Q4 2021 StoneCastle Financial Corp Earnings Call

Greetings and welcome to Aramark Financial Corp, fourth quarter, 2021 Investor Conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note this conference.

Is being recorded I will now turn the conference over to Julian Morocco, Investor Relations of Aramark Financial Corp, formerly known as Stone Castle Financial Corp. Thank you you may begin.

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 actual results may differ materially from the results stated in an implied by these forward looking statements. This would depend on numerous factors such as.

In securities or financial markets or general economic conditions, the volume of sales and purchases of shares of common stock the continuation of investment advisory administrative and service contracts and other risks discussed from time to time in the Companys filings with the SEC, including annual and semiannual reports of the company.

Aramark financial is based on forward looking statements included in this presentation on information available to US as of December 31, 2021. The company undertakes no duty to update any forward looking statement made here in.

All forward looking statements speak only as of today February 28th 2022.

In todays call the management of Aramark financial will be providing prepared remarks investors will have the opportunity to address their questions directly to management by calling investor relations at 2124685441 or E mailing J, Morocco at Aramark partner Dot Com now I will turn the call over.

Sanjay Bosley.

Thank you Julie.

Good afternoon, and welcome to Aramark financials fourth quarter Investor call for 2021.

Along with Julie here with me today is Pat Farrell our CFO .

I would like to start out with an announcement regarding the name change for our company.

I'm pleased to report that subsequent to the ended the year the company transitioned its name from Stone Castle Financial Corp.

Aramark as National Corp, effective February 24.

We're excited to have the company's new name reflects the resources of Aramark partners.

Its entirety.

Nothing else has changed.

Aramark for Nashville continues with the same management.

And the same investment strategy and objectives.

Aramark for Nashville shareholders will continue to reap the benefits of them.

Mark partners water platform.

His deep knowledge of banking related investments.

Now onto the call.

And the next few minutes I'll briefly comment on the recent geopolitical events and its effect.

The credit markets before commenting on the company.

Then I'll provide aramark financials quarterly results and portfolio review.

And that will provide you with greater details on our financial results.

Starting with the geopolitical events the conflict between Russia and Ukraine.

To negatively impact global markets.

We believe that our investment portfolio, which is made up of securities.

Primarily assured by money center banks and U S community banks are relatively well insulated from this geopolitical risk.

Our investments are highly diversified among industry sectors and geographies.

As we take a look at the banks.

They had been reporting Q4 earnings flat to slightly ahead of expectations.

For banks that have already reported.

General.

Fourth quarter loan balances continued to grow modestly.

As was the case in the third quarter last year.

We expect that this loan growth trend will continue.

It will not only be accretive to bank earnings.

But also it should be correlated to an increase in tier one capital ratios.

Now I'd like to say a few words on the credit markets.

The markets are factored in interest rate increases in the first quarter of 2022.

We continue to believe that the expected increase in 2022 .

Will it be a positive benefit to the banking sectors earnings.

A rise in base rates should be beneficial to our portfolio as well.

As approximately 70% of the company's total investments are floating rate assets.

Notably the regulatory capital Securities.

All things being equal the anticipated increase in rates will provide aramark for Nashville.

To increase the company's earnings potential.

The increase in base rates will have a direct and positive effect on our gross investment income.

In other words the total.

Total yield on a floating rate investment in the portfolio.

That is for example, a certain spread over LIBOR base rate.

The increase is a LIBOR base rate floats up.

Due to an increase in the fed funds rate.

Next.

I will cover our origination pipeline.

And the community banking space, the primary and secondary markets continue to be aggressively priced.

But primary markets consistently in the 3% to 4% coupon range.

But our strategy continues to look across the entire banking sector.

That regulatory capital relief securities have been consistently and more attractive.

On a risk adjusted basis, we are gonna be community banks.

In Q4, the regulatory capital relief market for money Center banks.

At a strong issuance of approximately $6 $5 billion.

From more than 20 money center banks.

For the full year regulatory capital relief issuance was approximately $13 billion.

In addition, we were able to purchase assets in the secondary market.

At attractive prices during the year.

Now onto Aramark financials results for the fourth quarter.

We are pleased to report that net investment income for the fourth quarter off by 'twenty one.

Approximately $2 $9 million or 41 cents per share.

Also during the fourth quarter.

The company reported a net realized and unrealized loss on investments.

Approximately $644000 or nine cents per share.

Our net asset value at the end of the quarter was $21 70.

Down 16 cents from the prior quarter.

Our net asset value has been consistent and stable, reflecting the quality of our assets.

The fourth quarter reflects the payment of a special cash dividend of Tencent.

Plus our regular quarterly cash dividend of 38 cents per total of 48 cent dividend per share in the fourth quarter.

Investors, who held aramark for national for the full year of 2021.

We received a total of $1.52 in annual distributions.

Representing nearly seven 5% dividend yield on December 31st 2021.

Now, let me turn to the portfolio review.

During the fourth quarter the company invested a total of $22 $5 million.

Five regulatory capital transaction.

The five new investments positively contributed to the portfolio.

With a weighted average coupon of 10%.

Weighted average yield to maturity of approximately 10, 2%.

The majority of these securities were purchased in the primary market.

Yields of the new assets remain accretive to the investment portfolio.

The increase in investments during Q4 were partially offset by $14 $1 million in proceeds from one called investment.

The partial sale of PFS.

And partial Paydowns from mine investment.

You may recall PFF as the ice shares preferred in income Securities ETF.

PFS is now only two 4% of the portfolios total investments.

As you continue to optimize the yield of the entire portfolio.

Investors can expect to see Aramark national continued to reduce its position in PFS.

Given the purchase of higher yielding assets and partial sell down.

Of low yielding PFF position during the fourth quarter.

The company reported an increase in its estimated annualized effective yield to $9 four 8%.

As of December 31st.

The fourth quarter yield is up from nine 2%.

Or up 28 basis points from the prior quarter end.

But the Euro Ed I'm pleased to report that total assets of the portfolio were reported at $218 7 billion.

Up 16% from the prior year.

The value of the Metro portfolio was reported at $215 4 million.

Up 21% from the prior year.

In closing my remarks, I want to highlight that accompanies per share financial results.

Net income in a V and declared dividends or reported in the second half of 2021.

On a share count that was seven 5% higher.

As a result of a registered direct offering.

The company was able to deliver a strong investment income.

Drove the growth in additional shares while reporting consistent and stable results.

Now I want to turn the call over to Pat.

Thank you Sanjay.

As I do each quarter I will present, the financial results by going through the components of the company's quarterly results in detail.

Net asset value on December 31 was $21 70 per share.

Down 16 from the prior quarter.

The decline in part reflects the Companys fourth quarter declared dividend of 38 cents plus an additional 10 cents special dividend.

Now onto the breakdown of the components.

<unk> is comprised of four components.

Investment income realized capital gains and losses, the change in value of the portfolio's investments and lastly distributions paid during the period.

Let's review these components.

Gross income for the quarter was approximately $4 5 million or.

Or <unk> 64 per share totaled.

Total expenses for the quarter were $1 6 million or 23 per share, resulting in net investment income for the quarter of $2 9 million or <unk> 41 per share.

As is the case every quarter the timing of calls and Paydowns impact the income generation of the company.

Realized capital gains and losses in the quarter is the second component affecting the change in any way.

The net realized capital gains from investment activities were approximately $2 2 million or <unk> 32 per share.

The third component changes in unrealized appreciation or depreciation of the portfolio.

Relates to have the value of the entire investment portfolio has changed from the previous quarter end to the current quarter end.

For the fourth quarter the change in net unrealized depreciation on investments and foreign currency transactions was approximately $2 9 million or <unk> 41 per share.

I want to point out the gains and losses from foreign currency hedging activities do not impact our net income.

The fourth component affecting the change in net asset values distributions the.

The regular cash distribution for the quarter was 38 per share.

The company also declared a special cash dividend for a total quarterly distribution of 48.

Paid on January six 2022.

The special dividend was up five or 100% from the prior year and reflects the company's ability to consistently over earn its quarterly dividend rate.

Fact, the company has over earned its current 38 cents dividends since the fourth quarter of 2019.

In summary, we began the quarter with a net asset value of $21 86 per share.

During the quarter, we generated net income of $2 9 million net realized capital gains of approximately $2 2 million and the unrealized value of the portfolio and foreign currency transactions decreased by $2 9 million.

Some of these components reduced by a total distribution of <unk> 48 per share resulted in a net asset value of $21 70 per share on December 31, which was down 16 from the prior quarter.

Turning to the valuations for our portfolio holdings. It is worth noting that the vast majority of the portfolio continues to be independently marked.

For the quarter, approximately 81% of the portfolio prices remarks reflect a minimum of two quotations or actual closing exchange prices.

These quotations represent an independent third party assessment of the current value of the portfolio.

This should provide a greater degree of confidence in the companys underlying value versus other publicly traded closed end funds and bdcs, whose portfolios are comprised of assets that do not have readily available market quotations and therefore self mark many of the assets in their portfolios.

At quarter end the company had total assets of $218 7 million consisting of total investments of $215 4 million in cash interest and dividends receivable and prepaid assets totaling $3 3 million.

I would like to highlight the growth in assets to our investors of note year over year total assets increased $30 million were up 16% as Sanjay mentioned earlier.

This asset growth was due in part to the Companys mid year $10 $8 million.

Registered direct offering.

Along with optimizing the use of our credit line and actively identifying accretive investments for the portfolio during the period.

At quarter end, our dividend yield was approximately 7% now.

Now, let me update you on the balance of our credit facility.

December 31, 2021, the company had $60 million drawn from the facility were 27% of total assets.

Just on regulated investment company rules, when they only borrow up to 33, 3% of our total assets.

Now I want to turn the call back over to Sanjay for closing remarks.

Thank you Pat.

I'd like to thank everyone on the call for listening in today.

As always I look forward to hearing from you and hope to see you soon good night.

Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.

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