Barings BDC Inc (BBDC) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to Triangle Capital Corporation's conference call for the quarter ended June 30, 2017. (Operator Instructions) Today's call is being recorded and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.tcap.com under the Investor Relations section. The host for today's call are Triangle Capital Corporation's Chairman and Chief Executive Officer, Ashton Poole; and Chief Financial Officer, Steven Lilly.

I will now turn the call over to Tommy Moses, Vice President and Treasurer for the necessary safe harbor disclosures.

Thank you, Olivia, and good morning, everyone. Triangle Capital Corporation issued a press release yesterday 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 flow. 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, 2016 and quarterly report on Form 10-Q for the quarter ended June 30, 2017. Each is filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statements.

At this time, I'd like to turn the call over to Ashton.

Thanks, Tommy, and good morning, everyone. Last quarter, in my prepared remarks I indicated that 2017 had gotten off to a rapid start for TCAP as we had originated over $145 million in new portfolio company investments. I'm pleased to report that since the beginning of the second quarter, we have maintained a healthy pace of activity, as we have originated approximately $90 million of new portfolio company investments. And as we have signaled very directly in our annual Investor Day presentation on June 22, a copy of which is posted on our website under the Investor Relations tab, we are continuing our migration away from legacy, mezzanine investments and into more senior oriented investments which contain greater lender rights and protections, which we believe are prudent to pursue at this point in the economic cycle.

To be more precise of the 8 investments we have closed since April 1 of this year, 6 of them are true second lien or unitranche investments. I'd like to complement our origination team on its success in expanding TCAPs brand name and market presence into new channels as we gain greater recognition and traction with larger financial sponsors. We were looking for a trusted partner with meaningful committed capital and a long-term relationship based on all of investments.

From a strategic standpoint, I'm also pleased to report that in light of our migration from a predominantly mezzanine oriented investment strategy, close to 50% of our current investment portfolio is now comprised of first lien, second lien and unitranche investments. In addition, over 40% of our investment portfolio is comprised of floating rate investments structures, poised to provide higher yields should interest rates continue to rise. And by the end of fiscal 2017, I expected approximately 2/3 of our investment portfolio will be comprised of these more up balance-sheet structures.

During the second quarter, we recognized net realized gains across our investment portfolio totaling $5.2 million, which consisted primarily of gains totaling $8.3 million on the sales of 3 investments, offset principally by a loss on the write-off of our investment in Power Direct Marketing in the amount of $2.7 million.

Since our inception in 2007, our net realized gains across our investment portfolio totaled approximately $11.8 million. From an investment portfolio standpoint, during the quarter, we experienced pretax net unrealized appreciation on the current portfolio in the amount of $22.9 million. Our nonaccrual investments totaled 5.4% of the cost basis of our investment portfolio or $67.5 million. And included one new nonaccrual account or $17.7 million investment in Community Intervention Services, Inc. which was moved from 6 nonaccrual status to 4 nonaccrual status during the quarter.

In addition, we had 2 new [pick] nonaccrual assets during the second quarter. We placed both our $14 million subordinated debt investment in Cafe Enterprises, Inc. and a $12.6 million subordinated debt investment in Eckler Holdings, Inc. on pick nonaccrual status. As we look forward to the second half of 2017, we continue to see strength in the M&A market as financial sponsors look to make attractive add-on acquisitions for their existing portfolio companies as well as add strong performing platform companies to their overall investment mix.

To be clear, most auctions are competitive and well sharp. However, we are fortunate to partner with quality financial sponsors, we're still willing to capitalize their portfolio companies with sufficient equity capital while they (inaudible) in more senior oriented [Dutch] factors which include senior unitranche and secondly in securities. These types of financial sponsor relationships where the financial sponsor has meaningful skin in the game are core to our current and future investing strategy.

Finally, our strategic decisions over the last 12 months to expand Triangle's liquidity position are serving us well as we are becoming more relevant to more financial sponsors across a wider percentage of the market. As we continue to pursue our up balance sheet strategy, I am pleased with our ability to find attractive investment opportunities that will become the backbone of our investment portfolio over the coming quarters. And while we are not abandoning high quality, well structured, mezzanine investment opportunities, I continue to instruct our investment team not to risk sacrificing investor capital simply in an effort to chase yield. In my view, we are too deep into the current economic cycle and market demands for increased financing options prohibit focusing on one type of investment structure.

And with that, I’ll turn the call over to Steve.

Thanks, Ashton. During the second quarter, we generated net investment income per share of $0.41. Our NII was $0.04 lower than our dividend on a per share basis, primarily owing to the short-term operational dilution from our February 28, 2017 equity offering. The effect of the new nonaccrual investments, Ashton mentioned in his opening comments, and lower-than-average onetime fees and dividends from our portfolio companies. From a quarter-over-quarter perspective, as you compare the quality of our revenue during the second quarter with the first quarter of this year, you will note that we recognized approximately $1.5 million of nonrecurring dividend and fee income from portfolio companies during the second quarter, as compared to $1.8 million of nonrecurring dividend and fee income during the first quarter, and indeed $3 million of nonrecurring dividend and fee income during the fourth quarter of last year.

This trend of declining nonrecurring dividend and fee income has been a topic we've discussed frequently in prior earnings calls and as we believe a natural phenomenon that occurs in the latter stages in a credit cycle as portfolio company growth in revenue and EBITDA [is order] to come by and therefore fewer dividends are paid to the equity holders of these companies.

From an efficiency ratio standpoint, with efficiency ratio being defined as total compensation and G&A expenses divided by total investment income, our second quarter efficiency ratio was 15.2% as compared to 18.1% during the first quarter of this year. Our second quarter annualized compensation and G&A expenses as a percentage of average assets totaled 1.5% as compared to our first quarter annualized compensation in G&A expenses as a percentage of average assets of 1.8%. Our net asset value, or NAV, per share as of June 30 was $14.83 as compared to $15.29 at March 31 and $15.13 per share as of December 31, 2016. The primary driver of the NAV decline this quarter was unrealized depreciation on our portfolio investments, partially offset by our net realized gains.

During the second quarter, as Ashton mentioned, we recognized net realized gains totaling $5.2 million primarily related to the sale of 3 portfolio investments: a $3.7 million realized gain on our equity investment in AGM Automotive, LLC; a $1.7 million realized gain on our equity investment in Comverge, Inc.; and a $2.9 million realized gain on our equity investment in Flowchem Holdings, LLC. These 3 gains were partially offset by realized losses of $3.1 million including primarily a $2.7 million realized loss on the write-off of our debt and equity investments in Power Direct.

From a valuation perspective, we reported net pretax unrealized depreciation on our current investment portfolio totaling $22.9 million for the quarter, largely driven by underperformance in our investments in CRS Reprocessing, Women's Marketing, Frank Theatres, GST AutoLeather and Community Intervention Services. These write-downs are partially offset by write-offs of strong performing companies such as Agilex Flavors & Fragrances and NB Products.

From a liquidity standpoint, on May 1, 2017, we amended our senior credit facility, where we increased the total commitments by 45% from $300 million to $435 million and we extended the final maturity to April 30, 2022. In addition, on July 31, we accepted an additional $30 million commitment to our senior credit facility, which increased the total capacity to $465 million. Our enlarged credit facility provides the company with a more streamlined ability to borrow to support our investing and operational activities. And including the effects of our expanded credit facility, our total liquidity as of June 30, 2017, is in excess of $500 million.

And with that, I'll turn the call back to Ashton for a few comments before we open the call for questions.

Thanks, Steven. As of June 30, 2017, we had investments in 93 portfolio companies with an aggregate cost of $1.25 billion and total fair value of $1.17 billion. The weighted average yield on our outstanding debt investments was approximately 11.4%. The weighted average yield on all of our outstanding investments excluding nonaccrual debt investments was approximately 10%. The 8 new investments we have made since the beginning of the second quarter total approximately $90 million and have a weighted average debt yield of 10.3%.

As we continue to pursue more senior oriented investment structures and as we continue to experience repayments of existing higher yielding investments, our investment portfolio's weighted average yield will likely continue to decline. And while we can't predict how rapidly repayments across our investment portfolio will continue to occur, I do believe it is likely that over the next 12 months, our weighted average debt yield will move closer to a range of 10.5% to 11% as opposed to the 11.4% level we currently are reporting.

This investment portfolio turnover naturally will affect our future earnings per share both in the normal course of repayments of higher yielding investments coupled with the deployment of capital in lower yielding more senior oriented structures. As a result, as we have communicated to our board and as we communicated in our annual Investor Day presentation, our strategy of focusing, first, on strong credit decisions; and second, on overall investment yield, should provide us with a less volatile investment portfolio over time. And to pinpoint on the natural question of how this investment portfolio activity may influence our quarterly dividend per share, I'll say upfront and with conviction that in the future if we find our investment portfolio and corresponding liquidity position are not sufficient to permit us to earn our current quarterly dividend of $0.45 per share, that I will recommend to the board that we adjust our dividends to a level that conservatively corresponds to our future earnings [balance].

The investing market today is extremely competitive and Triangle's position in the market is strong, but I will not sacrifice Triangle's quality reputation by stretching for investments and yields that are not appropriate for long-term investors. At present, our quarterly dividend remains $0.45 per share as the investing market continues to evolve and as our position in the market continues to grow, we will continue to seek to reward our investors by providing the highest per share dividend while simultaneously seeking to protect shareholder capital.

And with that operator, we will open the call for questions.

(Operator Instructions) Our first question coming from the line of Ryan Lynch with Keefe, Bruyette, & Woods.

The first one, if I look at your portfolio, there are several assets that are still on for accrual status that have significant markdowns looking at Frontstreet, CRS and Nomacorc, PCX Technology Corp, those are all investments that are marked at basically 80% of cost or low, but are still on -- for accrual status. So how should -- how can investors, I guess, get comfortable with the future credit outlook at TCAP given this large pipeline of potential new nonaccruals or investments that are probably at higher risk of receiving further write-downs?

Ryan, it's Steven, and thank you for your question. I think, as you look at the portfolio from a macro standpoint, your first conclusion would be that almost 50% of the fair value and cost basis of the investments we have today have been made in since -- what we would call TCAP 2.0 that is since the second quarter of last year. And if you look at our nonaccruals, they are approximately 5% of our portfolio and the investments that you just mentioned that are carried at 80% of cost or below or an incremental sort of 5 percentage points so about 10% of the portfolio would be in these 2 buckets. You then would have an incremental 10 percentage points for the portfolio that would be valued below cost but above 80% of cost, which is historically been a break point for us in terms of when credits are moving more self versus just more of a short-term phenomenon in terms of a company working through a specific issue or a specific problem. In terms of the nonaccrual accounts that represent 5% of the portfolio. Obviously, they are all nonaccrual, so they don't impact our future earnings. They can impact our future NAV if they were to move obviously either up or down. And the investments carried below 80% of cost is, I think, you will note in the 10-Q 2 of those investments are on pick nonaccrual this quarter and that Eckler Holdings and Cafe Enterprises. And I think that would tell you something about the revenue quality and cash flow quality of those companies and our perception right now. And both of those are carried at kind of the low 70s in terms of fair value versus cost. We have seen operational improvement in some of the other companies that are still on this list. I think if you were to go back and look over prior quarters at a company, for example, like PCX Aerostructures that's a company I think that is actually moved up in value over the last couple of quarters as their outlook has stabilized and improved. So obviously it's difficult to pinpoint exactly the magnitude of either one might call forward recovery or forward decline in value on these and given that they're privately held companies, obviously we have to be careful, as you well know what we say publicly on an earnings call. But I think if you were to use history as your guide, then you would come to the conclusion that of the investments carried between 80% and 100% of calls, I think there are 8 of those accounts today that historically the ratios would be that one of those accounts would be reasonably exposed in the next 2 or 3 quarters where they might -- it might go on nonaccrual. And that's purely just running the averages of prior experience that we would look at with empirical data in our book over the last 10 years. As you look at companies that are carried below 80% of cost and are still accruing then the [new] there are 5 of those accounts I think in the portfolio today I think from a prior experience standpoint, we would say the average is probably 2 of those 5 in the next same time period 2 to 3, 4 quarters. Again, it doesn't say I want to be careful, because it doesn't say that is going to happen. But that would be our predictive analysis based on prior experiences. So I apologize, I was long-winded with the detail there. But I wanted to be fulsome in answering your questions, so if you have a follow-up certainly we will try to answer that as well.

No, that's really good color. Maybe just kind of a more broader question on the credit process, you talked about TCAP 1.0 versus 2.0. Certainly in the past, I know you've talked about making some changes in the investment process for TCAP 2.0 around the screening process, expanding the investment committee, which wish also moving up capital structure, larger companies, et cetera, which all helps new portfolio companies that you guys are placing -- new companies that you guys are placing your portfolio new investments improving, and hopefully the credit quality of those in the future which those of all holdup well. You know, so far TCAP 2.0 that's been good, but can you talk about, have there been any improvements to the -- maybe the portfolio management process, where you guys, which will help you minimize loss or maximize recoveries from some of these legacy TCAP 1.0 investments?

Ryan, it's Ashton. Thanks for your message. I'd like to address actually both sides of the coin there that you referenced regarding our investment process and then the portfolio management side of the process, because I do think they both deserve equal emphasis. We continue to refine and improve the investment process that we put in place with TCAP 2.0. I think we've been through kind of the intricacies of that with you all and others at our annual Investor Day. And again all of that's included in the presentation, but the revised process of the veto rights, the multiple checks and balances that go through the process as we currently have it, seem to be paying off, and as Steven alluded to earlier roughly half of the portfolio now has our investments that are made off of that 2.0 process and currently we are enjoying I think some good results as part of that process. Just one factor that I think it's interesting and this is something that we share with our board this week. If you go back to October of last year and you look at the number of investments that were brought to committee and what we call our prescreen format or better known as STM format, 20% of those transactions that were brought for the consideration of the committee have been declined. And that is a dramatic shift from where we would have been in the past, probably past data points would have been in the low single-digit percentage range, call it 2% to 3%. And so what you're seeing is a much tighter lens, a much more fulsome discussion, a much more open discussion and a much better betting of opportunities as we see them and what we feel are appropriate for our shareholders going forward. And ultimately, the combination of the process, the filter and the improved way that we're managing the business seems to be filtering through now to our new investments, which again account for about half of our portfolio and those same processes and procedures will continue to get employed, and we'll continue to get refined and we will continue to get improved. So I'm very, very proud of the team and the results that we have experienced to date and so far in TCAP 2.0. As far as portfolio management side of the equation, I think you all know that Jeff Dombcik is our Chief Credit Officer and is head of our portfolio management process. We brought on an additional resource to support Jeff in that effort I will say that Jeff's done a terrific job of going back through and examining all of our prior tools and screens and processes for getting ahead in forecasting potential trouble spots in the portfolio by industry and by company, and we now have a much, much greater visibility or predictability going forward of where we see potential issues. Jeff is also applied what I think is just incredible focus and attention on the problem situations that we do have, and has brought great leadership and trying to work through the situations and work either constructively with sponsors in terms of getting to solutions that benefit our shareholders or in cases where we need to exercise more influence directly on our own accord to generate the best outcome for tick up in our shareholders. So collectively, the 2 sides of the coin are much improved in my view and resulting a better performance for the company and for our shareholders.

Okay. And then one more if I can, before I'll hop back in the queue. Steven, in the past, I believe you've talked about an efficiency ratio of kind of plus or minus 20%. If you look at the first quarter, it was around 18% this most recent quarter; second quarter was around 15%, so run rate of sub 17% for the first half of 2017. Can you just talk about, do you expect that guidance, the efficiency ratio around 20% to hold or should we expect an efficiency ratio lower than that going forward?

Ryan thanks. Thank you for mentioning what our historical guidance has been of plus or minus 20% of revenues and typically kind of plus or minus 2% of AUM. I will say in this quarter we are lower from a seasonal standpoint in the year. As a publicly traded company, we tend to have more expenses from the public side of the business that flow in the first quarter than the second quarter based on the timing of our annual report, annual meeting with shareholders, audit that type of thing. So there is a little bit of change there in the quarter. The board made up a smaller bonus accrual in the quarter, not by a wide margin or anything of that nature. So historically, if you go look at us on a quarter-to-quarter basis, I think you'll see that plus or minus 20% is really a good range, but you also would find if you did this sort of quarter-by-quarter analysis that we can be above 20% or right much lower than 20% on any given quarter, it just sort of happens as this quarter is for a combination of reasons is a little lower than average. But I would not change your long-term look there in terms of the models that you guys are working on and producing for the future.

Our next question coming from the line of Jonathan Bock with Wells Fargo Securities.

Joe Mazzoli filling in Jonathan Bock. Guys your ROE has been dependent on your ability to issue equity at substantial premiums to net asset value. With a much lower premium today, what happens now?

Joe, it's Steven. I would tell you that I think our historical ROE has been, in large part, driven by the investment performance that we've had with realized gains outpacing realized losses for the full-body of work if you will for Triangle for the 10.5 years that we've been public. And that we, that ROE has been really dependent or influenced by the fact that we've had incrementally higher yields in the portfolio based on our lower-middle market strategy, we had incrementally lower G&A based on our internal structure and we have been able to, again for the full-body of work at Triangle, maintain relatively low losses, again below, and on a realized basis below our gains. I think what you're really maybe going to and alluding to in your question is for the last call at 12 quarters for Triangle, our investment portfolio has by and large declined in value. And what we're seeing is investments that were made in vintage years, call it 2013 and '14 and '15, we talk about this a little bit on our last call with John Bock's, good question. We're seeing the effects of some of those where the company in a, I might say a steadfast way and held onto a mezzanine strategy, perhaps longer than certainly now as what we're seeing longer than we should have been, one of the first decisions when he became CEO that Ashton made was to diversify our investment offerings in the market and to move up balance sheet. And so I think a couple of things happen when you do that. #1 is your initial yield is going to go down incrementally from what I mentioned a minute ago that higher yield we started with your initial yield is going to go down, you maintain the same cost controls in the business that the internal structure can afford you. And your credit quality kicks off, but it takes a bit of time to move through. We say in this business a lot that it's the floodwaters are the highest after the rain has stopped. You know, in the sense that when you make an investment, it takes a period of time to find out if that investment is going to perform well or not. And so in our business even though we have, as Ashton said in his comments, we've turned the direction of the ship if you will in a meaningful way with half the portfolio in new investments and with the new focus that we have, it is just going to take a little bit of time to migrate away. So I think all that taken is a picture, is really would tell you that I think our ROE is going to be probably in the single digits for one would think probably this year, as it was last year and the year before. And I think you would look at average ROE for BDCs the entire industry and I think your average ROE comes up to somewhere around plus or minus 8%. So we're moving from a point where we have outperformed in a measurable way for a period of time, may be held onto our investing strategy single strategy a single strategy a bit too long and we are repositioning now and so our ROE fall lower for us might reflect basically on average of what many other folks are achieving in the industry given the nuances of their investment strategy and their operational structure in terms of G&A. Final piece of what I'd say Joe is when you couple all of those things with the fact that we are fortunate to have a measurable amount of liquidity especially measured against the sort of size of our investment portfolio. One of the larger BDCs, maybe the largest reported just a few days ago, if you look at their available liquidity it's 20% of their investment portfolio. As we said today with available liquidity we had about 42%, 43% of the value of our investment portfolio on a cost basis. We just feel back, we're in a really fortunate situation to continue executing on the strategy that was laid out again a little over a year ago for us. So thanks for the question, I hope that gave you some color.

And you do talk, you do mentioned the liquidity and also I believe you have some pretty -- you have some substantial ability to grow the SBIC program. So if you could kind of talk about that in the context of some of the new nonaccruals and the potentially lower yielding portfolio going forward with the more senior focus, could you just quickly again kind of touch on what dividend coverage looks like in the coming quarters because is there -- it sounds like there is a path, but there are also some headwinds of course, TCAP is being conservative with new investments, which is a good thing, but also could result in a lower yielding portfolio.

Yes, I think the -- first before talking on -- as you say the dividend and the comments that we made in the prepared remarks, I think if you were to take the information contained in the 10-Q and you were to say I'm going to try to come up with what you might call a run rate analysis of Triangle. I think you would have a couple of data points there to help you. One would be if you look at our NII on a per share basis for the year, I think it's $0.83 and so you would say okay by annualize that, that's around a $1.65 something like that. If I then take the current quarter, you would say the yielding debt portfolio for Triangle Capital is $1.027 billion and you would know from our comments and in the queue that our weighted average yield on that portfolio is a 11.4%. So the quick math there will tell you that, that's $117 million of revenue on an annualized basis. You then would acknowledge that we have total fees both recurring and nonrecurring, our guidance is somewhere between $10 million and $12 million there, so take the midpoint at about $11 million. You're at a $128 million of total revenue. And then you back off somewhere $28 million, $29 million for interest expense and $23 million or so for G&A, and you're going to get somewhere around $76 million, $77 million of net investment income and if you divide that by 47.7 million shares, then you're basically at a $1.60. So that would tell you that you, if you annualize the first 2 quarters, you come to around $1.65 if you look at sort of an annualization analysis of where we are today, it would around a $1.60. You then acknowledge that we have our $500 million of liquidity, you might say well let's -- conservatively say, you use $300 million of that, and you invest that at a 5% spread over the cost of your bank facility, that's $15 million of incremental revenue or $0.31 a share.

So as you go through that analysis, you could come to the conclusion, okay Triangle, you guys can earn if you deploy this capital and you'll still have remaining liquidity of over $200 million. You can get to north of a $1.90 a share of NII. Again, this is all annualization, so it doesn't take into account repayments in the portfolio, any potential credit issues in the portfolio, things like that. It could happen in the future and so repayments obviously will happen, credit issues could happen. So and then the timing of these investments, so as you put it all together, I think you have to back off some of that and then think about the timing of it. So the communication and I'm giving you today, it sounds like, I can do it a little bit off the top of my head it's because I just said the same thing to our board yesterday. And this is exactly the analysis we're working through. And frankly, it depends on the pace of repayments, it depends on the pace of new investments, it depends on what happens with credit. Those are the 3 inputs that I think we analyze and we will continue to analyze. But one thing's for sure, Triangle wants to continue to be sure that we earn our dividend, that we're never in a return of capital situation and If there is an adjustment that comes in the future, I think you and everybody else on the line would want to know with clarity that we would adjust to a level where the future earnings power of the business, as Ashton said, can comfortably cover that dividend level and it's just one of these things you don't want to be, you don't want to stretch for a dividend. And frankly a couple years ago and kind of '14 and '15, there was a motive if you will to internally to try to maintain what at that time was the highest base per share dividend in the sector. And that's not a long-term strategy that is prudent for investors as one of comfortably over earning for a long sustained period of time and achieving that lower volatility. So that's what we're focused on now and I hope that gives you a little color as you might think into the future a bit just about this.

Our next question coming from the line of John Hecht with Jefferies.

I mean, I guess a little bit of follow on. Steven, thank you for all the detail on the dividends. How much cumulative spillover income do you have and you have plenty of liquidity. How much spillover income do you have on a cumulative basis and it sounds like it's a quarter-to-quarter decision, but what are the primary factors that would lead you to make it a dividend decision or a change decision in the future?

Sure, John, and thanks for the question. We have $0.23 of spillover income today, so I would say we historically have operated with a high of about $0.50 and a low, I think the low point that we had some years ago was maybe $0.15, somewhere in the kind of mid-teens. So we're closer to the low and the high, we're in the range. We again share this information with the board as well. So I don't think there is anything from that standpoint that is influencing us in a material way, one way or the other. We would frankly not run that down to 0, that's just not how we would operate. So I think it's really those 3 key inputs that I was saying to Joe on his question of. It was the timing of repayments and what the weighted average yield of those repayments is, if we were to experience a meaningful amount of repayments and not find attractive new investments that could influence us. Likewise from a credit standpoint if there were of gap down from a credit standpoint of some of the accounts that we mentioned earlier in Ryan Lynch's question then that could influence it. So it's really the confluence of those 3 points as opposed to the spillover, that thankfully is not a driver for us because we try to manage that conservatively.

Okay. And then second question is related to just the yields, I mean Ashton you did -- you guys have gone through lots of details about the yields, the expected yields. But I think if you like provide, if you look at the pipeline of investments in this and that, how are the competitive market, how are yields? In other words like for mezzanine investment or senior investment now, where are spreads related to where they were 3 months ago and where do you see that going given a competitive environment?

John, thanks for your message. If you just look at, I'll answer your question 2 ways. One, I'll just look at the deals that we actually did in Q2 and give you some reference points there. But then I'll talk more fully about the market and kind of touch the ends kind of boundary it for you, if you will. If you look at the deals that we did in the quarter CIBT, Constellis, [Key PRO], LRI, Schweiger and TAG, the majority of those were, I guess, 2 were unis, 3 were second lien and 1 was sub debt. And the range of yields in those on the debt side were 8.8% through 12%. On a weighted basis, it was 10.3%. I'd say from the senior side in terms of pure senior, we're seeing kind of L400 to L550-ish on the senior [rail] from the unitranche side. I think we see anything from kind of L6, L650 up to L8-ish, L850-ish. On the second lien side, I'd say that we're kind of generally the 9% to 10% range. And mezz is generally between 10% and call it 12%. So I'd say hopefully that gives you a good sense of the bookends of kind of yields in the market. My personal opinion is, I feel like we have seen yield compression even further over the last couple of months. I know in certain situations, we've been blown out of the water in pricing by competition in some cases 100 basis points, in other cases up to a maximum of 200 basis points. So I referenced earlier the competition is real, the amount of capital that is still coming into the space is unabated, transaction activity is relatively constant, it's down on a dollar basis, but it's relatively flat on a transaction volume basis in terms of number of deals. So essentially you got flat transaction activity with incrementally more capital coming into the space and that capital generally that's coming into the space is more institutional in nature, which that is a base of investors that prefer more senior oriented structures as part of their investment. So that's why you're seeing the heavy pressure that you've seeing on NAV and certainly second lien and certainly the market shift towards the preference, but more unitranche and senior oriented structures. Is that help?

Very much.

Our next question coming from the line of Leslie Vandegrift with Raymond James.

Most of them have been asked and answered and I appreciate all the color on that. On the unitranche, those you discussed focusing on recently, how much of your overall personal and senior secured is unitranche at this point?

Leslie, as of June 30, if you were just to look at the debt portfolio for us, this is excluding equity, our portfolio on fair value basis would be about 54% first lien notes and unitranche. And the -- I'm sorry, excuse me 54% sub debt, about 20% second lien notes and about 27% first lien notes and unitranche; so again 54% sub debt, about 20% second lien notes and about 27% first lien and unitranche.

Yes. And I guess my question is on the 27% that pure first lien versus the unitranche product, what's that right down there?

Leslie, it’s Steven. We don't have that breakdown in front of us, but we can get it to you offline later today.

Okay, all right. And then you mentioned earlier about again focusing on those unitranche style and then wanting to grow the SBIC, I mean you can go up to 3 50 now. Do you really see on that end of the market true unitranche opportunity or that’d be more just a pure first lien style?

What will be contained in the SBIC fund will likely be a reflective mix of what we see in the greater portfolio. The SBA does have certain definitional requirements around what are eligible portfolio companies. But most of what we invest in quite frankly in the normal course of our business qualifies for SBA eligibility, we would say. And so I think what you'll see there is frankly just a mirroring. I don't think it'll look dramatically different than our base portfolio over time.

Okay, all right. And then last question on, you talked about yield compressions and how you seen a bit more in the last few months, has any of that certainly with even some of the larger guys moving down market on size and EBITDA, they're willing to do those lower rate loans, have you seen more opportunities for you guys to syndicate up with them? And -- or you just do a club deal on a slightly larger deal size than you normally would?

Leslie, I'm sorry, Steven. I didn't quite understand the question, the line broke up just a bit there. Do you mind repeating it?

Of course. Have you seen more opportunity to do club and syndicated deals getting and as part of those as yields come down and in essence the ability to get in with other larger sponsors?

Yes. I would say and Ashton, I don’t want to speak for you, but I think we have seen an increased opportunity, frankly more, I think just based on the size of our company. Having I guess including committed capital somewhere around $1.7 billion of AUM. We’re able to be more relevant to more sponsors in the market and sponsors that have grown successfully their business over the last 10 years. When we started investing alongside of them many years ago, they might have been on Fund II or Fund III and now they are on Fund IV or V and their funds have grown because they've been successful. And so we're able to take those longer-term partnerships and transact in larger situations, sometimes those situations might require, to your point or to your question, a commitment of capital that maybe larger than we would be comfortable holding on our balance sheet. One of the things that we think we've been very conservative on over time is whole sizes being very small as a percentage of our assets. So we partner with people frequently, we always have but it's just a natural part of the business and one that we're -- frankly, we have many good relationships that lead us to those club deals or syndicated deals. But let me, Ashton -- I mean let you say...

Leslie, I'll just add to what Steven said. I do think, as we have gotten larger and got more relevant for a greater percentage of the market, our ability to be in the receipt of inquiries and participate in club-type opportunities or other market opportunities has increased and we've actually done a couple of those in the first quarter. For example, we did a couple of club deals, but also any time that we would do that, I guess just to reinforce, the predominance of our origination activity will always be based on the direct relationships that we have with the financial sponsors. The club deals and if you want to call them larger middle market, maybe more syndicated loan type deals that we have done, there’s always been a connection either with the company itself, with management or with the sponsor that's behind it. And so again, as our sponsor community and relationships have gotten larger, they've tended to take us along with them. And so we felt very comfortable. We don't have an active trading desk here at TCAP for that kind of activity, but we are more and more in receipt of inquiries for opportunities to club up or to participate in certain deals, but we're actually putting up a pretty strict filter in place to determine which ones we actually choose to participate in. But again, the predominance of our origination activity will continue to be a directly originated.

And our next question coming from the line of Christopher Testa with National Securities Corporation.

So the other year when you guys cut the dividends of $0.45 from $0.54, it's been under earn for several quarters now. So just, have you under earn the dividend because there's been more credit issues than you’ve anticipated or has there been greater spread compression than you’ve anticipated, combination, just curious how that's kind of deviated from where the dividend has been set?

Chris, it's Steven. Thank you for your question. The -- again, there’s no one item you can point to, I think I would mention that in the last 12 months, the company has, as Ashton mentioned, we've expanded our capital base fairly meaningfully. So if you were to analyze back in June of last year, for example, right after we had adjusted the dividend from $0.54 to $0.45, it really based on yield compression in the market at that time. Then the 2 equity offerings that we had undertaken in that period of time, would have provided, I think, $0.54 a share of operational dilution. Just on their own right, obviously until those funds are invested. So if you have -- typically for us, as you've heard us say before, we guide the market to say that give us 2 quarters to invest money that we raise in the public markets and so as you look back and reflect on the last 4, 5 quarters, you would say, we will gosh you've been 4 of those quarters, you've been investing proceeds from 1 of the 2 offerings. So I think there is an acknowledgment there, this quarter there is a penny of lag that we attributed to the fact in the quarter. We had $70.7 million of new platform investments and $62 million the $70 million closed in the month of June with one of those closing on June 30. So just from a timing standpoint, when you're so close to offerings, it's tough to have your NII per share grow out of the normal operational dilution that we and any BBC would have when you raise capital. And I think if you were to analyze and look back of our 10.5 year history, you would see that of the 10 or so offerings we've done, that's frankly been very true in all of them. So I think that's really the single biggest factor we have had as you would know some incremental credit issues in the portfolio. But I don't think that's been the overwhelming aspect of the under earning as you mentioned. And the third point on yield, I think we have actually invested, we've guided the board 2% or 10% weighted average yield over that time period of these 2 offerings over the last year. And I think the actual true weighted average yield for all of the investments we've done over that period of time is 9.97. So give us the fluctuation there 3 basis points, if you will, we feel pretty good that we hit exactly what we had indicated to our board on the new investing side. So I think it's more the equity offerings and anything and that can write itself over time, once again the proceeds now have all been investments, so I hope that helps and just give you little color.

Yes, now, absolutely. And as there is obviously the significant spread compression and your earnings are under pressure, you guys have been moving up the capital stack doing more unitranche and first lien debt, just curious what's the pushback on potentially doing senior loan front, where you could put lower yielding assets with higher financial leverage and probably be pretty significantly accretive to your earnings?

We've looked at that over time. And I would tell you that we certainly haven't ruled anything out historically over the years when we had analyzed that type of opportunity. Frankly, the ROE of the business at that point was sufficiently higher than the -- what am I call this predicted ROE would be in that structure. I think, to be fair, many people highlight what the fully loaded, fully invested ROE is in those types of structures and they maybe fail to acknowledge and mention as directly as you buildup those portfolios, and as those portfolios naturally churn and loans pay-off and you have to reinvest et cetera. So the peak potential ROE does look attractive, I think from other operators we've had conversations with they would admit operator-to-operator that you rarely achieve that fulsome ROE for a long period of time in those vehicles. But I would also simultaneously acknowledge that as our base business is more senior-focused and more unitranche-focused going forward that there might be an opportunity to do that and have the ROE match more to the base business. So again, to say, we certainly haven't ruled it out, we're not obviously announcing one on this quarterly call, but it is something that is out there and becomes more in the realm of attractiveness, that it is going forward than it has historically. Is that makes sense?

Yes, that's great color. Those are all my questions. Thank you.

Operator, there are no further questions, then we will conclude today's call. Thank you all and we look forward to talking with you next quarter.

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