third quarter 2020 earnings conference call with.
With me. This morning are Ed Ross, Despite its investment Corporation's Chairman and Chief Executive Officer and Chuck.
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This investment Corporation issued a press release yesterday afternoon with details of the company's financial quarterly financial results a.
A copy of the press releases are available on the Investor Relations page of the company's website at testing U.S. Dot com.
I'd like to remind everyone. Today for this call is being recorded a replay of today's call. One of these available by using the telephone numbers and conference I'd provided in the earnings press release.
In addition, an archived webcast replay will be available on the 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 today's call comp.
The conference call today will contain forward looking statements, including statements regarding the goals strategies will be featured sequential operating results and cash flows by this investment Corporation.
Although management believes these statements are reasonable based on estimates assumptions and projections as of today October.
On October Thirtyth 2020. These statements are not guarantees of future performance.
Time sensitive information they no longer be accurate.
At the time of any telephonic or webcast replay.
Actual results may differ materially as a result of risks uncertainties and other factors, including but not limited to.
These are set forth in the Companys filings with the Securities and Exchange Commission Vice undertakes no obligation to update or revise any of these forward looking statements.
I would now like to turn the call over to Ed Good morning, Ed.
Good morning, Jody and good morning, everyone.
Welcome to our third quarter 2020 earnings call Conference call.
I hope all of you your families friends and co workers are staying healthy and well.
Since our first quarter earnings call when the shelter and place orders related to the pandemic began to weigh on our portfolio companies business operations.
Focus my prepared remarks on the state of our portfolio.
As uncertainties associated with the pandemic in the economy are still with us.
On this morning's call I'm going to once again opened with a status report on that portfolio.
Also share.
My assessment of M&A trends in the lower middle market and deal activity levels as we move into the homestretch of 2020.
Shelby will cover the third quarter financial results and our liquidity position.
Once we have completed our prepared remarks, we'll be happy to take your questions.
Since the pandemic hit us in the United States towards the end of the first quarter.
Management teams at our portfolio companies have done a great job overall of adapting their businesses.
Did the new normal executing plans to ensure business continuity flexing the current demand dynamics and focusing on what they can control.
Some of them are focusing on enhancing business operations, while others are taking advantage of competitive openings to accelerate growth plans.
Although we are not out of the woods, yet our portfolio companies continue to hold their own.
I'm pleased to report that the overall health of the portfolio continues to improve.
Our assessment of portfolio risk based on company operations and valuations has steadily abated since the first quarter when we considered a little more than 80% of the portfolio to be in the low to medium risk range to the second quarter. When our view was that about 88% of the portfolio was in.
The loading low to medium rich range and about 65% in the low risk category now our view is that 93% is in the low to medium risk range with roughly 70% in the low risk category.
We do still have the debt investment in accent accent foodservice on nonaccrual and we wrote down the fair value of this investment by about two thirds to $5.3 million during the quarter.
His portfolio company has been hard hit by the adverse effects of the pandemic.
Raj trailers is back on accrual status as a result, we ended the quarter with a non accrual balance of less than 1% of our portfolio on a fair value basis.
This represents an improvement from the end of the first quarter.
We had three portfolio companies on non accrual and one on pik non accrual equal to 6.7% of the portfolio on a fair value basis.
In spite of the write down of accident foods.
And Navy increased $13.4 million to $389.6 million or $15.94 per share at the end of the third quarter, and 3.6% increase from $376.2 million or $15.39 per share.
At the end of the second quarter has improved performance and outlooks in some of our portfolio companies marinated appreciation in the valuations of our debt and equity investments.
As you can see our strategy of selectively investing in companies with defensive characteristics is working for us companies with resilient business models that can withstand economic stresses and generate strong free cash flows.
That operate in industries, we know well and that possess positive long term outlooks.
In terms of our portfolio construction and metrics the fair market value of our investment portfolio as of September Thirtyth, 2020, with $715.4 million equal to 99.9% of cost.
We ended the quarter with 63 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 September Thirtyth was as follows first lien debt, 18.3% second lien debt, 49.2% and subordinated debt 20.1%.
In equity investments, 12.4%.
We continue to believe our portfolio is well structured.
Strong equity cushions to handle severe economic stresses.
Turning to our results for the quarter, we reported adjusted net investment income, which we define as net investment income excluding any capital gain incentive fee attributable to realized and unrealized gains and losses of $9.7 million or 40 cents per share compared to April.
$7 million or 35 cents per share for the same period last year.
On September 25th 2025 is paid a regular quarterly dividend of 30 cents per share to stockholders of record as of September 11th and.
On October 26, 2020, the board of directors declared a regular quarterly dividend of 30 cents per share and I'm pleased to report. The board also declared a supplemental cash dividend of four cents per share extending finances record of paying special dividends to eight consecutive years.
Both the regular quarterly dividend and the supplemental cash dividend will be payable on December 18th 2020 to stockholders of record as of December 4th.
In terms of repayments and realizations, we received proceeds of $33.8 million and recognized $1.3 million and net realized gains.
In terms of exits we received payment in full of $7.3 million, including prepayment penalty on first lien debt and who knew it LLC.
We exited our debt and equity investments in Microbiology Research Associates, Inc. Receive payment in full of $9 million on our subordinated debt investment and realized a gain of approximately $1.4 million on our equity investment.
We received payment in full of $10.6 million, including a prepayment penalty on second lien debt and spend men LLC.
Subsequent.
At quarter end, we exited pugh lubricants LLC, receiving payment in full of $26.6 million, including a prepayment penalty on our second lien debt investment and realized a gain of approximately $8.5 million on the sale of our equity investment.
We invested $6 million in second lien debt and $1.5 million in equity in a leading regional distributor pool equipment and supplies. The debt investment was a partial funding of a 12 million dollar note commitment.
After hitting the pause button on deal activity during the second quarter out of an abundance of caution.
We began evaluating opportunities again last July while adhering to our strict underwriting disciplines.
There is fertile ground for M&A in the lower middle market among companies, which have not been meaningfully impacted by the pandemic and we're seeing a fair number of high quality businesses in the market today.
Based on the improving health of our portfolio and the strength of our balance sheet, we are well positioned to participate in this busy season of deal activity.
This supports our view that we are staying on the path of continued improvement in the health of our portfolio.
Well, having a fairly robust pipeline is encouraging as we head toward the end of the year. We are nevertheless, continuing to operate with an abundance of caution and managing the business for the long term.
Focused on generating attractive risk adjusted returns and preserving capital in the interests of our shareholders.
Now I will turn the call over to Shelby to provide some details on our financials and operating results Shelby.
Thank you Ed and good morning, everyone I'll review, our third 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 Q2 2020.
Total investment income was 21.1 million for the three months ended September Thirtyth 20, 20.7 million increase from Q2 due to a point 2 million increase in fee income and a point 5 million increase in dividend income primarily due to net tax true ups for prior year distributions.
I was on the 2019 K won several portfolio companies reported higher distributions of earnings and profits versus prior estimates a return of capital.
Pik income as a percentage of interest income was approximately 6.2% for the three months ended September thirtyth.
Total expenses, including income tax provision were 14.2 million for the third quarter, approximately 3 million higher than the prior quarter, primarily due to the capital gains incentive fee accrual related to unrealized appreciation in the fair value in Q3.
A point 7 million increase in income incentive fee was offset by a point 7 million decrease in DNA expenses in Q3.
In Q2, we elected to wave, 20% of the income incentive fee. The onetime fee waiver was approximately <unk> point fourmillion.
Excluding the accrued capital gains incentive fee total expenses in Q3 were $11.4 million in line with Q2.
As a reminder, expenses will be higher in the fourth quarter as we will incur annual estimated excise tax expenses.
As of September Thirtyth, the weighted average interest rate on our outstanding debt was 4.6%.
We had 352.3 million of debt outstanding comprised of 147 million of Espeed debentures $182.3 million of public notes and 23 million outstanding on the line of credit our debt to equity ratio was <unk> 0.9 times or 0.5 times statutory leverage excluding exempt SP a debenture.
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In Q3, the net gain on investments was driven by 12.7 million of unrealized appreciation and approximately 1.3 million a realized gains from the exit of our equity investment in Morocco, and Microbiology research associates.
Net investment income or Eni for the three months ended September Thirtyth was 28 cents per share versus 38 cents per share in Q2 I.
Adjusted Eni, which excludes any capital gains incentive fee accruals or reversal attributable to realized and unrealized gains and losses on investments was 40 cents per share in Q3 versus 37 cents per share in Q2.
Now turning to portfolio statistics as of September Thirtyth, our total investment portfolio had a fair value of 715.4 million. Our average portfolio company on a cost basis was 11.3 million at the end of the third quarter, which excludes investments of three portfolio companies that sold their operations are in the process of winding down.
We have equity investments in approximately 89.4% of our portfolio companies with a weighted average fully diluted equity ownership of 6%.
Weighted average effective yield on debt investments was 12.1% as of September thirtyth. The weighted average yield is computed using the effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on non accrual if any.
Now I'd like to briefly discuss our available liquidity.
As of September Thirtyth, our liquidity and capital resources included cash of 24.7 million seven.
77 million of availability on our line of credit, resulting in total liquidity of approximately 101.7 million.
Taking into account subsequent events, we have total liquidity of approximately 121.6 million we.
We also have access to 161.5 million of additional SBH debentures under our third SP I see license subject to SP, a regulatory requirements and approval now I will turn the call back to Ed for concluding comments Ed.
Thanks Shelby as.
Always I'd like to thank our team and the board of directors at finalists for their dedication and hard work and our shareholders for their continued support.
I will now turn the call over to Jimmy for QNX Jimmy.
Thank you.
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Our first question comes from Bryce Rowe with Nations Securities. Your line is now open.
Thanks, Good morning, Ed and Shelby.
Good morning, guys.
Firstly I just wanted to talk about the.
The distributions and future distributions, we talked about this last quarter and it continues to be a first class problem to have that sure.
Earning the 30 cents dividend level on us from a regular dividend perspective, and then you're currently going into the ended the year with more than a dollar per share of spill over income having already hit your tissue distribution requirements for this year. So just curious how your how you and the board are kind.
Thinking about distributions at this point and.
Is there any creative stall fracs and thought process in terms of getting credit for.
Yes, the amount of spillover that yet that you're carrying at this point.
Sure Great question, Bryce and as you can imagine there was a.
A lot of discussion on this topic at the board meeting this week.
And you know and I think you know all of US and you would agree there's still a lot of uncertainty in the world today, especially when you had the.
Saucier election to the mix.
And that's from our perspective, making quick decisions does not seem like the right thing to do at the moment.
We are thrilled with the performance.
And our overall outlook quite frankly vitesse.
You know, we're also thrilled to be making a supplemental distribution, which is in direct correlation to our performance.
Nevertheless, as we sit here today, we think operating with a fair bit of caution is the overall right approach until uncertainty in the world in the U.S. abates a bit more.
However, we are planning to look closely at our dividend distributions.
Next quarter as well, which would include you know looking closely at the base dividend and or making incremental supplemental dividends are considering it at least so hopefully that's helpful. We do like you know from a spillover perspective, I think just given the world today, we like having a.
A healthy spillover position, we think that's.
A positive for shareholders.
And but you know I think we like our position today, but we're trying to continue to operate with a fair bit of caution.
Obviously add anything to that.
No I think that sums it up pretty well I mean, we are actively monitoring the spillover position and talking about the dividend policy on a quarterly basis.
Got it Okay, and then maybe one follow up unrelated just Ed.
And obviously you pause your origination activity.
With the with the emergence of kind of in the pipeline has been reopened so to speak.
Maybe maybe you could talk about at least to deals that you're that you're evaluating right now.
How does pricing compare on those on those deals you're evaluating to kind of the current current yield within the portfolio right now.
Sure sure Greg.
Great question and you know I think it's probably worth just touching on the on the market and in originations as well just because.
And they all kind of go hand in hand, I think the market from our perspective took three or four months off completely and we've talked about that on this call I think last quarter.
You know things started to pick up in India.
In July.
And quite frankly, we started to look at some some opportunity there I will tell you. We propose on some deals that ultimately would have been Q3 deals and we didn't we were not the winners there were others that were more aggressive than us.
To your pricing point.
Having said that I would tell you you know in August it was very very busy and post labor day, you know it was expected to get busier and it did so deal flow has been very strong.
And I would say pricing is a little above where.
Things were pre Cove it.
So that's still the same as 90 days ago, but you.
At the same time, there's a fair bit of competition out there.
So where we you know good news is we are.
We're very busy and no we're still operating with an abundance of caution we are you know.
So we feel good about it is there is a lot of companies out there that have weathered the storm well or actually just not been meaningfully impacted by him and.
And we're seeing a fair bit of those in the market today.
Great. Thank you add I'll jump out and let somebody else ask some questions I appreciate it nice talking to you Bryce.
Thanks.
Thank you. Our next question comes from Robert Dodd with Raymond James Your line is now open.
Morning, the risk of just repeating slashes questions I'm going to do pretty much stuck on that on the dividend.
What you, obviously I mean that.
I think you illustrated back in Q1 right.
Eight of nine eight of 10 cope it's an obvious you cover 37. So you said base and as you said, there's still a ton of uncertainty and things going on.
Right now so walks when Shelby you mentioned you know, it's always under consideration and Ed you talked about supplemental.
What's been the consideration given to keeping the base say, whether it is but having a formulaic supplemental which has been quite popular with some other bdcs periodically so that they get up even if cobot and the general economic.
Well, Nick situation tested to a materially getting that space.
You illustrated would.
Yes.
Comfortable even in some pretty onerous such situations, just stays that and and but having a a formulaic involved than just kind of leaving it up to the board.
Every quarter.
Yeah, what's what's the thought process is that been considered is that something that.
Could get more weight than that maybe just taking up the base given things are still very uncertain right now.
Sure sure.
Great question.
We I would tell you that that is on the table as an option and wants discussed this quarter.
And.
Discuss pretty seriously I.
I think back to the comments is we're in a funny world today, you know and there's still with the election and everything else. There's just.
Yes, Theres just uncertainty that we think it makes sense to obviously distributes some incremental earnings or because we are performing well and.
And next quarter and I tried to signal this in our prepared remarks or.
That we are we are considering.
A variety of things and all of those are on the table could be.
Formula It could be.
Just putting some incremental distributions on a quarterly basis for a year or so or to be looking at the base dividend and so we like this.
This decision this quarter, just given where we are.
In the world, but you.
All those are going to be on the table again.
You know when we report for fourth quarter and or even prior to that I guess, we'll announce the dividend in February so that doesn't they were all be discussion topics for us. So we're excited that we have we can talk about this and thats. The thought process you know having said that look.
There's a lot of uncertainty out there and where we're trying to do.
Behave in a very responsible manner that we think is the right thing for shareholders at the moment.
I appreciate that color if I can the second one also basically a follow up.
On all of the deals that you're now seeing it.
In the marketing leasing activity is.
Materially since late Labor day.
I instead of a change in the type of deals that you are seeing coming or the type of deals and by that I mean, you know industry leverage how however.
That that kind of those kind of metrics.
The type of deals that youre more seriously willing to consider and how is that a bold foot wed say say it would have been at this time last year the full cobot.
Sure.
Great Great question I you know.
I'd say, there's two buckets that we're we're seeing today, we are seeing some.
You know call it.
Larger.
Lower middle market businesses were very high quality high quality recurring revenue bases and those those are the ones where we're considering.
You know more of second lien or junior debt investments feel great about the equity cushions and.
Recently, there performance even in the Cobrand environment. So.
Thankfully there is if there's a there's a number of those.
And.
I would say.
The other ones that were seeing quite a bit of or some more unitranche type investments did the same thing recurring revenue businesses, but maybe a little smaller and in those cases, we are focused more on first lien investments.
And but that is similar to a year ago, probably different than three or four years ago, where we were doing mortgages junior capital still doing senior debt three or four years ago, but it's much more of a focus today.
We're finding good success, providing those solutions and.
In our in our clients are welcoming those solutions as well so.
I would say that a large majority of what we will be doing for the foreseeable future.
It will most likely be more.
First lien or Unitranche investments.
And so hopefully that's helpful, but that's kind of how we're approaching the market today.
It is very very much I may need to kind of follow up to that as well I mean, you mentioned you bid on some deals.
Thats, he put Q3 closes but call.
Pete outweighed by by aggressive pricing.
Is that it.
Environment that pricing environment continuing to be.
Aggressive I would presume it is given what's gone on everyone else in the lending buckets and if that's the case I mean is that.
Pricing in the range that you're willing to meet going forward or are you holding the line on pricing and risking being essentially.
No closing deals.
Not necessarily a bad thing.
Because it because the market is more aggressive than you're willing to go can you give us any color there.
Sure.
Great question, you know what I would say is.
The market was.
In certain instances I wouldn't say the market there were a couple lenders out there that were more aggressive than we were willing to be in the July August time period.
I would say we are we're meeting the markets today in the market you know as I mentioned I think.
When I was answering Bryce is question I think the pricing is.
In line or a little above where.
Where it was pre Kelvin so we're still getting enhanced pricing to a small degree today.
We're willing to go there for the right assets the right assets is the key point and.
And I will tell you it back to you we are very busy right now there is there's a lot going on.
And we would expect quite frankly at this point and don't hold me to this that.
Our originations would outpace outpace our repayments this quarter. So we're busy at the moment executing hopefully close that executing a number of deals.
I really appreciate that color one more if I can and I know you don't like to talk touch on it.
Individual portfolio companies, but accept foods, obviously it.
I mean, we know what it does not mean, its food businesses to Blake groups and things like that and that's not a lot of people not in the office right now.
So it was a troubled asset we cope it then.
Working from home, obviously it doesn't help.
Can you give us anything you can say on on the prospects for that business given.
Habits, it's issues before and then it seems bundled mobile obviously to co that.
Is there I mean, you know it.
You know what can what can you tell us about the prospects for good.
I love comfortably on.
On that business.
Great question.
Here's what I would say I'd say you know any company that operates in this industry and you hit this but I'm going to say it has been impacted by the shelter in place and quite frankly, the work from home directives.
And.
So that's the.
The fact of the matter management's doing a very nice job to a great job of navigating the shift in positioning the business for the future.
Haven't said that valuation.
And the valuation decline reflects the increased risk profile of our investments as we sit here today.
And I think that's I think that probably sums it up pretty good okay. I appreciate that thank you.
Nice talking to you Robert.
Thank you. Our next question comes from Chris Kotowski with Oppenheimer. Your line is now open.
Good morning, and thank you.
I'm just going.
I heard loud and clear what you said about that need to be cautious, but I'm just curious I mean to the extent that there are.
Supplemental distributions or returns of capital cuts because you're out earning.
I know that in an accounting sense, it's not fungible, but.
Capital is fungible and.
I guess I'm, just wondering does it ever make sense to consider those.
Supplemental distributions in the form of share repurchases rather than dividends because just somehow.
You know your stock is trading at.
62% of NAV and it's it's just at some point the the economics of returning capital via share buyback versus cash dividends is it just gets very very compelling.
Sure.
Great question Chris.
So we.
You know as as I think you're aware, we have a $5 billion share repurchase program in place that was reaffirmed this week.
We are mindful that the value of our.
Investment portfolio made up may not always be reflected.
You know in in our stock price and.
For that reason, we continue to look for ways to.
Enhance shareholder value.
And in fact, we did buy back shares in March at the beginning in that band Demick.
So we have done that and we've done it other times as well.
Having said all that I said when evaluating buying back stock I think it's also worth highlighting that we need to look at the whole picture.
In today's world Liquidities is a half to half in my mind.
You know, we got to look at our capitalization in our covenants or leverage ratios and you want to have access to the capital markets, which we believe we have but and maintained so all those things make.
You know our part of the equation as we look at share repurchases, but clearly we've done it in the past and its.
It's it's something that we talk about as well.
So hopefully that's helpful. But yeah. So again I mean, I wasn't dark I wasn't talking about you know incremental capital that your wisdom distributor anyway, just I was thinking to consider.
Consider the form.
Yeah, sure because you're understating bank for the Buck said it all.
All right. That's it for me. Thank you okay. Good talking to you Chris.
Thank you. Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.
Good morning.
Shelby.
Lot of good questions have already been asked but I did want to circle back to the market environment and I appreciate your comment that.
Hopeful to have net portfolio growth.
This quarter.
My question is.
We're starting to see a trend with respect to the third quarter across Bdcs clear.
Payments or fairly elevated as they were with you my sense is that we're sort of living in a world of haves and have nots and you mentioned that in your comments, so far where.
Good performers have access to capital there's tons of capital out there chasing.
Good deals.
Putting you.
So so prepayment risk is meaningful but at the same time underwriting is hard apart from maybe the software sector and I'm trying to reconcile how those two things meat.
In terms of your ability to grow the portfolio.
This coming quarter or going into next year.
Sure sure I think.
I guess I'd start with I think your comments are all correct I think.
High quality assets are in high demand if they're mature people sponsors are looking to.
Recycle capital for lack of a better word or create some realizations.
And so I think that's that's all that's all real and we.
Do are aware for instance that there's two portfolio companies that we have that.
They are in the middle of sale processes, and don't know Phil come to fruition or not but there's a decent chance they do.
And so I think they'll continue to be.
Repayments and realizations, including incremental one this quarter would be my guess.
Having said that.
As I mentioned earlier is I think deal flow is very strong.
And we.
We are we are seeing a fair number of businesses that were highly interested in.
And this.
This is so we're we're busy on the on the new investment side to say, the least and excited about that and so I think you know.
Yeah.
We'll be able to continue to invest from our perspective in this environment I do think diligence processes are taking longer.
That's one reason for.
Some.
Nothing happening in the third quarter, but also you know we got beat on some things because we were more aggressive on pricing and that didn't win the day.
But today you.
You know, there's a as I sit here today, there's a fair bit of activity.
And you know and that's obviously welcome from our perspective, because it's there's a lot of high quality activity.
Ed in the lower middle market, where you have your portfolio companies that may be owned by a family a sole proprietor small group.
I got to believe those folks are sitting here today thinking about next week's election, and the potential for tax rates to change starting next year, depending on the outcome of the election do you think that that that's catalyzing deal flow into the fourth quarter, you know that potentially would have otherwise taking longer.
I'm talking about stuff that's already in the pipeline, obviously can't sort of process now but.
Essentially what I'm asking is the prospect of a higher capital gains tax rate in the future you know go to push some deal flow into this quarter.
Sure I think I think that's part of the equation do answer it in a very.
Short manner, I think it's very much part of the equation.
You know I think it will extend over into Q1 as well.
But to probably a little bit less of it.
Degree so.
Yes, that's part of the equation for sure.
Appreciate that.
It was there.
He trended Mirage trailers that we should be aware of that.
May be something you're seeing in other portfolio companies that allow you to put that back on full accrual.
Nothing I mean, I guess, the two points I'd make is that the company was impacted.
Impacted in a meaningful way by shelter and place orders.
And so that that definitely hurt the business for a while.
Having said that.
We are seeing in a lot of portfolio companies.
And in the manufacturing sector, you know a lot of companies that are coming back.
Pretty a pretty reasonable levels of activity.
And so it fits in that molded business is weathering the storm nicely.
And that's that's what I would say from that perspective, but when you have a company, which we had you know a handful that were effectively shut down due to orders.
You know that that impacts things for a while and get back up and running and take some time and it really depends on end market demand and other things and you got to figure out what you have and I think we've had a fair.
Fair bit of time to figure out what we have in our portfolio as well as.
Mirage fits in that category as well.
And on the flipside.
You put a blends back on accrual previously, but its valuation declined.
Is there something there.
We should also understand or think about in terms of general trends as we look into the next quarter and going into the first half of next year.
Oh, I mean, we have three retailers.
All three of them were shut down and I'm, including our.
Our Jim operator.
In that three category three number.
All three of them were shut down completely.
The all three are now back up and running and you know what I would say is that.
You know there are weathering the storm to the best of their ability, but the risk profile of that situation is reflected in the valuation and so.
So it's you know everyone.
Everyone's come come.
Come back at varying degrees of.
To varying degrees of success right and so I would say that the risk profile is reflected in valuation.
It's back up and running but there you know there are risks.
That's what's highlighted.
And the valuation is that just to sort of trailing 12 month phenomenon, there or was there something specific there we should know about.
I don't think there's anything specific as you know about if we look at when we're doing valuations. We look at everything that we have you know we pay attention to forward looking we pay attention to LTM and current your current quarters and obviously.
So where were looking at the whole picture trying to do the best we can and we're obviously using third parties as well.
And so that's.
The combination of all those things is how the the board gets there from a valuation perspective.
Okay, just a couple more if I may.
What what accounted for the dividend or what drove the dividend from fiber materials and is that sort of a nonrecurring item.
Is the company maturing and can expect expect more.
Dividends in the near future from them.
Sure, Jeff you want to take that sure.
Sure I'd, probably kind of characterize that more as a one time and again that that had more to do with tax true up once we received the 2019 K one to hearing 2020, and we filed our tax return.
As it turned out that was a distribution of earnings and profits and so therefore income. So we just had to reclassify. It as it was previously characterized as a return of capital.
But I would not kind of assume that going forward in part just because a lot of exited.
I understand thank Shelby and my last question, which I sort of ask I think most quarters can you just give us a sense of where your average borrower EBITDA is today and the portfolio's average debt to EBITDA.
Sure so right.
The page years.
From an EBITDA perspective.
The mean EBITDA is 17.8 million in the median is $10.6 million.
What was your other question I'm sorry.
Portfolio leverage is 4.2 times this quarter.
There's an improvement in what we saw in the overall portfolio is growth and EBIT da.
Mid single digit growth and that's LTM firms 630 to LTM at 930.
And so we saw some improvement there and obviously, there's cash flow associated with that as well.
That's great. Those are all my questions I appreciate your patience and your time.
Thank you.
Thank you good talking to you, making likewise.
Thank you and as a reminder to ask the question you'll need to press Star then one on your Touchtone telephone to withdraw your question from the queue. Please press the pound key.
Our next question comes from next month with B. Riley Security. Your line is now open.
Everyone. Thanks for taking my questions. Most have been answered, but just a question on the unrealized appreciation I'm just wondering how much of that was driven by spread tightening and equity market comps.
Actual underlying company operating performance.
Then as a follow up to that is there any idea of what what percentage of unrealized losses on covered so far from from one Keith Thank you.
Sure so.
I have a little bit higher level answer on the on the valuation piece I think.
A majority of the valuation improvements came from.
In.
You mentioned performance.
I would also say that.
Spread tightening.
As part of the equation as well.
So that's how I think about it Shelby I don't know if you want to augment Mike My answer there.
No I think that's right. It's due to all of the above but there was a fair amount of just underlying portfolio performance sand or future expectations that was part of the equation. So it wasn't really all data calibration by any means.
And the other question money.
The other question you had.
The other question was you.
Any idea of what percentage of the unrealized loss you've recovered so far from one Q I'm just wondering how much more upside there could be here.
Unrealized losses.
Yes, it's a tough question to answer I think overall the poor I mean this quarter absent accident. So accent has been a drag for us obviously over the last several quarters.
But this quarter alone, we had almost $25 million of appreciation.
If you excluded accident so weve.
I think the business is it.
Is performing nicely overall.
And you know.
I think in a be dropped.
About $20 million.
Lower than this or I mean is I guess is more closer to 15.
You know in Q1, so we're making some progress back.
Towards a.
Higher in Navy number and that's driven by portfolio performance and whatnot, but having said that accident has been a drag or other.
On on that whole equation.
Yeah, and just to add to that in in Q1, the debt portfolio was about 95.4% fair value as a percentage of cost it's about 94% now, but again accent just given its larger size can impact those numbers.
That's very helpful. Thank you for taking my questions and congrats on another strong quarter.
Thank you Mike appreciate it.
Thank you and our next question comes from Bryce Rowe with Nations Securities. Your line is now open.
Hey, guys, sorry to belabor the call here just a couple of follow ups.
Number one Ed you talked about two companies currently in a in a potential sale process. Today is to include the subsequent event that was that was included in EMEA in the queue or they excluding that that Peter lubricant exit.
Excluding there they are incremental to the Pew, Okay. And then second question maybe for you Shelby you it looks like Q3.
Prepaid some some of the higher cost Sta debentures here this quarter.
I'm curious if it.
It's as you evaluate newer deals in the pipeline I know that it's been harder to find SP a eligible.
Deals over the over the recent past I'm just curious if some of the some of the activity in the pipeline would that would be hedged SP I see eligible.
Say Bryce you are correct in and we did pre pay about nine and a half million of debentures at our second FDIC fine just given some excess cash we were sitting on and the timing was good to get that done before the September 1st window.
We do have some cash at the FDIC is now but to your point I would expect us to be able to deploy that here in Q4 through investment activity and then as we kind of look forward I would expect us to start ramping up the third FDIC fund.
And then as we get repayments from the second time, maybe we use those to start winding that fund down over a long period of time.
Okay, but we should see I see activity in the fourth quarter.
Okay, that's great great to hear.
Thanks Bryce.
Thank you.
Thank you and our next question comes from Mickey Schleien with Ladenburg. Your line is now open.
Yeah, Shelby just to follow up on the excise tax accrual that you mentioned.
How should we think about.
The excise tax on net capital gains for this.
This fiscal year given.
How many moving pieces there are the difference differences between.
Texan gap sure.
To be honest, that's going to be a tough one for you guys to model and quite frankly, you know were given estimates on a quarterly basis, but particularly from a realizations point of view anything that happened in the fourth quarter will obviously impact taxable income projections. So for modeling purposes for Hollywood I would suggest is just kind of taking a look at our spill ever.
Position today, and just kind of assuming excise tax given that our spillover position, we're kind of going into the rest of the year little bit higher than in the past I would expect us to have higher excise taxes than we have in the past so probably to the tune of four or five cents and again, that's that's barring any material realizations, one way or the other.
In Q4.
Okay. That's helpful. Thank you for that.
Thank you and our next question comes from our pardon pardon my interruption.
To ask a question. Please press Star then one on your touched on telephone to withdraw your question from the queue. Please press the pound key.
Well take a moment to see if there are any further questions in the queue.
I'm showing no further questions in the queue at this time I'd like to turn the call back to Ed Ross CEO for any closing remarks.
Thank you Jamie and thank you everyone for joining us. This morning, we look forward to speaking with you on our fourth quarter call in late February.
2021 have a great day and a great weekend.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
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