Saratoga Investment Corp New

Q1 2022 Earnings Conference Call

7/8/2021

spk_0: mine name and gentlemen thank you for standing by we're going to hurt her investment corp cisco first quarter twenty twenty two financial results conference call please note that today's call is being recorded during today's presentation of are you will be an aid listen only mode falling management's prepared remarks we were open lines for questions at this time i would like to tell a car over to settle in some clubs chief financial officer and compliance officer mr henderson in cap serpico him
spk_1: thank you would like to welcome everyone to saratoga invasion called fiscal first quarter twenty twenty two earnings conference call to date conference call include forward looking statements and projection we asked you to refer to most recent filings with the a fcc for important factors that could cause actual results to differ materially from these forward looking statements and projection we do not undertake to update up forward looking statements unless required to do so by law today we will be referencing a presentation during our call you can find our fiscal first quarter twenty twenty two shareholder presentation in the events and presentation section of our investor relations website and link to our i are paid in earnings press release distributed last night a replay of this conference call will also be available from one pm today through july fifteenth please refer to earnings press release for details i would now like to turn the call over the chairman and chief executive officer christian over there will be making a few introductory remarks
spk_2: thank you henry and welcome everyone reflecting on this quarter versus the challenges of the same time last year is quarter is underscored the resilience in saratoga and our portfolio companies despite the on an act of covert nineteen which we all felt so strongly over the past year we feel very fortunate given the devastation of this tragic pandemic from a financial perspective to have demonstrated our ability to whether our come the challenges as well as to capitalize on the financial recovery opportunity and transition aggressively to the substantial ramp up and market activity this quarter we grew our assets under management the six hundred seventy eight million dollars with one hundred nineteen million dollars of originations both reaching their highest levels while maintaining our credit quality and extremely high credit bar we sent for all new originations
spk_3: the performance of our existing portfolio also grew are levy per share my five percent does quarter to twenty eight dollars and seventy cents also a record
spk_2: our latest twelve months return on equity as of this quarter was nineteen point four percent we look forward to presenting are most recent results in revealing our financial on portfolio performance and the solid structure or capitalization the briefly recap the past quarter and slide to first we continue to strengthen our financial foundation this quarter by maintaining a high level of investment credit quality with ninety three percent of our lawn investments continuing to have our highest rating and quarter and generating a return on equity and nineteen point four percent on trailing twelve month basis and she won ahead of the seventeen point six percent btc industry average as a q one registering a gross on lebron i are of thirteen percent on our total unrealized portfolio with our current fair value three percent of total costs more portfolio and a gross on word iraq sixteen point five percent on total realizations to date of five hundred and seventy three
spk_4: nine dollars
spk_2: second or assets under management increased to six hundred seventy eight million dollars this quarter a twenty two percent increase from five hundred fifty four million as last quarter and he forty percent increase from one hundred and eighty three million dollars as of the same time last year we originated record hundred ninety million dollars new investments are set by fifteen million dollars of repayments this corner importantly our new originations voted for new portfolio company investments as well as nine follow odds with existing portfolio companies and the current pipeline is robust third despite improving economic conditions balance sheet strength liquidity and any be preservation remain paramount for us our current capital structure a quarter and was strong with three hundred twenty million dollars mark to market equity supporting a hundred and seventy three million dollars of long term covenant free non as be i see that are quarter and regulatory leverage of two hundred fifty one percent substantially exceeds our hundred and fifty percent requirement and include loads of thirty nine million dollar drawn credit facility a quarter and we have one hundred and fifty seven million dollars available liquidity and quarter and available to support your portfolio companies with one hundred thirty one million dollars of the total dedicated to new opportunities and er sp i see to fund
spk_3: the all and cost of this new as the i to debt is currently less than two percent or told committed undrawn lending that it's outstanding to existing portfolio companies are fifteen million
spk_2: in march we issued a fifty million dollar four point three seven five percent five year unsecured bond it strengthens both her capital and liquidity position and also importantly reduces our current cost of non as be i see capital by almost two hundred days as points finally reflecting on are strong performance and overall portfolio resiliency the board of directors decided to again increase or quarterly dividend by one set the forty four cents per share for the quarter added may thirty first twenty twenty one paid on june twenty nine twenty twenty one we'll continue to evaluate or dividend payments on at least a quarterly basis as we gain better visibility on the intermediate term economy and fundamental portfolio performance
spk_3: his quarter some strong performance within our key performance indicators as compared to the quarters and it may thirty first twenty twenty and february twenty eight twenty twenty one
spk_2: or just in an eye on six point three million this quarter of a percent versus five point eight million posts last year and last quarter
spk_3: or just in an eye for shares fifty six cents this quarter of five cents from fifty one sense last year and up for sense with fifty two cents less work
spk_2: latest twelve months return on equity is nineteen point four percent up from nine point nine percent last year and five percent last quarter
spk_3: or and a beeper share his twenty eight dollars and seventy cents up fourteen percent from twenty five eleven last year and up five percent from twenty seven twenty five last quarter significantly exceeding industry performance
spk_2: and we will provide more detail on these matters later
spk_3: as in the past we remain committed to further advancing the overall long term size and quality are asset base as you can see on slide three or assets under management steadily and consistently risen since we took over the btc more than ten years ago and the quality of our credits remains high we we're working diligently to continue this
spk_2: positive trend as we deploy are available capital into are growing pipeline while into same time being appropriately cautious in this evolving credit environment with that i would like to now turn to call back over to henry to review our financial results as well as the composition and performance of our portfolio
spk_1: thank you crit slide for highlights i'll keep a four month metrics for the quarter ended may thirty one twenty twenty one when a cat thing for the and think the a cruel related to nate unrealized capital gains in the second incentive for calculation adjusted and i have six point three million dollars was up a for sent from five point eight million last quarter and as compared to the same amount for last year's key one adjusted and ipa she was fifty six cents up five cents from fifty one thing per se last year and up for sense from fifty two cents per share last quarter across the three quarters weighted average common shares outstanding remained largely unchanged at eleven point two million shares for each quarter the increase in adjusted and i from last year and last quarter primarily reflects the higher level of investments and result in higher interest and other encounter with a you end up twenty two percent from last quarter and up forty percent from last year how effective yield and i core btc portfolio has remained relatively unchanged at nine point five percent during hold for a period adjusted and i yelled with eight point zero percent when adjusted for the intent of the a cruel that he ended up ten basis points from seven point nine percent last year and up thirty basis points from seven point seven percent last quarter for this quarter we experience and net gain on investments of eighteen point five million dollars or a dollar sixty six per weighted average share resulting the total increase in eight assets from operations of twenty one point zero million or a dollar eighty eight per share the eighteen point five million net gain on investments was comprised of sixteen point and eight million in aid unrealized appreciation on investments and one point nine million dollars in a trailer games offset by point two million dollars of net deferred tax expands on unrealized appreciation in saratoga investments block it's subsidiaries the one point nine million dollars nate realized games with generated from the sale of our village realty investment the sixteen point eight million dollars need unrealized depreciation was driven by a three point four percent increase in the total value of the remaining portfolio are primarily related to improvements in market spread he the da multiples and or revised portfolio company performance that number includes a four point zero million dollar increase in the fair value of as a low investment as well as a fourteen point six million dollar increase in fair value across the rest of the portfolio excluding the village realty realization we have more than recovered the net reduction in the value of the non philo portfolio during may thirty one twenty twenty a portfolio fair value is now three point two percent above the total cost return on equity remains an important performance indicator for us which includes both realized and unrealized games i return on equity was nineteen point four percent for the last twelve months ahead of the industry average of seventeen point six percent total expenses excluding interest and debt financing expenses they've management fees and incentive management fees increased from one point four million dollars last year key one to one point nine million dollars for this quarter but remained unchanged at one point one percent of average total assets we also again included the kp i slide starting from flight twenty seventh through thirty in the appendix at the end of the presentation that shows our income statements and balance sheet metrics for the past nine quarters and the upward trend we have maintained moving on to slide five in a the was three hundred and twenty point three million dollars as of this quarter and a sixteen point one million dollar increase from a navy of three hundred and four point two million dollars a year and and a thirty eight point seven million dollar increase from in a the of two hundred ninety one point six mil i am as of the same quarter last year primarily driven by realized and unrealized games during he won forty thousand shares were repurchased at a cost of one point zero million dollars and an average price of twenty five dollars and nine cents per share in a beep a hey was twenty eight dollars seventy cents as of quarter end up at five point three percent from twenty seven twenty five as of year and and up fourteen point three percent from twenty five dollars and eleven cents as of the same period last year in a bbc has increased thirteen of the past fifteen court is a net asset value has steadily increased since two thousand and eleven and this growth has been a creative as demonstrated by the increase in in be pushy we continue to benefit from a history of consistent realized and and realize games on flights six you will see a simple reconciliation of the major changes in an eye and in a vp se on a sequential quarterly basis starting at the top and i i appreciate increased from fifty two cents per share last quarter to fifty six cents per se and que one most of the increase was due to the ten cent increase in other income and a for think decrease in operating expenses this was partially offset by seven said decrease in non see a low interest income and a two cent increase in both management fees moving on to the lower half of the slide this reconcile the dollar forty five cent in eighty percent increase for the quarter the twenty three cents generated by our and i and the dollars sixty six knit realize and unrealized games including the third tax impact were off said primarily by the forty three cents que for fiscal twenty one dividend declared in que one of this year there was a once in diluted net impact of our a pm and grip programs in que one as well flight seven outlines the dry powder available to us as of may thirty one twenty twenty one which totaled one hundred and fifty seven million dollars this was spread between available cash undrawn if be a the benches and undrawn madison facility this quarter and level of available liquidity allows us to grow assets by an additional twenty three percent without the need for external financing with twenty million dollars of it being cash and that fully a creative to in i when deployed and a hundred and thirty one million dollars in his be a the ventures with an old in cost of approximately two percent also there area creative mike will lay the touch on need origination since quarter end however we have recently partially repaid outstanding credit facility with eighteen point five million dollars currently still drone included on the schedule for the first time on march tenth twenty twenty one we close the public offering of fifty million dollars for point three seven five percent note and twenty twenty six resulting in net proceeds of approximately forty eight point eight million dollars we remain pleased with how liquidity and leverage position especially taking into account the overall conservative nature of our balance sheet and the fact that all i did his long term in nature with no non is be i see that maturing within the next four years and all mostly fixed rate now i would like to move on to slide a through eleven and review the composition and yield of our investment portfolio slide eight highlights that as of quarter and we have six hundred and seventy eight million of a you am at fair value invested in forty four portfolio portfolio companies and one philo fund our first mean percentages seventy six percent of our total investment of which five percent of that is info lean lost our position on flight nine you can see how the yield on our core btc acid excluding as the philo as well as a total assets healed has dropped over time yet remain healthy this quarter over your our overall yield decrease to a point six percent however cool as it healed has remained relatively unchanged at nine point five the thing the primary reason for the overall yield decrease in detail equity positions increasing from six point seven percent to eleven point nine percent of our overall portfolio due to a combination of new equity investments and unrealized games on existing equity positions much of the increase in new equity position is in preferred equity that and quarterly dividend and is presented in other income as a reminder one hundred basis points are generally our lowest flow so we did not expect to see further decreases in live or greatly impact interesting income as the a low yield of thirteen point three percent is an increase from eleven point six percent last quarter reflecting philo our performance and othello his current and performing then decide ten our investments remain highly diversified by type as well as in terms of geography during the past quarter we made investments other one hundred and nineteen point two million dollars in for new portfolio companies and nine follow on and had fourteen point nine million dollars in one repayment and amortization result thing and a net increase in investments of a hundred and four point three million dollars for the quarter on flight eleven you can see the industry break in diversity that our portfolio represents our investments are spread over thirty one distinct industries with a large focus on education software ip services education services and healthcare software a total investment in the low is reflected as structured finance
spk_5: securities
spk_1: or that total investment portfolio equity interest has increased to eleven point nine percent and remain an important part of our overall investment strategy for the past nine fiscal years including he one we had a combined sixty one point five million dollars of nate realized gains from the sale of equity interests or sailor early redemption of other investments about two thirds of these games were fully a creative to in a v due to the unused capital loss carryforwards that with carried over from in saratoga took other men judgement of the btc following our a elyria realization last quarter we are again and a cumulative capital off to carry forward pack position which will offset future realized games like we had this quarter does consistent performance highlight of portfolio credit quality has helped grow our in a the and is reflected in our healthy lunch tomorrow we that concludes my financial and portfolio review our mountain the call over to michael griffith our chief investment officer for an overview of the investment market
spk_6: thank you honey
spk_7: i'll take a couple of minutes to describe our perspective on the current state of the market and then comment on our current portfolio performance and investment strategy there's only been two months since our last update and we see market conditions continue their return to where they were pre coded nineteen liquidity conditions remain exceptionally robust we are seeing increasing transaction volumes tightening credit yields and greater leverage multiples and an aggressive couple deployment pastor overall with current pricing and leverage had such a gruffudd levels there is increasing pressure for investors to compete in other ways such as accelerated planning to close and looser covenants restrictions that said lenders and or market are still wary a thinly capitalize deals and for the most part the stay disciplined in terms of minimum aggregate base levels of equity and requiring reasonable covenants deal volume in the first half of the year was quite robust and there appears to be a positive outlook in this regard for the remainder of the calendar year two thousand twenty one our underwriting bar remains high as usual yet we are actively seeking and finding opportunities to deploy capital we believe that compelling risk adjusted returns can be achieved by the coin capital in support of businesses that have demonstrated strength and durability throughout this kobe environment all on investments with existing borrowers with strong business models and balance sheets continue to be an important avenue of capital deployment as demonstrated with nine follow on this path the school quarter most notably we have invested in sixteen new platform investments since the onset of the pandemic including for in this path calendar quarter portfolio management continues to be critically important and we remain actively engage with our portfolio companies we have found that they have generally taken the right stuff to help mitigate both a mere and long term effect of covert nineteen on their businesses all loans at our portfolio are paying according to their payment terms taco mac which has a cloth basis of two point three million dollars is now the only and best non non accrual with my alarm through bankruptcy restructuring and completely written off this quarter there have been no new non across prior to and through could prove it we also recognize an additional sixteen point eight million dollars in unrealized a preciation this quarter which means that our overall portfolio has more than recovered the unrealized appreciation and que one of last year and the fair value fair to this overall assets now exceeds it's cost basis by three point two percent and we believe the strong performance reflects certain attributes of our portfolio that bolster it's overall durability seventy cents and seventy six percent of our portfolio is in first lean debt and generally supported by strong enterprise values in industries said have historically performed well and stress situations we have no direct energy or commodities exposure in addition the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention our approach has always been to stick to our strategy and focus on the quality of our underwriting and as you can see on flight thirteen this approach has resulted in our portfolio performance being at the top of a btc list that has had only seven bt sees with a positive net realize games as a percentage of portfolio cost over the past three years a strong underwriting culture remains paramount at saratoga we approach each investment working directly with management and ownership to thoroughly assess the long term strength of the company and it's business model we endeavor appear as deeply as possible into business in order to understand accurately it's underlying strength and characteristics we always have thought durable businesses and invested capital with the objective of producing the best risk adjusted a creative returns for our shareholders over the long term our internal credit quality rating reflects the impact of coated and shows ninety three percent of our portfolio at our highest rating as of quarter amp a part of our investment strategy is to selectively cohen in the equity of our portfolio companies when we're given that opportunity and when we believe in the equity upside potential it has been our experience at their significant overlap between those businesses that meet are strict underlying writing requirements and those that possess attributes that make them attractive equity investments this equity co investment strategy has not only served as yield protection for a portfolio but also meaningfully augment at our overall portfolio returns we intend to continue the strategy looking at five fourteen the total leverage for the overall portfolio for investments underwritten using either dar with three point eight two times of slightly from three point six three times the previous quarter reflecting an increase in leverage of certain new deals now that said or leverage is below the average year to date market leverage multiples which are all about five times across our industry through path volatility we have been able to maintain a relatively modest risk profile throughout although we never consider leverage in isolation rather focusing on investing in credits with attractive risk return profiles and exceptionally strong business models where we are confident the enterprise value the differences will sustainably exceed the last dollar of our investment in addition this slide illustrates or strengthening ability to generate new investments over the long term during the first six months of county or two thousand twenty one we have added six do portfolio companies and made sixteen follow on and thus months this success underscores the ongoing emphasis on deepening our relationships and broadening or origination capabilities the strong origination pace has continued since or fiscal quarter amp however we are also see significant repayments resulting from trying to control transactions and acquisitions subsequent a quarter and we have executed approximately eighty five million dollars of new originations in three new portfolio companies and three favelas with repayments of approximately one hundred and six million dollars in for exits and realizations for a net reduction in investments of twenty one million dollar this moving on the five fifteen or team skillset experience and relationships continue to mature and are significant focus on business development has led to new strategic relationships that have become sources for new deals or number of deal sourced has dropped reflecting the difficult sourcing environment during much of the last eighteen months although we are actors who actively seen healthy and increasing volume of new loan inquiries most notably the fifty five term sheets issue during the last twelve months is markedly up from last year's pace similarly the first out of county or two thousand twenty one is up as compared to the first half a county or two thousand twenty showing that we are generating more shots on goal what if especially pleasing to us is that almost one fifth of our term seats issued over the past twelve months and for of our eleven new portfolio company investments are from newly formed relationships reflecting notable progress if we expand our business development efforts there are a number of factors that give us measured confidence that we can continue to grow our a you m steadily in this environment as well as over the long term first we continue to grow our reach into the marketplace as is evidenced by several investments we've recently made with newly formed relationships second we have developed numerous deep long term relationships with active and establish firms that look to us as their preferred source of financing third we continue to see plenty of investment opportunities and industry segment that are experiencing long term secular growth friends and within which we have intensely developed expertise as you can see on flights sixteen or over all portfolio credit quality remains solid growth on leopard i are are unrealized investments made by the saratoga investment management team and sixteen and a half percent on approximately five hundred and seventy three million dollars of realizations the single village realty repayments on q one had an are of twenty four percent and realize gain of approximately one point nine million dollars on the chart to the right you can also see the total gross on liberty or are on or six hundred and twenty one million of combined waited f b i see and btc unrealized investments is thirteen percent since saratoga took over management the two largest unrealized appreciations remaining due to prove it or in our nolan group and see to education investments both of which are more dependent on in person human interaction we do not believe the remaining unrealized appreciation changes our view of their fundamental long term performance even with those current markdowns or overall portfolio fair value with now three percent above its toll cost aren't those investment approach has yielded exceptional realized returns putting on a flight seventeen you can see or first f b i see licenses fully funded with two hundred and twenty five million dollars invested as of your end or second as be i see licenses already been funded with eighty four made out of equity out which one hundred and thirty eight million of equity and as be a debentures have been deployed they're still one point one million dollars of cash and one hundred and twenty four million dollars adventures currently available against that equity we still have three point five million dollars of unfunded equity which when drop down into the f b i see would increase our to better availability by seven million dollars when comparing this quarter to the same time last year the way the poor boy has proven proven itself to be well constructed and brazilian against the impact of coven nineteen really is underscored demonstrating the strength of our team platform and portfolio and or overall underwriting a due diligence procedures credit quality is always our primary focus especially at times with that high activity levels and while world is changed significantly since he one of last year we remain intensely focused on preserving asset value and remain confident in our team and the future for saratoga investment
spk_8: this concludes my review the market in our portfolio like the from the call back over to yeah chris
spk_2: oh thank you mike as outlined on site eighteen the board directors declared a forty four cents per share dividends for the quarter ended may thirty first twenty twenty one is reflected a one cent increase from last quarter before sequential quarterly dividend increase
spk_3: directors will continue to reassess their son at least a quarterly basis considering bus company specific and economic factors willing to slide nineteen or total return to the last twelve months which includes both capital appreciation and evidence has generated tunnel returns of sixty eight percent it the btc and accept fifty four percent or longer term performance is outlined our next slide
spk_2: i won three and five year returns places at the top and of all he sees for both timer and horizons over the last three years or thirty eight percent return exceeded the thirty five percent return of the attacks over the past five years or hundred thirty nine percent return exceeded the index's sixty five percent return and fyi twenty one even further see or outperformance placed in the context of the broader industry and specific to certain key performance metrics will remain above the industry average across diverse categories including interest yelled on the portfolio latest twelve months return on equity like a toy that equity ratio it is twelve months and eighty per share growth dividend coverage and year over year dividend growth we continue to focus on how it is twelve months return on equity and and eighty per share our performance which about the top of the industry and reflect the growing value of shareholders are receiving not only are we wanted a few bt seized of
spk_3: grown any the we have done it a creatively by also growing and eighty per share
spk_2: moving on the sly twenty two all of our mission is discussed in this call redesigned designed and excerpt of investment a highly competitive btc is attracted to the capital markets community we believe that are differentiate characteristics outlined in the slide will help drive the size and quality of aren't esther base including adding more instance
spk_3: two six or differentiating characteristics include maintaining one of the highest levels of management ownership in the industry at fifteen percent access to low cost and long time liquidity with which to support our portfolio and make a creative investments the seat of a second sp i see license providing some two percent cost liquidity
spk_2: a triple be plus investment grade rating was recently upgraded and active public and private bond issuance solid historic earnings per share and and i yield strong industry leading historic and long term run return on equity accompanied by growing and eighty and any pressure putting us at the top of the industry for bucks
spk_3: i called expansion of assets under management and and attracted risk profile the edition or historically high credit quality portfolio contains minimal exposure to eventually cyclical industries including the oil and gas industry you're a continent that our experience management team historically strong underwriting standards and tested environmental in tested investment strategy will serve as well in battle to the challenges and the current and future environment and then our balance sheet capital structure and liquidity will benefit saratoga shareholders
spk_0: in the near and long term in closing of like the again thank all their shareholders for their ongoing support that would like to now in the call for questions as a question you any depressed our one i telephone to a dry question just press pound key once again let's go on for question space and empire we compare the can a roster
spk_9: our first question of land of price row phone have to leave again
spk_10: hey a good boy the bar it and what to on to ask about the composition of the portfolio really interesting to see addy the equity piece of it go out and certainly yeah you made some comments around that any are prepared remarks out advocates first question or our latest you can you can you talk about
spk_7: l il y y that level of equity investment and the anticipate on l his future equity investment at l levels i guess get come coming a let strong or was it more have opportunistic this quarter in terms of a day able to like those equity investments the ethical question especially noting that that some of the portfolio companies that have performed particularly well and you see that evidenced in the valuations his past quarter or ones where we have meaningful equity investments that the thing i would say bryce is that it has always been part of our playbook to cohen best in the equity of our portfolio companies when were given that opportunity now worth very selective in that respect were not just doing that real with with up a year abroad nat and in doing that indiscriminately we were very careful to underwrite the equity upside as well but as i indicated in my prepared remarks we have found that the number of businesses that meet are very strict dad underwriting requirements can to overlap very well with businesses that have very good equity upside for the things that we look for strong management teams businesses that have yolk good the tailwind in in very good industries with a differentiated business model run by good management and strong ownership can also be businesses that have good actor equity upside potential and so that worked out well for us that the one thing i would emphasize is that this has been a playbook that we've had ah the throughout our our management of saratoga so if you look at many of our investments over the years whether it be easy ice or h a man or expedited or most recently village real t and some other businesses that we've invested in over the years we've established the playbook where we look for businesses that are at our end of the market and we can put an initial amount of debt capital in those businesses and then support their growth and we support their growth
spk_11: not only would that capital but but equity investments and in the cases of of the somebody portfolio companies that are are experiencing nice appreciation and have the potential as well they're at their businesses that that fit that playbook which is something we've been doing
spk_1: but it's something i've just highlighted most recently because you can see yell continuing evidence of of bob ah of you know that strategy bearing fruit
spk_10: and this quarter was really an example price of with that about those things came together in the same quarter as well thus you know we have that the increase your thing right and and yes it did it was interesting to say for sure and know i get a follow up to that is on your your portfolio overall portfolio yield
spk_7: yeah came came down on are calculated basis because of those prefer are but because of that that increased in and inequity composition of the portfolio sell trying to understand quetta how to think of doubt eddie dividends coming off of those at the only type of investment in what we might see with a let other income while or on the income statement a cia and and you look look through the schedule the lessons and there's very little detail terms of what that what that income could these i think that would be helpful for us to add to hundred
spk_1: stand
spk_7: with typically were we're making an equity and best and ult most of the time i'm nearly people clearly all the time we're investing equity alongside debt securities that have a current return attached to him so certainly and we've been doing that throughout our management so certainly that will have a near term impact on what the blended current return is on our portfolio of at work were careful took to balance that and on occasion if we really see a terrific opportunity to make an outsize equity investment
spk_1: with with the measured caution will blow up five that amount and that certainly can affect our our i'm you know near term yield when we make those investments but over the long term we we do have confidence that that strategy will augment our overall returns on our portfolio now i think tell it to answer your
spk_7: your question hopefully a little bit more specifically if you look at ah our investment activity this past quarter there were a few investments that had ah preferred equity securities attached to them to to were just standalone preferred equity security some one was in com
spk_1: the nation with a death and common equity investment those two straight up preferred equity investments somewhat unusual an opportunistic for us i wouldn't i wouldn't miss you're thinking in the future i mean not not that we won't avail ourselves to the opportunity would welcome it in the future i wouldn't say that that's going to be ordinary course as much those are of investments that we made with relationships that we had that a really strong and there is an opportune you need to put some preferred capital to work in and somewhat of a unique opportunity into we're excited to to have that but i wouldn't say that that's cool or to what will be doing i think what you see in some of our other deal activity through the quarter where we're making an equity investment alongside a more sizable dad investment would be kind of standard operating procedure for off
spk_10: and you are correct a bribe the those standalone preferred equity position they are they are paying dividends
spk_1: but dividends of course presented not an interesting com or and then interest margin is presented in the other income line partly why you see that other income line growing this quarter
spk_10: i'm and and so therefore not included in the the in the overall yield on the overall portfolio the eight point six for they doesn't include evidence
spk_12: right right okay tell him in said sir henry part of that part of the increase in and other income is is tied specifically to this to stand alone equity investments correct correct this this quarter you know other income obviously as i noted jump quite a bit and the two main reasons was the one obviously a big origination quarter and i viewed as
spk_0: we've spoken in the past we put the the structuring he the one percent fee we generally receive we put in other income for that's of is the one of the reasons than in the second reason absolutely is dividend received on those stand alone for our preferred equity positions
spk_13: great that some it's it's good and put shake that for see answer the questions
spk_14: they express thank you
spk_15: my next question confined of casey alexander from compass point may begin
spk_14: yeah hi good morning
spk_1: the boy did when i asked her i didn't want to ask about the structuring advisory see income of because it has become a growing portion an m t did you broke it out
spk_14: be it out how recording is that for instance when i look it he said you done eighty five million in new originations image should i be baking then already eight hundred and fifty thousand know of structuring an advisory fee income or into my model because then
spk_7: yeah for the way i would think of it is is katie we you know generally receive between seventy five that than a hundred bit of structuring an advisory fee income on on date the you know again generally that would be the right way to sort of view it somewhere between seventy five and a hundred bed and them and obviously had been growing as you noted because the the last couple of quarters have been on my back to back record court isn't originations for the yet they definitely and into play in a linkage there with our original apps
spk_1: lately okay i thank you were in looking at what might described as the subsequent to quarter and information or but also noting that a significant amount of your originations usually comes near to the end of the quarter
spk_7: expect that that net repayment of twenty one million pit to arguably probably balance itself out by the time we get to the end of the corner with additional new originations to generally come at the end of the quarter oh gosh that that that that would be earth at the top commercial me and for i cook as we've said katie art our business is some is so lumpy and unpredictable and terms of it it it's predictable no longer on right you can sort of look and and and we feel very confident we can continue to grow the portfolio but the ak timing of exits and pay off vs originations it's it's really hard to gauge i haven't really it's an interesting observation you make i haven't really thought about our business in terms of
spk_2: the rich nation pace happening closer to the end of the quarter and especially given that our quarters don't think up with counter quarters like they do for most people i would say that at the end up a typical calendar year we certainly see you know a lot of motivation for people to try to get something done within a calendar year and in and we have the that experience on you know the answer your your question directly in terms of how we see the rest of the quarter shaping up am we feel good about our pipeline is reflective of a lot of the investments that were making in business development as well as the strength of the the the relationships that we have and and we've invested a lot of isn't is that have appetite for more capital to so we do feel good about our pace of of of investment where where that's going exactly shake out to the rest of the quarter of still and term
spk_3: hi there like i do that at that kid oregon have to just jump in and then and maybe state which was fairly obvious but i i think i think we're done henry and and maker saying that it's fairly random you know the way these deals land on our plate one way or the other and to the extent we have the ability to influence things you know obviously we we trying club
spk_14: those the deals that are coming our way as soon as we can agree i delay that repayments as long as we can put know that
spk_10: that's probably matter of days or week or something you know that we might be able to have some influence their on but it's pretty much
spk_16: it's not really in our hands the timing of all this
spk_2: mocha great thank you and and you know fortunately we're not here my to ask any questions where he had asked the hard one so oh i that the epithet that the at and i have one for you here christian i'm i'm working at a portfolio and assets under management that is the largest it's ever been my a step pumpkin larger than it's ever been yeah i'm looking at a quarterly dividend that is twelve cents below where i was in the third quarter of two thousand and twenty given the growth in the portfolio shibley we reasonably expect some acceleration in the pace of dividend increases to sort of work it's way back towards the prior love well i'm on that's a very good question i casey and he knows something that we you know consider at the board level i'm
spk_3: actively minute as you can appreciate that that that is the most recent two quarters of had a very substantial origination slow like like more than we've ever had before so you know where where where were really just you know sort of like a quarter and a half into a really substantial growth and in
spk_2: in in our assets and there were really sort of maybe two three quarters into what looks like a pretty solid recovery from look what looked like a pretty horrible outlook year ago i mean if you and i don't know how many years look like the last twelve months no but but it's pretty amazing you know the differences and scenarios and have occurred and so on
spk_14: i was you know we took a very cautious approach to our dividends you know last year and rebuilding increasing it you know you know and and and up and of and a pasted you know has not been commensurate with the increasing earnings but we did not necessarily
spk_17: yeah weren't able to project exactly what earnings were gonna be because all the stuff has come to us so so yes were sitting on young twelve sent substantial outperform out earnings of our on of are given and i think as we discussed in prior calls you know as saw spillover situation where you know ultimately know
spk_0: where know whatever earnings out earnings we have we're gonna have to distribute writers as those that the tax laws are with the are and arm and so within a within a given periods
spk_18: of time and yet there's some flexibility we have would you know we we have some hard tax deadlines where we have to pay out or taxable income so so so in a you know sort of on multi quarter forward luck we're gonna have to reconcile or taxable income you know with are given and pay out and and to were look
spk_19: he had that very actively on and then spillover the about a spillover you're allowed to have is also part of that equation and as you know and as we mentioned last year i mean we we were the zero spill over most of our peers i the internet the statistics my finger tips right now but most of our peers and pretty heavy spillover levels and and aren't still available right now is quite
spk_18: modest relative them when it could be soaked so there's not an enormous pressure right now the of this quarter you know next couple quarters to to to tend to rebalance and so we have a little bit of time to see how how this plays out right and and it obviously if we continue to have robust performance like we have you know we're gonna need to address that in our that i cried their thank you for that christian and and that's all my question stop pop back in the queue thank you very much
spk_7: and kathy our next question from i know sarkis sir belgian from be rarely may begin
spk_1: a good morning if they give or take my questions here and when a third one i i'm just wanted a kind of do a little comparing go back to the prices question regarding the the equity interests of it going up even on an advertised cost basis right though you know
spk_2: was it predominately driven off of the new preferred security investments which will kind of leave you a dividend or what are some other opportunistic and button in there and then also part and parcel to this question would be when do you expect to let the monetize those interests or if you can give us some historical examples to that i haven't i haven't had a you couldn't comment on the exact numbers and terms of how much of it was the the preferred investments but the approach that we're taking in equity co investments is consistent with what we've done in the past and i think that the the only thing that would drive that in an outsize way with would likely be the us to
spk_3: preferred investments are yet to give you some ocala sarcastically sort of think of the absolute dollars that are equity sort of increase from february to may about two thirds of it was because of additional equity i'm in a purchase our investments by off and about a third of it was just because of our existing equity
spk_7: position that increased in value and were marked up and any if you think of the two thirds that is the new investments probably i would say just over half of it related to those preferred equity investments and then the remainder what sort of them again that the standard playbook we always do which is a sort of by size small a equity i've been a little pieces that we do as part of that invests have that helpful yeah yeah super helpful thanks for that and over and hey my elbow screwed i think it just put a long distance or religious an overlay and i and i'm your kind of repeating what would summerland by the my consent earlier and there's no real strategic change and my were doing relative to our equity henry said about a third of it is just sort of regular way investing ing equity as we always have when always get equity we can always want it and i am in you know in in in conjunction with our with our get thus months nuts been important for are you creation and are and the and are energy per share you know a third of it is from appreciation in iraq in a in know in are dying equity so that's that's that's very positive right so this other third you know was and like said earlier was is really just opportunistic and yeah we we went remain opportunistic are those are we think they're called prefer to called equity been damn
spk_20: because of structured what we're doing they're they're gonna they're kind of debt like in terms of you know guaranteed rich you know if you know or agreed return if he will and credit quality of that return an m in nature of of duration so so so those really a during the equity bucket but there you know that that they're don't they're not like
spk_1: a pure rock common equity type exposure
spk_3: and are you all for adult watched it yet a question on the the duration me typically yeah we're not in the in the driver's seat in terms of an accent
spk_18: we we may be you influential in that respect that we're not in the driver's seat typically have a co investor in most of the companies that we have in our portfolio so the pace of realization is sort of consistent with what you see in in our er det portfolio if we're supporting a sponsor
spk_7: typically that martyrs investing capital at a certain pace and then they're gonna go look for realizations and look to exit that business and and alongside that exit we wouldn't we would actually that the same time if it's a business were directly supporting a management team or maybe it's an independent sponsor different get different ownership structure some of those are a little bit more long dated investments ah i think for instance easy ice with one that was in that category some of the other ones that were in today are also in that category in those ones tend to be a little bit more long dated but ah yeah we generally that up the pace of the way to think about the pace of realization it's fairly consistent with the pace of realization on our that oh think this that and i guess i'm cut kind of coming to this in a roundabout way because if i look at your second lien and and unsecured loans on on the book on a cost basis it hasn't really budged much on kind of even you know in and recent quarters and now the your ear making a more a concerted push push into for first glance i just wanted understand it if he if the average loan duration is about what's called three years with a you know single to the low double digit coupon of you know this preferred investment must have been much more attractive in some way shape or form for you to deploy capital there is it that you know kind of a of right summation of of the thought process or is there something different that you'd you'd kind of like to increase more first lane and killed secondly in and and unsecure paper out there is not attractive just wanna get some more color around the other category
spk_1: or is there yeah that's that's that's good observation me i think first to just a draft the standalone preferred investments those are pretty unique circumstances we'd love to have the opportunity to to make more of those who smoke on it but i wouldn't i wouldn't look at our business strategy and and and think that if you're suddenly going to see a lot of that that directly what were intending to do with what we've done historically which is cohen boston
spk_21: in in equity alongside that investment that we make now
spk_1: by and large the approach that we've taken just on making any investments in debt securities is is really just trying to find out where the best risk adjusted returns present themselves sometimes that's in the second lien there have even been times historically where we've done unsecured the and get as well
spk_7: as the market has marched on and where we are presently in the market we think that there's a much greater percentage of real solid risk adjusted return opportunities in personally positions and that's why you see the majority of the deals that we're doing in first lean positions and fewer of the junior capital positions that i could change in a different marketplace sometimes when there's a correction in the market in of the opportunities will will shift as well but by and large on investing yell in the top of the capital stack and then augmenting those returns with an opportunity invest in the equity has been a really good formula for us and that's generally what we intend to continue to do you know and sarkis if i just add one thing my can i actually in his office this morning and we were just looking at the mix together of our portfolio for this quarter and we you know when you look at it he obviously look at this quarter and it was a big total dollars value hundred ninety million which are obviously overjoyed that and the are you asking about the to prophetic witty and they have preferred equity investments obviously which with a little different maybe than with than and other quarters but other than that if you take a step back and you just look at the quarter as a whole two thirds of originations this quarter what follow on and one third was for portfolio companies in a new investments and if you think of that sort of makes or is michael earlier playbook that is exactly consistent with the way you know we've originated not just many quarters back but over the last year's so much of our growth has come from follow on and this quarter no different
spk_18: to that a thing or two kids that get the add to that part of that as is has worked out well for us because we're we play
spk_0: in the middle market we will do the work to get close to underwrite very thoroughly a business it's a bit on the smaller side and and make a job
spk_3: less substantial investment and then what may be some of the bigger btc sees would bother with at the benefit of that though is it allows us to get close to the company do really thorough diligence have real covenants in our structure and then as those businesses grow oh
spk_7: they can be a source of capital deployment for us and many of our debt best deals fall right into that category where we made a relatively small investment initially and hopefully an equity found us mint and then as the company's either acquisitive are they need growth capital we've been there it up to size or investment and as we've grown our capacity to a pleasure investment has also grown which extends the duration of the death but also allows us to enjoy
spk_22: the lived in enterprise value if we're opponent us dusting and the equity and that's that's something that we're
spk_7: were intending to continue to do and i think that know this quarter you can see some of the benefits of that particularly and a handful of our portfolio companies that are performing quite well
spk_1: that think it for the added color that i'll add
spk_7: i next question for find out go to and from the james webb them
spk_23: hail good morning and i appreciate you taking my questions of put first one for me on the the unrealized appreciation during the quarter it looks like a bulk of it came from three names primarily passage ways that reality grey owl or anything you can give us on on whether or not those write ups were they a function of improved performance and either die or
spk_3: or you know expanding market multiples any any color there would be would be of interest
spk_24: yeah question so passage ways was reflective of bob
spk_25: an unexpected exit and so that just have a right up for our reflecting that that valuation
spk_26: of that accent
spk_1: and then on the other two
spk_7: our our of mix of both so there's there's definitely multiple expansion that has increased the value of those portfolio companies both of which we have substantial equity investments in but the reason that the the multiple expansion has occurred is because the purple both of those portfolio companies have performed quite well and as they've grown they've gotten to a different level of scale were at that scale of it's natural for the multiple on valuation to grow as well so it's a combination of a performance and some of that strong performance and growth to up to a higher size business has expanded the the job enterprise value multiple as well okay kind of a a different turns me on the second question then i'm sorry say a stronger it origination quarter looks like originations are are continuing to be strong any high level commentary on what you're seeing and in originations is kind of elevated levels there's still some pull forward from covert levels are private equity sponsors or management teams looking at potential tax changes any any anything high level you guys are saying
spk_24: the only thing on the observation i would make on
spk_0: is that
spk_10: deal activity was down quite a bit last year as everyone knows and i think there were some deals that didn't happen because people wanted to wait and see how the you know the could cover experience with with the play out and so they were deals that were on the sidelines even companies that were gonna get fall from of them you know in our portfolio now that we're getting to a better place in that respect you're seeing transaction volume come up quite a bit so i think some of that slower pace from last year is spilling into the current environment that fortunately there's there's that would comes with that even though it will result in some some pay off in our portfolio we're also seeing of pick up in potential tend to deploy capital and new opportunities as well and you're seeing that in origination activity
spk_3: great that's it for me appreciate the time
spk_2: like that we'll have our farm bryce row from hoped no begun at like her decks are taken a follow up on the wanted to wanted to ask about the of you know that the structure of of the of the debt debt capital on the balance sheet and how your you how you are thinking about you new feature funding from up from a dead capital prospective in in the context of as some of them some of the barry bonds and day callable here next month i'm in the context of market pricing being as attractive as it is right now and then kind of in the context of where you where where you are in terms of using that the revolving credit facility at that they knew you look back he added really use that revolving credit facility in a couple a couple years in the and yeah russell used the here
spk_3: his case he was talking about your your portfolio has grown has grown quite a dead zone just i'm i'm i'm wondering if if it's time for some that of evolution from unknown and that and i guess i use of the credit facility if you start to use it more if you look for another source to to add onto that to that credit facilities
spk_2: are you can kind of better manage the thoughts and take from a origination repayment perspective thanks sure by up the an excellent question and something that we are constantly evaluating and working with and you know i've as as you can see in the last couple quarters in a weeping diversifying our our sources of capital you're at the most recent tough for and three eights a bond issuance which wasn't a new low level of on fan of fixed rate financing for us and damn you know get those markets are still open to us on we do have these called a son on baby bonds and we do have your those markets are also open to us we we do have are revolver and up and parcel modifications to our revolver and dishes are other things you mentioned so we're we're working on i think i'm so we need to be careful on forward looking statements here and this call since it's very hard for us to to give you specific
spk_10: answers right now as to what where exactly planning but i think it's fair to say that yes we're an incredibly robust our credit environment and we are actively considering and and and then in in a lot all those on all those france and would also point out that in terms of our you know the amount we've drawn on our of all the credit for which you you know accurately point out that that's kind of been a swing line for us and we haven't had to use it that that often on a lot of our investments have been a nice be i see fine where we can we can try to draw knows credit facilities and as needed kind of like a revolver if you will
spk_27: you recently we've had more that a bit outside of our eyes as be i see on your investments that are been attracted outside of our or as the i see i'm on
spk_0: no qualifications you know that the detail what what what investments are required to be like to be able to the him and as be i see i'm in a fun and and and so on and and also that the lower rate that were able to get on sundays institutional bonds in opens up a new in l a new advice
spk_14: and for us to work for lending terms of cost acosta capital so so all those are are sort of high top of mine but i think it's also again important to realize that you know you look at the growth in our assets under management it's been very rapid
spk_0: young last two quarters on my think as you know in our subsequent corner and i didn't see that there was significant repayments that the current kind of right after quarter and but then we also had significant reinvestment so so we are keeping an eye on our pipeline and our net asset edition right and that's that's driving you know you know a lot of
spk_28: this arm and and and so you know sort of our our our our revolver is a very important element because it allows us to do what we were able to to bridge over the quarter but that snapshot is not necessarily completely reflective of said the ongoing ebbs and flows of of of how are you know capital needs or rick
spk_2: wired so i'm so so so overall you know it just it to try and give you a better than a non answer sister pointed question of what where exactly gonna do we can't say what where exactly going to do but we are very specifically looking at all those markets and you know what's available in those markets as well
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