Barings BDC Inc (BBDC) 2012 Q4 法說會逐字稿

At this time I would like to welcome everyone to Triangle Capital Corporation's conference call for the quarter and year ended December 31, 2012. All participants are in listen-only mode. A question-and-answer session will follow the Company's formal remarks.

(Operator Instructions)

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 will now turn the call over to Sheri Colquitt, Vice President of Investor Relations, for the necessary Safe Harbor disclosures.

Thank you Latique, and good morning, everyone. Triangle Capital Corporation issued a press release yesterday afternoon with details of the Company's quarterly and full-year financial and 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, 2012, as filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statements.

At this time, I would like to turn the call over to Garland Tucker.

Thank you, Sheri. I would like to welcome all of you to this morning's call. As most of you probably know, 2012 was another very successful year for TCAP, and we're pleased to have an opportunity to share our thoughts with you on today's call. In terms of the format for today, I will start the call with some comments regarding Triangle, followed by a few industry observations. I will then hand the call to Steven to discuss our financial results, liquidity position, and capital marks activities. And then Brent will provide an update on our investment portfolio and certain trends we are seeing in the investing market.

2012 was an incredibly active year for TCAP. During the year, we increased the value of our investment portfolio by approximately $200 million by adding 26 portfolio companies across 18 different industries. We increased our investment income by $27 million, or 43%. We increased our net investment income by over $17 million, or 42%. We maintained our leadership position in the industry in terms of our efficiency ratio, and we generated $6.7 million of net realized gains across our investment portfolio. All of this activity provided us the opportunity to increase our quarterly dividend three times during 2012. And just last week we announced another increase in our quarterly dividend to $0.54 per share. From a balance sheet perspective during 2012, we raised accretive equity capital, and we became the first non-rated BDC to issue 7-year bonds, and then again, later in the year, we became the first non-rated BDC to issue 10-year bonds.

In the middle of all this activity, we also successfully arranged and closed our $165 million senior credit facility. So taken as a whole, both operationally and financially, 2012 was as active and successful a year as we can recall. However, as important as all these accomplishments are, it is equally important to look forward into 2013 and begin to analyze what future opportunities and challenges might exist for TCAP and other BDCs. So when you think about Triangle and where we might go during 2013, there are a few points that I hope you will keep in mind. First is investment focus. We have always focused on the lower middle market, and we plan to continue focusing on the lower middle market.

By maintaining this focus, we've been able to achieve a very stable and high weighted average yield across our investment portfolio. Since our 2007 IPO, the weighted average debt yield on our investment portfolio has consistently ranged between 13.7% and 15.4%. Currently, it stands at 14.6%. From a credit statistic standpoint, the average total leverage of our investments we added to our portfolio, again since the 2007 IPO, has ranged from a low of 3 times to a high of 4.1 times. During 2012, it was 3.6 times. From an average fixed charge coverage ratio standpoint, the investments we've added to our portfolio on an annual basis have ranged from a low of 1.4 times to a high of 1.58 times, and during 2012 it was 1.52 times.

Second is maintaining equity upside across our investment portfolio. Since our IPO, our equity investment as a percentage of our total investment portfolio on a cost basis have ranged from a low of 7.6% to a high of 11.1%. At December 31, 2012, we were 10.1%. This is important to track because analyzing our current equity positions on a cost basis is a meaningful predictor of what potential future equity gains may exist across the portfolio. Since 2007, TCAP has generated $13.4 million of net equity gains, that is equity gains after accounting for principle debt losses. As we analyze our current equity positions, we are optimistic that over the coming quarters and years, our investment portfolio will continue to produce similar types of positive returns.

Third is earning our dividend. We define earning our dividend as generating net investment income that, on a cumulative basis, is equal to or greater than the dividends we've paid. On a per share basis, our IPO -- since our IPO, we have generated $9.99 of NII, and we have paid out $9.53 of dividends. Said another way, we have overearned our dividend by approximately 5% since our IPO. Fourth is maintaining a conservative balance sheet. Our capital structure contains a little more than $400 million of equity, $225 million of committed fixed rate SBA debentures, and $150 million of long-term fixed rate bonds. We also have a $165 million senior credit facility, which is currently undrawn.

One factor that differentiates TCAP from many other BDCs, we intentionally minimize bank debt as a percent of our total capital structure, because we believe in matching the long-term assets in which we invest with equity and long-term fixed rate debt. We believe this funding approach is significantly more conservative for shareholders. It provides a natural hedge in the event the US economy enters a period of inflation, and over the long term we believe it helps produce better operating and financial results. Fifth is accretive growth. Since our IPO, we have raised additional accretive equity capital seven times, and in six of those occasions, we increased our dividend per share within one quarter of the equity follow-on offering.

Our ability to match fund additional equity capital with credible opportunities in our investment pipeline has been a major strength for us, and has contributed to our ability to provide investors with a predictable dividend income stream. And sixth and finally, we remain committed to being an industry leader in terms of operating efficiency, which enables us, as an internally managed BDC, to pass along a greater percentage of our incremental earnings to our shareholders. This is a little understood, but very important point. Our efficiency ratio for 2012 was 18%, which represented almost a full percentage point of improvement from our 2011 ratio of 18.9%, and well below the industry average of approximately 32%.

If you analyze our results since our 2007 IPO, our investment income, that's our top-line revenue, has grown at an annual rate of 49%, and our net investment income has grown at an annual rate of 55%, while at the same time our G&E expenses have grown at an annual rate of only 32%. It is this operating efficiency that has meaningfully accrued to the benefit of our shareholders, as our dividends have grown over this period at an annual rate of 53%. As we move into 2013 and beyond, we are committed to continuing to deliver superior operating efficiencies. At this time last year, as we held our fourth quarter 2011 earnings call, I stated that our challenge and opportunity during 2012 was to continue to find solid investment opportunities we believe would provide an attractive risk adjusted return to our shareholders.

Well, I believe the same challenge and opportunity exists for 2013, and that the market is still quite attractive for lower middle market investing on terms and conditions that are very much in line with long-term historical averages. We are at what we consider to be an exceptionally average time in the credit cycle where assets appear to be priced competitively but fairly from a risk-adjusted return basis. As we move into 2013, we believe investors would be wise to align themselves with those specific BDCs that have demonstrated consistent investment results, coupled with an ability to protect investor capital, an ability to earn their dividend, an ability to raise new capital accretively, an ability to deliver operational efficiencies, and an ability to operate in a conservative manner while focusing on the long term. Indeed, utilizing these benchmarks should position BDC investors for many more quarters of attractive returns.

With that, I'll now turn the call over to Steven.

Thanks, Garland. As most of you know, we issued our earnings release and filed our 10-K yesterday afternoon after the market closed. I'll focus in this portion of the call on, first, our results for the fourth quarter of 2012, followed by our results for the full year, and then I'll provide some discussion regarding liquidity and capital resources.

During the fourth quarter of 2012, we generated total investment income of approximately $25 million, representing a 36.4% increase over the $18.3 million of total investment income we generated during the fourth quarter of 2011. The increase in investment income was primarily attributable to a year-over-year increase in the size of our investment portfolio. Of the $25 million in total investment income, approximately $500,000 or, said another way, approximately $0.02 per share was related to a nonrecurring portfolio company dividend. Our total expenses during the fourth quarter were $9.4 million, consisting of interest expense and other financing fees, and general and administrative expenses, compared to $6.3 million during the fourth quarter of 2011. For the three months ended December 31, 2012, interest expense and other financing fees totaled approximately $4.9 million, as compared to $3.1 million for the fourth quarter of 2011. The increase of $1.8 million in interest expense and other financing fees was primarily due to our 7% senior notes issued in March of 2012, and our 6.375% senior notes issued in October of 2012.

G&A expenses for the fourth quarter of 2012 totaled $4.5 million, as compared to $3.2 million for the fourth quarter of 2011. The $1.3 million increase was primarily due to increased salary and compensation expenses. Net investment income for the fourth quarter of 2012 was $15.5 million, or $0.57 per share, as compared to $12 million, or $0.53 per share, during the fourth quarter of 2011. On a recurring basis, our net investment income during the fourth quarter was $0.55 per share. That is net of the $0.02 per share of nonrecurring dividend income from a portfolio company that I just mentioned, as compared to $0.55 per share of recurring NII during the third quarter of 2012. Which as you will recall from our third-quarter earnings call, our third quarter NII was also net of $0.03 per share of nonrecurring dividend income from two portfolio companies during that quarter.

Our net increase in net assets resulting from operations during the fourth quarter 2012 totaled $15.6 million, as compared to $12.4 million during the fourth quarter of 2011. On a per share basis, our net increase in net assets resulting from operations during the fourth quarter of 2012 was $0.57, as compared to $0.55 during the fourth quarter of 2011. Our net asset value on a per share basis at December 31 was $15.30, as compared to $14.68 at December 31, 2011, and $15.33 at September 30, 2012. The $0.03 per share decline in our net asset value from September 30, 2012 to December 31, 2012 was primarily attributed to a $0.09 per share decline related to taxes relating to a deemed distribution in the amount of $0.26 per share. And as most of you know, a BDC has the opportunity to pay a deemed distribution when it generates net long-term capital gains, which as Garland mentioned earlier in the call, Triangle fortunately has been successful in doing since its IPO.

For the full year ended December 31, 2012, total investment income was 90.4 million, representing a 42.6% increase from $63 million of total investment income for the year ended December 31, 2011. The increase, again, was primarily attributable to a year-over-year increase in our investment portfolio. Our operating expenses during 2012 totaled $32.7 million, consisting of interest expense and other financing fees, and general and administrative expenses, compared to $22.9 million during 2011.

For the year ended December 31, 2012, interest expense and other financing fees totaled approximately $16.4 million, as compared to $10.9 million for 2011. The increase of $5.5 million in interest expense and other financing fees was primarily attributable to our 7% senior notes issued in March, and our 6.375% senior notes issued in October of 2012, partially offset by lower weighted average interest rates on our SBA debentures. G&A expenses for the year ended December 31, 2012 totaled $16.3 million, as compared to $12.0 million for the year ended December 31, 2011. The $4.3 million increase was primarily due to increased salary and incentive compensation costs, and increased noncash compensation expenses driven in part by both an increase in the number of employees and by an increase in the per share price of our stock.

Net investment income for the year ended December 31, 2012 was $57.7 million, as compared to $40.5 million during 2011. NII per share during 2012 was $2.16, as compared to our NII per share during 2011 of $2.07. Our net increase in net assets resulting from operations during 2012 totaled $60.1 million, as compared to $56.8 million, and the net increase resulting from operations in 2011. The net increase in net assets resulting from operations was primarily due to the $17.2 million increase in net investment income during the year, offset by a $13.5 million decrease in net gains in our investment portfolio, as we had net gains in our portfolio during 2012 of $3.8 million, as compared to net gains in our portfolio during 2011 of approximately $17.3 million.

So on a per share basis, our net increase in net assets resulting from operations during 2012 was $2.25, compared to $2.90 during 2011. At year end, our total investment portfolio had a fair market value of approximately $707 million, representing a 39.4% increase over the fair market value at December 31, 2011 of approximately $507 million. As mentioned earlier, our net asset value on a per share basis at 12/31 was $15.30, as compared to $14.68 at 12/31/2011, representing an increase of $0.62 per share during the year.

From a liquidity and capital resources perspective, on our third quarter call, I mentioned that we were in a, quote, incredibly fortunate position from a liquidity standpoint. Thankfully, that continues to be the case, as we are still very well capitalized as we move into 2013. With a little more than $72 million of cash on hand, full availability of our $165 million senior credit facility, and approximately $11 million in available SBA debentures, our total liquidity at year end approximates almost a $0.25 billion. Subsequent to year end, on March 1 of this year, we voluntarily elected to prepay $20.5 million in SBA debentures which bore interest at a rate of 6.44%. And as we have received in the past, and hope to receive in the future from the SBA, we hope to receive approval to issue again $20.5 million in new debentures to replace the debentures that we prepaid. So as of 12/31/2012, our total weighted average cost of debt was 5.1%, which, given the long-term fixed rate nature of our balance sheet, we believe is a very attractive cost of debt capital.

For those of you unfamiliar with the SBA program, SBA guaranteed debentures are 10-year fixed rate non-callable but prepayable debentures. As a result, SBA debentures are our most attractive source of long-term capital. The SBA has been an outstanding partner since our inception. While we recognize that the SBA debentures are debt securities, from a balance sheet perspective, the attractive terms, coupled with the fact that they are excluded from our asset coverage calculation for 40 act purposes, allows our debentures to function essentially as an additional form of equity capital for us.

Said another way, SBA debentures provide us with an additional ballast of low interest rate capital that we can utilize to originate portfolio company investments, that in turn increase the dividend yield we can provide on a sustainable basis to our shareholders. And to be clear, in this example the SBA is directly helping provide much needed capital to lower middle market companies that can help create jobs in their respective communities across our country. We continue to be optimistic that the current push in the legislature to expand the SBA program will eventually be successful, resulting in the potential for up to $125 million in additional SBA funding for us. Finally, from a capital marks standpoint, Garland mentioned earlier that in September we closed on our $165 million senior credit facility, and in October we completed a bond offering in the amount of $80.5 million.

What is notably absent from our recent capital markets activities is a follow-on equity offering. And just to set expectations, as I mentioned earlier, as we exist today, we have almost a $0.25 billion of liquidity available to us. As a result, we believe the best strategy for Triangle is to continue to operate in the section of the market that we believe we know best, and for us to look for the most attractive investment opportunities that we can find on a pace that is appropriate for our investment team. Given that our run rate NII is $2.20 per share, and that our run rate dividend is $2.16 per share, we are in what I would say is an enviable position, in that we can be very deliberate in what we do from an investment standpoint on a go-forward basis without being pressured in any way.

And with that, I'd like to turn the call over to Brent for some comments on our investment portfolio, and also for some general comments regarding our views for 2013.

Thanks, Steven. Let me start by saying that we didn't have any year-end holidays at Triangle because we were busy closing all of our first-quarter 2013 transactions during the last week of 2012, or at least that's how it felt. But all kidding aside, it truly was an incredibly busy fourth quarter. In many respects, it's accurate to say that certain transactions that normally would have fallen into 2013 were completed before year-end, due to anticipated changes in tax laws. The net result for us is that in terms of investing activity, it would be accurate to say that we probably completed somewhere between 1.5 and 2 quarters worth of work during the fourth quarter. Just to provide a bit more color on what I mean when I make that statement, consider that we closed four investments totaling approximately $67 million during the last two weeks of December.

And if you look back over the last eight quarters, our average quarterly investment rate has been, you guessed it, $67 million. While it's still very true that we don't have a specific goal for a minimum or a maximum amount of investments we look to make each quarter, or in any given year, it is also very true that the fourth quarter was an exceptionally busy quarter for us. And when transactions fall into our parameters and we see things that we like from a credit and an opportunity standpoint, our team aggressively seeks to win those transactions. This perhaps is one of the greatest benefits of not being burdened with the pressure of making additional investments every quarter in order to meet a minimum dividend obligation, or some other specific quarterly goal.

When Garland and Steven spoke earlier in the call about many of our key strategic viewpoints, the result is that our strategic focus provides our investment team with much more latitude to take our time and look for specific investment opportunities, as opposed to being forced to focus on quantity. We have said many times on these calls that we look for quality over quantity in terms of investments, and that statement continues to be as relevant today as ever. So in terms of recapping 2012, we made 26 new investments during the year. We made eight debt investments in existing portfolio companies totaling $7.8 million, and we made five equity investments in existing portfolio companies totaling $0.6 million.

All of this activity yields total gross investments during the year of approximately $349 million. On a net basis, including the effects of principal and PIK repayments totaling $157 million during the year, our net deployments total approximately $192 million. During 2012 we sold equity investments, resulting in net realized gains of approximately $6.2 million. On a cumulative basis since IPO, our net realized gains have been $13.4 million. Needless to say, we are pleased with that number. As some of you will recall, during the third quarter we had two investments on PIK nonaccrual. That is, we were receiving cash interest on the investments, but we voluntarily made the decision not to recognize the PIK interest component of the interest rate because of the weakened operational position of those portfolio companies.

During the fourth quarter we moved one of those, thankfully the smaller one, to full nonaccrual status. The specific company is called Venture Technology Groups, and the investment is a $5.5 million sub-debt investment. For those of you following us, I don't think this move is much of a surprise, because we've been talking about for some time now, and for the last two quarters the investment has been valued at 61% and then 49% of cost. The other investment which was on PIK nonaccrual during the third quarter, Home Physicians, remains on PIK nonaccrual. However, things are continuing to improve there, and we are hopeful that it might move back onto full accrual in the next one to two quarters.

So our nonaccruals at year-end were 2.1% of the portfolio on a cost basis, and 0.3% on a fair value basis. From an overall portfolio standpoint during the fourth quarter, we experienced unrealized gains of approximately $9.2 million, net unrealized losses of approximately $9.2 million, and an unrealized depreciation reclassification adjustment of $900,000 relating to the sale of one portfolio company equity investment. So exclusive of the reclass adjustment, the portfolio is basically flat on a quarter-to-quarter basis. As we've said many times before, we don't discuss the specifics of our investment pipeline, but I will try to give you a bit of color in terms of our perception around how 2013 could look in terms of overall activity.

First from a broader public markets perspective, we believe 2013 will be a very active year for M&A, as many public companies have meaningfully reduced operating expenses over the last several years, yet they are still struggling to achieve top-line revenue growth. Couple that with strong balance sheets and active debt markets, and you have the ingredients for a lot of M&A activity. Second, from a private market perspective, there are a few data points we believe are intriguing. The first data point we find interesting is the impact that private equity investors had on the middle market over the last several years. Industry estimates indicate that there are approximately 6,500 private equity owned companies in the middle and lower middle market, and that 3,000 of these, or almost 0.5, were purchased by their current owners between 2005 and 2007.

This, quote, inventory backlog, is not only significant in terms of its sheer number, but is also older in terms of investment vintage than most private equity firms ideally like to have. Said another way, the average portfolio company hold period for most private equity firms is now more than five years, which according to several M&A advisers we've spoken with recently, is the first time that has occurred. So as these private equity owned companies continue to regain their operational footings and shed the negative effects of the Great Recession, and as their private equity owners begin to think about raising their next fund, we believe many private equity firms will look to sell these companies over the coming quarters.

Another statistic we believe is meaningful is that 2012 was the first year where more than 50% of the total M&A transaction volume in the middle market involved private equity funds as both the serial and the buyer. We believe this data point is meaningful because it indicates that private equity buyers are more active than ever in the middle market. It also suggests that private equity buyers are becoming more effective in competing against strategic buyers. If this trend continues, it suggests there will be more opportunities for Triangle to participate in middle market M&A transactions.

So to wrap up my comments, I will make two quick points. First, that 2012 was an extremely busy year for our investment team, with great results. We generated net portfolio growth, realized substantial net gains on investment exits during the year, and maintained a very low nonaccrual rate. And second, as we look ahead into 2013, we see very solid fundamentals in our target market, though we certainly recognize that we don't dictate the pace of M&A activity. We simply seek to be part of the best transactions that occur in it.

Now I will turn the call back to Garland for any concluding comments before we take questions.

Okay. Thank you, Brent. As tempting as it is for us to want to pause and look back at 2012, which was in every way a great year, the opportunity lies in 2013 and beyond. Our balance sheet is strong. We've made -- we have ample liquidity going forward. Our investment portfolio is healthy. Our relationships are solid, and our current earnings more than cover our current dividend. As an internally managed BDC, we have no incentives to grow assets simply for the sake of growth itself. We view the still vast opportunity in the lower middle market as a disciplined and steady endeavor, and we believe that taking a conservative approach to the key aspects of our business will continue to serve our shareholders well.

So with that, I would like to turn it back over to the operator and open it up for questions.

Thank you, sir.

(Operator Instructions)

Our first question comes from Mickey Schlein of Ladenburg.

I wanted to get a sense of whether there are any companies your portfolio that you're perhaps a little bit more nervous about, given the potential impact of the defense cuts and healthcare cuts that we're seeing at the federal budget?

Yes, Mickey, thanks for your question. We have three companies in the portfolio potentially affected by sequester. We have looked at each of those companies in an attempt to measure and judge the impact of the sequester. What we have found, Mickey, is that none of them actually expect that their business will be impacted. What they are seeing, however, is that the uncertainty is causing a higher degree of lumpiness in their business, causing shrinkage of backlog, not because, again, the business is going away, but because their customers are putting in smaller orders due to the uncertainty.

So it's creating a lot of uncertainty in these three particular portfolio companies. They're not seeing any material degradation in performance, certainly not yet at this point, and they're not anticipating that, but it is really just the uncertainty is creating a greater degree of lumpiness.

Okay, appreciate that. And just one other question. Steve, can you give me a sense of how many sponsors you're working with and how your deal flow is breaking down between sponsored and nonsponsored deals?

Mickey, it's still about that sort of 80%, 80%-plus rule of thumb that we experienced for the last several years. 80% or so of deal flow is true financial sponsor, either large sponsor or small sponsor transactions, and then the other high teens to 20% is what we would call fundless sponsors, or family offices, or situations where Triangle serves as the institutional capital in a transaction. So no real change there.

Okay, thanks. Thanks for your time this morning.

Thanks so much.

Thank you. Our next question comes from Kyle Joseph of Stephens. Your line is open.

Good morning, guys. Thanks for taking my questions.

Kyle, good morning.

I'm just looking through our model. It kind of looks like PIK as a percentage of total income has been trending down in 2012. Is that a strategy you've undertaken, or is that more of a market dynamic? And where do you expect that to go from here?

Kyle, thanks. PIK revenue or PIK income as a percentage of total revenue has -- it has ticked down a little bit over where we were back, I would say, a couple of years ago. I think for the last couple of quarters it's been fairly static around sort of that 15%, 16% range. And then, of course, net PIK, that is the remaining PIK income recognition net of the folks who prepay, choose to prepay their PIK interest during the year, actually did decline a little bit for us year-over-year.

I think last year our net PIK was about $6.4 million or so, and this year it was maybe $5.9 million. So that's really the true drag on cash, if you will, for us, which is, of course, a very small number from where we sit. And a lot of that has to do with loan repayments that we experience during any particular quarter or particular fiscal year. So there's no real change in pricing for us. The lower middle market is great in the sense that you can typically achieve a little bit of additional PIK interest on your transactions, which helps returns, but it just really is affected more by investment mix over time.

Okay, thanks. And that's a good transition to my next question. I was going to ask about yields in the quarter, and you said it looks, given your disclosed yield, it looks like deals are pretty stable, but could you give an update on the fourth quarter, and also what you have seen so far in the first quarter? I guess that question is for Brent.

Yes, thanks, Kyle. Of the seven new transactions in Q4, the average coupon was 14.1%. So that's clearly a little bit down from what we've seen, again, related to Garland's comments, well within historical averages. And so we don't see a lot of change to that going forward. I think in the first quarter, because there's not as much activity, we're seeing a little bit more pressure on those yields. I think as activity picks up and the pipelines rebuild during the year, I think there will be probably more of a bounceback, back to what we saw in fourth quarter.

All right. And then, Steven, I know you mentioned the coupon on the SBA that you financed in the first quarter. Can you give us an idea of what the new coupons are going to be on that debt, or where you are seeing SBA debt pricing?

Yes, the last time we pulled, Kyle, last, I guess last fall, we were at 3.39%, 3.4%. What, on an all-in basis, I think that's about 3% flat, and then the fees that get worked into it make it about 3.4%. And so, if we were going to pull today, we think it would be plus or minus that range. So, for modeling purposes, call it 3.5%, and you're probably safe.

Got you, thank you. And just one last question. Do you guys have kind of a target leverage, or can you comment on that?

Here again, we're so fortunate that we have the SBA relationship and the additional, as I mentioned in the prepared comments, is we would call it the ballast of capital that that provides us. So, in terms of just on a stated leverage basis, we would be very comfortable continuing to run as we are, and utilizing, as I mentioned again in prepared comments, a portion of our bank facility. Obviously, though we have $250 million of total liquidity, obviously I don't think it would be responsible of us to, even though we could, to utilize the full $165 million of the bank facility. So you always want to keep a little bit of sand your pocket, if you will.

But I think from a modeling standpoint, if you were to take a sort of easy look at it, just assume we invest $100 million over the course of this year, and assume the net spread is 10%, including the calls to the credit facility and using some cash on hand. And that would generate, I think, over our share count, a run rate of additional NII of somewhere around $0.36 per share. If you just cut in that half, as a high level assumption, that would be $0.18 per share this year, depending on when the investments come into the portfolio.

With a base of $2.20 on a run rate NII per share, for modeling purposes, if you're in that, that would be $2.38, but just hair back a bit to be a little conservative, and you're in that $2.30 to $2.35 range. I think that's a pretty comfortable number that provides a pretty nice dividend lift over the course of a year, and an earnings lift, as well.

Okay, great. Thanks so much for answering my questions. Congratulations on a great quarter and actually year, too.

Kyle, thanks so much.

Our next question comes from Robert Dodd of Raymond James. Your line is open.

Hi, guys. Yes, congratulations on another really good quarter. Kind of consistent trend there. Couple questions, if I can. First one on the rate of repayments you're seeing in the portfolio. Last couple of quarters, obviously portfolio has grown a lot, and that's what -- is this going to be normal course, or is this kind of the activity that you talked about in terms of P firms maybe starting to churn their portfolio.

Obviously, you may retain some of those relationships, if it's a portfolio company of yours that's getting sold or refinanced. But can you give us a little bit of color on what -- if there's any indicators about where you think repayments could go over the next couple of years? I mean, stay at this kind of level, ramp up, or head down to where they were a couple of years ago, which was $60 million a year? Obviously, portfolios are lot bigger today, though.

Yes, good question. If you have any insights, let me know. (Laughter) It's impossible to predict, as we've always said. And generally speaking, the more active we are going to be on the origination front, the more activity we will be seeing in terms of portfolio churn and exits. I would say in general that the level of repayments was lower in the last -- in, say, 2010 and 2011 than I anticipated, and that is because private equity hold periods have gone up over historical averages. And I think we caught up on a lot of that in 2012, with the credit markets being more accommodating and other factors. I think that drove exit activity.

And just as our origination activity was somewhat accelerated into Q4 because of the tax law changes, similarly our repayment activity was accelerated. So the way I think about it, Robert, is that in general, somewhere between three and four years is going to be a typical hold period for our portfolio. So with us deploying roughly $340 million in 2012, most of that money is going to come back to us in 2015, 2016. And I probably predict that a little more accurately than I can predict what will happen in 2013.

Okay, appreciate that. Steven, could you give us any color on -- I mean, you mentioned the dividend fee, or the dividend income, which I assume is the dividend recap or something like that. Any color you can give us on kind of the other fee components? I mean, obviously you tend to amortize points you get upfront, but some of those you take as upfront fees, and obviously you had a very high deployment quarter. So was there any -- other than the $0.5 million, which you have already flagged, were there any other kind of fee income in that quarter that would be above sustainable levels? Put it that way.

Yes. Thanks, Robert. It varies every quarter. There are three types of fees that exist for, really, any BDC. The first would be a when you receive an upfront fee in a transaction that you amortize that over the life of the transaction. At least, I think most of the more conservatively tilted BDCs tend to do that it way. So that's the first piece, and that just recurs every quarter. The second piece is fees that you would generate when you have transactions that prepay or repay, and prepayment penalty fees and those types of things. So in a period of higher prepayments, you might generate incrementally a little more of that type of activity, and we think of those as nonrecurring fees that tend to happen every quarter, because you have some percentage, as Brent alluded to, of the portfolio that does churn every quarter.

And then you have truly the out of left field or right field dividends or sources of income from portfolio companies that are truly one-time in nature that you just can't predict, and would be loathe to predicate your business plan on them. And those are the fees that we call out every quarter to the market to be sure that you guys that you're running your models don't get too excited over, last quarter, $0.58 of NII, which included $0.03 of a nonrecurring dividend in this quarter, $0.57 of NII that included $0.02 of a dividend. So we think about as those first two buckets tend to happen every quarter, one just by the contractual nature of it and the other just by the portfolio churning. Does that make sense?

Yes. Yes, got it. Appreciate that. Last question, if I can. Just on Exchange Technologies, which is what I've been keeping an eye on, because it looks like it's been maybe struggling for a little while. It got marked down again in the fourth quarter. It's small. Obviously, pretty much all your individual investments are small relative to the total at this point. It's only an 8% payer. So it's not going to move the numbers, but any color on the update there? I mean, the fair value got cut in half again, versus the third quarter, and it's now about 25% at cost. That's usually, in our view at least, an indicator of some performance problems for the company. So you've got any color there?

Yes, very quickly. Robert, it's Steven, then I'll let Brent expound on this, if he would like to. Just to be specific. I think it's held at 25% of costs now, so to speak. So I think your eyes are doing the right work there in terms of picking that up. At about a $6 million investment for us, or $5.9 million, something like that, it's -- were we to lose it, I think the impact in the portfolio would be 0.8 of 1%. So it would take nonaccruals from 2.1% to 2.9%. So well below historical averages for, I think, anybody in the industry, including us. So from that standpoint, we feel great that if we were to lose it, it's just not a big deal, thankfully.

From an earnings dividend standpoint, obviously we took that into account, as you would imagine, in our modeling here, before increasing the dividend last week, as Garland mentioned. So one way or the other, obviously we hope for the best, but prepare for the worst. And so from that standpoint, thankfully we're able to sleep pretty well at night with it. But Brent, would you add a anything, just operationally?

Yes, I would just say, I mean, it was a very difficult one for us to value this quarter. There's actually a tremendous amount of activity going on there to try to right the ship, and it's just a little too early yet for us to make the call on how successful those efforts are going to be. So just stay tuned. We hope that we're being conservative in our valuation.

Okay, appreciate that. Thanks a lot, guys.

Thanks, Robert.

Thank you. Our next question comes from Greg Mason of KBW. Your question, please.

Thank you. Steven, you talked about your expectations that the SBA program will be expanded. Can you give us any commentary. I know you guys are tied into the SBA and the Small Business Investors Alliance. Can you talk about what you're hearing in terms of what's going on on Capitol Hill, kind of timing for that, what's standing in the way of that not happening sooner versus later?

Greg, thank you for your question, and thank you for your comments within the question of saying that we're -- acknowledging that we are -- we try to be active there, and hopefully helpful where we can be so. I would say the single biggest thing in the way is that little item called the sequester that the government is trying to work through now. I think that's really the bigger issue. It's been referred back to committee, as we understand, since it didn't get done in late December when it was -- lots of folks were holding their breath, hopefully.

So it's still one of those things everybody -- one of the few things, I think, in Washington that both parties really do agree on. But it's not large enough, as a single peace of legislation, to work through on its own accord. So it has to be attached to some other bill, and the odds of that are just too difficult, I think, for anybody to predict with any degree of accuracy. So I'll try not to fall into that trap. But we are certainly hopeful that something will get done, because it's a moneymaking program for the government, for our country, and really does help provide jobs in local communities across the country.

Great. And then I appreciate the comments about you talking about you have significant amount of capital to invest, but I also got to think investment bankers are calling you now that you're trading at two times book value, in terms of potential equity capital raises. Can you talk about your balance between the stock trading at two times book and can do an accretive equity raise, versus the available capital you have for new investments? How are you guys balancing those two discussions?

Well, thank you very much for that question. It's interesting. I actually just looked at my phone, and I had an e-mail from a banker while we were on this call, asking about exactly that. So, yes, people, bankers are trying to pitch their wares, so to speak. Greg, it's one of the reasons I made the comment in the prepared remarks about the SBA debenture program with low interest rate long-term money like that, 10-year money. I'm not trying to say that, hey, look, debt is equity, but that really is long-term ballast capital in our capital structure. And as long as Triangle, or frankly any BDC, can handle the interest expense, which, of course is very low interest rate, that's permanent capital that we can use to increase our yield on a sustainable basis.

And I think the market is beginning to understand that that really is what that form of capital is, and if you look at Triangle, and frankly any other BDC, and adjust for SBA debenture, the SBA debenture program that way, I think we're trading at somewhere around, plus or minus, 1.2 times book, or something like that. And again, I'm not trying to say debt is equity, but it's a fact that that capital exists for a very, very long time, and especially when you can refinance those when they hit year seven or eight, and then push maturities out for another 10 years, it's just a very efficient form of capital.

So I think our opportunity going forward, we've got great committed liquidity with the bank facility. It's a four-year deal, that's longer than a lot of deals in the industry. We have two one-year extension options on the deal. So while, as you know, we have an aversion to piling the balance sheet up with a lot of short-term capital, to utilize some of that bank facility is certainly reasonable for us. And any equity offering on a go-forward basis, I think has to continue to be predicated on the investment pipeline, and are the opportunities there to support it, for us to believe that we could put the dollars to work in a very, very short period of time, like going back to Garland's comments, we've been able to do, frankly, every time that we've raised equity before.

So it's not just a valuation play. If we were externally managed, it might be, because every time an external manager raises equity, he takes 4% of the dollars he raises and puts it in his pocket. From our standpoint, it's about increasing dividends per share on a steady state basis. Garland, would you add anything to that?

Well, just to say I think it's very much on the point of our attempt, and I think our success, at matching the needs of the deployment pipeline to our ability to raise capital. And when we issue shares, we view that as an obligation to not only continue paying the dividend, but continue to earn it. And there's certainly, going back over a lot of years, there have been times when the market has been willing to give companies more money than they needed or should have, and we are determined not to fall into that trap.

As long as we've got a good use for the money and can deploy it, as we have in the past, and continue earning the dividend, then we'll absolutely step up and issue shares, but we're not going to just respond to the market or investment bankers who are saying that we should take advantage of this opportunity, if it's not matching our deployment needs. I think that's the overriding objective for us, is to continue doing that.

Great. I appreciate the comments, guys.

Thanks, Greg. Appreciate the question.

Thank you. Our next question comes from Bryce Rowe of Robert W. Baird. Your line is open.

Thank you. Had a couple of questions. One less convoluted than the other. So I will lead with that, and then follow with the other one. Robert Dodd mentioned XTG. I'm wondering if there are other companies on your so-called watch list or radar screen that you are keeping a closer eye on from a credit perspective?

Then the second question is, when we look at kind of the fair value of debt investments over their costs, I notice a wider negative gap compared to 2011, but then on the flip side also, a wider positive gap when looking at the fair value of equity investments over their cost. Does the wider gap on the debt investments imply incrementally weaker credit conditions that you guys have seen over the past year? And hopefully I asked that question correctly.

Yes, Bryce. I think I understand the questions. Thank you for them. The other two companies that are probably most concerning to us, and again, not hard to figure out looking at write-downs. I already mentioned Home Physicians, and that remains on PIK nonaccrual. Again, we're seeing some positive things there. We're somewhat hopeful. Again, it's always difficult to tell when a company is underperforming whether your efforts are going to be successful, but we're certainly -- there's a lot of activity there in terms of driving some improvements, in that it's a business model that has -- that is experiencing, actually, a lot of growth.

On Minco, is the other company, again we've written it down further this most recent quarter. That is one of the companies that is subject to sequester, and kind of in my comments earlier in terms of lumpiness, again not expecting any long-term effect, but potentially some short term effect.

So, but if you look at the two of those companies, if they -- I think each of them is roughly 0.8% of our NII, and so -- of the portfolio. If both of them went on nonaccrual, it would increase our nonaccruals by about 1.6%. So fairly -- on a percentage basis, would be a big move, but still, again not -- would not result in particularly concerning nonaccrual rate.

Just in general as it relates to your second question, I'll let Steven answer it more specifically. Just in general, I would say, and I think I said this on the last quarter's call as well. That the problems that have -- that we're seeing in the portfolio of company are specific, or in the portfolio are specific to these portfolio of companies. They are not generic market credit issues or anything like that. There is no receding tide that's going to sweep out a whole bunch of companies that we see at this point. It really is specific management, industry, market dynamics that are particular to each of these companies.

Bryce, this is Steven. Maybe adding to what Brent said, because I do think that with 82 companies in the portfolio, and in addition to the few nonaccrual assets, the total 2.1%, if you were to take the worst case assumption and assume XTG and Minco both were to go on nonaccrual, that takes us to 3.7%, which still obviously very well below long-term historical rates for the industry, and even Triangle.

But I think from the total portfolio standpoint, in terms of from a credit perspective, our strategy of having equity upside in 80% to 85% of our investments that, as Garland mentioned in some of his comments, of the decisions we're making today are, from a patterning standpoint, very equal to what we've done historically, and the statistics in the portfolio today are very much what they were, or have been, historically.

And so I think when you consider that XTG and Minco together, I think they would, on a cost basis, be about $11 million. So assume both those went to $0.00, a horrible assumption. We've got $13.4 million of existing gains on the balance sheet. So we would still be net-net positive from a gains versus losses perspective, and we have, I think, on -- if you look at all of our equity positions today across the portfolio on an unrealized basis, they total $30 million. So you have all of those on the good side, so to speak.

And just, I guess, from a relative analysis standpoint, in terms of how do we feel about that $30 million. If you go back and look at 100% of the equity he investments that we have captured and sold out of those positions since IPO, I think there have been 19 or 20 cases. In every instance, Bryce, the highest point of value of those equity positions was at exit, with the exception of two accounts, and I think those two accounts totaled the amount by which they were not at their highest point at exit was, I think, for both accounts, the total was $70,000. So they were right there.

So not to say that we're -- don't know where the $30 million of equity value today will end up, but if the current portfolio equals what it has in the past, then hopefully that $30 million is a pretty strong number. And so two, three, four years from now, hopefully we will be in the same position where on a net-net basis, equity gains will have significantly more than offset any principal losses over time. It certainly feels that way from a high level perspective today.

That's great. Thanks.

You're welcome. Did you have a second question?

No, you got them both. Thanks.

Okay, great. Well, thanks so much. Operator, are there any other questions in the queue?

No, sir.

Okay. Well, thank you all for participating, and we'll look forward to speaking with you in May to discuss the first quarter.

Thank you sir, and thank you ladies and gentlemen, for your participation. That does conclude Triangle Capital Corporation's fourth quarter, full year 2012 conference call and webcast. You may disconnect your lines at this time. Have a great day.