Q1 2020 Earnings Call
Following the speakers prepared remarks, if he would like to ask a question at that time simply press star one on your telephone keypad. If you would like to withdraw your question press. The pound key I will now turn the call over to Elizabeth Basin Investor relation manager for <unk>.
For Apollo investment Corporation.
Thank you operator, and thank you everyone for joining us today speaking on today's call are Howard Wager, Chief Executive Officer, Ken, How President and Chief Investment Officer, and Greg <unk> Chief Financial Officer.
I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo investment Corporation and that any unauthorized broadcast in any form is strictly prohibited information about the audio replay of this call is available in our earnings press release.
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 webcast may include forward looking statements forward looking statements involve risks and uncertainties, including but not limited to statements at your future results, our business prospects and the prospects of our portfolio companies you should refer to our registration shape statement and shareholder reports for risks that apply to our business and that may adversely affect any forward looking statements. We make we do not undertake to update our forward looking statements or projections unless required by law.
To obtain copies of our SEC filings. Please visit our website at www Dot Apollo impact I see dot com.
I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance at this time I'd like to turn the call over to Howard Widra.
Thanks Elizabeth.
I will begin today's call by providing a brief overview of our financial results for the quarter, followed by an update on the execution of our investment strategy. I will then discuss a couple of additional business highlights following my remarks, and I will discuss the market environment, our investment activity for the quarter and also provide an update on credit quality. Greg will then review our financial results in greater detail well then open the call to questions.
Let me begin with an overview of our financial results net investment income for the quarter was 50 cents per share, which reflects strong net investment activity the impact of an investment being restored to accrual status as well as the impact from the total return feature in our incentive fee structure, which resulted in no incentive fee paid for the quarter net asset value per share was $19 at the end of June down 3.3% quarter over quarter. The slight degree decrease was due to net loss on the portfolio, partially offset by net investment income in excess of the distribution as well as the accretive impact from stock buybacks. The net loss on the portfolio was mostly attributable to our non corn legacy assets.
New commitments for the quarter totaled $451 million, we often talk about the importance of skeletal lender, particularly in today's competitive market I wanted to provide you with a couple of data points would show that Andy as part of a much broader platform and is able to compete with other major market participants for the quarter. The Apollo direct origination platform made over $3.5 billion of new commitments and currently manages more than 20 billion in middle market lending commitments across a variety of Apollo managed vehicles and accounts the scale of the poet platform allows AI indeed to participate in larger commitments, while maintaining relatively small hold sizes.
Net investment activity was strong during the quarter net fundings totaled $215 million, increasing our net leverage to 1.3 times at the end of the quarter. Our current pipeline is healthy and we currently expect our net leverage ratio to be over 1.1 times by the end of September .
I will now highlight some of our portfolio metrics, which we believe demonstrate how we are prudently growing our portfolio with safer lower yielding loans following our adoption of the lower asset coverage requirements, our corporate lending portfolio grew by approximately $272 million or 18% quarter over quarter.
Our core portfolio, which includes corporate lending positions and Merx represented 83% of the total portfolio at the end of June 68% in corporate lending and 15% in Merx.
71% of the corporate lending portfolio is in first lien investments up from 65% last quarter and compared to 46% a year ago, 99% of the corporate lending book if in floating rate debt investments.
Although asset spreads for the quarter declined the portfolios weighted average net leverage and attachment point continued to improve we also continued to take advantage of our ability to co invest with other funds and entities managed by Apollo, which allows us to participate margins deals, which are typically less competitive investments made pursuant to our co investment order increased to 67% of the corporate lending portfolio at the end of June up from 63% last quarter and compared to 41% a year ago. We continue to deploy capital in life Sciences asset based lending and lender finance areas with significant barriers to entry, which midcap financial has expertise. These three niches now represent 14.2% of the portfolio at the end of June up from 13.5% last quarter and 8.9% a year ago. We also continue to proactively manage position side sizing concentration risk regarding merck's as discussed on previous calls our strategy includes reducing our exposure in merx to 10% to 15% of the torture total portfolio.
During the quarter Merx repaid a I envy approximately $46 million on a net basis, reducing these investment in Merx from 425 million to 381 million four from 17.7% of the towards total portfolio to 14.5% within our target range and we expect to continue to further reduce our exposure.
Additionally, we continue to make progress, reducing our exposure to non core and legacy assets. During the quarter. We received a small pay down from both Pelican and glacier two of our oil and gas investments. We remain focused on prudently exiting our remaining non core positions non corn legacy assets represented 17% of the portfolio at the end of June down from 19% at the end of March.
Moving on the equity market did present as to what we believe was an attractive opportunity to repurchase our stock we consider stock buybacks below NAV to be a component of our plan to deliver value to our shareholders. We typically repurchase shares during both open window periods and we generally allocate a portion of our authorization to a tenbfive plan, which allows us to repurchase stock during blackout periods.
Since the inception of our share purchase program and through the end of June we have repurchased a $186 million or 13.9% of initial shares outstanding which has added approximately 62 cents to NAV per share.
Since the end of the June quarter, we continued to repurchase stock. The company currently has approximately $61.8 million available for stock repurchases under the current worth organization. We continue we intend to continue to repurchase our stock should it continue to trade at a meaningful discount to NAV.
Turning to our just for distribution. The board has approved a 45 cents per share distribution to shareholders of record as of September 28, 2019 Lastly, the company held its annual shareholders meeting earlier today, we greatly appreciate the support of our shareholders with that I will turn the call over to Tanner to discuss the market environment and our investment activity for the quarter.
Thanks, Howard beginning with the market environment the volatility at the end of 2018 impacted syndicated loan issuance activity for much of the first half of 19, and consequently, more borrowers side private debt solutions, particularly given the significant amount of capital.
The private debt market saw a pickup in deal flow during the quarter compared to the first quarter, but was still slow by historical standards.
As always the environment remains competitive as direct lending funds continue to raise capital in the secondary market loan funds continue to experience outflows due to the expectations about interest rate cuts.
During the quarter, our investment activity focused on first lien floating rate corporate loans source by the Apollo direct origination platform, new investment commitments, and fundings were $451 million and $312 million respectively.
New commitments were comprised almost entirely of first lien floating rate loans. These new company commitments, where across 25 companies for an average commitment size of $18 million.
The weighted average spread over LIBOR of new commitments was 552 basis points within our target range of 500 to 700 basis points for incremental assets. The weighted average net leverage for new commitments was 4.7 times within our target range of four to 5.5 times lastly, 96% of new commitments were made pursuant to our co investment order sales totaled $10 million and repayments totaled $67 million for total exits of 76 million, resulting in net funded investment activity up $236 million in excluding merx and revolver activity as Howard mentioned, we received modest repayments from a few non core and legacy investments, including a $1 million repayment from square to a $2 million repayment from glacier oil and gas and a 900000 repayment from Pelican energy.
In addition, net fundings on revolvers totaled 25 million and we received a net repayment of $46 million from Merck's net fundings totaled $215 million, including Merx and revolver activity now let me spend a few minutes discussing overall credit quality as previously mentioned our second lien investment in sprint industrials was restored to accrual status during the quarter sprint is a rental provider of liquid and solid storage tanks and safety equipment to refinery petrochemical and industrial customers along the us Gulf Coast Sprint, primarily serves downstream and midstream customers. The company commenced a sale process earlier this year and recently sold one of its two businesses and is under contract to sell the remaining business. This quarter as a result of the sale process. We expect to receive a full cover recovery of interest and principal on our investments.
Moving on our first let the first lien debt investments in KL outdoor were placed on nonaccrual status during the quarter KL outdoor is a designer and manufacturer of recreational outdoor products, including kayaks canoes paddle boats fishing boats paddleboards and fishing blinds.
The company has underperformed due due to lower customer demand consolidation challenges in higher costs at the end of June investments on non accrual status represented 1.7% of the portfolio at fair value down from 2.4% last quarter and 2.5% at cost down from 2.9% last quarter.
Moving onto our credit metrics, the weighted average asset spread on the corporate lending portfolio decreased 27 basis points to 686 down from 713 last quarter compared to 552 basis points for new commitments. The weighted average net leverage of our investments decreased from 5.54 times to 5.43 times and compared to 4.7 times for our new commitments.
And the weighted average attachment point of the portfolio declined from 1.9 times to 1.7 times.
The average interest coverage remained at 2.4 times, we view this trade off of yield for credit quality as a positive at this point in the credit cycle.
With that I will now turn the call over to Greg who will discuss the financial performance for the quarter.
Thank you Tanner beginning with the income statement total investment income was 60 $66.5 million up from $61.4 million for the March quarter, an increase of $5.1 million or 8.3%.
The increase was due to higher interest income and prepayment income, partially offset by lower dividend and fee income interest income rose 8.8 million quarter over quarter due to our investment.
In sprint industrial being restored.
To accrual status and higher recurring interest income due to the portfolio growth.
Interest income includes $3.3 million of ketchup interest from sprint.
Expenses for the quarter were 32 million up from $28.9 million in the prior quarter due to higher interest expense management fees given the growth in the portfolio no incentive fees were accrued during the quarter given the total risk return provision in our fee structure.
Net income was 50 cents per share for the quarter compared to 47 cents per share for the March quarter net leverage at the end of March was 1.03 times compared to <unk> 0.83 times at the end of March average leverage during the quarter was 0.93 times up from 0.78 times during the March quarter.
The net loss on the portfolio for the quarter totaled $10.7 million or 16 cents per share. The net loss was primarily attributable to our non core and legacy assets, including our oil and gas shipping in carbon free chemicals investment one of our legacy names positive contributors included our investment in sprint merchants, where two during the quarter, we received $1 million of escrowed funds associated with the sale of our investment in square to financial which occurred in 2017.
NAV per share was $19 at the end of June compared to $19.06 at the end of March the six cents decrease was attributable to the 16 cents loss on the portfolio offset by net investment income of five cents greater than our distribution as well as a four cents accretive in impact from the stock buyback during the quarter.
The average corporate lending portfolio yielded for the quarter will yield for the quarter was 9.9% down 40 basis points quarter over quarter. The quarterly change was due to a combination of a decrease in the average loan spread given the lower spread on new investments and a decline in LIBOR.
On the liability side of our balance sheet.
We had one point.
Three.
$5 billion of debt outstanding at the end of the quarter regarding our funding we continue to evaluate various alternative sources of capital with a particular emphasis on diversifying our funding sources in July we announced we will be redeeming all of our 150 million.
Dollar six and seven eight unsecured notes due in 2043 in mid August .
We will recognize a loss of approximately $4.4 million on the extinguishment of these nodes in the September quarter due to the acceleration of the associated unamortized debt issuance costs.
We will initially replace these nodes using our revolving credit facility. However, it is our current intention tissue or lower cost unsecured debt to replace these nodes long term.
The timing of our of any future debt issuance will be subject to market conditions. We currently estimate that there is an approximately one year payback period given that the redemption of these notes will result in interest expense savings.
Our weighted average interest rate.
On our average debt for the quarter was 5.15% down from 5.44% last quarter, excluding the 2043 nodes the weighted average annualized interest cost would be approximately 4.9% for the period.
Regarding our credit facility, a new lender committed $70 million during the quarter for for our facility, increasing total commitments to $1.7 billion.
We are pleased also to announce the Kroll bond rating agency recently reaffirmed our investment grade credit rating lastly regarding stock buybacks during the quarter, we repurchased.
950000 shares at an average price of $15.92 for a total cost of $15 million during the quarter and since quarter end and through yesterday, we repurchased an additional.
136000 shares at an average price of $16, an 11 cents for a total cost of $2.2 million.
Since the inception of the share repurchase program, which began in 2015, we have repurchased 11 million shares for 14% of our shares outstanding for a total cost of $188 million. The company now has approximately $62 million of availability for stock repurchases.
This concludes our prepared remarks, operator, please open the call for questions.
At this time I would like to remind everyone. If you would like to ask a question at this time. Please press Star then the number one on your telephone keypad, we'll pause for just a moment ago given day roster.
And your first question comes from the line of Terry MA with Barclays.
Hey, good afternoon.
On the decrease in yield corporate lending portfolio can you can disaggregate how much of this 40 bips was driven by livewatch versus the other pieces.
Yes, I mean it was about.
About a third LIBOR.
About two thirds.
The portfolio mix, especially because there was so much growth in the first lien.
Got it.
Thank you and how do you think about I guess dividend coverage going forward given there is at least one more rate cuts.
Maybe a couple more further down the line I think your sensitivity table, so something like.
A 6% decline in income for 100 Bips.
Yes.
So.
25, right I mean that six percents right I mean $333 million of net income annually per 25 basis point type.
Net income.
At AAD.
You know.
At the at leverage levels in the you know the one three to one four range.
We feel comfortable with our ability to.
Cover our dividend.
Hi.
You know assuming sort of a normal rate cut cycle, obviously at some point soon enough, but you know at some point also our leverage our leverage we won four five so it's hard to know exactly where where we hit it but if you we have continually sort of articulated that had a 10% yield and leverage between like one one and one to five we we sort of cover our dividend and or over our dividend as we fall below 10, even be.
Overall, our overall portfolio so were 10.1 right now.
Either because of the mix of our portfolio because of LIBOR, obviously that one one to 1.25 moves up right to one to 135, but theres enough there's enough room to absorb what what.
It sort of any near term.
Significant movements in interest rates.
Okay. That's helpful.
And then just on Merx and what drove the.
Decrease in that dividend this quarter and how should we think about that going forward.
Yes, I think.
For marks and also in our shipping investments, we decided to leave capital down in both of those businesses.
Due to their recycling of certain assets within there or in the shipping on for instance, there was some on dry dock expenses on that was using that capital.
Okay, and then for modeling purposes, how should we think about the dividend.
In future quarters.
You know I think we've we've historically been between a million in Maine have on.
You know as we reduce our investment size in on Merck's I would bring it down on overtime.
We are pulling out 12% on the.
No thats there so.
Overtime, we modeling in it one to one and a half, but I think depending upon.
Asset sales within marks on it may decline.
In the longer.
But just if you looked at it over historically you know the one to one and a half which is $4 million to $6 million a year on our sort of equity account right now is about 12%.
Both on the equity and Thats, where the yields on the debt and so just a little lumpier on the equity side on the debt side.
So like 12% across the whole investment is around how we generally think about it.
Okay got it thats helpful. Thank you.
Your next question is from Rick Shane with JP Morgan.
Hey, guys. Thanks for taking my question.
Curious in further entry Gregs comments about the interest rate sensitivity, Greg you said.
$3 million for 25 down 25 basis points.
When I look at your interest rate sensitivity chart on page 13, it's one of the more interesting ones that I've seen in that.
It's very linear up or down 100 basis points and then after that.
It really starts to flow.
Actually excuse me flattened out down 200 basis points I assume that that has to do with floors or some sort of caps that you guys have in place.
What im curious on to make sure we understand this because what this would suggest to me is that for the next 50 basis points, we would expect to see about six $6.5 million of pressure and then as we move.
Ask that the pressure starts to abate in really understanding that Kirk set looks like it's going to be sort of the sweet spot.
It's going to be really important.
I think your assessment is fair and I think one of the things that we've been able to hold onto within the middle market origination is while floors have started leaving the syndicated market as we have been able to keep that as a feature within our agreements and so your characterization is broadly correct and if the existence of floors that moderates that.
That that that.
That that detriment.
Past 100 basis points.
And is it really it looks to me based on this plus what Greg said that the majority of their floors are probably down about 75 bits from here.
The majority of the floors would be.
So it depends.
Most of them are at 1%, but we have a number of.
Of names that are one and a half and in some cases, even even higher than that so broad broadly speaking correct.
Got it great. That's it for me thank you very much.
Your next question is from Kyle Joseph with Jefferies.
Hey, good afternoon, guys. Thanks for taking my questions.
Following up on Rex.
Talking about the impact of rates.
And the.
And you guys retiring here.
How you anticipate your cost of funds trending over the near term.
I mean, I think based upon what we said we are taking the.
If you pro forma just taking out the.
Six and seven eights.
We're down without the LIBOR adjustment on a cost of funds to end of it.
4.9% on and I think that that's where we're focused we're obviously focused on that.
And so I think.
Given given where we are given where the interest rates are headed I think that's a good barometer at this point.
Got it makes sense and apologies if I missed it but it looks like pick income ticked up in the quarter was that.
Related to sprint or.
Or anything one time, there are no issues related to sprint.
Okay existence, and we collected the majority of that.
Post quarter end.
Got it and then stepping back a little bit given what's gone on with the rate environment, what's going on with.
Leverage in the BDC space can you give us any.
Any changes to the competitive environment, you've seen over the past few months.
I Wouldnt say so much over the past few months I mean, I think the trends are the same you know can you know there has been and continues to be a reasonable amount of capital formation said there continues to be sort of a good amount of competition. There continues to be a premium available pre I don't have call. It previously there seems to be some competitive advantage of available for people who have scale, both because they have more origination and it can do bigger deals and also because they have you know existing relationships of which to sort of grow from.
And then also product diversity those are the places it doesn't teams we've been beating all the time so.
And sort of we see that so.
I wouldn't say, there's anything markedly different.
It remains quite competitive and we have seen nothing that alleviates that.
Got it that's it for me thanks, very much for answering my questions.
Your next question is from Finian O'shea with Wells Fargo Securities.
Hi, guys good afternoon.
First question for Greg on the.
2043 notes could you give a little more color as to the Y on on turning those over I think you noted that.
You'd wait for a little more opportune time to replace it with unsecured meaning that.
You know right now is not the best but.
You know after having gone through years of holding them and I know youve taken some criticism on the call for it.
They seem more attractive than ever.
Given they'll probably carry us through a recession so.
With all that said you know how would you answer those claims and just kind of expand on why take those out now.
Well I think first of all if you just look at our cost of funds.
You look at where we're taking it out with our credit facility.
Which has been upsized substantially in the last year.
That's one reason, but I think if you if you look at our funding going forward and I think as I indicated we're going to continue to look at.
Potentially down the road, putting some more unsecured debt out.
Also look at our asset base and look at what we're putting on our balance sheet. There are a number of ways to finance those on even beyond our credit facility. So we feel very comfortable that were not shut out of the market.
On at all from both looking at unsecured and secured financings going forward. So we're very comfortable.
Kind of building our portfolio up de leveraging the portfolio up to.
1.4 times on with our capital structure and accessing the markets on.
When appropriate too.
Vale ourselves of very.
Favorable cost of capital.
Sure. Thanks for the color and then another four.
Anybody Howard or tenor.
With the shipping assets those are large component of non core now can you kind of give an overview on on the challenge of moving these.
Are they hard to clear our your specific underlying its hard to clear.
We're going to price is today or are there are there other investors don't want to sell just any color as to the challenge.
Those shipping assets.
Sure there I mean, there are liquid assets. So they are hard to clear regardless right just because they're just they're pretty unique.
That said you know the prices that we think are available for them are.
Now in the ballpark of where we see it.
We would be happy with and we would expect to be able to sort of transact some of them soon.
You know in.
It will be in a piecemeal basis as opposed to sort of the whole portfolio sale, but.
We would expect to be able to transact transactions and the prices are sort of meeting our you know.
Our sense of the value now.
And there's also some strategic opportunities with our you know the whole fleets to sort of.
You bring that together with sort of other larger platform. So.
You're right it has been hard to move.
Value of these of these shifts we've actually been pretty consistent on but.
Peoples.
The market's ability to pay for these illiquid assets changes a little bit and it is now sort of hit the point, where we think there's some real ability to transact.
Got it thanks, and one more does the advisor for pollo receive any of the.
Upfront economics before allocating to the BDC and other funds.
No.
Very well thanks for taking my questions.
Your next question is from Ryan Lynch with KBW.
Hey, good afternoon.
First question I know originations can be lumpy quarter to quarter, but over the previous four quarters. You guys were kind of originate anywhere from 25 to 300 million this quarter that bumped up.
450 million. So can you just talk about what really drove the big Spike this quarter.
Yes, I mean, we could talk in some detail, but I mean really.
Over the past two or three quarters is when you know as our you know as our ability to go up.
Above the one to one leverage Mark in April occurred.
So sort of that.
The final widened if you will because we originated sort of.
The full array of assets that made sense for us that fit between 500, now 700, and so you know.
We have sort of said I think over the past year, we would expect sort of.
Around this level of origination.
So thats, maybe a little bit high end run off with a little bit low 70, net fundings were a little bit higher but we we have sort of I think given some guidance of about a 100 million of growth, which we said would be three to 350 million of origination.
And and so this was a little bit higher than that but I think it's just indicative of.
Where are where our platform is and how much flow we're seeing.
Okay. It makes sense.
And then I wanted to ask a question on the dividend.
If I look at this quarter's kind of core operating earnings of about 50 cents.
You guys had about a 3.3 million catch up from sprint.
And then you guys had no incentive fee, which is maybe around $7 million or so if I take those two kind of onetime factors into account for $10 million that added about 15 cents per share to your earnings this quarter. So if you ex those out.
Earnings would have been around 35 cents.
Running at 1.05 times leverage so.
Can you just kind of walk me through or were there any one time items in this quarter's earnings that that kind of RW onetime that that kind of hurt earnings a lower and your confidence in your ability to kind of get earnings back up in line with the dividend.
Yes. There is there was no dividend income from merchant ships.
Which we have discussed before.
There was a little bit higher expense level.
In the normal course.
Related to a few.
Minor onetime items, but but irrelevant.
And then you know the other so so that.
Not exact numbers, but that takes us into the low fortys.
And then how the growth in the portfolio takes us up to the level that we're comfortable I mean, there is one other slight number which is our average fees each quarter over the past six to eight quarters has been between 444 and $4.5 million that was a little below that this quarter as well.
And so all of those things that up so if you sort of you look through our model.
And you look at.
1.25 times levered portfolio, yielding around 10% with.
Long term averages of fees and dividends off of Mark's into ships, we cover the dividend.
And so we're focused on that at 1.25 is relevant but thats, where we closed the quarter of 1.03.
With the bridge to from 1.03 to 1.25 has been that the incentive fee hasn't been paid these last few quarters, but as the incentive fee picks back in getting to that 1.25 leverage will cover the dividend with the incentive fee being paid.
And then I'd also note that the management fee above one to one assets goes from 1.5% to 1%, which also helps in and it's embedded in howards guidance as it relates to dividend coverage at our target leverage right and as I said you know obviously.
Im using sort of you know shorthand math, it's accurate, but it's but it's short hand, so like if yield is 9.9 as I said to an earlier question as opposed to 10 that means one point threex leverage as opposed to 1.25 and so there is some variation than there, but but but the answer is I mean, you're looking what you said is accurate about those onetime items, but you know there were some onetime items. The other way combined with sort of the significant growth in the portfolio, which doesn't really kick in until this quarter because it happened during the course of the quarter sort of bridges the gap.
Okay.
Thats helpful color and then.
You guys investment in Bumble Bee.
I think that.
The company is about to file for bankruptcy or May have just announced that they're going to file for bankruptcy. Just wondering I know does your 630 fair value. Mark you guys have about marked about 95% of cost is that does that mark inclusive of afraid you have to run through bankruptcy.
Yes so.
What I'd say there is that that is a LCD article that came out this.
Today or yesterday, our valuations are a point in time. The company has had has experienced issues not only related to terrorists, but also related to historical issues with price fixing and consequent.
Litigation expenses, we are a participant in a broader facility and are are working with the borrower to deal with.
Deal with the issues and move things forward, but in terms of the specifics.
Our valuation is a point in time with the information available to us at the time.
As of quarter end.
Okay, and then one last one you guys, meaning new power platforms ban on the forefront of.
Working with the FCC ticket Asap.
Corrected I was just hoping that you guys could give us update on where that stands in the process and any sort of outlook over the next several months of where you expect that that data.
Bill to go.
On yes, there has been.
Since last quarter. There has been continued dialogue theres been dialogue with the SEC, we are filing an amended on.
On.
Letter with them on based on our approach I think they've been very positive relative to it.
On but I wouldn't.
Yes, I don't think a venue.
Transact in the in the near future, but there's there's good correspondence they are asking good questions and.
We're responding appropriately.
Okay.
That's helpful. That's all from me I appreciate the time.
As a reminder, if you would like to ask a question at this time. Please press star one on your telephone Keypad. Your next question comes from Robert Dodd with Raymond James.
Hi, guys.
Some nitty gritty ones and then.
Greg could you.
Tom is that the debt extinguishment cost again, the next quarter I didnt get that with that.
4.4 million approximately.
Thank you.
And then looking I mean.
You mentioned lower fees I mean, if I look at the other income I mean, it was 900000 across all portfolios. It's been two years since we we've seen the number that look.
Is there anything that's changed structurally in the portfolio, where we should expect.
Hello.
So lot of the other income kind of contribution going forward or is it just I mean, obviously, it's volatile quarter to quarter, but is it going to be systematically lower or was this just a.
Kind of a one off set of factors that resulted in this quarter.
One off set of factors I mean related mostly to not not that much runoff.
Got it.
All goes back to Merck's, if I can obviously it lost money in the quarter can you tell us if.
It was that related to them rotating that portfolio or was that one time costs. So the obvious question is if if they're in a position.
Well in the near term that is in the money, the probably not going to pay a dividend so.
While I can appreciate you point that mix.
The turn you get on that capital should come up to kind of 12%.
Pardon me at some point is it should we expect that to happen next quarter or is it going to be a longer term.
Yes. So first of all Merx has retained earnings okay. So on the retained earnings that can be dividended up the quarter specific for the answer for this quarter. Okay is.
It's a GAAP basis, so thats, what you're reporting we took we had some legal costs related to the securitization that ran through and also that we're not capitalized and we also had some additional on.
Bad debt expense that we put on the on.
Reserve again based on our reserving policy on.
And so thats, what really occurred during the quarter.
But nothing outside of the normal course.
Got it got it.
Actually this those were my questions I appreciate it thank you.
Your next question is from Casey Alexander with Compass point.
Hi, good afternoon.
Just a.
If you could educate me.
Based upon the net losses that resulted in this quarter.
Will there be any.
The reduction in the incentive fee next quarter and if so can you estimate how much.
No weve essentially caught up with the look back period.
Okay.
Okay. That's that's my only question. Thank you.
Your next question is from Rick Shane with JP Morgan.
Hey, guys actually my question was on the look back as well I was trying to figure out.
Given the loss in the December quarter, if you would sort of lap that in the December quarter. This year. It sounds like we should assume a normal incentive fee starting in the September quarter.
Yes, yes.
Great. Thank you.
And there are no further questions at this time I will turn it back to management for any closing remarks.
Thank you on behalf of our team we want to thank you for your time today and your continued support please feel free to call any of us with any questions have a good evening.
Thank you and this does conclude today's conference call you may now disconnect.