Barings BDC Inc (BBDC) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. At this time, I would like to welcome everyone to Triangle Capital Corporation's conference call for the quarter and year ended December 31, 2014. (Operator Instructions)

Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the Company's website at www.tcap.com under the investor relations section.

The hosts for today's call are Triangle Capital Corporation's Chief Executive Officer, Mr. Garland Tucker; President and COO, Ashton Poole; Chief Financial Officer, Steven Lilly; and Chief Investment Officer, Brent Burgess.

I would now like to turn the call over to Sheri Colquitt, Vice President of Investor Relations, for the necessary safe harbor disclosures. Ma'am, you may begin.

Thank you, operator, and good morning, everyone. Triangle Capital Corporation issued a press release this morning with details of the Company's quarterly and full-year financial and operating results. A copy of the press release is available on our website.

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

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled risk factors and forward-looking statements in our annual report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statements.

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

Sheri, thank you. I would like to welcome everyone to this morning's call. Our annual earnings calls provide an opportunity for us to reflect on our recent performance and also to look forward to the coming year. So with those two concepts in mind, we will try to strike a balance between a review of our results and activities during 2014, coupled with a measure of future-looking analysis framed around 2015.

2014 was one of TCAP's most active years. We invested a record amount of capital, totaling approximately $475 million. We harvested over $38 million in long-term realized gains.

We grew our investment portfolio by almost $225 million. We paid shareholders a record $2.56 in dividends per share, with $0.40 per share in supplemental distributions and our base dividend of $2.16 per share.

Fiscal 2014 also contained several significant challenges. We and other BDCs experienced top-line interest rate compression. And in October of last year, we experienced softness in certain portfolio investments, which resulted in a nonaccrual rate at year end of 5.8%, which is slightly higher than our long-term average nonaccrual rate of approximately 4%.

As we begin 2015, we are reminded that the most successful BDCs are those that continually exercise corporate discipline in areas such as investment prudence, balance sheet management, operating expense control, and dividend policy. Over the last 6 to 12 months, virtually all BDC operators have grappled with the realities of a declining rate environment and a move back to a more average nonaccrual credit environment.

Those management teams that resisted certain temptations, such as growing their investment portfolios in an irrational way, increasing their dividends to an unsustainable level, and financing themselves with too much short-term debt capital during the 2010 to 2013 period are being rewarded by having built cushion into their business plans.

So while our industry and indeed our own investment portfolio continues to cycle in various ways, we continue to believe that management teams who operate BDCs for the long term can create a very rewarding experience for their shareholders.

And with that, I'll turn the call over to Steven.

Thanks, Garland. As most of you know, we issued our earnings release and filed our Form 10-K earlier this morning. And first is a quick update to everybody on the call.

Our reporting this quarter is off two to three days from its normal cycle due to an unavoidable internal travel schedule. We will return to our normal reporting schedule in the first quarter, as we will report post market close on May 6, followed by our earnings conference call the morning of May 7 at 9 AM Eastern.

Before delving into the specifics of our quarterly and full-year 2014 financial results, I would first like to provide a high-level overview and some color regarding a few meaningful data points. When you analyze the last eight quarters of Triangle Capital's financial results, several key items are apparent.

First, consider that in March of 2013, our investment portfolio totaled $715 million. Due to the meaningful repayments we experienced that year, it was not until June of 2014 that our investment portfolio recycled to a size greater than $715 million. Said another way, we were intentional about taking our time to recycle our investment portfolio until we found transactions we believed fit well with our style of investing.

Secondly, in early 2013, we thankfully resisted the temptation to increase our dividend to a level which could have proved unsustainable in the wake of the effects of interest rate compression that all BDCs have experienced over much of the last four to six quarters. Third, during 2013 and early 2014, we resisted the temptation to raise equity capital before it was necessary, even at evaluations, which, by today's valuation standards, would have been extremely attractive.

Fourth, since the beginning of 2013, we have increased our net asset value on a per-share basis from $15.30 to $16.11. And finally, for the last eight quarters, during a period of portfolio recycling, declining interest rates, and increasing nonaccruals back to more normalized levels, we have cumulatively earned our base dividend with our net investment income.

And with that high-level intro, I will delve into the specifics of our financial results for the quarter and the year. During the fourth quarter of 2014, we generated total investment income of approximately $30.7 million, representing a 39.4% increase from the $22 million of total investment income we generated during the fourth quarter of 2013.

This increase in investment income was primarily attributable to a year-over-year increase in the size of our investment portfolio as well as an increase in nonrecurring fee and dividend income from certain portfolio companies. These increases were partially offset by a decrease in investment income relating primarily to a decline in the weighted average yield on our debt investments from 14.1% at December 31, 2013, to 13.0% at December 31, 2014.

Our operating expenses during the fourth quarter of 2014 were $12.6 million as compared to $8.7 million during the fourth quarter of 2013. Our operating expenses consist of interest expense and other debt financing fees as well as general and administrative expenses. For the three months ended December 31, 2014, interest and other debt financing fees totaled $5.6 million compared to $5.1 million for the fourth quarter of the prior year.

G&A expenses for the fourth quarter 2014 totaled $7 million as compared to $3.6 million for the fourth quarter 2013. The $3.4 million year-over-year increase in G&A was primarily due to increased equity-based compensation and discretionary incentive compensation. As we've noted before, G&A expenses can vary meaningfully from quarter to quarter and therefore are best analyzed on a trailing 12-month basis.

Net investment income for the fourth quarter of 2014 was $18.1 million or $0.55 per share as compared to $13.2 million or $0.48 per share during the fourth quarter of 2013. Our net asset value on a per-share basis at December 31, 2014, was $16.11 as compared to $16.10 at December 31, 2013, and $16.64 at September 30, 2014.

I should note that the decrease in net asset value during the fourth quarter from the third quarter was primarily due to unrealized depreciation relating to two accounts, CRS and Parts Now, that we placed on nonaccrual during the third quarter of last year.

Turning to full-year results, for the full year ended December 31, 2014, total investment income was $104.5 million, representing a 3.4% increase from $101 million of total investment income during 2013. The increase was primarily due to higher average portfolio loan balances, partially offset by a decrease in the weighted average yield on our debt investments.

Our total operating expenses during 2014 were $42.5 million as compared to $39.5 million during 2013. Of our total expenses, interest expense and other debt financing fees totaled $21.2 million as compared to $20.2 million for 2013. The year-over-year increase of $900,000 in interest expense was primarily related to an increase in interest on borrowings under our credit facility and an increase in interest and financing fees on our SBA guaranteed debentures for the year ended December 31, 2014, as we drew an incremental $31 million under those debentures during the year.

General and administrative expenses for the year ended December 31, 2014, totaled $21.3 million as compared to $19.3 million for the year ended 2013. The $2 million year-over-year increase in G&A was almost exclusively due to increased equity-based compensation expenses. For the year ended December 31, 2014, our efficiency ratio was 20.4%, a level which is consistent with past results and which is among the lowest in the BDC industry.

Net investment income for the year ended 2014 totaled $62 million as compared to $61.5 million during 2013. NII per share during 2014 was $2.08 as compared to our NII per share during 2013 of $2.23.

Turning briefly to liquidity and capital resources, from a liquidity standpoint, as of December 31, our pro forma for our recent bond offering, we had approximately $265 million in cash and availability under our senior credit facility. This represents approximately 33% of our investment portfolio as of quarter end and we're very pleased with that amount of liquidity.

In summary, as we enter 2015, we are extremely pleased that we have completed the two-year process of fully recycling our investment portfolio, that we have had sufficient operational cushion in the business to withstand the effects of both top-line interest rate compression and a return to a more normal range of nonaccrual assets as a percentage of the investment portfolio, that we generated $13.6 million in net realized capital gains, and that we have begun expanding and further diversifying our investment portfolio, and that we have cumulatively generated NII per share over the last eight quarters equal to our base dividends per share. And finally, that we have increased our NAV per share from $15.30 to $16.11 over this same period.

And with that, I'll turn the call to Ashton to provide some color on our investment activity over the past year and also our outlook for 2015.

Thanks, Steven. 2014 was a record year for Triangle from a new investment perspective. During the year, we originated $474.6 million in total investments, of which $429.7 million were new investments and $44.9 million were follow-on investments.

The average size of our 28 new investments was $15.3 million, which is solidly in the range that we target. And the weighted average interest rate associated with all of our new debt investments was 12.2%, which, as Steven alluded to, is lower than the pricing we experienced in the lender-friendly environment of 2010 to 2012, but still one of the highest weighted average coupons in the BDC industry.

From an investment flow perspective, 2014 was a very balanced year, with a healthy level of new investments in each of the four quarters of the year. Third quarter's new investments, at $175 million, was our most active quarter. In fact, it was the most active quarter in TCAP's history, followed by the fourth quarter at approximately a $111 million.

As we move into the first half of 2015, we are focused on investing the proceeds from our recent bond offering and we'll look forward to updating you with news on that front in future calls.

Both Garland and Steven mentioned trends in the business and how those trends affect us. The concept of investing trends is important and contributes meaningfully to our view of the investing landscape as we enter 2015.

In the lower middle market, we are finding that financial sponsors are entering 2015 with a very optimistic view. For the first time in a number of years, there is significant inventory available in terms of both first-time sellers of private companies coupled with a healthy backlog of sponsor-to-sponsor trades, which in recent years have become a meaningful component of the market.

Balancing against this robust level of inventory is our internal view that not every company meets our underwriting standards. And so while our deal teams are very busy analyzing a healthy number of opportunities, you can expect that we will continue to remain focused on quality versus quantity in terms of new investment activity.

We are optimistic that above-average M&A activity will continue, as financial sponsors have meaningful amounts of dry powder and lenders are willing to engage on terms and conditions consistent with those found in the middle portion of prior credit cycles.

So in summary, we believe 2015 could represent a natural continuation of the healthy M&A market that we observed and actively participated in during 2014.

With that, I'll turn the call over to Brent to discuss certain aspects of TCAP's investment portfolio in more detail.

Thanks, Ashton. As of December 31, our investment portfolio consisted of 91 companies. During 2014, we had 16 investments repay at par, totaling $150.5 million and we had partial repayments totaling $20 million.

We received proceeds relating to sales of equity securities totaling $51.5 million and recognized realized gains on these equity securities of $37.7 million. We also wrote off investments in five underperforming legacy investments, including XTG Technology Group, FCL Holdings, SPV, and Venture Technology Groups, and recognized realized losses of $13.9 million related to these legacy portfolio companies.

During 2014, we also exchanged debt investments and two portfolio companies for equity and recognized net realized losses on these exchanges totaling $11 million. Net of all this activity, we generated $13.6 million of net long-term capital gains during 2014.

This marks the fourth consecutive year in which we have generated capital gains well in excess of loan losses. The weighted average IRR on our exited investments during the year was 21.5% and the weighted average life of those investments was 2.5 years. As of December 31, the weighted average debt yield on our portfolio was 13% as compared to 14.1% at December 31, 2013.

From a credit quality standpoint, we did not place any additional accounts on nonaccrual during the fourth quarter of 2014. Nonaccrual assets as of December 31 totaled 5.8% of our portfolio on a cost basis and 3% on a fair value basis, which, as Garland mentioned earlier in the call, is slightly higher than our long-term nonaccrual rate, but certainly more in line with our expectations.

During the fourth quarter, we placed one additional count on PICC nonaccrual. The new PICC nonaccrual account is Capital Contractors, which has a cost basis of approximately $9.5 million and a fair value of approximately $6.6 million.

Tomich Brothers, as discussed on our third-quarter earnings call, was placed on nonaccrual status during the third quarter. During the fourth quarter, our debt investment in Tomich was exchanged for equity, as the company was reorganized. As part of this transaction, Triangle recognized a $10.8 million realized loss, which represents the lion share of the $11 million realized loss I mentioned a minute ago.

With the recycling of our investment portfolio and the harvesting of meaningful capital gains along the way, we are encouraged by the growth opportunities that exist for TCAP. The favorable M&A environment, coupled with our strong financial and liquidity position, provide a very positive backdrop as we move into 2015.

Approximately 50% of our investment portfolio has been originated in last 12 months and approximately 30% of our $112 million equity portfolio is 2014 investments valued at or near cost. As these investments mature, we are confident they will provide future equity gains for our shareholders in a manner similar to those gains we have recently harvested.

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

Okay, thanks, Brent. As we bring 2014 to a close, we look back with a sense of accomplishment. We have recycled and grown our investment portfolio, generated meaningful long-term gains, reorganized certain underperforming assets, successfully navigated an industry-wide yield compression phenomenon, which forced some BDCs to cut their dividend, maintained and enhanced our strong balance sheet, and originated new investments, both debt and equity, that we hope will be the seeds of future returns for our shareholders.

If 2015 progresses as we believe it could, then it's likely that our investment portfolio will crest $1 billion in total value at some point during the year. At the time of our IPO in early 2017 -- I'm sorry, 2007 -- when our investment portfolio measured just $55 million, we believed the opportunity existed to become a meaningful player in the lower middle market, while providing above-average returns to shareholders.

As we look forward to 2015 and beyond, we are just as excited to be involved in the lower middle market as we were in early 2007. And we hope that our future shareholders will be just as well rewarded as our existing shareholders have been.

And with that, operator, we would like to open the call for any questions.

(Operator Instructions) Troy Ward, KBW.

Steven, can you specifically talk about a couple portfolios -- a couple companies in the portfolio, specifically Parts Now? It looked like you put in some additional preferred equity. Can you just give us an update there?

Yes, Troy. It's Steven. I'll start out and then if either Brent or Ashton has anything to add, then certainly they can chime in as well.

We invested an incremental $4 million or so in the company in the fourth quarter. As I think we'd mentioned on our third-quarter earnings call, we had taken control effectively of that company -- we control the Board. And so the view in the fourth quarter for us has been that there is a base business that is salvageable, I guess would be the way to put it. And that this incremental liquidity is an appropriate thing for us to do in terms of follow-on investment.

I would say, Troy, from a valuation perspective, it's difficult in the sense that $1 goes in of liquidity, but yet the company's valuation in terms of where it sits at the precise moment is more of a mathematical exercise at the time, as opposed to sort of an option value exercise, I might say.

So I think that's probably the primary reason that it is reflected as it is on SOI. But that is the amount of money that we put in the fourth quarter. Any other comments that you guys would make or is that -- they are shaking their heads here, Troy.

Okay. And then similarly on CRS, obviously, it's a big investment for you in the portfolio. Can you give us an update on that investment?

Sure. I will let Brent talk on CRS. He's little bit closer to what's going on there.

Sure, Troy. Very similar story, except we do not control the Board in CRS. But we are working very diligently with other investors in the company to provide liquidity and management is doing, in our opinion, a very good job in a challenging situation to make sure that we can have a successful outcome.

The business continues to generate positive cash flow and it's a situation where some near-term challenges -- what we believe are near-term challenges are in the process of being resolved. And the balance sheet is a little bit overlevered for sure, but again, we believe those things are definitely repairable.

And so we continue to invest a lot of time as well as some incremental capital to make sure we can bring about a good outcome there for shareholders.

Okay. And then one final one. As we look at Parts Now and CRS, it looks like at about two-thirds of the appreciation in the quarter happened in those two investments.

Can you just talk about kind of that other one-third, whether you view that as credit broadly or more mark to market. And then talk a little bit also on how the market volatility has impacted your current portfolio and then also on what you are seeing in new investments.

Well, you got a lot in with the last question, Troy. This is Steven. I will try to break down the NAV quickly. And then in terms of some of the new investing trends, Ashton and Brent can talk about that a bit.

In terms of the NAV, the $0.53 share decline in NAV, it really, Troy, breaks down into two buckets. There's about $0.10 or $0.11 relating to the realized losses that we took in the fourth quarter.

Obviously, given the amount of realized gains that we experienced during the year, it was a good time for us to do that. So we hopefully made, we think, a good business decision there. So that's $0.10 to $0.11.

And the other, call it $0.43, relates to unrealized depreciation in the portfolio as well as reversals and those types of things. And the lion share, I think it is about $0.33, of the $0.43 decline relates to CRS and Parts Now. And then the balance would be other smaller movers in the portfolio.

Does that -- so that I hope gives you a high-level breakdown of the NAV and the discussion that we had with the Board earlier this week and last week as well during the audit committee meeting.

In terms of new investments and some of the things we are seeing from a rate standpoint, Ashton, I will let you chime in on that.

Troy, we're seeing a very active environment, as I alluded to in my comments. I would say that from a cycle perspective, we are maintaining a very focused lens on trying to make investments in company with very stable, predictable earnings.

Obviously, the oil and gas environment has had an impact on certain of our portfolio companies in terms of new investments that come along. We obviously focus on any oil and gas exposure. And I would say in general, any cyclical industry company that comes along warrants much more increased scrutiny as well.

So I think our deal teams are doing a great job of vetting out those companies which are prone to or exhibiting greater volatility in the current market. And as I said earlier, we are seeing a lot of opportunities, but we're trying to focus on quality as opposed to quantity in our new investment decisions.

I would just add to that that, as a reminder, our exposure to oil and gas is actually very low. And we're not -- we're very happy with how those businesses are performing there. They tend to be related to pipeline type of activities, which are much more stable. We've had experience in that with the past.

And obviously given our focus on the lower middle market, our companies are not impacted a lot by market volatility. I would say probably the biggest -- maybe what you're getting at, Troy, again is that, as I mentioned in my comments, a large portion of our equity portfolio, which is typically where our unrealized gains come from, has been originated relatively recently.

And we typically look for some period of maturation in those investments before we begin to write them up, whereas some of the depreciation in the portfolio -- the other $0.11 or so that Steven referred to, is related to legacy companies and sort of the typical movement up and down in valuations. So no concerning trends there.

Again, thankfully, no meaningful exposure and certainly no negative exposure to oil and gas. And so I would say it's just sort of normal movements up and down in the portfolio.

Great. Thanks, guys.

Robert Dodd, Raymond James.

Just looking at the deals you did in the fourth quarter and then early in 2015, in the fourth quarter, three of the five, excluding Nordic were unitranche. Can you give us any thought -- obviously, that's something you talked about. Is there anything changed in the dynamics as to why you are doing a bit more unitranche or other than that, the classic sub-debt?

And then in 2015, that you have done so far [about subjects]. So has there been a change in market dynamics or what you are seeing that is shifting that or are those just opportunistic events?

Robert, it's Ashton. No real change there at all. You're right; several of the deals we did in Q4 were unitranche. Dialogue Direct and Halcyon were sub-debt, as you noted, in Q1. Those two that we've announced so far were also sub-debt.

So I would say no material change, just timing. And also from a structuring perspective how we felt that the investments were best structured and protective of our shareholders and optimizing the risk reward equation is how we think about it. So no structural change whatsoever.

Okay, great. And one of the -- in terms of crossing the $1 billion portfolio mark this year, in the past, you've talked about that as kind of being the trigger point at which it is worth pursuing an investment grade rating with the agencies.

Can you give it any color on whether that would still be your intent? Presuming they cooperate, obviously. And how you think your current nonaccrual rate would have any, if any, impact on what the rating agencies would allocate in terms of that rating?

Robert, it's Steven. Thanks for your question. I would say in terms of agencies, they would tell you, and I think they would defend vigorously, that size is not the arbiter of a rating. I think there is a reality on the other side of the equation that some minimum amount of size and scale and ability to raise different verticals of capital do play into it.

And so I think it -- when we would perceive that we would be -- we would qualify, so to speak, for an investment grade rating, I think we would begin having that conversation actively with one or more rating agencies and think would be a long-term benefit, certainly on the debt side of the equation, from a capital raising standpoint.

In terms of the nonaccrual piece of that equation, I think, based on at least personal experience with the agencies that they look at longer-term trends and ability to perform more so than maybe the equity markets, who tend to tilt -- which tend to tilt more to quarter-to-quarter performance. I think the agencies really do look at longer-term trends in the business more so, which I think is appropriate number one for the BDC industry and number two, I think is certainly indicative of our business strategy of, as we alluded to on the call, making minority equity investments coupled with debt investments, they naturally -- the equity investments naturally take some time to season.

And so I think that's a big piece of it as well. So we would expect to begin those conversations at some point in the future, I guess I should say, and you can read into that what you might like to.

Okay. Thank you.

Bryce Rowe, Robert W Baird.

Just maybe on the income statement, Steven, could you help us with the increase in G&A? And I understand that either look at it on kind of a trailing 12-month basis. But here in the fourth quarter, can you strip out what the increase was tied to the discretionary bonus and to the equity-based comp?

Yeah, Bryce. The -- in the fourth quarter, the increase year over year, as I said, around $3.6 million or so, there is probably, I would bet about $600,000, $500,000 that would relate to year-over-year equity compensation expense, which is really just the mathematics of the number of shares granted and the weighted average price per.

And so as the team has grown over the years and the stock price is done well over the years, that's just -- there's just more of an impact there mathematically. And that totals about $2 million a year, so that the year-over-year increase in G&A of $2 million, from $19.3 million to $21.3 million, is almost exclusively due to that, as I mentioned.

Then the other thing going on in the fourth quarter of 2014 related simply to the fourth quarter of 2013 is when the Board and the compensation committee analyze things on a quarterly basis, there is subjectivity in their minds over any quarter-to-quarter bonus accrual for the team and defined as anything over and above base salaries.

And in the fourth quarter of 2013, the bonus accrual was -- I hesitate to say average, because I'm not really sure there is an average in the compensation committee's mind, but it was a lower number than we typically would see. And in the fourth quarter of 2014, it was an incrementally higher number than we had seen in the last couple of quarters.

So year over year, it actually -- it balances out and it was -- I think total discretionary compensation was down a bit year over year. And then the offset by, as I say, the $2 million or so increase in non-cash comp or share-based compensation. So the fourth quarter is really more of a timing difference, frankly, both ways, so it looks a little bit more exacerbated, if that makes sense.

It does. That's helpful. And then an unrelated follow-up. You guys talked about the yield compression within the portfolio over the recent quarters. Wondering if you are starting to see maybe a bottom put-in in terms of yield and if there is opportunity for recent trends to reverse your -- given some recent volatility within the market. Thanks.

Bryce, it Steven. I will start quickly and then let maybe Ashton give a little color, too.

From an order of magnitude perspective, it's really amazing. If you look at our average portfolio year over year, and this I think is where Garland was going with some of his comments, that there is about almost a $0.25 per-share impact to a company of our size, with a 1% decline in weighted average debt yield across the portfolio based on the share count.

So it's really meaningful. And so when we say we tried to build cushion into the business back a year or two ago with the dividend policy, when we had NII of $0.59, $0.61 per share, those types of things, we're grateful that we were conservative, I guess I would say. So from a -- from just a total portfolio basis it is -- it can be meaningful and I think it's been meaningful to other BDCs.

In terms of the bottoming that you mentioned, certainly as you look at the different LSTA data and data runs of those sort, then I think you would see there's been a pretty material move. Certainly, when you look at the bond indices, there's been a move upward. Spreads are widening.

I think our market, and you heard this from us in the 2013 and early 2014 conference calls, our market tends to lag a bit from the broader market in terms of the time it takes for -- the time it took for rate compression to hit our market. Conversely, there's a little bit of a lag of rates pushing back up in our market. But that's just high level and I'd let Ashton give a little more detail.

Sure. Bryce, just adding onto Steven's comments, I think your instincts are right. What we noticed was that financing markets were bit more volatile and choppy in the second half of 2014 as compared to the first half. And that was really measured by spread and leverage indications.

And I think that just as a big picture driver of that choppiness, it was global economic concerns and maybe the declines in the energy markets. I think we're seeing in some respects tightened liquidity as a result of the choppiness and as a result of that type of liquidity, which really is in addition being caused by three things.

One, as Steven mentioned, investors are pulling out a lot of money from loan and high-yield bond funds. In fact, they pulled out about $40 billion in 2014. I think that, combined with increased Fed scrutiny on the banks and their lending practices, is causing a retreat from particularly our market, which has helped tighten up some pricing.

And then also just in general, some of the competitive landscape in the BDC world has restricted the ability to raise capital, hence the ability of some of our competitors to move like we can has been restricted. So when you think about global economic concerns, declines in energy markets, the choppiness that resulted, tightened liquidity due to the loan and high-yield bond funds, the exodus from there, increased spread scrutiny, and then the trading of the BDCs in general, I think we would agree with your assessment that pricing may have hit a bottom and maybe is starting to turn the other way.

I wanted to come back to Robert's question earlier about his question around unitranche and sub-debt. And the fact that three of our fourth-quarter deals were unitranche, I will make the note that of those three deals, they all achieved double-digit pricing. And in particular, were 10%, 11%, 11.5% for Orchid, TGaS, and Gilchrist, respectively.

And so when we step back -- as you may recall, we've always stated that -- and believed and know that sub-debt pricing historically has been an 11% to 14% range. So in two out of those three deals, we were able to achieve unitranche-type security with the lower end of sub-debt-type pricing. So as I mentioned earlier that we felt that that was an optimal structure in terms of the risk reward for our shareholders, that's what I was alluding to.

So long-winded answer to your question, but I think we would agree with your instinct that the pricing may have hit a bottom, is starting to turn here, and a lot of it is due to the macro points that I mentioned about global economic concerns, declines in energy markets, and the choppiness that has resulted.

Great. Thank you, guys.

Vernon Plack, BB&T Capital Markets.

I was looking for a little more color, perhaps, on the revenue and EBITDA trends that you are seeing in the portfolio.

Sure, Vernon. This is Brent. We are actually pleased with the growth that we are seeing. Probably a little more than market, the last data we looked at that revenue and EBITDA on our portfolio were growing better than the data we saw related to the market.

Now it continues to be a challenging environment for top-line growth in general. And of course, as you know, a portfolio -- it is not what your portfolio averages. You can have a handful of losers that can create a lot of challenges for you, which, of course, we've had our share of more recently.

But I would say we are very pleased with the investments we made in 2014 in general and the growth we're seeing in those companies. And I think we're seeing a little bit more growth in the economy and that is flowing through to our portfolio companies as well.

Okay, thank you.

Jonathan Bock, Wells Fargo Securities.

Steve, just a little bit more color on the dividend line and sustainability of dividend coming into income over the next year or so. Can you give us a sense of the drivers that we saw this quarter? Obviously, it's a bit above expectation.

But then more importantly, how we should think about modeling that line in light of, perhaps, lower portfolio velocity to the extent that spreads are wide and refis really don't occur? A little more color there would be helpful.

Jonathan, thank you for your question. I'm actually especially grateful that you asked it, because we had a wonderful quarter with the fourth quarter, the $.55 of NII, as you allude to, and I think some others have -- I think Troy put something out earlier today. It was driven in large part with increased dividends coming from portfolio companies.

So let me give a little bit of color there. If you had to strike an average of what we would say has been nonrecurring dividends and fees that tend to happen every quarter, but each distinct event is a nonrecurring event, it would be about $2 million a quarter.

In the fourth quarter, we had a total of about $4.7 million. So we had about $2.6 million or so more than the average. And that, I think, if you compute it on a share count, would be about $0.08 a share. So that would say that on a true recurring basis, that you could predict every quarter if we were simply averaged, it would've been somewhere around $0.48, $0.49 of just recurring.

Now we do tend to average a little bit more than that longer-term average or have more recently. I think as you begin to build models, you and other folks for 2015, what we've said historically, I think, is very much intact in the sense that given the events of the third quarter of last year and the nonaccrual activity, that we would expect to underearn the dividend -- our dividend of $0.54 in the first half of the year. And then I think most people's models kind of assume that we get close to that and hit it in the third or fourth quarter of the year and I think that's a trend line that we are still comfortable with.

What is unforeseen, but could happen, I think, in 2015 is the -- that we could be a little bit below average for nonrecurring items in the quarter, given that the portfolio is newer now than it was during much of 2014. And so as you have accounts that are more recent in nature, it just sort of statistically argues, I guess, that you might have fewer one-time items coming from those in the form of dividends and the like.

So don't know that would happen, but we have been above average for a period of quarters. And so at some point, that might cycle, too. So that is incumbent in my comments about -- as you guys and others construct your models for the year, maybe being a little more conservative on the front end of the year and then building back to the backend of the year of earning the dividend. Does that help?

It does, Steve. And maybe I will ask it. So if you -- how much control, and I use that loosely, not to define that you control the Board or control the press. It's your Company.

But how much control or pressure can be exercised on these individual portfolio companies to dividend out either cash flow or -- is there an element where you are able to perhaps exercise a little bit more control over payments or is it just completely one-time in nature? Because it seems very well timed to get such a good dividend payment in the Board quarter.

I would love to tell you, Troy, that we can -- I mean, Jonathan, that we can control it. The reality is when you are a minority equity investor in basically 80% of your portfolio companies like we are, we really can't -- it's a sponsor-driven -- the equity partner -- the equity group that owns the Company really is the arbiter of those decisions.

It is pure happenstance that we received the dividends that we did in the fourth quarter. Great that we did, well-performing companies, etc. But it just as easily could have been in the third. It just as easily could have been in the first quarter of 2015.

There's a side of us here, frankly, that wished we'd had some of it in the third quarter. It would've been great to have had a little more NII in that quarter, but I think it fits well where it fell, but it is -- a lot of it is really happenstance.

Got it, got it. And understood and good answer. So the next item as it relates to credit quality, Eckler Holdings, I'm just interested in the fact that we saw a relatively -- a decent write-down to the debt. And then also kind of looking at equity. Would you mind just giving us some additional color on that investment?

Sure, Jonathan. Obviously, we can't say too much. It's a company that has historically been a very, very good performer, a very steady performer. And they ran into some issues that we believe are temporary and one-time in nature and so that is reflected in the write-down.

We are already seeing improved operations so far early this year. And we hope that that is going to continue. And we will see -- we're way too early to say yet what our market is going to look like in Q1, but we are definitely encouraged by the more recent results from the company.

Got it. And then maybe a broad question. Garland, you've mentioned that there is now kind of [maybe spaces] where BDCs are now experiencing a higher level of nonaccruals. As we saw it, nonaccruals inch up slightly in the third quarter of (technical difficulty)

Jonathan, it's Steven. You broke up a little there. I know you are on a cell phone -- or it sounds like you're on a cell phone. You broke up. Would you mind repeating the question?

Yes, sure. Is this better, Steve?

It is. Thank you.

So Garland, the question is you had mentioned in your remarks, the BDC industry is experiencing a move back to steady-state nonaccruals. And we see (technical difficulty) state occurring, but we also see that -- it's a bit of a story between a focus subordinate debt versus senior secured debt, however we want to try to define it -- I understand it can be defined in a couple different ways.

And in the number of those senior secured BDCs, we have not seen a steady increase in nonaccrual (technical difficulty). And I just -- the question here is credit risk. What is sufficient (technical difficulty) you guys definitely know how to underwrite.

But how do you convince investors today to own subordinate debt (technical difficulty) and stubs their toe, but in general, TCAP has a different portfolio composition that lets investors get comfortable with (technical difficulty) for us all?

Jonathan, this is Garland. I'll take a stab at that. You were breaking up so badly, I may miss the mark. And if so, we can certainly talk off-line. But in general, we continue to think that the sub-debt part of the balance sheet overall is the most attractive place to invest.

Ashton mentioned a minute ago our involvement in unitranche deals and we certainly have done some of those. And in those situations, we felt that we were better served from a total risk reward standpoint of moving up the balance sheet a bit.

In terms of what is -- I couldn't hear exactly your terminology about a return to a more normal nonaccrual rate -- as you know, our experience and other BDC investors in the sub-debt arena have seen a -- over the years have seen a pretty wide fluctuation of -- with nonaccruals, in our case, being down as low as well under 2% or in other situations, up over 10%.

In looking back at our history, our average has been somewhere around the -- a little over the 4% area. And so we feel like we are very much within the range of what we think is normal and we continue to think the risk reward ratio in that market is very attractive, so long as you have a diversified portfolio.

We think that is really the key. And I would suggest from an investor standpoint that one of the things they should look for and one of the things we think is attractive at TCAP is the fact that our portfolio, while largely sub-debt, is spread over a good number of industries and a good number of portfolio companies.

Got it. That answers it. Thank you so much.

Thank you. At this time, I would like to hand the conference back over to Mr. Garland Tucker for closing remarks.

Okay, operator. Thank you. I would like to thank each of you for being on the call today. We certainly feel like we had some good questions. We enjoyed the interchange and we look forward to talking with you one-on-one over the next quarter and then to our call for Q1, which will be coming up fairly soon. Thanks, again. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.