Barings BDC Inc (BBDC) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen. At this time I would like to welcome everyone to Triangle Capitol Corporation's conference call for the quarter ended March 31, 2013. All participants are in a listen-only mode (Operator Instructions). Today's call will be recorded two hours after the conclusion of the call on the Company's website at www.tcap.com.

The hosts for today's call are Triangle Capital Corporation's President and Chief Executive Officer, Garland Tucker; Chief Financial Officer, Steven Lilly; Chief Investment Officer, Brent Burgess, and now I would like to turn the call over to Sherri Colquitt, Vice President for Investor Relations, for necessary Safe Harbor disclosure.

Thank you, Tyron, and good morning everyone. Triangle Capitol Corporation issued a press release yesterday afternoon with details of the Company's quarterly 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 can 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 section entitled risk factors and forward-looking statements in our annual report on form 10-K for the fiscal year ended December 31, 2012, and quarterly report on form 10Q for the quarter ended March 31, 2013. Each is filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statements. And at this time would I like to turn the call over to Garland Tucker.

Okay. Thanks, Sheri, and good morning everyone. Thank you for joining us for today's call.

I'd like to begin with some general remarks about the quarter and then Stephen and Brent will provide more detailed information about our financial results and also our portfolio activity. Since our last earnings call was only two months ago, we will keep our prepared remarks today relatively brief, and reserve plenty of time at the end of the call for your questions.

In terms of a few [halides] during the first quarter of 2013, during the quarter, we made new investments in existing portfolio companies in the amount of $10.3 million. We generated $0.56 of net investment income on a per-share basis, and we, again, over earned our dividend of $0.54. Also of note during the quarter was that we realized gains of approximately $1.9 million, and we experienced net unrealized appreciation across the portfolio of approximately $1.8 million.

From a credit quality standpoint, as Brent will discuss in more detail in a few minutes, our portfolio continues to perform extremely well. Finally, from an operational efficiency standpoint, we continue to be among the leaders in the [BUC] industry with an efficiency ratio defined as total G&A expenses divided by revenues, which is meaningfully below that of our peer group of both internally and externally managed [BUCs]. Our results during the first quarter of 2013 were very much a continuation of the primary trends that we experienced during 2012. We increased our dividend to $0.54 per share from $0.53 per share during the prior quarter, and this was up from $0.47 per share during the first quarter of 2012.

This marked the fourth time in the past five quarters that we have increased our quarterly dividend. Our dividend increase was underpinned by the new investments that we made during the fourth quarter of last year and the portfolio company investments that we made during the first quarter of this year.

Indeed, if you average the net investments we made in the fourth quarter last year with those made during the first quarter this year, then our investment portfolio expanded by $38 million, which is exactly equal to the average quarterly net investment pace we've experienced over the last three years. In many ways, our first quarter results encapsulate the operating strategy that Triangle Capital has always had and that's to provide shareholders a stable, predictable dividend, which is supported by a conservative capital structure and which is funded by a disciplined, measured pace of investing.

So, again, the first quarter 2013 was a very steady quarter for Triangle, and we're very pleased with how the new year has started. With that, I'd like to turn the call over to Steven for some specific comments with regard to our financial and operational performance.

Thanks, Garland. As most of you know, we filed our earnings release in 10Q after the market closed yesterday. During the first quarter of 2013, we generated total investment income of approximately $24.5 million, representing a 28% increase over the $19.1 million of total investment income we generated during the first quarter of 2012.

The increase in investment income was primary attributable to a $5.4 million increase in loan interest fee and dividend income. Our total expenses during the first quarter were $9.2 million, consisting of interest expense and other financing fees and general administrative expenses compared to $6.9 million during the first quarter of 2012.

For the three months ended March 31, 2013, interest expense and other financing fees totaled approximately $5.1 million as compared to $3.3 million for the first quarter of 2012. The increase of $1.8 million in interest expense and other financing fees was primary due to our 7% senior notes issued in March of 2012, and our 6 and 3/8% interest senior notes issued in October of 2012.

General administrative expenses for the first quarter 2013 totaled $4.1 million as compared to $3.6 million for the first quarter of 2012. The $500,000 increase was primarily due to increased salary and compensation expenses, a portion of which was associated with an expansion of the operating team at Triangle.

Net investment income for the first quarter of 2013 was $15.2 million, or as Garland mentioned, $0.56 per share as compared to $12.2 million or $0.49 per share during the first quarter of 2012.

As Garland mentioned, our NII per share of $0.56 compares favorably to the increased dividend we paid during the first quarter of $0.54 per share. Our net increase and net assets resulting from operations during the first quarter of 2013 totaled $18.4 million as compared to $12.6 million during the first quarter of 2012.

On a per share basis our net increase and net assets resulting from operations during the first quarter 2013 was $0.67 as compared to $0.50 during the first quarter 2012. Our net asset value on a per-share at basis March 31, 2013, was $15.32 as compared to $15.30 at December 31, 2012, and $15.12 at March 31, 2012.

The increase in net asset value on a per-share basis was primarily attributed to net realized and unrealized gains of approximately $0.13 per share, partially offset by the issuance of shares of restricted stock during February of this year.

As we announced on our earnings call two months ago, on March 1st of this year we again took advantage of an opportunity to prepay a portion of our oldest SBA debentures in the amount of $20.5 million that bore interest at a rate of 6.44%, which were also are most expensive SBA debentures. As we move through 2013, we hope to issue new ten year SBA debentures at today's prevailing interest rates. From a cost to capital perspective, we hope the issuance of these new SBA debentures will generate annual interest savings of approximately $600,000 per year.

From a liquidity standpoint, as of March 31 we had approximately $37 million in cash on hand, $31.3 million in undrawn SBA debentures and $165 million available under our existing senior credit facility for total liquidity of approximately $233 million. Or said another way, approximately 33% of the value of our investment portfolio as of March 31st.

While our liquidity position provides us tremendous flexibility, we take great comfort that our annualized NII, or net investment income, on a per-share basis is $2.24 as compared to our current annualized dividend of $2.16 per share.

Our strategy of maintaining equity positions in a meaningful percentage of our portfolio companies continues to be an important part of our overall investment strategy and from a realized gain perspective, including the $1.9 million realized gain we experienced during the first quarter, we have generated net total long term equity gains of approximately $15.3 million since our 2007 IPO. Or said another way a little more than $0.50 per share.

With, that I'll turn the call over to Brent for a few comments on our investment portfolio and trends we have seen in the overall investing market

Thanks, Stephen. I'll also keep my comments brief today, and be happy to answer any questions you have afterwards. During the first quarter, we made follow-on investments in six existing portfolio companies totaling approximately $8.5 million, and equity investments in two existing portfolio companies totaling approximately $1.8 million.

Also during the quarter, one portfolio company loan repaid at par for approximately $5.8 million, and we received normal principal repayments and partial loan prepayments of approximately $2 million. Taking into account this investment activity, the fair value of our investment portfolio increased from approximately $707 million at year-end 2012 to approximately $715 million at March 31, 2013.

The weighted average yield on our debt investments during the first quarter was 14.8% as compared to 14.6% during the fourth quarter of 2012. This minor fluctuation in yield is normal in our portfolio as our weighted average yield has -- on our debt portfolio has ranged since 2007 from a low of 13.7% to a high of 15.4%.

From a credit quality perspective, we are pleased in our investment portfolio continues to perform very much in line with our expectations. As of March 31, 2013, our nonaccrual assets totaled 3% of the portfolio on a cost basis and 0.4% of the portfolio on a fair value basis. This nonaccrual rate compares to 2.1% of the portfolio on a cost basis as of December 31, 2012, with the difference being our investment in exchange technology group or XTG, which we mentioned on our March earnings call was valued at 25% of cost at the end of the year last year and was likely to be placed on nonaccrual during the first quarter of 2013.

Thankfully, the financial impact of XTG is nominal as it equates to less than one-half of a penny of NII per quarter, or approximately $0.015 or perhaps share of NII per year. It also goes without saying we that took this information into account when we made the decision to increase our dividend to $0.54 per share in March of this year.

So while we're still hoping for the best in our investment in XTG, we thankfully are not dependent on it. From a total investment portfolio perspective, as was mentioned earlier, we experienced realized and unrealized gains of approximately $3.6 million. Or set another way, $0.13 per share. This portfolio appreciation was split relatively evenly between realized and unrealized gains, and we believe our portfolio's well positioned for future gains over the next several quarters.

As we mentioned on our earnings call in March, many of the lower middle market private equity firms were quite busy during the fourth quarter of 2012, as impending tax changes put pressure on buyers and sellers to close their transactions before year-it. As a result, a significant percentage of transactions that would have normally occurred in the first quarter of 2013 were pulled forward into the fourth quarter of 2012.

In our case, we closed on $67 million of new portfolio commitments during the last two weeks of December. Consequently, there was a reduction in available investment opportunities during the first quarter of 2013, because many of the funds with which we routinely work were rebuilding their own pipelines during the early part of this year.

From a broader market investing perspective, as you might expect, even though we did not originate any new investments during the quarter, we remained actively engaged with various financial sponsors helping them analyze and structure new opportunities. One of the things we have witnessed over the last few months is while many [BDCs] and other investors that are focused on larger first liens syndicated debt transactions have agreed to accept lower yields.

Transaction structures in the lower middle market appear to be a little more in line with historical norms in terms of interest rates, interest coverage, fixed charge coverage and total equity capitalization. As a result, we continue to believe, as we said in our last earnings call in March that the near to intermediate term, defined as 2013 and 2014, will continue to be an attractive time both for private companies and financial sponsors to find mutually acceptable transactions.

However, as we have frequently experienced over the last six and a half years, the best transactions with the best sponsors and the best companies occur over their own natural timeline. And the best way for Triangle to participate is to continue to position ourselves as the investor of choice when it comes to lower the middle market. As Garland and Steven both commented, we are thankful that we have the operating philosophy and the capital structure, which affords us the opportunity to continue to be disciplined and selective in the transactions we choose. With that, I'll turn the call back over to Garland for any concluding comments.

Okay. Thanks, Brent. Before we open the call for your questions, I'll reiterate a few thoughts we share with our Board of Directors. On a quarterly basis regarding our long term goals, first we continue focused on mezzanine. We plan to continue our focus on mezzanine debt i.nvestments in the lower middle market. We'll strive to continue to earn our dividend.

We'll strive to continue to have net equity gains exceed principal losses. We will keep investments within our historical leverage and diversification parameters. We seek to maintain low nonaccrual levels. We will continue to maintain a conservative balance sheet. We will continue to maintain our long-term relationship with the SBA. And we will continue to match our asset growth with appropriate staffing.

When we analyzed these goals alongside our first quarter 2013 results, we are very pleased. As the balance of 2013 continues to unfold, we are equally excited about Triangle's prospects for making investments in new portfolio companies in the lower middle market, and also about the prospects of many of our existing portfolio companies to continue their positive performance. And with that, operator, you can open the call for questions.

(Operator Instructions). Our first question is from Richard Dodd of Raymond James. Your line is open.

Hi, guys. I think I changed my name. Just a question on competition, obviously, you've got very long established relationships with your partner you talked about (inaudible) deals, etc. Are you seeing anything change, though, in terms of, you know, other players move down market trying to avoid, you know, just a shuffle of those moving down half a step with the CLOs getting out of control at the very top end, or is it just those relationships just outweigh everything?

Robert, it's Steve and I'll give you just a quick (inaudible) and let Brent maybe add to it if he'd like. I think the short answer is no, to that in terms of people moving down market. If you look at our investment portfolio, approximately 70% of the companies that make up our portfolio, the total transaction consideration was under $100 million. So when you look at that swath of the market, as Brent said in his comments, it just tends to be a little less competitive, and I think that owes to some of the reason that we've had some of the rates and structures that we've enjoyed over the years. But, Brent, would you add anything to that?

Yeah. I would just say the market's always competitive, obviously. I don't -- wouldn't say that it's more competitive now than it has been in the recent past. I think the big change in the market is on the senior debt side that there's a lot more competition because banks have come aggressively back in the market, and there's a lot of new senior lenders that have been funded and a lot of CLO activity as Steven mentioned. That certainly affects our market in terms of pushing leverage a little bit. But it's really -- that's where the pressure from a competitive standpoint is. It's with the senior debt guys and much less so with those of us focused on subdebt.

All right. Perfect. On home positions there's no (inaudible) basically it's improving and may come off (inaudible) if that improvement continues. Can you give us any color on what's driving that improvement? Is it they're benefiting some macro trend that I think would be (inaudible) or things that explicitly within their control that they're working on in terms of rationalizing the structure in terms of the cost structure or whatever. Can you give us an idea of whether it's basically -- whether it's in their control (inaudible) or they just need a fortuitous economy?

No. It's definitely in their control. And as I mentioned on the last call, Robert, the Company is engaged in some significant initiatives both internal and external from an internal standpoint. They've done some -- some things to improve their business model, improve their management team. And we're seeing some really nice developments in terms of their sales pipeline and the attractiveness of what they're doing in the healthcare space. There's also some external efforts going on that I alluded to in the last call.

And we're seeing some early positive results from that. Just in terms of, you know, looking at some strategic options for the Company. And I won't -- because it's a private company I'm not going to go into any more detail than that. But suffice it to say that, obviously, not only are we suggesting that it's going to be [off-pick] accrual, probably more tangibly there was a very substantial write-up, obviously, in the loan value. And so those factors, whether or not there's a transaction, we feel comfortable that the business has -- which has always had the potential and has had the variety of execution issues, is really starting to fire on all eight cylinders, so we're reasonably confident there that one way or another, we're definitely going in the right direction.

Okay.

Robert, it's Steven, just add one quick thing to what Brent said. And I appreciate so much the fact that you found that in the queue. It means you, as usual, were reading it closely. But there was some discussion, obviously, around that account and the revenue recognition potentially of the pick interest in the first quarter, so the language in the queue was really chosen with great specificity and we made what I think is sort of tilting, we hope, long term conservatively to choose the treatment that we did. But there's certainly -- it probably wouldn't have been overly aggressive to have gone ahead and recognized the pick in the quarter. Certainly, some folks may have made that decision. So as Brent says, there's definitely points of light this that arena

Okay. Great. Thank you. That's -- understood that. Just one more if I can. On the follow-on investments, since that was the activity in the quarter, can you tell us what, generally speaking, what the drivers were. Is it these companies -- I mean are they starting to look to expand? (Inaudible) see these individually relatively small additions to the portfolio companies -- the follow-on investments, but are they looking to expand? They needed capital to stand some issue, or I mean can you give us some color on what are the kind of general drivers behind those investments?

Yeah. Robert, maybe a quick answer and if Brent wants to go into more detail, then certainly we can. But I think in general, when you look at the health of the overall portfolio and our statistics and ratios, I think you could conclude that, you know, the investments in existing portfolio companies were of a positive nature, certainly more so than a shoring up as you indicated. But, Brent, I don't know if you have any --

Yes, I mean, add-on activity, Robert, is very important to us and to our partners. And having the flexibility and the available capital to address any situation, whether it's a growth opportunity, whether it's an acquisition, whether it's some form of recap or whether it's shoring up. You know, there's a bit the of all of that kind of in what we did in the quarter, but generally speaking, healthy activity and we're happy to have the opportunity to put more capital to work in these businesses

Okay. Understood. Thank you, guys.

Thank you. The next question is from Greg Mason of KBW. Your line is open.

Thanks. Good morning, gentlemen. First, can you talk a little bit about the loan interest fee and dividend income?I was surprised it was flat, essentially, quarter-over my quarter, given that you had the massive growth in the fourth quarter. I thought a full run rate would see that up. It looks like the one-time income was the same versus the fourth quarter. So can you talk about any type of pressures in that number or benefits last quarter that would cause, essentially, that number to be unchanged this quarter.

Well, Greg , this is Steven. There were -- in the fourth quarter, there were some -- we did have more one-time fees, if you will, in dividends from portfolio companies, and this quarter was -- I don't know how I would characterize other than to say there wasn't much of that in this quarter in terms of nonrecurring income. You know, we joke sometimes on calls that nonrecurring income in the business is something that everybody has some amount of every quarter. Obviously, some quarters are larger than others and some quarters are smaller than others.

So last quarter was maybe a little bit above average, I would say, and this quarter was more below average. But other than that, there's -- there's nothing -- nothing making -- the weight average yield in the portfolio was 14.8 this quarter, 14.6 last quarter. The only change there was just, as Brent mentioned, the move of XTG to nonaccrual, and it was a 8% interest carrier so to speak, so it -- our investment so just the way the math works on that. But that's really -- that's really it.

Okay. Great.

I'll just add one comment to that, Greg. As we said before, I mean one-time fees come from multiple sources, but the most common and typically the largest source is loan repayments. And so given that we had a very low level of loan repayments in Q1, that's sort of indicative in, you know, last -- fourth quarter of last year we had much heavier loan repayments.

Okay. Great. And then Brent can you also talk about you mentioned that the banks are becoming more aggressive and clearly the first lien is more aggressive. Are you seeing any leverage expansion where they're going further in the capital structure that could be one way they could negatively impact your subdebt position. What are you seeing there in terms of how deep they're going and then is that pushing you further down, your last attachment point in the capital structure?

You know, we're definitely seeing a change m their behavior, Greg. I would say it's probably long overdue. We've enjoyed -- I think the hardest part in the lower middle market in the last three, four years, the most difficult part capital structure to fill has been the senior debt and, obviously, that's given us a lot of attractive opportunities to get into companies with relatively low attachment points. I would say the market is rotating more to historical norms. Certainly, what we're seeing today is well within the bounds of historical norms.

But you're absolutely right. It's pushing our attachment point down the balance sheet. Not anything that we see as great concern, yet I wouldn't call it bubblicious in any way. But certainly, again, a change, and a fairly marked change from what we saw in 2012

Great. And then one last question. On the potential SBA legislation change, I know you guys are tied in with the SBA and Small Business Investorsl Alliance. Is there any updates you guys are hearing about on Capitol Hill for expanding the SBIC debentures program?

We remain as hopeful as ever.

Is that blind hope or hope based on some evidence?

I think just it -- like every other quarter, I think we're as blind as everybody else on whether it will get done. But, gosh, we do remain hopeful.

There is evidence -- we don't have any more evidence than you do. What we are unable to assess is the quality of that evidence.

All right. Appreciate it, guys.

This is Garland, and we are -- you mentioned we're plugged into the SBA, which we are. We're not -- unfortunately, or fortunately, we're not any more plugged into Congress than anybody else. I guess that's where it will be determined, so we're hopeful.

Great. Thanks, guys.

Thanks, Greg.

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

Good morning, guys. Thanks for taking my questions. Brent, can you give us an idea on revenue and EBITDA growth trends you're seeing from portfolio companies?

Yeah. I would say definitely a little better than what you're seeing in the public companies. In the public companies, I think the most recent quarter revenue growth was kind of in the 2% range and earnings growth kind of in the 7 % to 8% range, and a lot of earnings growth being driven by stock buy backs. We're seeing a little better revenue growth in the portfolio but generally not -- not a lot of double digit revenue growth. In a portfolio of 82 companies, of course, you're going to see everything.

You are going to see companies that are shrinking, companies that are relatively flat, companies that are growing very rapidly, but would I say in the aggregate what we're talking about is kind of, you know, high single digit types of growth rates. And margins, you know, margins in general are at all-time highs. And so, you know, I wouldn't say we're seeing a lot of margin pressure, but we're also not seeing a lot of margin expansion.

Understood. Thanks for that. And then, Steven, on the SBA debt you brought back, what are the new coupons you've seen most recently on SBA debt. I guess new coupons and the (inaudible) cost on the most recently issued SBA debt?

Yeah. Kyle, I think around 3.5% is what -- plus or minus is what we've seen in terms of the lock. So, I think for modeling purposes, that's probably a reasonably fair -- fair assumption for you.

Okay. And then last question actually let me preface it by saying that I do commend your guys disciplined investment approach in the quarter, but I was hoping to get a little more color on what exactly what was going on in the market. So were you guys at least been shown some deals in the quarter, or did you just not see any deal activity in your sorts of markets?

We had a hard time seeing the deals because it was covered by sand. No. We were not on the beach. We were working hard. We -- definitely the number of deals we saw was down significantly, and I think that's pretty much generally been the case for most everyone. You know, obviously, because of the tax changes that drove the activity in the fourth quarter, as I mentioned before. So, yeah. We had activityWe, you know, there were deals that we hoped to get that we didn't get for competitive reasons and whatnot, as in any quarter.

But it was definitely a slower -- slower activity. We're seeing the pipelines building and, you know, I anticipate, again, that we're going to have a very active -- particularly active probably third and fourth quarter of this year because again, I think from a macro standpoint the fundamentals are good. There should be a lot of lower middle market M&A activity this year, and as usual, we'll participate in our share of those transactions.

Okay.

Kyle, this is Steven. Just add one thing what Brent said. I think we will (inaudible) internally several times during the fourth quarter that we were delighted that we are thankfully not a company or a [BDC] that is in a position where we're growing into a capitol structure, or we had just raised a bunch of equity capital and need if to grow into a new dividend obligation or something like that.

You know, it's just great to be capitalized the way we are and to have the dividend coverage that we've had, historically. And, you know, as you know better than a lot of folks, you know, in the market, because you've known this a long time, we just really don't think about the business on a quarter-to-quarter deployment schedule, and really focus on quality over quantity, and so it was nice for those things to come together this quarter.

All right. Guys, thanks a lot for answering my questions.

Thanks, Kyle.

Thank you. Our next question is from Mickey Schleien of Ladenburg. The line is open.

I was really impressed with the operating level of the first quarter. Just curious on the G&A expense line. It was down from $4.5 million in the fourth quarter to $4.1 million in the first quarter. So in my model you're reaching down to about 2.3% of average -- the portfolio on an average basis so I'm trying to get a sense how, of over the long term, meaning the next, you know, two, three years, can that ratio continue to decline or is there some point where efficiencies are maxed out?

Mickey, it's Steven. Thank you for your question. In terms of the difference in the quarter -- quarter-over-quarter, they're normal fluctuations you get. And some of it timing difference of when, you know, things, you know, like you hate to admit it, but as a smaller public company, all the expenses are pretty significant and, you know, those types of things really whether something hits one quarter or the next is meaningful in terms of a needle mover, I guess I would say.

So from that perspective, you know, I think in the business, there is some level of sort of base SG&A that you just have to have. So I don't think we see the number in terms of an efficiency ratio as defined as G&A divided by revenues being able to go -- go much lower and, you know, when you look at, again, some of the external guides versus a lot of the internal guides and certainly, certainly, Triangle I think we all kind of run the business at maybe half of the total SG&A level that many of the external guys run it.

So whether you're exact exactly half or slightly less, slightly more than half, one quarter, one year over, I -- I -- it's hard to predict. But I think our commitment, as Garland has always said, that we want to be among the most efficient operators in the space and think we've hopefully,, done that and earned that reputation and would hope to keep it,but last year's SG&A, I guess, was an 18% efficiency ratio and translated into maybe 2.2% of assets under management for the year. And certainly both of those metrics are really healthy and they compare well and we hope to stay in that range.

Steven, was there anything seasonal from the fourth quarter to the first quarter that accounted for the decline?

Well, Mickey, if you look back at our SG&A, you know, over a number of years, the second quarter tends to be a heavier quarter from a SG&A perspective, and the fourth quarter tends to be heavier from a SG&A perspective and the first and the third tend to be a little -- a little lower. You know, the -- this may sound funny to you, but the first quarter is two days shorter than anything else, you know, in the year. So it does -- some of those things come into play even for a company of our size. But there's nothing, you know, specific that I point to quarter-over-quarter. I think if you looked back and lined up the last 12 quarters for Triangle, you'd see a decent amount of variability quarter-to-quarter, but if you look at it on a year-over-year basis, you'd see kind of nice trend lines.

Very good. I appreciate your time.

Thanks so much, Mickey.

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

Thank you. I have a few questions here. The first one, Steven, you talked about the expansion of the Triangle team there. Just want to get an update on any plans to add folks to the team or if you added folks to the team there in the -- during the first quarter

We have added folks, as you know, certainly last year. And we added, I guess, two folks in -- to the team in the first quarter, as I guess I call it on the investment side, and then one person on the financial reporting side. So, you know, we continue to -- as Garland's always said, we -- on a percentage basis, if you look back at the time of our IPO, six plus years ago, the head count's certainly grown a lot on an individual level, you know, person to person basis, that's gone from 7 or 8 to about 25 now.

So still a relatively small -- small shop, but I think our commitment's always been that we'll add selectively as we need to with expansion in the business, and hopefully we've been true to that and will continue to be over the balance of this year. But we don't have anything on the drawing board to add, say, ten people or anything like that.

This is Garland. I think it goes back, as Steven's saying, really that list of things that I mentioned right at the end of the call that we regularly reiterate to ourselves and to the board. You know, it starts with our commitment to staying in the lower middle market. And as we see growth opportunities to increase our penetration in that market, it's going to mean additions in staff and that's what it meant over the last six years. Then the growth in staff has been pretty commensurate with our growth in the portfolio, and I think that's what we see in the future. If we continue to have growth opportunities, and we stay in the lower middle market, then it will mean we'll add staff, but it's going to be -- the driver of any increases in staff are going to be exactly what it's been the last six years. We don't see anything unusual on the horizon.

Okay. That's helpful. Boy, I -- Steven, I saw in the queue there was a reclass of some senior debt into the subordinated debt category. I was just wondering what was behind that, and any color you could add with respect to the that move.

Thanks Bryce, and thank you for reading the queue so thoroughly. That's a -- sometimes, when we make investments in a portfolio company, it will be a -- even though the yield is equal to kind of our average yield, we will have a first lien from a collateral standpoint, and we will permit the portfolio company with our approval,certainly to add, a at a date after our closing, you know, to add sort of working capital revolver or something of that nature because we're not really set up to be a revolver lending shop.

I think what you saw there was we've had a couple, two or three portfolio companies, that have done that and we permitted the bank or whoever it is to have a lien on accounts receivable and inventory, that type of thing. So that's really the -- from a reclassification standpoint, that's what it is. And, obviously, when a portfolio company is doing that, it's something that we talked about,we allowed for in our documentation and is usually a good sign, I guess I would say of, you know, of a portfolio company pursuing more of some growth opportunities that they see in their market.

Great. Okay. And then last question for Brent. Brent, you talked about being well positioned for continued equity gain from your position. I was just wondering are you -- are you hearing anything specifically from companies about -- about selling so you can generate those equity gains, or is that more just a function of looking at where the equity -- the unrealized positions in the equity portfolio are today?

It's some of both. You know, with 80 some odd portfolio companies, there's always some companies that are in some transaction process. And so we are certainly aware of some companies and some evaluation -- and some transactions that will be attractive for us, but we are seeing again in some subset, obviously, not all the companies as per my comments before about growth rates. We are seeing some companies that are performing exceptionally well. And in general, the equity portion of our portfolio continues to increase in value.

And I think there's going to be some multiple expansion this year related to the expansion in senior debt that I mentioned before. And I think that's going to make things a little bit more difficult for sponsors going forward, and it's probably not going to bode well for future equity gains or equity returns from, you know, 2013 vintage but, I think it's going to really benefit equity positions that were originated in prior periods

Okay. Yes. Okay. Thanks, Brent. Appreciate it.

Thank you our next call is from Jonathan Bock of Wells Fargo. Your line is open.

Good morning and thank you for taking my question. Real quick, as we start to take a look at the model, and I know we're a little newer to the story, but are very happy to follow you, walk us through the equity capital or the equity account and its potential for growth over the intermediate and long-term. And think of this more as a philosophical discussion because at some point you'll have investors asking the question. There's a substantial amount of credit facility available, leverage from a regulatory basis is low. How do you view growing earnings relative to growing the equity account on the balance sheet and delivering sustainable leverage returns over time?

Jonathan, it's Steven. I'll start and Garland and Brent, as you say being a philosophical discussion, can certainly chime in. I think I would say that I would hope what we would be able to accomplish in the future from a total capital structure standpoint would be exactly equalled to what we have been able to achieve in the past, which is when we have -- have raised equity capital, we have invested the proceeds of those equity offerings, typically, within 90 to 120 days of the offering, so we've been able to have sort of a just in time inventory of equity capital.

And we have been able to do that because we, thankfully, have had other forms of capital to buttress us in those periods. Like any company, we really enjoyed having -- well, none of us should say any company, but we like having all three legs of the capital markets stool available to us, the bank market, the bond market and the equity markets, hopefully.

So I think, as Garland's mentioned before, and we've certainly said time and time again, continuing to increase dividends per share with any capital structure growth that occurs, that really has to be the focus. And if you don't think you can increase dividends per share, you shouldn't raise equity, whether you're internally managed, whether you're externally managed.

So from that standpoint, yes, we're glad we have the incremental capacity we do on the debt side now, and I think it would be reasonable to assume that over the balance of this year, we would utilize certainly -- certainly some of that capacity and just have a continued measured approach, but I think you always got to go back to can you reasonably believe that you can increase your earnings and dividends per share, make things accretive to people, before you would undertake ever raising additional equity capital or even, you know, baby bonds or leveraging on the bank side. Garland, would you add anything to that?

Yes. Steven just to reinforce what you're saying, I think one of the things we're, I guess, proudest of and enjoy showing -- using as a slide from time to time is the history of -- that plots our asset growth but also overlays on it the accretive or incremental growth in the NII per share, and it's sort of our -- so only, our commitment, internally, to only take advantage of growth opportunities if we're convinced that it can be accretive on a per-share basis.

And in the past, we have been able to do that. It's been a combination of using leverage appropriately. And again, that ties in with another one of our commitments, and that's to use -- to support our investment in long-term, liquid assets, with long-term liabilities and permanent equity capital. But the appropriate use of leverage has helped do that.

Also the operating efficiencies that we've been able to generate as an internally managed BDC have helped us as we've grown the asset base, a combination of those things has resulted in increased or incremental per-share NII and consequently dividends. So our commitment to delivering that has not changed at all, and if we're able to do it in the future, which we believe we can, it will be a combination of using the same levers that we've used in the past.

I appreciate that. I think the crux of the question kind of gets it -- I don't think anyone would ever question the ability to grow NOI or NII per share. The question is the magnitude of that growth. Because in terms of financial modeling one can project one way without an equity raise, which is extremely high. One can go with an equity raise, which is still high and more moderate, so I appreciate the color in trying to help us understand maybe how you're viewing substantial ROE versus more of a moderate pace.

That gets us to the next question, the refinance risk. Given the subordinate focus, which has generated outside returns over time, we understand that the middle market is certainly insulated I think is a term a lot of the managers use but not immune from competitive pressures in the market. And just looking at, I believe it was trust house's sale, recently. Maybe walk us through some of the refinance risks that are -- that are posed to investors in the current portfolio as a result of the tighter spread environment. We know you have as many protections as possible, but would it be fair to assume that the spread compression is going to be maybe a given in the current environment?

Yes. Clearly, with heightened senior lender activity in -- in our market, that increases refinance risk. Companies, obviously, have several options when they have performed well and market levels of leverage increase. They can repay the subdebt or they can pay themselves a dividend or they might remain under levered, relatively speaking, if they believe they have acquisition opportunities in the relative near term, and we see all of those things going on in our portfolio. And, you know, when we get refinanced, that's a success.

Obviously, when you put the money out, you hope to get it back at some point in the future. So do I think we're going to see a heightened level of refinancings? I think that's fairly likely. I think that will probably be offset, at the same time, by a heightened level of activity. So, you know, not -- I would say that's a neutral factor for us. And again, I think healthy senior debt markets are a really important ingredient for healthy M&A markets, and so we're thankful that the senior debt markets have really recovered. And really for the first time in five years, I would say, are functioning what I would call normally.

I appreciate that. In terms of a follow-up, though, to the extent that repayment or refinance risks increase, that would imply that senior debt lenders, obviously, to your point are getting more aggressive, or companies are getting more aggressive in terms of the pricing at which they believe is the appropriate rate to be charged, which would signify there would be increasing risks in the new capital that would be deployed relative to what we've seen in deals past. Does that make sense or is there a way for -- to kind of the debunk both trends?

Yes. The point I made to Greg Mason earlier, I agree with you. I think attachment points are going to be moved down the balance sheet, total leverage is going to go up. And I think, you know, how do I think about that? The way that I think about it is that we've enjoyed really above average, better than normal total leverage and attachment rates in the most recent past. And, you know, I think that we're returning more to a normal type of market going forward. And, you know, that's, obviously, we've enjoyed it when -- when leverage has been lower and attachment points have been -- have been better. But i don't -- I don't -- it's not time to wave the red flags yet. That's for sure.

Okay. Great. Thank you so much.

Thank you. Our next question is from Boris Pialloux of National Securities. Your line is open.

Hi. And thanks for taking my question. Just a quick question. Regarding the SBA debentures I think your (inaudible) 2013 was at 3.5 % -- 15%Are there any restrictions to actually prepay (inaudible) you also like the March 2011 or March 2009 [trenches and second is what's your view of the use of LMI debentures (inaudible) debentures?

Boris, it's Steven thank you for your question. With the SBA, we can prepay -- it is not a given, so to speak, that you will get a recommitment. Obviously, it's a conversation you have every time if your a company like us. But I think it would be fair to say that out of the deference to the SBA and their investors, that if you were to issue paper with them and then two years later turn around and try to arbitrage rates or something, at some point, they might say, "Hey, that's not really in the spirit of what we're seeking to do."

And so we've always tried to, you know, take it on a chronological basis and just use it as balance sheet management in terms of just traditional maturities, so the pieces that we have repaid have all about in years 6, 7, and 8, that type of thing, where if you look at the commitments we make on two portfolio companies with that capital to be sure that we're match funded. So from that perspective, that's been our approach.

And we certainly always -- the SBA has just been a wonderful partner to us, as you know, and we certainly hope that will continue. In terms of the LMI debentures, those are five-year debentures as opposed to ten year debentures, and we experimented with that program because it's a way for the SBA to try to focus dollars to where areas of the country where they define it as kind of a less economically active or vibrant area so there are even some additional incentives that they have there.

And that made sense, because we happen to have a portfolio company opportunity that was headquartered in one of those areas. So I think whether we would do that again when those mature and we refinance those or not, I think will depend on portfolio company activity at the time, frankly, more than anything. Does that help?

Yes. Thank you.

Great. Thank you.

Thank you. Our next question is from Bob Martin. Your line is open.

Yes. Home physicians. Will there be a [catch] up on the (inaudible) accrual that will hit NII, or will that hit gains?

Bob, thank you. This is Steven. When the pick interest is again accrued, there are potentially two steps that a company would take. One would be to begin accruing pick in the quarter, and then there's a question of, as you say, the legacy pick that was on nonaccrual for a period of time, and that's sometimes could come in the same quarter. It sometimes could come in a later quarter. So it's tough to tell exactly when it would hit.

But the short answer to your question is, yes, contractually, we would have the right ultimately, to claim all of the pick that had been accruing contractually, but we have not been recognizing on our books yet. And it would fall into NII, for us, so it would be above the line, so to speak, as additional revenue and earnings that would flow through for dividend purposes.

Thank you. What portion of your 11% investments in equity are currently paying a dividend?

Well, they -- in a portfolio of -- like ours, the equity investments, typically, do not pay a contractual dividend they would -- that we would recognize into earnings. But we might selectively have in certain portfolio companies what's known as a dividend recapitalization, or the Company may say (inaudible) you own -- I'm just making this up for example purposes, 10% of our Company and we're going it pay $1 million dividend to all shareholders so our portion of that would be a $100,000 dollars.

Anen we would recognize that as a -- as a dividend, if the Company has sustainable earnings, or if for some reason they did not have earnings, it would be recognized as a -- it would be recognized as a return of capital. So we've not -- I think over our entire portfolio, we've only got -- had sort of tax distributions that are evidence on a recurring basis from three of our 81 or 82 companies.

At present, you're not -- you have a policy of not revealing your portfolio debt to the [EBITDA] and interest rate coverage ratios because you believe the companies to which you're investing want to have that privacy. You're already at 80 portfolio companies. To what degree do you need to grow your portfolio so that you could reveal that information? They have some anonymity because of the number of portfolio companies that you have

Well, it's not really a preference but just sort of a requirement that these are privately held companies. You know, for example, if you were to have a family-owned company and we were to have an investment in your family-owned company, you would certainly like to keep your financial information private and would have a -- certainly a right -- a right to do that. And we need to be respectful of that privacy, and that's regardless of whether our portfolio's 80 companies or 100 companies or any other number of companies. So from that standpoint, we -- we really need to keep information private and will continue to do that on a company by company basis.

But one thing that we have talked about publicly is, Garland's mentioned on prior calls is what our sort of average portfolio-wide leverage is on an aggregate basis, so to speak, and that has ranged from a low, I think, of about three times and a high of approximately four times and right now we're, as Brent has allude to, we're kind of right in the middle of that fairway, where I think our average portfolio company leverages is about 3.5 times through our debt. So really kind of right in the middle of the fairway, if you will. And the same is true from an interest coverage and a fixed charge coverage basis. We're really right in the middle of what we had experienced over our entire life cycle since 2007

This investor does not want to have those ratios company by company but a weighted average number. I thought there would be some anonymity given that you have 80-plus portfolio companies in giving a weighted average number. For example, you're not accrual metrics paying a very high quality picture of your portfolio, but it would be nice to have it reinforced by having your weighted average debt to EBITDAs and interest coverage ratios. And other BDCs are providing that transparency.

Well, Bob, thank you for that suggestion. We will certainly take that into account. I think as you look back and would compare Triangle to other companies in the space, I would certainly hope that you would come to the conclusion, as many others have, that we've been a leader in transparency in the information that we provide. And we've used the average numbers that I just gave you historically. But again, thank you for your suggestion and we will take that into consideration

Okay. Thank you for your time. Thank you for answering my questions.

Thank you so much.

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

Okay. I'd like to thank everybody for being on the call. We've had a good group and, particularly, we appreciate your questions. We look forward to being on the call next quarter. But in the meantime, as always, if you have additional questions call us, and we'll be glad to hear from you. Thanks again.

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