Q3 2020 StoneCastle Financial Corp Earnings Call
Welcome to the Stonecastle financial Corp., Q3, 2020 Investor Conference call.
At this time all participants are in a listen.
Only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I would like to turn the call over to Rachel Schatten.
General Counsel of Stonecastle financial Please go ahead.
Good afternoon.
Before we begin this conference call I'd like to remind everyone that certain statements made during the call maybe considered forward looking statements based on current management expectations that involve substantial risks and uncertainties.
Okay.
Adults may differ materially from that results stated in or implied by these forward looking statements.
Depend on numerous factors such as changes in securities or financial markets or general economic conditions.
<unk> sales and purchases of shares of common stock the continuation of investment advisory administrative and service costs.
[laughter].
Other risks discussed from time to time in the Companys filings with the FTC, including annual.
Reports that the company.
Still couple financial has based the forward looking statements included in this presentation on information available to us as of September Thirtyth Twentytwenty.
Company undertakes no duty to update any.
Forward looking statements made herein.
All forward looking statements speak only as of today November 12 2020 now.
Now I will turn the call over to Sanjay pause like thank you Rachel.
Good afternoon, and welcome to Stonecastle Financial's third quarter Investor call for 2020.
Here with me today as Pat Farrell, our CFO.
And Julie Morocco Investor Relations.
During during his presentation.
I'll briefly comment on the banking industry and public markets before commenting on the company.
Then I will provide stonecastle financials quarterly results and.
Before we review and.
And Pat will provide you with greater.
Her detail on our financial results before we open the call for questions.
During the past few weeks, we saw several banks reporting better than expected earnings for the third quarter and many banks are signaling that they are well positioned to withstand a prolonged economic recovery.
Furthermore.
So banks are well capitalized and.
For the most part have adequate reserves in anticipation of an increase in corporate default.
The government stimulus issued in Q2 helped many businesses, whether the third quarter.
And we believe that any additional stimulus going to 2021.
We'll have the potential impact of keeping corporate default rates lower than expected.
Going into Q4, and first half of 2021.
Our outlook for the banking industry remains cautiously optimistic.
As of this call and with some exceptions.
Stonecastle is underlying banks have reported third quarter results.
Banks in our portfolio reported median net income up 8.4%.
Versus the second quarter.
In addition, our portfolio banks reported average tier one capital ratios.
Of 12.4%.
Flat.
You too.
Finally, stonecastle underlying banks reported change in median reserves up five basis points to 1.27%.
And loan book growth was up 7.8%.
I want to take a moment to mention some interesting statistics.
Front on community banks regarding the PPP stimulus program.
The independent community Bankers Association reported that community banks exponentially serve their local and rural communities by providing triple b loans to 98% of the economically distressed are lowing.
Counties I do approximately 97% of the rural counties, receiving such loans.
Overall, 70 banks, where the dominant couple of P. lenders serving.
Serving approximately 58% of ought to be participants.
At 48.
Second of all you a small businesses.
The community banks also supported underrepresented small businesses.
But triple B loans.
Including approximately.
74% to Montreal.
72% to women owned.
And 64%.
And two veteran owned businesses.
These statistics show the important role of the community banks within their communities.
The positive impact that community banks have on economic development.
Financial inclusion.
And job creation in the U.S.
Now, let me comment on the credit.
Sockets for banks.
During the third quarter, we saw credit spreads tightened for banking related strategies.
By approximately 50 to 100 basis points.
This was due to the residual of the fed actions in Q2.
But also due to a guarded optimism throughout the third quarter.
Sure.
And the competitive environment for attractive banking related assets.
In Q3, we saw the part of your markets continue to be more active in both alternative capital Securities Act.
And community banking.
And alternate capital Securities.
The pipe.
I find a primary issuance in the fourth quarter.
And into the first half of 2021.
It is expected to remain active but anticipated new issuance.
3.5 to four billing.
We're also seeing the issuer base continued to expand.
In addition.
We continue to see attractive yields for alternative capital securities to the secondary markets, although not as advantageous as Q2.
Kevin you banking originations in the primary market was robust in the third quarter.
The number of new bank issuances in Q3 were up approximately.
Similarly, 50% from the prior quarter.
Bank capital raised was $3.1 billion in Q3 down slightly from $3.7 billion in Q2.
Banks are generally able to issue sub debt in the 4% to 6% range.
We believe the current rate environment.
Following banks to issue stop that at historically low rates.
The Bachelor issuance up that you increased your tier one capital and therefore will remain in a stronger position.
Let's face it a prolonged economic recovery into 2021.
Now to Stonecastle Financial's results.
As of the quarter.
We are pleased to report that net investment income for the third quarter was approximately $2.8 million or 42 cents per share.
An increase of one cents per share from the prior quarter.
At the third quarter and the value of the investment portfolio.
Oreo was $147 million versus a $165.8 million at the end of the second quarter of 2020.
A decrease of 11% prime.
Primarily due to the sale of the community funding COO.
Would you purchased in 2015.
I will have more comments.
It's one of the sale in a few minutes.
The net asset value at the end of the third quarter was $20.89 per share upside.
Up 62 cents from the prior quarter.
Now, let me turn to the portfolio review.
During the third quarter the company invested a total of 20.
$23.7 million increase.
Including 18.7 million and two alternative capital transactions.
And $5 million and one subordinated note for a community bank.
The three new investments contributed a weighted average effective yield to maturity of 7.3%.
He has all the securities were purchased in the primary market at par.
The yields are these new assets remain accretive to our earnings.
Since the Stonecastle aeromar transition over the last three quarters of reporting.
The company has made approximately $60 million of investments or two point.
Good times, the total dollar amount of investments made during the entire year of 2019.
During the third quarter 2020, the company to receive proceeds of 45.9 million for.
On the sale of two investments.
I had received partial pay downs of $3.9 million from five.
Joint investments.
During the quarter the company sold the position and community funding CLL.
Or $42.5 million.
While this has been an attractive investment for Stonecastle financial's portfolio over the past five years.
The asset was about to reset with a step up in.
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Resulting in a net contribution of lower earnings.
In addition, we made the opportunistic decision to sell the entire position.
The preemptive move to reduce the potential credit risk of the underlying assets.
To enhance the risk profile for the entire portfolio.
Although.
We did not spend all the proceeds during Q3.
We have been active making investments in Q4, which I'll address momentarily.
The $3.9 million in pay downs included a partial pay down of two regulatory capital trades NASA and Santo.
Both of which.
Which were purchased at discounts during the market dislocation of Q2.
This was an anticipated outcome.
And these assets were able to contribute risk adjusted returns of 13.5%.
12.1% respectively.
Subsequent to the end of the quarter.
The company made investments of approximately $13.7 million.
The weighted average coupon rate of 8.4%.
One of the investments and alternative capital security.
As an expected yield to maturity.
9.85 per se.
And you were to call off 10.7%.
In addition, we purchased community bank preferred stock with a coupon of 9%.
With Q3, and Q4 investments made to date, making up approximately 75% of the sales and proceeds from Q3.
We believe the total portfolio investments, which currently show.
That decline.
Will be made up with continued portfolio activity throughout the balance of the year.
We expect origination pipeline to continue to be strong in Q4, and we will provide more details on the fourth quarter transactions on our next call.
For all our banking related investments.
Since the portfolio is managed for income generation and capital preservation.
We also look at investment capacity to offer total return to the portfolio on a risk adjusted basis.
At quarter end, the estimated annualized effective yield generated by the invested portfolio.
Excluding cash and cash equivalents.
<unk> was approximately 9.18%.
The alternative capital Securities represented approximately 38% of the total investments.
And community Bank related investments represented approximately 46% of the portfolio.
A full schedule of investments can be found on our website.
Before I turn the call over to Pat I want to touch upon the relative value of Stonecastle financial stock.
At the quarter end stone.
Stonecastle financial stock traded at a 7% discount to end Avi.
With a 7.8% dividend yield.
This is in comparison to other vehicles as the financial sector.
Jurors Spider phone.
Which had a dividend yield of approximately 2.24%.
Or the Invesco KBW Bank index that traded at an approximate 3.12% dividend yield during the same period.
We believe Stonecastle financial is also an attractive.
Value relative to the Bloomberg Barclays U.S aggregate bond index, which traded at an approximate 2.01% distribution yield at quarter end.
I would like to point out that as of September Thirtyth.
Stonecastle financial traded 537 basis points wide to the average dividend yield.
Other income oriented vehicle peer group I just mentioned.
Now want to turn the call over to Pat to discuss the financial results and provide details on the underlying net asset value of the company.
Thank you Sanjay.
As I do each quarter I will present, the financial results by going through the components of the company's core.
Results in detail.
The net asset value at September Thirtyth was $20.89 upside.
Up 62 cents or 5% from the prior quarter, including reinvestment of dividends.
Before I review the components of NPV I want to note that in mid October the company reported the estimated.
Month end September and maybe to be $20.93, which was four cents higher than our quarter end and navy of $20.89.
This difference was due to a minor adjustment related to preparing the consolidated financials.
As you know we are publishing monthly estimated npvs to provide.
At Liberty and transparency for our shareholders.
Therefore, the NPV as of September Thirtyth and quarter end is $200.89.
Now onto the breakdown of the any be components.
The Navy is comprised of four components that.
Segment income realized capital gains and losses the changes.
Value of the portfolios investments and lastly distributions paid during the period let.
Let's review these components.
Gross income for the quarter was $4.3 million or 65 cents per share net operating expenses for the quarter were $1.5 million or 23 cents per share, resulting in net investment income for the quarter.
We have $2.8 million or 42 cents per share.
This compares to 41 cents reported in the prior quarter.
Copper penny per share.
Realized capital gains and losses in the quarter is the second component affecting the change in anyway.
The net realized capital losses from investments were approximately two point.
Point $7 million or 42 cents per share grew.
Realized losses due to foreign currency transactions were approximately 530000 or eight cents per share.
The third component changes in unrealized appreciation or depreciation of the portfolio relates to how the value of the entire investment portfolios.
Changed from the previous quarter end to the current quarter end for the third quarter. The total quarterly change in net unrealized appreciation on investments and foreign currency transactions was $6.7 million or up a dollar two per share and unrealized appreciation unwritten options of 332000.
500, or six cents per share.
I want to point out gains and losses from foreign currency hedging activities do not impact our net income.
The fourth component affecting the change in net asset value is distributions the cash distribution for the quarter was 38 cents per share paid on September thirtyth two.
To shareholders of record on September 25.
In summary, we began the quarter with a net asset value of $200.27 per share during.
During the quarter, we generated net income of $2.8 million.
Net realized capital losses of approximately $3.3 million and the unrealized value of the portfolio increased by six points.
$7 million.
The sum of these components offset by a distribution of 38 cents per share resulted in a net asset value of $20.89 per share at September Thirtyth, which was up 62 cents from the prior quarter.
Turning to the valuations for our portfolio holdings it is worth noting that the.
Majority of the portfolio continues to be independently marked from broker dealer quotes.
For the quarter or approximately 81% of the portfolio prices remarks reflect a minimum of two quotations where actual closing exchange prices.
These quotations represents an independent third party assessment of the current value of the portfolio.
Folio this should provide a greater degree of confidence in the company's underlying value versus other publicly traded closed end funds and bdcs itself mark their portfolios.
At quarter end the company had total assets of $149.9 million, consisting of total investments of $147 million.
And cash interest and dividends receivable and prepaid assets totaling $2.9 million.
As Sanjay mentioned, we expect the asset base to grow based on the Q4 investment pipeline.
Our dividend yield at the end of the quarter was approximately 7.8%.
Now, let me update you on the balance of our credit.
Facility.
On September Thirtyth, the company had 10 million drawn from the facility or 7% of total assets, leaving.
Leaving $52 million available to draw.
Based on regulated investment company rules, we may only borrow up to 33.3% of our total assets.
Now I want to turn the call back over to Sanjay for closed.
In remarks.
Thank you Pat now operator, I'd like to open up the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
[laughter].
Your first question comes from line of Chris O'connell with KBW. Please proceed with your question.
Good evening gentlemen.
Good evening.
So I guess I just wanted to start out with the CLL sale.
I know that.
You guys and maybe seen that as an opportunity to refinance and maybe if you could just walk through as well the.
The aspect of it I thought that you'd said in the prepared comments.
So that the rates are going to go up.
And that that was part of the decision.
For exiting that investment.
I guess.
By rates would that be a higher yield for you for you receiving.
Yes.
Chris as Sanjay.
I'll take I'll take the first part here Pat just feel free to add something later, if I have forgotten.
Just as a way of background Hum.
That 45 million to our position.
It was an equity position in similar to 2015.
And in the way it was structured as a hat low notes ahead of it.
Essentially about 200 million.
And that had a cost of capital somewhere in the 500.
The way it was structured initially was that five years force plus issuance.
Though.
Those liabilities are ahead of that for examine their equity tranche, we're going to step up by about 70 basis points.
So.
The underlying assets there the.
Earning assets where community banks.
And so.
So if you think about it what youre, earning on this community banks.
Now is going to be net earnings on the screen, that's going to be less than what you're making before because liability cost and the CEO is going to go up by 70 basis points.
And so that was going to lead to lower earnings that was one number.
Number two is if you think about it for a fund the size it was fairly concentrated position.
Being $45 million.
And you.
At this as an opportunity to diversify.
Our.
Our holdings.
And then number three is.
It didnt need to get refinances, the legacy liabilities had to get refinanced and we also didn't want to take a capital markets risk.
Yes, especially where we saw how spreads blew out.
On liabilities back in March April May.
And so that.
Coupled with also the banks generally speaking our.
Held as assets in the CLL or what half the size of the restaurant.
Portfolio.
We also took this as an opportunity to improve improve the overall risk profile. So that was kind of a few reasons as to why we decided to exit this position at a gain from essentially where was marked at.
And so.
And hopefully hopefully that helps.
Hey, Mike.
I can just add in that with regard to that we did see a nice mark up from where it was marked at June thirtyth. So we picked up an extra.
Almost $470000 in value.
From where it was March and June versus the sale price so other than that I Sanjay.
Kind of nailed it there.
Great that's.
Thats helpful.
And then looking at.
The alternative capital investment.
Demand in yields going forward.
It seems like the yields have come down a bit I mean, I knows you know.
Generally.
Sales and markers that plus.
Plus nine 900 to 1000 basis points prior above LIBOR.
I guess, where are you seeing those new yields are those spreads coming on.
Sure.
So the yields that you are seeing on our new alternate.
Ill turn it.
Total security investments.
Is kind of reflective.
Of the risk profile.
That we are willing to take.
This year, especially after again, what happened that corporate et cetera.
And so the reason you are seeing lower yields than something that initially had initial disk.
Cost is.
Because it reflects those structures reflect a much more conservative portfolio that's.
Thats the underlying assets are backing the securities and.
Also the structure. So so from that perspective these are more conservative investments.
But again as site a reflection of the and kind of the risk that we are seeing out there. So we're just being very prudent.
And kind of where we are buying.
Got it so in terms of the pool than I guess of alternative investments that are you that you are looking at to put on balance sheet.
Versus the route the overall market I guess, where are you seeing those spread that now.
Sure so the.
The spreads are we seeing today are kind of ranging between the outflows nines albus tends to it.
At a high single digit stuff a use or we are showing to you.
Yes.
For the investments in Threeq you.
And.
Based on our analysis of the underlying investments.
Just so happens that so far we have kind of more gravitated from a risk adjusted basis towards the high single digits, but we are seeing yields that are ranging in low double digits due to high.
High single digits.
Now one thing I bring your attention to you is that.
From a yield to call basis.
These are these some of these investments are yielding in.
In the double digits.
Versus when you kind of looking at it from a yield to maturity basis.
Thanks.
Got it so I mean is it fair to say.
That you know over the next two to three quarters of the investment yield.
Pending any changes in the overall macro rate environment.
It's going to remain kind of in this high eights to low nines range.
Compared to what was kind of high nines to low tens previously.
Yes based on what our pipeline is today.
And assuming all things constant.
We expect.
We expect yields to be in the nine ish.
Range going forward.
Again with Dolphins constant.
Great Thats helpful and then.
On the expense side.
So there is like a few upticks.
In overall kind of other expenses.
More notably I guess and professional fees.
In a few other.
Liner line items or are those expenses are kind of revert back to a.
What had been kind of the low four hundreds range going forward.
Yes, Yes, you know.
We had a we had a few adjustments we need to make for.
On professional fees.
And valuation fees et cetera.
Yeah I think.
The combination of that along with kind of Truing up and making sure that going into Q4 were were accrued appropriately. So I think I think you were going.
I see those come down a bit in fourth quarter. It some more what you have seen in previous quarters.
Great that's helpful.
And then I appreciate all your comments around credit quality and the overall bank market or community Bank market right now and.
Some of that reserve.
Info surrounding you know the things that are underlying your portfolio.
Is there any you know pockets of risk that your ultra focused on.
You know coming out of the Threeq, you updates or where deferrals kind of you know to the extent there disclose by the banks.
In addition to our remaining higher than than you would like to see.
Yes, so as it relates to.
Deferrals, let me take that last part of the question first.
Is it.
In discussion with our banks and also kind of where we are seeing out there is there to come down.
In Philly.
And then as you might recall at the peak of some of these banks have seen like 20 plus percent deferral rates and now you're kind of looking at the low single digits.
And so from that perspective, that's improved materially for the banks.
Just looking at our portfolio.
Our banks.
Income.
As up versus.
Once you and Twoq and is almost kind of reached the levels of what kind of what we saw in the fourth quarter of last year.
From a risk basis actually kind of what I and we see is Moreover loan growth.
Possible issue and.
In a lot of.
A lot of businesses out there are being very prudent from where we are seeing in talking to our management teams.
Were they not or rolling themselves with debt.
I can give an example of is a bank that we spoke recently with in our portfolio had a $10 million revolver line and.
Recall that this company was asking for like a $12 million.
That line because they.
We're going to utilize it and today that it will all lines almost of the unused capacity.
Because the company is doing a better job of managing working capital et cetera, and so but you know having said that you know.
Obviously.
That coupled with NIM you know they are.
A little worried about.
Their income going forward.
But overall, we have seen a growth in the loan book at least as it pertains to our portfolio of banks that we'll.
And I'm, saying that thats kind of how I see more of a risk to the company's PNM our vaccine now.
Being NIM contraction, NIM and not meaningful growth in the loan book.
Great. That's all I had thank you.
Your next question comes from the line of Bryce Rowe with National Securities. Please proceed.
With your question.
Thanks, a lot good evening.
Good evening.
Hello there.
Hi, Hey, Sanjay I wanted to.
Ask about the unrealized depreciation.
On on some of the alternative securities.
[music].
Yeah, and obviously, obviously good good to see but.
But curious what's what's what's driving that is that a is that a right thing is it a credit.
The net debt purely just credit spreads coming in.
Was there something specific to this two to somebody else.
Tim some of the specific securities that would drive some of the appreciation.
Sure Scott do you want to take that first part or new Army, Yeah, I'll take I'll take a little bit of that I'd say on the just on the kind of the the mathematical side.
We did buy.
Number of these.
In Q2 add at very good very attractive pricing. So I can say that I can speak to right away.
And interestingly enough you know we mentioned that there were a couple of Paydowns this quarter.
And one of them being with NASA and and sonata.
Both of those we have purchased.
Just one of them at 87 and change and 93 and they both they both had weve had paydowns on those at par. So definitely got some great deals there. So I'd say on the on the one side on the mass side certainly we've got some really great deals and most of the others. We also bought at discounts summit at a very nice.
Discounts in the eighties, so I'd say number one it was just opportunistic purchasing and then I'll throw it back to SUNS. It give some thoughts on on where the pricing is going today.
Sure. So oh, Bryce just to add a little bit more color to what Pat said back in doing the dislocation back in March April.
As.
As repo lines came due for some beep for some.
Managers out there.
To get on side with those repo lines that they had to de lever and what you do at that point you to take your best asset Thats got the highest mark any and you sell it and that's exactly what happened and.
Just like some community banking securities.
However.
We kind of bought at a pretty attractive price.
We kind of saw the same thing in alternative capital Securities and.
We were all over those in terms of looking at them analysis, and then designed to buy them and so that's kind of what you.
That's kind of how that opportunity came about and obviously with the market normalizing a little bit more.
He has kind of seen appreciation there.
And in certain instances actually realized again, because those securities got partially repaid.
In terms of what we are seeing and.
And the new issue market kind of the same and down but again I want to make a distinction that we are seeing LIBOR plus nine LIBOR plus 10 separate transactions.
And yes, we have bought some high single digit debit transactions, but again based.
Based on our analysis based on our outlook.
We are investing in.
Or to conservatively structured alternative capital Securities.
And that actually have worked really well for the fund and they're very accretive.
Okay. That's helpful. Thank you and just maybe for the benefit of.
Me and others that.
Our aren't as familiar with the alternative capital.
Gary what what makes one more conservatively structured then the one that is now.
Sure. So we know we can start with just the asset base.
Looking like we usually tell you that.
The underlying assets generally speaking are investment grade and so what will move from for example.
Hello, let just say.
Portfolio of assets that initially was coming in at like a triple B minus average rating it will move up and rating category to make it more like a triple b to B plus type of.
Security so.
You know, obviously moving up and the rating category, which is a proxy for wrist.
[music].
You know the securities Jun generally carry.
Little bit of a lower return right, yes and.
So you know that's that's one of the primary primary ways of how we go about getting a more conservative portfolio sales.
Security.
Okay.
So net net it did come commentary and then.
Yes, I appreciate your comments about the.
The current fourth quarter pipeline.
Across the alternative capital Securities Universe being in that.
I think I heard this correctly, three and a half $4 billion.
For new issue.
Census.
And you made the commentary or the comment about issuer base.
Standing so so I was wondering what.
But the pipeline might have looked like on a year ago, just for comparative purposes, and then when you when you talk about issuers the number.
Total issuers expanding what's driving that is that just familiarity with with with that with the the structure and the capital treatment emergent and just just wondering what would you what you think there.
Sure so.
Before.
MBR on before I can ask the fourth quarter purchases that we did year to date.
It's a it's a mix between alternate capital Securities and community banks right.
But focusing more on alternative capital.
Side of it the three and a half to 4 billion.
Worth, noting there that's kind of what we are seeing the issuance to be in the fourth quarter of this year. Obviously, you know just like anything else our credit selection process. We participate in summary, we don't participate in size.
In terms of the issuer base growing.
It's just it's a reflection of.
Particular banks balance sheets and kind of what they did during 2019.
In terms of adding on risk to their balance sheet.
Coupled with where the.
The equity markets are for issuing additional tier one capital.
Like we said before on a previous comments.
The most efficient way to address.
A bank's balance sheet one of the most efficient ways to do that is to issue more alternative capital securities. So there are some newcomers that have come to us through the market. During this quarter and we have participated in some of the deals is there.
Are there given market condition. They are kind of finding the most efficient way to rightsize their risk profile is to issue additional alternative capital securities.
Okay. That's helpful.
And maybe one more one more question for me just considering the repayment or the sales.
Yes.
Of the.
The larger asset here. This this quarter the CLL.
Hi.
Wondering how you think about kind of repayment risk within the portfolio now.
Hello, Rollie relative to your to the individual securities within your portfolio.
Sure so.
In terms of repayment risk, we're not seeing anything we didn't see anything out of the ordinary during threeq you aura in for Q2.
To and I believe.
I believe that there is an acceleration in repayment and so this is something that's fairly.
Average.
Let's say.
And just kind of give you a little bit more background I think we ended.
Q1 was 133 million of invested assets.
It was up to about 165 in Q2, and then Q3 was 147 and that was really more related to that sales.
Let's see your opposition and we for the balance of Q4. We know we are looking at a decent amount of deals and we are all things constant we do expect to see a net growth from here.
And so from an income perspective et cetera.
More additive than Q3 again.
That all things constant.
Got it.
All right well, thank you for answering all the questions.
And.
Good good good to see the continued progress in terms of the originations.
Yeah, no. Thank you very much and thanks for your support.
Welcome.
Our next question comes from line of Devin Ryan with JMP Securities. Please proceed with your question.
Great Hi, Sandy Hi, Pat how are you.
Hey doing that.
Doing well both questions have been asked but I want to spend a moment on credit and I think you did talk.
About this a bit but if we think about a scenario where there is a second shot down and maybe that creates more stress in the system. How are you thinking about the portfolio in that scenario as we bridge the gap between now and the vaccine and.
Good that also create opportunities from a play.
Pricing perspective, and some of things you are looking at I'm, just given that it is kind of topical moment here.
Sure. So the last part your question in a short answer to that is the EPS, but I'll I'll add a little bit more color to that for me.
From a credit perspective I.
I think we all are.
Our pleasantly surprise.
How well actually relatively speaking.
The credit space has done as it relates to default I think back in March and April and a lot of estimates were fairly high and.
I think generally speaking we are going to be under like 10%.
And if were to look at Sator higher market combined with the leverage loan market rate and.
So from that perspective, the stimulus came in.
To benefit everybody a main street.
And our primarily so from that perspective, we.
Again, we see.
Going forward, we are cautiously optimistic about.
The default rates going forward.
Then again, if we were to see a prolonged recovery or.
Added shutdowns.
Because the core of it.
What we know what we expect there again is we expect another stimulus bill to come through and we've seen a story play out before we.
Where I think they will support the consumer and small businesses.
So and again talking to our banks kind of that's kind of where that is and a lot of the banks.
At May result in a high.
Have increased reserves for.
In our other going into 2021 and so.
Again, they are cautiously optimistic about it we and so are we.
I Hope I answer your question.
Yes, Thats terrific. Thanks, Sanjay and then.
Maybe just a follow up because of this is coming up in a lot of my client conversations just the.
The numerous scenarios of the election outcome and how that could impact financials and I think to the extent. It is a by the administration in a a red sun at or close to that you know the the progressive.
Agenda, it doesn't feel very likely it's probably not going to have a lot of legislative.
The change, but one area that did you some changes on the regulatory front.
Just given that that may be easier to push through in a Democratic administration I'm curious if there's anything that you are focused on at the moment that you feel like.
Be hot button issue or maybe even create opportunities or is it just too early to say at the point at this moment.
Yeah, and I would say, it's a little too early but now it seems like it's pointing toward say split Congress.
Which obviously would.
Dampened to some kind of thing so.
As it relates to the progressive agenda right.
But also having said that I think the.
From what we are hearing.
Our discussions are monitoring the.
The market et cetera, the focus probably initially is going to be more on the economy and then in the next maybe taxes than say bank regulations at this.
His point.
Yes.
Okay terrific.
To be determined well. Thank you guys for taking the questions and congrats on a good quarter.
Thank you. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to.
The call back to Mr., Sanjay bone slate for closing remarks.
Thank you operator thank.
Thank you all for listening and.
Tom Obviously appreciate all your interest in Stonecastle.
I look forward to speaking with you all next.
During next quarters conference call and.
And in the event that we do not touch base.
Prior to year end, just want to wish everyone.
Healthy and happy holiday season, Thank you and good night.
Can I.
This concludes today's conference you may now disconnect. Thank you for your participation.
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