Barings BDC Inc (BBDC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. At this time I would like to welcome everyone to the Triangle Capital Corporation's conference call for the quarter and year ended December 31, 2011. All participants are in a listen only mode. The question and answer session will follow the Company's formal remarks. (Operator instruction).

Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the Company's website at www.TCap.com under the Investor Relations section. The hosts for today's call are Triangle Capital Corporation's President and Chief Executive Officer Garland Tucker, Chief Financial Officer Steven Lilly, and Chief Investment Officer Brent Burgess. I would now like to turn the call over to Mr. Tucker. Please begin.

Thank you very much. Good morning, everyone, and thank you all for joining us for our fourth quarter and year-end 2011 earnings call. Before we begin, I would like to ask Sheri Colquitt, who serves as our Vice President of Investor Relations, to provide the necessary Safe Harbor disclosures. Sherri?

Thanks, Garland. Good morning, everyone. Triangle Capital Corporation issued a press release yesterday afternoon with details of the Company's quarterly and financial operating results. A copy of the press release is available on our website.

Please note that this call contains forward-looking statements that provide other than historical information including statements regarding our goals, beliefs, strategies, future operating results and cash flows. Although we believe these statements are reasonable, actual results could differ materially from those projected in forward-looking statements.

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 as filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statement.

And now, I will turn the call back over to Garland.

Okay, thanks very much, Sheri. Again, I would like to welcome everyone today's call. We are very fortunate once again to be able to open this call by telling you that the fourth quarter was an outstanding quarter for Triangle, and 2011 was an outstanding year as well.

If you listened to our last call, you heard me say that every aspect of our business was performing extremely well. And I'm very pleased to report that that trend has continued.

As we have done on prior calls, I will briefly discuss some of the highlights for the quarter and the full year, and then Steven and Brent will provide more information about our financial and operating results, including certain trends we are seeing in the investment market.

From an investment perspective, 2011 was another active year for us as we originated 30 investments which, on a combined basis, totaled approximately $225 million. Our NII during the fourth quarter was $0.53 per share as compared to $0.52 during the third quarter.

Given that our weighted average share count increased by 13.5% from the third quarter to the fourth quarter, we are delighted to be able to report an increase in our quarterly NII per share. For the full year 2011, our NII per share increased about 30.4% as compared to 2010. Again, a statistic we are very pleased to report.

From a dividend perspective, we increased our dividend twice during fiscal 2011 and we recently announced our first quarter 2012 dividend in the amount of $0.47 per share. On an annualized basis we are currently paying shareholders $1.88 per share, which not only compares favorably to our full-year 2011 NII per share of $2.06, but also equates to an annual dividend yield of approximately 9.5%.

Before I hand the call over to Steven, I would like to take just a minute to emphasize something that I think is very important. Triangle's investment pace is now and has always been driven by quality and not quantity.

While it is certainly true that financial results and the key metrics we will discuss on this call do represent and depict a Company that has experienced growth, growth is a byproduct of our core operating principles -- strength and profitability. We define strength as both operating and financial, and we define profitability as net investment income and net earnings per share, as those two metrics are the foundation of our continued ability both to earn and to pay our dividend.

Going forward, our challenge and opportunity is to continue finding solid investment opportunities that we believe will provide an attractive risk-adjusted return to our shareholders.

Lastly, I would like to touch on one particularly significant event that occurred after year-end that I think is very well worth noting. As those of you who have followed us closely already know, we have fully utilized the SBA guaranteed debentures available to us under the SBIC program. As we approached this stage in our Company's lifecycle about a year and a half ago, we began to focus on securing appropriate debt financing beyond our SBA leverage.

We achieved our first goal in that process by obtaining a $75 million bank facility during 2011 which provides us with significant flexibility in the timing of capital-raising activities and investments. And just last week, we completed a $69 million public offering of senior unsecured notes. That transaction marks a very important milestone in our continued development as a Company, as it represents our first long-term, non-SBA debt.

We were particularly pleased with the reception in the market of this offering and the confidence demonstrated by our underwriters and investors alike. Now with that, I would like to turn the call over to Steven for some more detailed comments about our financial results, our recent capital markets activities and our current liquidity position.

Thanks, Garland. As most of you know, we issued our earnings release and filed our 10-K yesterday afternoon after the market closed. During this portion of the call I will, as traditional, focus on our operating results for the quarter and also some for the full year. And then I will discuss our capital markets activities and our liquidity position.

During the fourth quarter of 2011 we generated total investment income of $18.3 million, representing a 75.7% increase over the fourth quarter of 2010. This increase was primarily driven by loan interest income from new investments as well as dividend and the income from various portfolio companies.

Operating expenses during the fourth quarter of 2011 totaled $6.3 million as compared to $4.2 million during the fourth quarter of 2010. The $2.1 million year over year increase in operating expenses was primarily related to an increase in interest expense and fees totaling approximately $1.1 million, and a $1 million increase in SG&A expenses as we expanded our investment team.

Net investment income for the fourth quarter was $12 million as compared to $6.2 million during the fourth quarter of 2010, representing an increase of 93.9%. Our net investment income or NII per share during the fourth quarter of 2011 was $0.53, which represents an increase of 26.2% as compared to the fourth quarter of 2010.

Our net increase in net assets resulting from operations, or as we commonly would say in this industry, net income, during the fourth quarter of 2011 totaled $12.4 million as compared to $7.2 million during the fourth quarter of 2010. The primary difference between our net investment income and our net increase in net assets resulting from operations during the fourth quarter of 2011 was a total net gain on our investment portfolio of $1.4 million, partially offset by provision for income taxes of approximately $1 million.

On a per-share basis, our net increase in net assets from resulting from operations during the fourth quarter 2011 was $0.55 as compared to $0.48 during the fourth quarter of 2010.

For the full year ended December 31, 2011, we generated total investment income of $63.4 million which represented an increase of 76% over 2010. This increase was primarily driven by loan interest income from new investments, as well as dividend and fee income from certain portfolio companies.

Operating expenses during 2011 totaled $23 million as compared to $15.8 million during 2010. The $7.2 million increase in operating expenses was related to increased interest expense as well as increased cash and non-cash compensation expense.

Net Investment Income or NII for the full year ended December 31, 2011, was $40.3 million as compared to $20.1 million during 2010. Our NII per share during 2011 was $2.06, as Garland mentioned, representing an increase of 30.4% of our NII per share during 2010 of $1.58.

Our net increase in net assets resulting from operations during 2011 for the full year totaled $56.8 million as compared to $25.4 million during 2010. The increase of net assets (technical difficulty) primarily due to net gains in our investment portfolio in the amount of approximately $17.3 million during 2011, as compared to net gains in the portfolio during 2010 of approximately $5.5 million.

On a per-share basis, our net increase in net assets resulting from operations during 2011 was $2.90 as compared to $1.99 during 2010. Our net asset value on a per-share basis at December 31, 2011 was $14.68 as compared to $12.09 at December 31, 2010, representing an increase of $2.59 or, said another way, 21.4% per share during the year.

I would like to pause for a minute to expand on two items which are very important to us. As some of you know, in February of this year, Triangle celebrated its 5th anniversary as a publicly traded company. As such, we believe now is a good time for us to take stock, so to speak, with regard to a few key financial metrics. One is long-term dividend coverage and the other is long-term capital preservation.

First, from a dividend coverage perspective, during 2011 we paid a total of $1.77 per share in dividends and distributions compared to $1.65 per share in 2010. On a cumulative basis, since our IPO in February of 2007, we have generated $7.76 per share of net investment income and we have paid cumulative dividends per share of $7.46. It is indeed might hope that 5 years from today we will be in position to provide an equally positive report where net investment income has consistently been higher than our dividends, both in aggregate and also on a per-share basis.

Given that our NII is comfortably above our current dividend and what that really means -- and we think this is of great importance -- is that we could take the proceeds from our recent equity offering, and also take the proceeds from our recent bond offering that Garland mentioned, and keep those on our balance sheet without making any additional investments in 2012. And we believe we can still earn our dividend of $0.47 per quarter. This clearly positions us very well as we enter 2012.

The other data point I'd like to touch on briefly is realized gains versus realized losses. Again, for those of you who know us well, you know that an integral part of our operating and investing strategy is to have equity upside in a meaningful percentage of our portfolio companies. We believe these equity positions enhance our investment results as equity gains and can offset principal losses over time, and thereby preserving our investors' capital.

As we again take stock of our performance over the 5 years since our IPO on a cumulative net realized gains basis, our cumulative net realized gains have been $6.8 million. Or said another way, our total realized equity gains in portfolio companies have been $6.8 million greater than our total principal write-offs in our portfolio of companies since our IPO. This equates to $0.25 per share based on our current share count. Again, we are very pleased to be in such a strong position.

As Garland touched on in his opening remarks, about 18 months ago we knew that our two SBIC subsidiaries, or SBA funds, would be fully capitalized in the very near future, and so we began taking deliberate steps to equitize our holding Company. Thankfully those efforts have been successful and today, again including the proceeds of our recent equity offering and our recent bond offering, we are delighted that our holding Company has total cash and investments of approximately $330 million.

When you include our bank facility in the amount of $75 million, it brings total investable assets at the holding Company level to just over $400 million. As we move forward, we are hopeful that at some point, perhaps even later this year, new legislation will be passed which would expand the SBA's program, thereby potentially allowing us to obtain additional low-cost SBA debentures in the future. However, given that we have achieved a solid foundation of permanent capital at our holding Company, the Triangle Capital Corporation today has approximately $775 million of assets under management.

Turning briefly to our relationship with the SBA, we told you in our earnings call ONE year ago that part of our operating strategy is to voluntarily prepay our oldest debentures when cash is available in one of our SBIC funds in order to extend the maturity dates under our SBIC licenses. To that end, on March 1 of this year we prepaid $10.4 million of our SBA debentures and we did this voluntarily. As a result, based on this prepayment our earliest maturity for SBA debentures is September of 2018.

As we have done in the past, we would expect to submit an application with our partners at the SBA for approval to redraw those bonds later this year and, if approved by the SBA, the new debentures would not mature until 2022 at the earliest.

From a liquidity standpoint, including the effects of our recent equity offering with net proceeds of approximately $77 million and the net proceeds of our bond offering of approximately $67 million, as we have just closed the green shoe on that transaction earlier this morning; and also including the proceeds of our $75 million credit facility, all of which is currently available to us, and including our current cash on hand, our total available liquidity is slightly north of approximately $250 million.

Given our significant liquidity position, a logical question relates to what I might call our pro forma ability to earn our quarterly dividend of $0.47 per share. Again, based on our preliminary calculations and based on our current investment portfolio's annualized run rate of interest income and our annualized run rate of operating expenses, plus the full effect of the interest burden from our recent bond offering, we believe we are still in a position to earn our quarterly dividend of $0.47 per share.

Said another way, even before we invest any of the $250 million on our balance sheet or so of liquidity that we currently have, we are still in a position to have annual net investment income equal to our current annual dividend. So -- and this goes almost without saying, we feel extremely good about our ability to continue achieving the strategic objectives of strength and profitability that Garland mentioned in his opening remarks.

And with that, I would like to turn the call over to Brent for some comments on our investment portfolio and also some general comments on the overall mezzanine market.

Thanks, Steven, and good morning, everyone. As I have done in the past, first I will give a little bit of color in terms of the portfolio and our investment activities in 2011, and then I will touch briefly on some of the trends we are seeing in the lower middle market.

So, in 2011 we made 21 new investments totaling $200.2 million and made follow-on investments in existing portfolio companies totaling approximately $24.8 million. During the year, we received full loan repayments from 7 portfolio companies totaling approximately $39.8 million; and normal principal prepayments, partial loan repayments, and PIC interest repayments that totaled approximately $13.4 million.

Also during the year, we exited 3 equity investments for realized gains of approximately $13.5 million and we converted one subordinated debt investment to equity, resulting in a realized loss of approximately $3 million. The combination of these realized events led to our reporting approximately $11 million of net realized gains during the year.

From a total portfolio perspective as of December 31, 2011, 76% of our investments on a fair value basis are subordinated debt and second lien notes. 12% of our investments are senior debt and first lien notes. And 12% of our investments consist of equity shares, equity warrants or royalties.

We did not place any new investments on non-accrual status during the year. Our non-accruals at year-end were 2.2% of the portfolio on a cost basis and 1.5% on a fair value basis. However, one of our investments, which was our largest company in non-accrual, a company called ADL or American De-Rosa Lamparts, actually went back on current pay in January of 2012, which lowers our non-accrual percentage to 1.2% on a cost basis and 0.5% on a fair value basis.

ADL is a good example of how we would like to stick with companies that have been hit hard. In this case it was hit hard in the downturn, and we are fortunate that seems something of a rebound.

We announced in our third-quarter earnings call that we had several companies in our portfolio at various stages of an M&A process. It is always difficult to predict the timing of these transactions, and most of those companies are still involved in a process. We expect some repayments this year as those negotiations reach a conclusion. But again, the timing of those is difficult for us to predict.

Our view of the lower middle market is that it remains an attractive place to invest. While banks are competing the vigorously against each other, their beefed-up risk management departments are keeping a lid on leverage. Non-bank lenders remain very active in the market but they, too, are behaving rationally. We have not seen a wave of new non-bank lenders to replace the many, many such groups that went out of business in the downturn.

When senior lenders are restrained, there are more opportunities for mezzanine capital to play a role in buyout transactions. We think we are a long ways away from senior lenders getting so aggressive that mezzanine gets squeezed out. While we certainly see -- we certainly see that there are pockets of what would call less than rational exuberance from time to time, overall the market is fairly well-behaved.

From a macro M&A basis, we are pleased there is still a lot of private equity capital available for deployment and that there are a lot of generational sellers who are willing to sell a controlling interest in their company, both to diversify their personal net worth and to generate liquidity.

This desire for liquidity and diversification on the part of sellers continues to lead to a significant number of M&A transactions that are occurring at long-term historical averages in terms of cash flow multiples, which has led the total leverage levels which are well within long-term historical averages. As a result, while we see competition in about everything we do, we believe the lower middle market continues to be an attractive place to invest.

In terms of the inevitable pipeline question, I guess I would say that 2011 was a very active year for us, again primarily because of our perception that the market was attractive and also the perception of our partners, both the private equity funds and the portfolio companies, that we are a strong partner for them.

As we enter 2012, we continue to believe the market is attractive. However, I would caution anyone on the call from coming to a conclusion that you should expect Triangle to originate and close a certain volume of transactions on a quarter-to-quarter basis, as we fundamentally believe that our past opportunity for continued success is to continue focusing on transaction quality versus transaction quantity.

As Steven mentioned in his comments, we are grateful to be well-positioned in that we don't have to make any new investments in order to continue earning our dividend. However, to the extent we do make new investments, and to the extent that those new investments are successful, our NII on a per-share basis would obviously increase, which in turn would lead to an increase in dividend over time.

And with that, I will turn the call back to Garland for any concluding comments before we take questions.

Okay, Brent, thanks very much. Again we are obviously very pleased to be able to deliver such positive news to the market.

Brent and Steven are accurate, I think, in their comments. We believe the lower middle market continues to be an attractive place for us to focus and we are very much committed to maintaining our focus there. We also feel fortunate to have significant sources of liquidity right now, but thankfully not so much liquidity that we feel any undue pressure to make investments at a pace that feels uncomfortable in any way.

So, all in all, we believe we are operating in a great market with a great team at a very opportune time. So with that, operator, we would like to open the call for any questions.

(Operator Instructions). Mickey Schleien of Ladenburg.

Good morning. Wanted to take your temperature on the sort of progress that your borrowers are making in terms of what you saw in 2011, if you could discuss general trends in revenue growth and margins, and perhaps your perception of how 2012 might develop for those metrics?

It's Steve, and thank you for the question. I will let Brent give you a little bit of color on that.

Overall, EBITDA growth for the portfolio in 2011 was about 10%. But it is definitely a mixed picture, which I think is always true to a certain extent. And I made this comment in prior calls that we are not in a rising-tide-lifts-all-boats environment. I think it continues to be a reasonably tough economy.

There are perhaps some rays of light out there, but you know, this is -- we are generally -- we are definitely not in a booming economy. I think in a booming economy, you would see more consistent growth across the board. And what we're seeing is some companies are growing at a very rapid pace and others are struggling to keep up.

On margins, we are seeing margin expansion and we are seeing margin contraction. And so, I think a lot of it depends in the industry that a company participates, what their competitive positioning is in that industry, what the barriers to entry are and a wide variety of factors.

I would say if there is any general trend, I would say that the revenue -- material substantial revenue growth is fairly hard to come by. And companies -- there are companies that are improving their margins nicely and growing their EBITDA, but they are doing it by through better operations. And that is a more common story, I would say, than companies that are just seeing tremendous topline growth and seeing earnings growth kind of going along with that. Is that helpful?

It is. I just want to make sure I understand how that might affect the go-forward outlook. Companies have been squeezing their P&L's as much as they can since late 2008, and working on cost and working on cost. But you know we are starting to see decent GDP numbers, so there is a sense out there that there is a limit to how much of that can occur.

So do you expect the dynamic perhaps to change in 2012, where perhaps topline revenue growth starts to become more consistent and companies can no longer squeeze cost out of their income statements, and -- but we still end up with decent EBITDA growth for the year?

I wouldn't go so far to expect that, and I don't think that is necessary for our portfolio. I do think, clearly if you look at public markets, margins are at or near all-time highs. So I think, to that point, you know, there's probably not a lot of additional room for margin expansion, so earnings growth probably is more dependent on revenue growth.

I'd certainly hope we see more revenue growth this year. I remain less than wildly optimistic about the economy, but be that as it may, again, I think the most important thing is, as we look at our portfolio, leverage levels are across the portfolio are relatively modest.

And when I say that, we track on a monthly basis sort of what the leverage in our portfolio on an aggregate basis is. We are in the mid-3's on that statistic. And so that's the thing I think that gives us a lot of comfort, is that in general we don't need revenue growth or even earnings growth for the portfolio from up credit quality standpoint.

Fair enough. So my last quick follow-up question, given your outlook on the economy, are there any industry or segments that you are interested -- more interested in now than perhaps you have been in the past, and may start to allocate more investment into going -- looking into 2012?

No, we remain generalists. And so, really, that -- if you see any changes in industry composition in our portfolio, that's more a result of what our private equity partners are choosing to focus on than maybe probably what we would be choosing to focus on.

Thanks for your time this morning.

Robert Dodd of Morgan Keegan.

Given that, you know, comments in the event that the terms et cetera in the mezz market and low market seemed pretty stable, what can you expect from repayment drivers? I wouldn't expect it to be refinancing next time; you talked about M&A activity which is hard to predict and then we've got an election year as well. I mean, is that going to increase in M&A disproportionately in the back end of the year?

Can you give us any more comment on that, because obviously the deployments in 2010 were very backend loaded versus this year. So, I mean, can you give us any compare and contrast what you think 2012 will look like?

Robert, it is Steven. I will give just a quick answer and Brent and Garland can certainly chime in, too, if they have any other thoughts. It's really impossible for us to predict, I think is the short way to say it.

That being said, as we mentioned on our third quarter earnings call in November, we do have a few companies involved in M&A processes, as (technical difficulty) they need to diversify the portfolio. I think you would at points in time (technical difficulty). As Brent mentioned in the call a few minutes ago, we have some of those that are still in process and it just -- but when they come to fruition or whether the sponsor believes the value there is just tough to predict (technical difficulty).

But it does go to our view of liquidity of, if we were to experience the -- basically call it the same amount of repayments this year that we had last year, we would still feel we have an appropriate amount of liquidity available for -- let's call it the next 2 to 3 quarters. So that feels very good to us, but I don't know if, Brent or Garland, you would add anything to that.

Yes, I mean clearly there is some legislation that would -- if it happens as currently on the books or there are major tax increases once again, it would hit the end of this year. That will probably drive some M&A activity as it did 2 years ago.

I think if you look at what is happening in the private equity world with private buyout funds, I think it answers the question. And that is, what you're seeing is a clear trend of longer hold periods. And there are a couple of reasons for that.

One, in a low growth environment which we are clearly -- have been in and many people believe we will continue to be in, it takes longer to create the value in order to generate the returns. And so, private equity funds are experiencing on average significantly longer hold periods than they did say 5 or 10 years ago. That's, we believe, good for our business because one of the ways that they are creating value is through add-on acquisitions, and that often requires additional mezzanine capital.

So, that, for the private equity funds, is increasing their duration. That combined with the fact that it is increasingly difficult for private equity firms to raise money, and institutional investors are looking for more realized returns, that's the stretching out the entire process which, again, I think is very good for our business.

Okay. Great. Thank you. On --

This is Garland. I would just add to that, that probably the 2 hardest things to predict for us in any given year or quarter are pipeline and prepayment activity. And that's probably -- certainly always going to be true in this business.

But I think it is important to note that at least this -- there is some correlation between the two in an active M&A market which would affect exits and deals we are in, and all the converse side of that or the opposite side of that is that there are more investment opportunities for us. So it is going to be tough always to predict either side of that activity, but there is a fairly logical leap between the two.

I appreciate that. If I can actually perhaps, an even harder question than predicting your own pipeline, Washington -- obviously you mentioned it in the comments the bill that would increase the SBA license or the amount of capital available under those (inaudible). I mean, do you have any fear?

You know, obviously proposals like that have been in Washington before and haven't gotten very far so far. Do you have any gut feel, so to speak, on what you think the chances this time of it happening are?

Robert, it is Steven. What we have been hearing from our friends at NASBIC, call it, which is the lobbying group for SBIC's, is that it is certainly something both -- one of the very few things that both parties agree on right now. Unfortunately, it's -- as a single shot piece of legislation, it is too small to get through on its own accord and so it has to be attached to someone else's or a larger bill, which has really been the problem.

What we've heard is we think there is a chance they can get done this year before the election because, again, both parties are looking for any ammunition they can have before November. So obviously given that we have fairly meaningful liquidity right now, if it were to happen, we would feel thankful that we are in a position where we could capitalize (technical difficulty) an entity with additional equity capital to gain that (technical difficulty) additional SBA leverage, call it, as soon as the SBA were to grant us the license, so to speak, so -- depending upon how the legislation ultimately gets through.

So I think the easy way to say it is we have done everything that we think we can do to be ready. And if it were to come to pass, we could benefit from it and our shareholders would benefit from it, we would hope. But handicapping events in Washington is (technical difficulty) probably not (multiple speakers) a great exercise.

Robert, it is Garland again. I would say we wouldn't -- we certainly wouldn't try to handicap it. If it happens, it would obviously be good for us.

But I think more important in the long run, whether it happens or not, I think we continue to seek the opportunities that we've seen to date in the lower middle market, we are going to need to be able to grow beyond the SBA. And that is what was so important about this last bond offering. It has proven that there is a market out there for reasonable leverage away from the SBA.

If the SBA will increase their limit, it would be great. We will certainly take advantage of it. But if they don't, we feel like we have got a clear path to continue to do the kind of investing we have done in the past.

Okay, good. I appreciate that. Last one, then, if I can -- can you just give me a little color on the revolver? Obviously you used it in Q4. You don't need it right now given the other liquidity you have in the short term at least.

But do you expect to use that as an [adjunctive to] the working capital facility? Or would you expect in the long run a consistent balance outstanding on that revolver? But you just -- obviously your duration matching, et cetera, I understand. I mean can you just give us a little color there?

Sure, it's Steven. I think given that we have used it from time to time, as you say, in 2011 for sort of working capital are timing differences. I think given where we are from a liquidity perspective today, we would probably think in the near term outstanding is under it would be basically zero, call it.

But I think we are -- and this went a little bit to my comments earlier in the call. As our holding company has become more fully capitalized, I guess I would say, with close to $350 million of total capital at that level of the Company, I think it is getting to a point where we could have some, call it, quasi-permanent outstandings with any type of bank facility that we have.

The thing that we wouldn't want to be very focused on, Robert, is that if we were going to take that step, that the commitment period under the bank and outstandings will be a minimum of 5 years. And as I think you know the bank facility today is a three-year commitment with two one-year extension options.

So it (technical difficulty) almost gets us there, but I think if we were going to have any material amount of, as I say, quasi-permanent outstandings -- and we think we could and that would be great from a weighted average cost of capital standpoint -- (technical difficulty) but that that is probably an event that would take place, I would call it sort of second half of this year as opposed to the first half.

Okay. Got it. Thank you.

Bryce Rowe of Robert W. Baird.

Just wanted to ask about further opportunities to extend out the maturity of the SBA debt. Steven, I know the next (inaudible) there is a pretty big one; almost $51 million. Logistically how would that have to play out to have that refinancing extended out, too?

We -- I think you're right. It is a sort of next one that was put in place in 2008. So it's not fully close to maturity yet for us. So I think waiting some period of time is appropriate for us, just given the other than the fees that we pay with the SBA.

But once we reach the point where it is sort of on the dashboard, so to speak, the nice thing, the way we had structured our debenture draws with the SBA is even though that is a 50 -- just north of $50 million in total tranche, it by itself is broken down into several much smaller tranches. So we could achieve what you would think of as a sort of partial prepayment there to the extent we were to have cash available. You can prepay the SBA on 2 dates during the year. One is March 1. The other is I believe September 1.

So to the extent we were to have funds available we could, again chipping away at that at some point in the future, obviously assuming we had good constructive conversations with our partners at the SBA, ahead of doing that (technical difficulty) that things were in line there as we have done in the past. So we are just continuing to be very appreciative of the relationship we have with the SBA and they have just been a wonderful partner for us.

Thanks, Steven, and one more question. As far as operating expenses go, SG&A, I think you guys have talked in the past about a $3.5 million type of run rate on a quarterly basis. Is that still kind of what the expectation should be?

Yes, I think our focus has been -- if you annualize the fourth quarter I think you come into something that would be just a bit shy of that. But I think the $3.5 million is $14 million going for a full year. I think for our working purposes at this point, I think that is probably not unreasonable for you and perhaps others to think about.

Obviously as the -- if we are able to invest some of the liquidity that we have now, there will be some sort of normal course additions to the team from our standpoint, just to be sure that we are staffing appropriately, if you will, on all sides of the operation. So, you know, as we move through the year we, I think, should be sure that we are always checking in on that number and being sure we are using (technical difficulty) indicating to you guys the best intelligence that we can.

I think that is fair for right now (technical difficulty) and we don't have any significant hires on the docket right now that would greatly move the needle. (technical difficulty) But as you move through the year, just continue to stay abreast of that.

As you know, we have always been -- I mean I don't know that if we are at the absolute most efficient BDC out there in terms of SG&A divided by revenues, but if we are not, and if were not the (technical difficulty) most efficient, we are really, really close to it. So that's something that we monitor pretty closely and think there is a great mix of value in there to shareholders in terms of incremental revenues for coming dividends. And that is really the primary focus for us is keeping that ratio as positive to shareholders as we can.

Great. Thank you.

Boris Pialloux, National Securities.

Thank you for taking my question. I had 2 questions. One is if I understand your comment, are you going to deploy the cash rate in the next 2 to 3 quarters? And second is about hedge funds. Are they like competitors in your space or how do you see them as non-bank lenders?

It's Steven. I will take the first question and then hand the second question over to Brent.

In terms of the first question, I think really the emphasis we would hope people would take away from this call would be that we are just very fortunate to have significant liquidity. As Garland said earlier, and I think it is exactly right, the forward pipeline is just the most difficult thing to predict in our business. This liquidity could take us for several quarters.

I think the comment I was making earlier in response to a question is probably -- the soonest we could see ourselves investing, it would be over the next 2 to 3 quarters given where we are. But that would be a pretty accelerated pace of course given that last year, which was our most active year in the market where a lot of things really lined up positively for us; we invested just over $200 million. And given that we have -- call it $350 million available now, that would be a pretty accelerated pace.

So I think as you think about future investments (technical difficulty) pace and things like that, I know it is always hard as you guys are building your models, but (technical difficulty) would probably encourage you to be more on the lower end of that quarterly pace than the higher-end of that quarterly pace. Because it is -- again, we just don't ever want to feel here that we are being pressured, if you will, to make investments.

We look for quality over quantity, as we said earlier in the call, and the longer we keep that the focus, I think the better for everybody (technical difficulty). So I think it is probably better that you are on the conservative side of that ledger versus the more aggressive side. But maybe on the second part with hedge funds and them coming into the market, I will turn that over to Brent.

Yes, from time to time we see competition from hedge funds. But what the hedge funds, as well as the issuers or the companies themselves that are borrowing, have realized is that there is a -- generally with hedge funds a major mismatch in terms of capital, because hedge funds can be faced with rapid drawdowns of capital. And it typically over the last few years tightened the rules and made it a little more difficult for people to withdraw money in times of duress.

But nevertheless, we are in the business of making 5-year to 7-year loans, and that just does not work well for hedge funds. And it does not work well for issuers when they do have a hedge fund on their balance sheet and suddenly that hedge fund is experiencing a lot of redemptions, and then looking for a way to get out of the loan. So, by and large, we don't really see hedge funds as a source of material competition for us unless they change the way they are structured so that they can have long-term capital.

Thank you for taking my question.

Thank you. There are no further questions at this time. I would like to turn the conference over to Mr. Tucker for any closing remarks.

All right. Well, thank you all again for being on the call. Again, it was our pleasure to bring you what we think is very good news. I guess sometimes a CEO and management team are called on to explain why maybe the results aren't quite as bad as they appear, and this time it was our pleasure again to hopefully convince you that they really are as good as they appear. We certainly feel good about them and look forward to visiting with you next quarter. Thanks again.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.