Barings BDC Inc (BBDC) 2013 Q2 法說會逐字稿

At this time, I would like to welcome everyone to Triangle Capital Corporation Conference Call for the Quarter Ended June 30, 2013. All participants are in a 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 that 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 Chief Executive Officer, Garland Tucker; President and COO, Ashton Poole; Chief Financial Officer, Steven Lilly; and Chief Investment Officer, Brent Burgess.

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

Thank you, operator and good morning everyone. Triangle Capital Corporation issued a press release yesterday afternoon with details of the Company's quarterly financial and operating results. The conference 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 section titled 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 10-Q for the quarter ended June 30, 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, I'd like to turn the call back over to Garland Tucker.

Okay, Sheri. Thanks very much. Good morning everyone and thank you all for joining us. In keeping with the format of our prior calls, I'll discuss briefly some of the highlights for the quarter and then Steven and Brent will provide more detailed information about our operational and financial results as well as some of the trends we are seeing in the investing market.

Before we discuss our results for the quarter though, I'd like to start today's call by introducing and welcoming Ashton Poole who has just joined Triangle as President and Chief Operating Officer on July 22. Ashton brings a wealth of experience in corporate finance and management as well as a stable of deep relationships that he has developed over his 19 years with Morgan Stanley. So Ashton, we welcome you and I'll ask you to make a few brief remarks at the very end of our call today. But for now I want to turn to some of the operating and financial highlights for the quarter.

First, let me say that we are very pleased with our second quarter operating and financial performance. We generated net investment income for the quarter of $0.59 per share. We generated net realized gains for the quarter of $3.5 million. We recorded net unrealized appreciation of $2.1 million across our portfolio. And once again, our net investment income per share was in excess of a quarterly dividend per share.

Our operating results enabled us to pay a $0.54 per share dividend during the second quarter of 2013 which represented an 8% increase over the second quarter of 2012. As most of you know, maintaining a solid dividend reputation and continuing to earn our dividend on a long-term basis are key principles for us.

Before I hand the call to Steven and Brent, I'd like to touch briefly on several important subjects. During the second quarter, we experienced approximately $88.6 million of loan repayments across our investment portfolio. As Brent will discuss in more detail later in the call, these repayments are less related buyouts or change of control situations and more related to re-financings where, thanks to solid operating performance, our portfolio companies were able to access less expensive capital. The investments we exited during the quarter generated combined returns in excess of 24% which is a solid result for TCAP's shareholders and very sound evidence that TCAP's operating model is working in exactly the manner we expected.

Our teams structured good investments, managed those investments well and we generated above average returns while taking below average risk. That's the definition of our model. And in fact, these gains added approximately $0.20 per share to our NAV this quarter.

As a result of the strong investment returns and in keeping with our policy of compensating our team when excellent investment results are realized, we accrued additional performance-based bonus compensation of approximately $1.4 million. We and our Board believe this approach to incentive-based compensation is in shareholders' best interest. Also I will point out that even with this additional performance-based bonus compensation, our efficiency ratio remains among the very lowest in the BDC industry.

And with that I'd like to turn the call over to Steven for some additional comments on our operating and financial performance.

Thanks, Garland. As most of you know, we've filed our earnings release and 10-Q after the market closed yesterday. During the second quarter of 2013, we generated total investment income, or said another way, revenues of approximately $27.3 million representing a 24.1% increase over the $22 million of total investment income we generated during the second quarter of 2012. The increase in investment income was primarily attributable to a $5.4 million increase in loan interest, fees and dividend income, driven primarily by an overall increase in our investment portfolio, portfolio company dividends and fees associated with certain portfolio company repayments. Approximately $950,000 of our revenue during the quarter or approximately $0.03 per share related to portfolio company dividends and approximately $1.5 million or approximately $0.05 per share related to repayments across investment portfolio.

Our total operating expenses during the second quarter of 2013 were $11 million as compared to $7.9 million during the second quarter of 2012. Our operating expenses fall into two buckets; interest expense and other debt financing fees and then general and administrative expenses. For the three months ended June 30, 2013, interest expense and other debt financing fees totaled approximately $5 million as compared to $4.1 million for the second quarter of 2012. The year-over-year increase of $900,000 in interest expense and other debt financing fees was primarily related to interest on our 6.375% senior notes which were issued in October of last year partially offset by a decrease in the interest expense related to the $20.5 million in SBA debentures that we prepaid in March.

General and administrative expenses for the second quarter of 2013 totaled $6 million as compared to $3.8 million for the second quarter of 2012. The $2.2 million year-over-year increase in G&A was primarily due to approximately $500,000 of increased cash compensation expenses relating primarily to the hiring of additional team members during the second half of 2012 and the first half of 2013 as well as the $1.4 million additional performance-based bonus accrual that Garland mentioned during this remarks. Also included in the $2.2 million year-over-year increase in G&A expense is approximately $300,000 associated with non-cash compensation relating to the value of restricted -- shares of restricted stock granted in February of 2013.

From an efficiency ratio standpoint with efficiency ratio being defined as total G&A divided by total revenues, our 2Q 2013 efficiency ratio was 22%. For the first six months of 2013, our efficiency ratio was 19.6%. As we mentioned at our Analyst and Investor Day in June, on a go-forward basis we expect we will continue to operate within an efficiency ratio range of plus or minus 20% of revenues for the near to intermediate term which compares very favorably to the efficiency ratio generated historically by most BDCs.

Net investment income for the second quarter of 2013 was $16.3 million or $0.59 per share as compared to $14.1 million or $0.52 per share during the second quarter of 2012. Excluding both the non-recurring investment income I mentioned earlier and the performance-based bonuses accrual that Garland and I both mentioned, our NII on a per share basis during the second quarter would have been $0.55 as compared to our $0.54 second quarter dividend.

The reason we take the time to call out this information to investors on this call, both in our public filings and on calls like this, is we believe investors should understand not just our stated financial results pursuant to SEC guidelines but also the ongoing composition of our revenues and net investment income, which naturally fluctuate as our investment portfolio changes from quarter to quarter and year to year.

Our net increase and net assets resulting from operations during the second quarter of 2013 totaled $21.8 million as compared to $15.6 million during the second quarter of 2012. On a per share basis, our net increase and net assets resulting from operations during the second quarter of 2013 was $0.79 as compared to $0.57 during the second quarter of 2012.

Our net asset value on a per share basis at June 30, 2013 was $15.62 representing an increase of $0.30 per share since March 31, 2013. The increase in net asset value during the second quarter was primarily due to our net realized gains and net unrealized appreciation across the portfolio which totaled approximately $5.6 million or $0.20 per share.

Turning to liquidity and capital resources, from a liquidity standpoint, as of June 30 we had approximately $117 million in cash on hand, $31 million of undrawn SBA debentures and $165 million available under our existing senior credit facility for total liquidity of approximately $313 million. As has been the case in previous quarters, our continued strong liquidity position provides us with significant flexibility as we evaluate new investment opportunities during the second half of the year.

During the second quarter of 2013, we amended our $165 million senior credit facility. All nine banks in the facility participated in the amendment, which extended the maturity date of the facility by one year to 2017 and reduced the interest rate for borrowings by 20 basis points to LIBOR plus 2.75%. In addition, the amendment allows us to borrow Canadian dollars directly under the facility, enabling us to reduce potential currency risks as we evaluate potential investment opportunities in Canada. We are extremely pleased with the support we received from our bank group during the amendment process, and we are pleased to secure this key source of liquidity for an additional year on very attractive terms.

So again, it was another strong quarter from us from a financial perspective and we remain very pleased with our business plan continues to be executed.

And with that, I'll turn the call over to Brent for some comments regarding our investment portfolio and certain trends we are seeing in the lower middle market.

Thanks, Steven. During the second quarter, we made two new debt investments totaling $12 million and were follow-on debt investments in existing portfolio companies totaling $12.9 million. The weighted-average interest rate on our new debt investments was 13.6% and the weighted-average interest rate for our follow-on debt investments was 15.5%.

It was an excellent quarter for us from a portfolio performance perspective. We experienced net unrealized appreciation in the portfolio, totaling approximately $2.1 million and gross realized gains on investments totaling approximately $9.9 million. These long-term realized gains more than offset losses on two legacy underperforming investments, which totaled approximately $6.4 million. As a result of these portfolio exits, we generated net realized gains for the quarter of $3.5 million or [$0.15] per share.

Since our IPO in 2007, our net realized gains on a GAAP basis now totaled approximately $18.7 million. To put that in the context of a per share amount based on today's outstanding share count those net realized gains are approximately $0.67 per share.

As most of you know, a key element of our investing strategy is to make investments where we have equity upside and we continue to [push on these kind of] opportunities. After excluding our legacy non-accrual investments in Fire Sprinkler Systems and Equisales, our non-accrual assets at June 30, 2013 decreased to 0.3% of our portfolio on a fair value basis and 2.3% on a cost basis. We did not place any new investments on non-accrual during the quarter and had one investment in Home Physicians which had previously been on PIK non-accrual returned to current status during the quarter. So in total, we are very pleased with the performance and credit quality of our investment portfolio.

From an overall market perspective, we continue to believe the lower middle market is an exceptionally good place to maintain our investment focus and there are a few key data points that underpin our views. First, as we've said before, M&A transaction volume has been significantly below average during the first half of 2013. We believe this phenomenon is primarily due to the significant amount of transaction volume that occurred during the last half of 2012 with particular emphasis on the fourth quarter of last year. According to [One Data Service] that closely tracks private equity activity on a monthly basis, there were 580 transactions that closed in December and a little bit into January due to a bleed over for transactions that slipped past year-end but still closed. However, illustrating a significant slowdown in activity since then, the cumulative number of private equity transactions, which occurred during the five-month period of February through June of this year was only 513 or said in other way, 12% fewer transactions in the past five months than during December and January. So measured in another way take the total number of transactions which have closed in the first half of 2013, annualize it for the full year then 2013 would represent the slowest year on record for the last decade, even behind the depths of the recession in 2009.

So in the absence of meaningful new transaction volume, it's not a surprise most financial sponsors have been more focused on their existing portfolio companies and pursuing dividend recaps. And it's exactly this type of activities has led to the meaningful amount of dividend income we recognized during the second quarter and also which led to many of the repayments we experienced.

Going forward however, we believe financial sponsors will again begin to focus on making new investments. And given that approximately two-thirds of M&A volume in the private equity universe traditionally has been focused on transactions with total consideration of $100 million or less, we believe the lower-middle market is poised to become significantly more active over the next several quarters. As a result, while we are very pleased that many of our portfolio companies have been among the solid performers in many private equity sponsors portfolios, our team is gearing up for an active period in terms of new transaction volume.

In addition to our contacts with private equity sponsors, most investment bankers we speak with indicate that their pipelines are at or near record levels. So while it has been our long-held policy not to speak specifically about the TCAP investment pipeline, I can say that we are encouraged by the activity we're seeing at this point in the cycle and we are pleased to have the liquidity that Steven mentioned earlier in the call so that we can take advantage of near-term investment opportunities.

And with that, I'll turn the call back over to Garland for any concluding comments.

Thank you, Brent. Before we open the call to questions, I'd like to give Ashton Poole the opportunity to introduce himself and provide you with a bit of background on this decision to join TCAP. Ashton?

Thanks, Garland. While I've only been at TCAP for two weeks, I can already say without hesitation that I am extremely pleased to join such a wonderful team. The motivations for me to join TCAP are similar to those that influenced me to join Morgan Stanley 19 years ago, namely the quality of the platform and the quality of the people.

I've been fortunate over the years to work with some very bright and very motivated individuals and the talent of the team at TCAP rivals any that I have seen during my career. Besides the quality of the platform and the people, I was also drawn to the Board's and management's unwavering commitment to shareholder value creation. TCAP's track record in this regard has been extraordinary and it is one that I hope to continue.

I'm excited about the opportunities ahead for the BDC industry in general and for TCAP in particular and I look forward to working with Garland, Brent, Steven and the rest of the team as we continue to build on TCAP's well-established success. I also look forward to meeting many of you who are participating on the call today.

Hey, Ashton, thanks very much and, operator if you would please open the call for questions.

(Operator Instructions) John Hecht, Stephens.

Hi. Morning guys. Congratulations on another good quarter and thanks for taking my questions. First one is, if you look back over the last several quarters or the inception of the Company, it would appear that you guys have a lot of spillover income issued out or on your dividend. I am wondering do you have it handy what is that cumulative amount of spillover and with respect to that do you have any special dividend policies that we should be thinking about?

John this is Steven. Thank you for your question. As you know we have had, I guess, one of the more conservative dividend payout ratios maybe in the sector really since the IPO and to that point, as you measure it on a GAAP basis, I think we have a little bit north of $0.50 per share, $0.51 or $0.52 per share greater net investment income than dividends on a per share basis. If you think about it from a taxable standpoint, on truly the investment company taxable income or ICTI that number is $0.30 per share of spillover.

And as we think about, what I call, one-time dividends, special dividends as you know historically we did one back in early 2009 to the tune of $0.05 and given Brent's comments and Garland's comments on the gains and the portfolio this year, it's I think something that we'll have to wait till the closer to the end of the year to see what realized gains look like they are for the full year. I certainly wouldn't rule it out. But we haven't made a firm decision on anything, certainly at this point since we're only halfway through the year. But suffice it to say that we're delighted to be in a position of strength as I might say it in really both fronts, both in terms of (technical difficulty) historically and then also having those long-term gains that we mentioned in the call. Does that help?

Yes, that's a great color. I appreciate that. And then you guys -- you mentioned the one-time of items in both the revenue and the expense side. Do you know what your efficiency ratio would have been in the exclusion of those activities?

In terms of the efficiency ratio, excluding the one-time revenues?

Yes. I guess one-time revenues and one-time expenses, the sort of normalized efficiency ratio?

Yes, it would have been in kind of the mid 17% range, John, for the quarter and then the year-to-date. And again kind of going back to what we've said at the Analyst and Investor Day in June, [we thought that] sort of plus or minus 20% on a go-forward basis is probably appropriate for us as the team has expanded here and we think about investing the additional liquidity that we have.

Okay, great, thanks very much. And the final question I guess is for Brent. You talked about kind of your hopefulness regarding kind of increasing M&A activity in the second half of the year and I know you guys don't like to discuss pipeline, but you have announced thus far this quarter activity that would almost equate to that total gross activity did in the last quarter. Just with respect to the pipeline, can you comment that it is more M&A focused than refi focused or can you comment are you more positive on covenant packages and leverage levels or just any kind of color you might be able to give us in that regard?

Yes, I think what we're looking at is a lot of M&A activity and I think it's not unexpected obviously given how slow the first half of the year was that there's a lot of pent-up demand out there. There's a lot of equity capital waiting to be deployed (technical difficulty) deals. So we're looking at a very robust pipeline of new opportunities, new M&A transactions and so it's a very -- we expect it to be a very healthy environment in the second half of the year. Does that help, John?

That does help. And you just maybe touch on what you're seeing in terms of covenant packages and leverage, any changes there?

It's interesting, we'll see how the year shakes out. I think there has certainly been a loosening of covenants and the environment in the first half of the year when there were not a lot of deals to be had and it's one of the reasons why we've been quieter in the first half of the year as we weren't as excited about the credits that were out there. And so how things shake out for the rest of the year is still TBD in terms of covenants, leverage, pricing and that's -- right now the things we're working on are not outside of ranges we've dealt with historically in all of those areas, and I don't think that's going to change. I think in fact things are probably going to firm up in terms of leverage, pricing and covenants. But again that's TBD, it will be dependent on volume. But based on what we see right now in volume, I think we're going to be well within historical averages for us.

Perfect. Thanks a lot for the color, guys.

Mickey Schleien, Ladenburg.

[I'd like to] start with a big-picture question and then just a couple of housekeeping questions. We're starting to -- well, we've definitely seen the theme this quarter of a lot of refinancings in BDC space and portfolios actually shrinking. I am curious what your thoughts are or can you give us some color on where those borrowers are going to get refinances, it's the bank debt market or somewhere else?

Mickey, it's Steven. I'll just give a quick answer and if Brent has any additional color certainly can jump in. Much of what we have seen with refinancings in our portfolio have been really the strength of the senior lending market and so it's been predominantly, not holistically but predominantly bank financing.

Brent, would you add anything to that?

I would say -- I mean, clearly bank lending has increased, bank activity in the sector which I think ultimately is a fundamental healthy thing. As I have said publicly in the past this year, we've gone from credit marks being fundamentally unhealthy over the last basically five years and what we've seen is a fairly rapid recovery in credit markets to being much more healthy and robust, which again we think is generally overall a good thing for the industry that's going to lead to more transaction volume and a healthier economy.

But we're seeing a significant increase from banks as well as non-bank lenders. There has been a significant number of non-bank lenders that have been formed in the last number of years and then you're seeing people like GE Capital, people like -- other groups like that that have been long-term players in the market that have become even more active in this environment. And so it's really across the board on the senior [debt side] both established and new entrants.

So given what you just said and the fact that the terms in the third calendar quarter or similar I think to the second quarter and the economy continues to sort of plug along, how much risk is there that we'll see a lot more repayments in your portfolio this quarter?

I think that we will probably -- we probably see -- continue to see healthy level of repayments and more than offset, however in all likelihood by a healthy level of deployment. If you go back to last year, for example, we had $155 million of repayments in our portfolio last year. If you average that on a per-quarter basis, you're obviously talking about $40 million per quarter. That would not be an unexpected level of an average going forward.

Again, you're going to see lumpiness, but our average historical loan life is somewhere between 2.5 and 3 years. So you can kind of look at the portfolio and make some estimates based on that is that average is going to be a little tighter right now based on what's going on in the market, probably will be because some of what was originated last year as sub debt is now senior debt. But I think that's kind of a one-time hiccup as credit markets adjust and move from being unhealthy to healthy and I think we're really (technical difficulty). That process has occurred and although the fallout from that process maybe has not occurred yet, but I think once that kind of hiccup passes the adjustment, I think it's going to be back to sort of a much more kind of normal pace of deployments and repayments.

Mickey, this is Steven. Just to add one quick thing to what Brent said. Let us not forget that as the credit markets migrate, as Brent discussed, that migration has produced some very, very nice IRRs or internal rates of return on our investments and other BDCs as well in the industry. So, yes, we think it's a very good time for us and the model working the way that we and we would hope investors would hope that it would work.

I understand Steven and that kind of leads me to the housekeeping question. In your prepared remarks I think you said there were fees from repayments of $1.5 million, is that correct or was that the delta year-over-year?

No, that's the fees this quarter that specifically relate to repayments across the portfolio. If you look in the 10-Q, Mickey, then what you'd see is total fee income of $2.8 million and so the difference, the $1.3 million is the level of what we usually call the kind of normal fee activity. It is non-recurring each quarter, but given the portfolio size, it has tended to create that level sort of ongoing fee income quarter to quarter. Last quarter, I think, we estimated that to be about $1.5 million. This quarter given that the portfolio declined a bit, it's about $1.3 million.

Okay. And lastly, I looked in the Q and I couldn't find the cost of amending the credit facility. Could you give us that number?

Yes, there was a 20 basis point fee associated with the amendment of the credit facility. We, as I said, reduced pricing by 20 basis points for the life of the facility.

Fair enough. Thanks for your time this morning.

Absolutely, Mickey. Thank you for your questions.

Robert Dodd, Raymond James.

Hi, guys. Thanks for all the color so far. It's very helpful. Just kind of two, Home Physicians has come back off PIK non-accrual onto full accrual. Was there any catch-up PIK income recognized this quarter or was it just the regular amount that you would expect from that?

Mickey -- sorry. Robert, it's Steven. There we recognized the current quarter PIK income on Home Physicians this quarter taking it off of the PIK non-accrual for the last several quarters. We did not, however, recognize the legacy, as I would call it, PIK interest this quarter. So we've taken what I might call the conservative step there and let them kind of wade into the shallow end of the pool with us as opposed to recognizing all of the legacy PIK at one time.

Got it. Thank you. And then on the non-accruals with the Fire Sprinkler and Equisales that you had been working to kind of improve performance for a while and now you've exited. I mean, any color you can give us on the decisions, were they bought out or did you just decide to sell those assets?

Yes, in both cases, Robert, we had existing investors buy out our position. And they were not easy decisions to make because as you said we've hung around the hoop for a long time waiting for recovery. And certainly in Fire Sprinkler's case the housing market has turned around dramatically. And so one would have hoped and expected to see a dramatic turnabout in the Company and there certainly was some positive things going on. But we ultimately concluded that there is still so much uncertainty and so much damage done [and they were] just sort of struggling to survive over the last five years that when we were approached by the existing investor we felt like it was a good time to sort of take a little bit of money for the investment and move on and so that's really was the calculus on both of those.

Okay, appreciate it. Thanks.

They were pretty small to begin with.

Jonathan Bock, Wells Fargo.

Thank you for taking my question. Guys, just pretty simple, I mean, as we look at the amount that went out the door this quarter in the form of repayments, would you be able to give us a sense of the weighted average yield on those investments?

Jon, bear with us one second. We'll try to pull it for you. For the quarter the weighted-average yield [the banks have] repaid was 14.48% and then as you saw the weighted-average yield (technical difficulty) originated in the quarter was 14.6%. So that really is why, as you saw in the press release, the total weighted-average yield of debt portion of the portfolio didn't change quarter to quarter.

Makes total sense and thank you for that. So as I am looking the $100 million that went out at a 14% yield, you were bringing in roughly $14 million, simple math, right? And then on the $22 million that you brought in at effectively the same yield [at 3%] there is a meaningful delta of $11 million annualized of loss of interest income. And so in light of the repayment environment walk us through how NOI can effectively grow without a substantial I'd say ease in the credit markets or a widening spreads, if you will?

Well, I guess that I'd characterize it maybe slightly different way than how you presented it because it's the way that we think about things here and that is on a total kind of run rate basis as you would, I think, analyze it, the Company, we generate basically somewhere around $6 million [or so in a year] in non-recurring fee income not including the items that we mentioned earlier on this call associated just with repayments. So that would be the non-recurring fee income that tends to happen every year; the $1.3 million I referenced earlier.

And our dividend obligation on an annual basis is approximately $60 million, our interest obligation is about $20 million and our SG&A is somewhere in the high teens. So as you look at on a total blended basis, you need sort of [$9 million] a year of recurring revenue to satisfy all of those obligations that [where we are now].

And as we said in the current quarter, recognizing [debt of] the $27 million of [revenue] some of that, call it, $3.5 million or so is non-recurring. As you net that out, we think we're still in a very good position based on the pipeline that we see of new investment activities to be as stable a company as we have been historically. And when you couple that with the fact that we have one of the highest spreads in the industry, if not the highest in terms of our weighted-average yield versus our cost of capital, Jon, which I am sure you would agree with and you couple that with the fact that we have one of the lowest SG&A, sort of efficiency ratios in the industry, couple that with low credit losses in terms of non-accruals and no losses to date given that we have long-term gains versus principal write off and then you further couple that with the fact that we've increased the dividend four of the last six quarters, growth is not necessarily the main focus right now.

I think we've done a wonderful job for shareholders of providing that growth and if you look at our dividend chart on the website since inception, you would see that it tends to grow a few quarters and then it remains flat for a period of time, it grows a few quarters, remains flat for a period time, and so has stair stepped its way up and that's where we feel like we are right now.

We think that the $0.54 dividend that we've been disciplined in maintaining this quarter and I think it's fair to say we would think about paying that same $0.54 for the balance of the year. But stability is really where we feel like we are in the market now. And as Brent talks about the building of the M&A pipeline, as we move into next year, I think then you see a company that's positioned to take that next stair-step up at some point during 2014 that we have been taking historically.

Very much appreciate that and absolutely definitely take the comment regarding not always choosing to chase growth. I think that's wonderful. Refinance risk is kind of being the topic of the day for everybody, so thank you for the color there. One question in terms of competition. You mentioned that there is perhaps a bank competition, and I was curious to see if that is -- if leverage levels in the lower end of the middle market, particularly for banks that are willing to refinance, if those leverage levels are going up?

Jon, sorry. You broke out there just on the last part of that. (multiple speakers)?

Sure. Real quick, are banks lending at higher levels of leverage to the lower end of the middle market?

Yes, let me let Brent jump in on that in terms of bank lending.

Sure, Jon. Yes, again banks were extraordinarily conservative coming out of the downturn because of a lot that they had taken and because of their fragile financial condition. So absolutely banks are healthier and they are lending more aggressively again.

Banks aren't doing anything that we would consider to be crazy or out of the ordinary from a historical perspective. I think it's just a function of more healthy credit markets. I would say, as you well know, there has been a tremendous amount of regulation both national and international that has been introduced in the last five years that we think is effectively going to put a lid on bank leverage levels and the leverage which they put out. So I think that's again going to be a healthy thing because in the past you haven't had those kinds of constraints.

I'm sure some of my friends on the bank side would disagree with me because they've got a tremendous amount of regulatory pressure that they have not had in the past. But the Basel II regulations as well as Dodd-Frank I think are going to effectively put a cap on the amount of leverage that banks can put out in our types of portfolio situations. So think that's going to be a good thing.

I appreciate that. Thank you very much. And then one question on an investment made this quarter. I mean characteristically you focused on second lien -- excuse me, subordinate debt primarily where you are the one large and in charge in the lower end of the middle market et cetera. Are you seeing a strong, I'd say, proprietary deal flow versus perhaps what's being offered via banks syndicate offerings and what's that mix of your new investment kind of pipeline and profile for the third quarter?

Yes, John our deal flow is no different than what it historically has been. The vast majority of it is stuff that we would be self originating. We're not a white paper off the desk kind of group. In the situation of Water Pik that you're referencing, we have a very, very good relationship with that sponsor, and we like that company a lot and we like that sponsor a lot and so we were able to participate in that situation.

If you go back to 2007, when the credit markets were a little bit floppy at that time, we did more senior debt and we did a number of non-sub debt loans where we didn't think that we were finding healthy investment [opportunities in the] sub-debt market. And so I think there was a little bit of that as well with this situation, but I don't think that that's a trend. I think you're going to see us continuing to originate business and do direct transaction as opposed to broadly syndicated deals.

Appreciate that. And then just again a housekeeping item. Steve, you mentioned repayment fees we'll call it above maybe what you saw the normal trend of $1.3 million at about $1.5 million this quarter and I apologize if I missed it, but what was the amount of dividend income that was coming into the revenue line this quarter that could be construed as a little bit more one-time? I think you said $0.03, but I am just curious.

Yes, and let me just maybe correct one thing you just said there, Jon, to be sure on the same page, the dividend income during the quarter was $950,000 or that's (inaudible) and that's of course non-recurring. Although, as Brent indicated, we have had more of that more recently over the last several quarters given the health of the credit market.

And then in terms of fee income, we had $1.5 million of non-recurring fee income relating to portfolio repayments in the quarter that I called out earlier in the call. In addition to that we had $1.3 million of our normal non-recurring income activity that's kind of the base line, if you will, for the portfolio. So if you were to look in the 10-Q, as I said earlier, the total would be $2.8 million of fee income. That $2.8 million breaks down into $1.5 million relating to repayments and then $1.3 million relating to all other activities.

Okay. Great. Thank you very much and excellent quarter.

Thank you so much. Talk to you soon.

Greg Mason, KBW.

Great, thank you. Good morning, gentlemen. I just want to talk about what Ashton brings to the table. Ash, I know you've only been there a couple of weeks, but what -- what is the expectation of what kind of additional business or deal flow can be driven? Are there additional private equity relationships or platform extensions or new industries or what's the thought about Ashton, what can be brought to the table?

Greg, it's Steven. Just so Ashton doesn't have to talk directly about himself the whole time here you may hear from a series of us on this. But just very quickly, the things that personally I am excited about are frankly everything you just said. There are lots of relationships all the way around the table which will be helpful for us. I think one thing to keep in mind is, and Garland I'll let you expand on this really, but I think in terms of Ashton's role here is not so much of transaction production one as it is more of a Triangle strategic one. But again, Garland, I am probably getting into more of what you might enjoy talking about.

Greg, thank you for your question. Let me respond to that and as a start I would say exactly what Steven said in terms of the relationships and the capabilities that Ashton brings. We think it's a great fit. I'd say strategically the decision we made was with the growth that Triangle has had since the IPO, the steady growth in the size of the portfolio in the Company and our management team, we felt it was appropriate in planning for the future to bring someone in with Ashton's capabilities who could focus on the origination side of the business, building our deal team.

And I think the overarching, I would say, premise behind all that is absolutely no change in strategy, just a rededication to implementing that strategy as well as we possibly can. We've implemented it very well in the past and we think the addition of other management person on the team is going to make that even better.

All right. Great. Thank you. And then the obligatory SBIC regulatory question, given your ties to that process, any update on potential passage of the SBIC expansion legislation?

Other than the obligatory response of Hope springs eternal, we have heard it made it through committee again as it has in the past. We heard recently from our friends in Washington that one of the senators who was most vehemently against the deflation has changed his tune and is now willing to support it, which we view as certainly a very good thing.

All that being said, given that the bill is not large enough to pass on its own, it's got to be attached to some other piece of legislation. So I think there -- hopefully that gets back to the true threshold as it did in the, I guess, December of 2012, we could have something very positive happen. But (technical difficulty) I guess, but still no news anybody is willing to bet on at this point.

Great. I appreciate it guys. Thank you.

Thanks, Greg.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Garland Tucker for concluding remarks.

Okay, operator. Thanks very much. Thank each of you for being with us and we look forward to hopefully talking to you during the quarter, but certainly welcoming you back next quarter. Thanks again.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.