Q3 2022 Pennantpark Investment Corp Earnings Call
Currently holding for the pennant Park investment Corporation's third fiscal quarter 2022 earnings call. At this time, we're sampling our audience and will be underway in about one minute. We thank you for your patience in holding and ask that you. Please remain on the line.
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Good afternoon, and welcome to the pennant Park investment Corporation's third fiscal quarter 2022 earnings Conference call. Today's conference is being recorded at this time all participants have been placed in a listen only mode. The call will be open for question and answer session. Following the Speakers' remarks, if you'd like to ask a question at that.
Time simply press Star one on your telephone keypad, if he would like to withdraw your question Press Star two on your telephone keypad. It is now my pleasure to turn the call over to Mr. Art, Penn Chairman and Chief Executive Officer of Pennant Park Investment Corporation. Mr. Penn You May begin your conference.
Good afternoon, everyone I'd like to welcome you dependent Park investment Corporation's third fiscal quarter 2022 earnings Conference call I'm joined today by Rick <unk>, Our Chief Financial Officer, Rick. Please start off by disclosing some general conference call information and included discussion about forward looking statements.
Thank you art I'd like to remind everyone that today's call is being recorded.
Please note that this call is the property opinion Park investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited.
Audio replay of the call will be available by using the telephone numbers and pin provided in our earnings press release as well as on our website.
I'd also like to call your attention to the customary safe Harbor disclosure in our press release regarding forward looking information.
Today's conference call May also include forward looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections.
We do not undertake to update our forward looking statements unless required by law.
To obtain copies of our latest SEC filings. Please with it. Please visit our website at <unk> dot com or call us at 201 to 905 1000.
At this time I'd like to turn the call back to our chairman and Chief Executive Officer Art Penn.
Thanks, Rick.
And I'd like to welcome you as the new CFO of our Bdcs.
We're going to spend a few minutes and comment on our target market environment provide a summary of how we fared in the quarter ended June 30th how the portfolio is positioned for the upcoming quarters, our capital structure and liquidity a detailed review of the financials and then open it up for Q&A.
From an overall perspective in this era of inflation and rising interest rates and geopolitical risks. We believe we are well positioned as a lender focused on the United States. We're floating interest rates on our loans can protect against rising interest rates and inflation.
We are pleased to be lending into the core middle market, where we are important strategic capital to our borrowers.
We believe we are well positioned as a company that has a clear game plan for growth in net investment income and dividends.
We continue to execute on our plan to increase long term shareholder value.
Pleased to announce that the board of directors has approved another increase of our quarterly dividend to <unk> 15 cents per share payable on October three to shareholders of record as of September 19th.
Additionally, we continued buying shares under our stock buyback program and purchased approximately 718000 shares during the quarter for $5 million. The purchases were accretive to NAV by <unk> <unk> per share in total we have bought back $12 million or one 6 million shares.
Some highlights for the quarter ended June 30th whereas follows.
We recorded an additional net unrealized gain of $12 million or <unk> 19 per share on our equity investment in Ram energy Ram.
Ram continues to expand operations and drilling and our equity investment increased in value in the from the prior quarter, we expect Ram to explore strategic options in the coming quarters.
Number two after quarter end, we completed the amendment extension and expansion of the <unk> credit facility size increased from $465 million to $500 million and the maturity maturity was extended three years until 2027.
Thank you to our lending partners for their confidence and support of the company.
Number three we continue to grow our PSL F JV.
JV grew from $446 million to $608 million during the quarter and continues to generate an attractive double digit ROE for P. N N T.
So quite a quarter end the JV has continued investing and growing its investment portfolio and PMT and pantheon ventures increased their capital commitments to the JV by $76 million.
We're targeting $1 billion vehicle overtime, which can drive substantial growth and NII at PNM.
With the rise in base interest rates.
PMT is well positioned to grow NII as 96% of the debt portfolio is in floating rate assets.
Holding everything else constant in the portfolio, a 1% increase in base rates should increase NII by <unk> <unk> per share per quarter, and a 2% base rate increase would result in a <unk> <unk> per share per quarter increase.
Choppy or market is creating what looks to be an attractive vintage of new loans for the remainder of 2022 and 2023.
And the last couple of months, we have seen spreads widen out approximately 100 basis points, an increase in upfront fees or original issue discount.
Our leverage and tighter covenant packages.
Now to review the operating results.
For the quarter ended June 30th net investment income was <unk> <unk> per share, including a few cents per share and other income.
During the quarter, we placed our investment in <unk> on non accrual as a result of continued underperformance.
Our GAAP NAV decreased by 4% driven primarily by a decrease in investment valuations. The decrease was largely attributed to mark to market adjustments, resulting from the overall choppy market as opposed to specific credit driven items within the portfolio.
We increased the investment portfolio by $101 million during the quarter and our leverage ratio or debt to equity increased from $1. One six times up from 0.8 times.
With regard to increasing net investment income our strategy remains focused on number one optimizing the portfolio and balance sheet at <unk> as we move towards our target leverage ratio of one five times debt to equity.
Two growing our PSL or JV with pantheon to $1 billion of assets from approximately $608 million of assets at quarter end and number three rotating out of our equity investments overtime and redeploying the capital the cash pay yield instruments.
We have a long term track record of generating value by successfully financing high growth middle market companies are five key sectors.
These are sectors, where we have substantial domain expertise.
The right question to ask and have an excellent track record they.
There are business services consumer government services, and defense healthcare and software technology business.
Sectors have also been resilient and tend to generate strong free cash flow.
Then aside government services and defense is approximately 10% of the portfolio.
Inclusive of the JV and should be a beneficiary of the geopolitical environment.
In many cases, we are typically part of the first institutional capital into a company or a founder entrepreneur families selling their company to a middle market private equity firms and.
In these situations there is typically a defined game plan in place with substantial equity support from the Friday equity firm to significantly grow the company through add on acquisitions or organic growth.
Obviously, we provide are important strategic capital that fuels the growth it helps that $10 million to $20 million EBITDA company grew to $30 $40 $50 million of EBITDA or more.
We typically participate in the upside by making an equity co investment.
Our returns on these equity co investments have been excellent over time.
Overall for the platform from inception through June 30, or $335 million of equity co investments have generated an IRR of 28% and a multiple on invested capital of two five times.
Because we are an important strategic lending partner the process and package of terms, we receive is attractive.
We have many weeks to do our diligence with care.
Thoughtfully structured transactions with sensible credit statistics meaningful covenants substantial equity cushion to protect our capital.
<unk> upfront fees and spreads and equity co investment.
Additionally from a monitoring perspective, we received monthly financial statements to help us stay on top of the companies.
With regard to covenants virtually all of our originated first lien loans had meaningful covenants, which help protect our capital. This is one reason why our default rate and performance during Covid was so strong.
This sector of the market.
Ladies with $10 million to $50 million of EBITDA as the core middle market within.
Within the core middle market, we think our capital can add the most value and we believe the opportunity to get the strongest package of risk return is in the $10 million to $30 million of EBITDA range.
The core middle market is below the threshold and does not compete with a broadly syndicated loan or high yield markets.
As many of you know theres been an enormous amount of capital raised by some of our large peers and as such they're forced to focus on the upper middle market, which are companies with over $50 million of EBITDA.
Those upper middle market companies can typically also efficiently access the broadly syndicated loan market.
As a result in the upper middle market, our large peers need to aggressively compete with a broadly syndicated loan market and among themselves. This results in transactions, where leverages, hi, covenants or light or nonexistent spreads in upfront fees are compressed and decisions need to be made quickly additions.
Additionally from a monetary perspective, they generally receive financial statements quarterly.
The argument you will hear is that bigger companies are less risky.
That is a perception may makes some intuitive sense, but the reality is different.
According to S&P loans with comfort loans to companies with less than $50 million of EBITDA have a lower default rate and higher recovery rate the loans to companies with higher EBITDA.
We believe that the meaningful covenant protections of core middle market loans more careful diligence and tighter monitoring have been an important part of this differentiated performance.
Borrowers in our investment portfolio are performing well and we believe we're well positioned for future quarters as of June 30, the weighted average debt to EBITDA on the portfolio was four four times and the average interest coverage ratio the amount by which cash income exceeds cash interest expense was three seven times. This provides substantial.
To support stable investment income, even when interest rates rise.
Based on this substantial cushion even with a 350 basis point rise in base rates and flat EBITDA our portfolio of companies would cover their interest to two times on average.
As of June 30, we had one.
One non accrual on our books and P&C.
Presents <unk>, 9% of the portfolio cost and <unk>, 5% of the portfolio market value since.
<unk> has invested $7 2 billion.
And the average yield of 11%.
This compares to a loss ratio of approximately nine basis points annually the.
This strong track record includes our energy our energy investments, primarily subordinated debt investments made prior to the financial crisis and recently the pandemic.
With regard to the outlook new loans in our target Margaret tracking and this vintage should be particularly attractive our experienced and talented team and our wide origination funnel is producing active deal flow.
Our focus remains on capital preservation and being patient investors.
We want to reiterate our mission our goal is to generate attractive risk adjusted returns through income coupled with long term preservation of capital everything we do is aligned to that goal, we seek to find investment opportunities and growing middle market companies that have high <unk>.
Free cash flow conversion, we capture that free cash flow, primarily through debt instruments, and we pay out those contractual cash flows in the form of dividends to our shareholders.
Let me now turn the call over to Rick our CFO to take us through the financial results.
Thank you art for the quarter ended June 30, net investment income totaled <unk> 16 per share include.
Including <unk> <unk> per share of other income.
Operating expenses for the quarter were as follows base management fees were $4 9 million interest expense was $6 7 million.
General and administrative expenses were $1 million and provision for taxes for <unk>.
$2 million.
For the quarter ended June 30th net realized and unrealized change on investments, including provision for taxes was a loss of 29 million or <unk> 44 per share.
Provision for taxes of <unk> 8 million or <unk> 12 per share.
Was due primarily to the increase in the value of Ram energy.
Change in the value of our credit facility increased our NAV by <unk> 14 per share.
Our net investment net investment income was in excess of our dividend by <unk> <unk> per share.
We repurchased approximately 718000 shares during the quarter at an average purchase price of $6 91.
Resulting in accretion to NAV of <unk> <unk> per share.
As of June 30, our NAV per share was $9 65.
Which is down 4% from $10 <unk> per share from the prior quarter.
Our GAAP debt to equity ratio net of cash was $1 one six times.
As of June 30, our key portfolio statistics were as follows.
Our portfolio remains highly diversified with 118 companies across 31 different industries.
The portfolio was invested in 55% first lien secured debt.
10% in second lien secured debt.
9% in subordinated debt.
Including 6% in PFS Lf in.
And 26% in preferred and common equity.
Including 4% in PSS.
The weighted average yield on debt investments was nine 3%.
Yes.
96% of the debt portfolio is floating rate with an average LIBOR floor of 1%.
As base interest rates rise, we are well positioned to participate on the upside.
Everything else constant in the portfolio, a 1% increase in base rates.
<unk> <unk> per share of NII upside per year.
2% increase translates into 16.
<unk> per share increase in NII per year.
Now, let me turn the call back to Mark.
Thanks, Rick and closing I would like to thank our extremely talented team of professionals for their commitment and dedication.
Thank you all for your time today and for your continued investment and confidence in US that concludes our remarks at this time I'd like to open up the call for questions.
Thank you as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
We will pause for just a moment to allow everyone an opportunity to signal for questions.
And we will go to our.
First question.
From Paul Johnson of K B W.
Yes, good afternoon guys. Thanks, Thank you.
My questions.
As far as Ram Energy goes I'm, just curious when you say your mix.
Exploring.
Excuse me strategic alternatives for the company I'm just curious is what's the difference.
To me I guess, what Youre doing now with the company.
Versus prior getting the company ready for sale.
Well thanks, Paul for the question, it's a good one.
Ram has been performing very very well recently the.
So the well performance has been good and they've got an excellent track record in their geography and East Texas.
And with the environment that we're seeing with oil in the oil and gas prices natural gas prices and the company's operations. We think it's an appropriate time to explore.
Strategic options.
Just really wanted to and particularly these last two wells I wanted to drill those wells and and have good results that we've had on those two wells reaffirming the quality of.
The acreage the quality of the opportunity we think with these last two wells.
Youre, creating a package that's even more attractive for for potential buyers.
Got it and so does that mean.
<unk> retained like.
Any firm to assist in that sale and looked for options or is this just more essentially.
Officially on the block for sale.
Yes.
I think I'll, just reiterate where we are going to explore strategic options over the coming quarters, I think I want to just leave it at that at this point.
Okay. Thanks, I appreciate that.
The next question.
Non interest income this quarter I'm just curious why it was.
<unk> down.
Roughly flat I guess with the prior quarter given all the net growth.
This quarter and what was that due to a timing issue or perhaps the non accrual.
What was what drove that.
Okay.
While we did we did have the one non accrual. We did we were very active as you saw most of that.
Probably came in towards the tail end of the quarter. So I think those two items probably.
Probably offset each other.
Well positioned the portfolio as we are kind of getting to a kind of our target one and a quarter times debt to equity ratio.
At PNM, the JV is growing and of course, the base rates LIBOR so for growing nicely. So.
So we think from a revenue standpoint from an interest income standpoint, we're well positioned to see some upside this quarter.
Got it I appreciate that.
And then you mentioned that you get.
Monthly financial statements from your portfolio companies gives you a snapshot on the ongoing performance I guess for the year I am curious do you.
Also receive any sort of updated forecasts for the businesses throughout the year.
<unk> had conversations with sponsors.
How are those conversations if you've had them highly has gone in.
Things changed.
More pressure on businesses to cut costs that sort of thing anything that you've seen there.
Yeah. So.
Look clearly we're in a different economic environment than we were kind of in that post COVID-19.
I don't know, whether you call it a honeymoon period.
Clearly our management teams are seeing an environment, where the economic landscape is different.
Putting interest rates aside it's.
What elements of the economy are going to be under more of a microscope in.
And.
I think good executives are very sober minded about the environment and working hard too.
Optimize their revenues and their cost structures and.
And.
Again were lenders.
Flat, okay. So we're still seeing obviously reasonable growth.
So from the standpoint of where we said where we're kind of.
Three times cash interest coverage.
And have plenty of cushion and are generally in debt securities, primarily first lien and some secondly.
We feel like it's a fine environment. We're also excited about the.
The vintage vintage this upcoming vintage.
We're headed into late 'twenty two 2023.
It should be good one leverage levels are coming down spreads are widening.
Capital's again scarcer, so covenants can be even more meaningful our diligence path can be even more thorough.
Whole package of.
The risk adjusted return that we are getting and can get in this newer environment.
Very good you prior vintages roll off inevitably and if we're doing our underwriting well, we get paid off and that we still get payoffs and even in this environment. So again taken out and we.
We will rotate those proceeds into this kind of upcoming vintage which should be a really good one.
Okay.
Got it thanks for that last question from me.
Just asking.
One loan in the portfolio.
Popped out this marked a little bit lower still at 88% at cost a kw holdings and I'm. Just curious if you just given the size and a lot of beacon.
Give me any color I think.
That Mark is really just because it's in.
British pounds Sterling. So it's like a one UK company I think you probably would've seen somewhere in there an offsetting gain from the end of the curve, we borrow and Pat when we have a UK company with BARDA on pounds. So it's kind of a hedge but the credits. If you were to take out currency is a par credit.
Got it understood thanks for that and thanks for taking my questions.
Thanks, Paul.
We'll hear next from Robert Dodd with Raymond James.
Hi, guys.
Got it got it and going back to Paul's question in terms of timing of deployments. So I think things like.
I mean was there.
The portfolio did grow but.
The interest income.
March.
Where are the deployments.
Time late in the quarter or maybe the repayments early in the quarter was there anything unusual about that or was it just kind of normal inter quarter activity this quarter.
Yes, we think it was kind of a normal normal active quarter.
Clearly base rates LIBOR, so for started spiking towards the end of the quarter.
We ended up with very.
Very healthy.
Underlying LIBOR.
Underlying base rate of one eight or one 9%, which is I think up from the 1% floor. So we had last quarter. So that's clicking in a more so due to the movement since quarter end.
Sure.
Yes, there's nothing really else notable to talk about the one nonaccrual, which is not a big one the activity we had and then the horizon the base rates.
Got it okay.
Okay. Thank you.
On the JV.
Shoot.
Two questions one I mean, obviously it.
$600 million.
It's now.
We got a plan to get it to.
$1 billion ultimately.
Similar.
Any.
It's grown pretty.
It's almost doubled in size over the last call it two years.
Is that the.
Yes.
The kind of pace have been knocked out.
Obviously.
The kind of pace, you're comfortable with going move that thing or.
When would you mentioned.
Expect it to get to that target size, especially though.
A wider spread environment, where maybe deploying capital is even more accretive attractive right now.
Yeah, Yeah, it's a good point and we do like the vintage that we're experiencing so I would say at the tight end, it's probably a year at the wyden is probably two years.
So, sometimes we're hoping to optimize and get to the $1 billion between 12 and 24 months.
Got it.
And then another one on that I mean looking at I mean.
The dividend.
Was flat sequentially, but.
I think if I have done the math right that the dividend.
You versus the NII.
The.
Select is actually and it's about 75%, but your own.
So it seems to be at the moment at least this year over distributing complexities earnings.
That math right and can you give us.
Andy.
Any explanation about why it may be doing that may be retained earnings for the past or is that going to continue.
Going forward.
Yeah, No we had some we had some big early wins.
The way, we think about is the junior capital, we're putting in which is the combination of the sub debt and the equity hedge.
That should be getting 13 ish percent return the combination of the debt instrument in the equity.
Certainly we're looking for that to grow over time, hence why we're now over 690, we've provided since quarter end and why we and pantheon have agreed to convey more junior capital to the enterprise.
Really to be able to optimize that Roe.
And yes, if you get to a $1 billion of we're probably going to need to use some CLO technology again to do so.
Which we like for these first lien low risk assets, we like the efficiency of this financing we like the long term nature of the financing.
We already have one middle market CLO and there we may want to do another at some point in time.
And I think again over the next 12 to 24 months, we're going to we're going to leg into it it could be sooner youre right the vintages.
Looking at attractive we might accelerate but we now have the capital to do so.
The strong partnership from our JV partner Pantheon and <unk>.
And.
Hopefully as PNT is getting is getting more optimized from a debt to EBITDA equity standpoint in the P&C just becomes a as we rotate as we rotate out of.
Older deals we've put them in some into newer deals in this new vintage it becomes about rotating the equity investments and it becomes about how we can optimize that joint venture. So those are the those are the levers we have multiple ways of.
Of growing income related obviously, we've got LIBOR and silver were going up. So there's we think basically it's like four different ways to grow income.
A&P and NT, which gives us.
Real confidence hopefully all four happen, we're pretty sure that the base rates going up are definitely happen, we're pretty sure that spread widening is happening.
We're hoping we can rotate equity and we're pretty sure that.
That the JV can grow so those are the levers and the tools and how we think about it and would you be able to hit on a few of these.
And bring NII up overtime.
Got it. Thank you appreciate it and congrats on the quarter and the dividend increase again.
Thank you.
And as a reminder, please press star one if you have a question at this time.
We will go next to Mickey Schlein of Ladenburg Thalmann.
Hi, yes, good morning.
Hey, good afternoon, everyone.
Just as a housekeeping question did you reverse any.
Previous accruals of income per mail sales this quarter.
No.
Okay, and the bigger picture question or given.
Your tenure in the credit markets.
Just wanted to ask you sort of a 30000 foot high level question.
Loan prices weak.
Credit spreads.
Gapping out obviously GDP growth has been negative.
Lot of headwinds from that perspective, but when I look back and think about all the earnings calls I've been through so far and just looking at the.
Published numbers on leveraged loans.
It is just not really deteriorating from very high levels, certainly there's idiosyncratic things going on so it almost feels like there's a big head fake occurring in the markets.
Or these credit problems are going to.
Come up perhaps later this year or next year and the spreads that we're seeing now.
And the Ltvs that we're seeing now make more sense. So.
What's your gut telling you in terms of the outlook for the rest of this year and going into next year.
Good question I think it turns to kind of.
Obviously, what's in the underlying books of our Bdcs of other bdcs.
Most of us in the industry have been around awhile tend to focus on recession resistant and recession resilient industries and of course anybody worth their salt in our industry.
And they are underwriting analysis puts a recession case in these loans are five to seven years of course, you have to model a recession and of course, you have to try to create a portfolio thats recession resilient and reverse the recession resistant so.
Why do we like health care why do we like defense government services et cetera, et cetera, because we believe these to be industries that are steady stable even in a recessionary environment.
Yes, if you go to the leveraged loan index or the high yield index and Theres going to be industries that are going to be more cyclical by definition.
By definition you saw during Covid why they BDC credits perform or direct lending credit performed better than the high yield index well, we don't do a lot of airlines right. We don't do a lot in energy, we don't do a lot in and other big Cyclicals pulp paper chemicals lodging.
Hospitality and if you looked at the leverage loan and high yield index and a lot of hospitality had a lot of hotels you had a lot of airlines.
So one of the reasons, we and others in our industry performed better than the.
The overall credit markets is because we specifically are focused and try to stay away from the fray on stuff. That's more cyclical. So that was COVID-19, we're now going into what looks to be more of a garden variety.
Recession. This once it will be different in some way that's different than the other ones, but we are going into we are potentially going into an economic slowdown so.
We look at these things and say Gee, if EBITDA goes down X percent, what does that mean.
For us the recession after the global financial crisis, EBITDA went down 7% that was our most draconian scenario as the recession. After the CFC. This recession may be that draconian and I doubt it will be but it could be so we build these books with substantial cushion with with real thought that we want.
Them to be recession resistant.
And that's perhaps why youre, feeling youre, probably something a little bit of confidence from us and our colleagues in this industry because we we specifically pay at play for this kind of environment.
Yes, I appreciate that and agree with you and I guess my follow up would be that.
Given your remarks, just now.
The depreciation we have seen in any of these.
This quarter may be the previous quarter have just been technical because of spreads widening.
Sounds to me that.
We may see some of that independents case.
First over time as these credits are mature and you paid back at par is that is that a reasonable assumption on our behalf as it relates to PMT.
That's right the credit book.
Is down kind of in line with the industry. It's the loans were marked down a point or two based on the market not necessarily on credit performance the bigger moves in NAV due to our equity portfolio, which by definition should be.
A little bit more up and down because this equity.
The big movers in our portfolio <unk>, where we're mostly some of our equity equity investments.
I understand that's it from me this afternoon or thanks for your time.
Thank you.
We'll go next to Casey Alexander with Compass point.
Hi, good afternoon art.
Let me ask sort of get it make you question, maybe in a little bit different way here.
This upcoming or period of economic certainty that we're in or call. It a recession seems to be quite different from the last year I mean, the great financial crisis was a massive cyst.
System wide.
<unk> Covid was sprung upon all of us.
Virtually overnight.
Wholesale business shutdowns.
This is more of a fed inspired.
Slowdown to combat.
Inflation does this give your portfolio companies with this sort of telegraphing from the fed a better opportunity to prepare by bolstering their balance sheets, managing down their expenses and keeping their inventories at levels of expected demand for a period of economic slowdown is that an advantage nature companies have in.
This particular cycle.
Yeah, absolutely I mean, COVID-19 was a shock and it wasn't a real recession or whether they shop. We can we can debate that but it was it was quick.
And we.
We had such a decent such a good performance during COVID-19 precisely because.
The sponsors and the management teams, who lived through the global financial crisis, which was also a shocker, but less of an immediate jump, but still that was like a slow moving train wreck, which became a shock in the middle of September eight.
One of the big lessons drawn from that chocolate <unk> recession was moved with speed.
You know kind of what you need to cut expense wise capex managing working capital appropriately.
Roll up your sleeves quickly those who move slowly during both the pre recession after the <unk> as well as Covid got hurt so two a to a company really during COVID-19.
The speed with which our companies moved was really really really interesting and positive and Youre right. This is a well telegraphed.
It's a slow moving situation and you could see so it absolutely does give these.
Companies.
Time to foresee and to project and two they need to tighten the belt and cut some costs and manage their working capital manager Capex do so in an appropriate and inappropriate fashion. So I think youre right that it's it's different this one maybe consumer we'll see I mean, it seems like theyre very much try.
Two.
Kind of.
Kind of get the consumer to account calmed down a bit the consumer is still spending a lot of money on travel and experiences and spending less money now on goods.
And the consumer consumers are the majority of the economy in the United States ultimately it filters through.
Where else are not everywhere else, but a lot of other places may not filter through to our defense government services less so to health care, whatever but kind of consumer is a big part of the economy. So we'll see we'll see how it plays through we're on top of it with our monthly numbers.
Talking to the companies every month stand on top of it and it also gives us a chance to to prepare and to try to be helpful. In these situations.
Secondly.
Yeah.
I appreciate your comments about the.
Strategic option for Ram.
I think most of US who are listening to the call or are centered pretty much on the sale of Ram.
But maybe you could outline what some of the other potential strategic options are for Ram and how those might benefit shareholders.
That's a great question Ram is generating good cash flow.
The wells have been successful the prices that you can get for oil and natural gas are attractive.
So there is other options but.
There is other options you continue.
Continue to run the company turned out cash flow pay.
Pay down the main street loan.
If warranted drill more wells will be as well seem to have a good return on investment.
And cash flow gets cash flow and that cash flow can can be get cash flow to our shareholders.
And many different ways so.
Clearly, there's a focus on strategic options with the potential exit but.
There is also other options that can be attractive.
Just based on the returns that the company can get on it on this capex these days, which should generate value and cash flow for our shareholders.
Okay.
And lastly, I think shareholders do I appreciate certainly the return of capital and share repurchase programs. When the stock is trading at 65% of book.
It's hard to replicate that.
In your own investing.
The opportunities so.
Yeah.
I would say I would wonder if the board.
It would at least reload the plan when it fills up or if not even that at 65% of book accelerate the plan you've done a lot of good things in terms of working down some of the equity portion to the portfolio.
And certainly if Ram comes off.
What are the hopes of perhaps accelerating that to some extent yes.
That's a great point and we're not shy about this kind of programs in our third buyback.
And we've.
We're in it to win it and we've done it before we'll do it again if need be and certainly you are right. If we can get some nice exits.
That could accelerate.
Alright, great. Thanks for taking my questions I appreciate it thank you.
We'll hear now from Melissa Wedel with Jpmorgan.
Good morning, Thanks for taking my questions today.
Following on that equity rotation.
Is it fair to say that ran.
Would represent the sort of.
The center is any low hanging fruit on the equity rotation.
Would that be sort of the most obvious candidate or are there some other things happening in the background that where.
I haven't really surfaced.
On this call.
Yes, it's a good question and anyone can look.
We can do this offline or anyone can look at our <unk>.
Our statement of investments and go into that equity piece of the.
Of the Soi.
And where you see.
Mark ups of equity versus costs that are substantial knowing that many of our equity co investments are in line with financial sponsors by definition.
By definition at some point.
Those sponsors indeed, maybe looking at strategic options.
Themselves. So I'm just kind of looking at some of these.
Company called Gauged Lash co invest so thats whats called literally lack at last year is it's a it's a cause.
Cosmetics type company Big Nice nice markup. There is one one example, there's a company called Green veracity underlying company. There is called vertex to it's a court reporting business, we haven't been a nice embedded markup.
There none of these by themselves are amazingly transformational, but there are singles and doubles.
That can certainly add to the stream.
The stream of income that's coming out of coming out of <unk>. So those are just two examples but we got I don't know some 30 equity co investments and it's easy enough to look and see where the embedded.
What are the embedded gains are.
Okay I appreciate that context.
And I think just as a follow up.
Apologize if I missed it could you elaborate a little bit on Cascade and I think that was restructured in the quarter can you just walk us through that briefly.
Touched on it last quarter.
Would you like that understand that Ram.
Through the finish line, yes, sure, yes, so cascade completed its restructuring this past quarter hour.
Our securities were converted into equity securities. So we're now a relatively large equity investor in this new new finance years came in as a first lien second lien package.
The new capital gives the company the ability to do add on acquisitions.
For this company to grow its equity value that is very important and I think it's a nice rollout strategy. It was hurt by Covid. The numbers more recently post Covid has been strong and those numbers are coming kind of post restructuring.
So we'll see we're optimistic this company's environmental drilling company.
And the states and the cities kind of put a lot of that on hold during COVID-19 and they are now.
Ill turn it back on the switch.
Now with the capital structure that can allow the company to do add on acquisitions, so well.
We will see we're optimistic of course that with this new capital structure, new fresh capital and with the support of us as an equity shareholder as well as the original sponsor.
Who is a major equity shareholder that together, we can drive value.
For the company over time, and hopefully do relatively well on the equity investment that we retain.
Okay.
Yes.
Okay. Thanks.
And with no further questions in queue I will now turn the conference back over to art Penn for any additional or closing remarks.
Just want to thank everybody for being on the call. Today reminder, that this next quarter is our fiscal year end September 30 fiscal year end. So we will be filing our 10-K and that will happen kind of in mid November so a little later than our normal cues. Our 10-K will be filed in mid November we look forward to talking to everybody at that point.
Time and again, thanks, everybody for participating hope everyone has a great rest of the summer.
And again that does conclude this call. Thank you for your participation you may now disconnect.
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