BCP Investment Corp (BCIC) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Kohlberg Capital Corp. 2010 annual earnings conference call. An earnings press release was distributed on Monday, March 7, 2011. If you did not receive a copy, the release is available on the Company's website at www.kohlbergcapital.com in the Investor Relations section.

(Operator Instructions).

As a reminder, this conference is being recorded today, Friday, March 11, 2011. This call is also being hosted on a live webcast, which can be accessed at our Company's website at www.kohlbergcapital.com in the Investor Relations section under Events.

In addition, if you would like to be added to the Company's distribution list for news events, including earnings releases, please contact Denise Rodriguez at 212-455-8300.

At this time management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kohlberg Capital Corp. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks such as those described in the Risk Factors section of our 10-K and sections of Forms 10-Q and other SEC documents filed during the course of the year could cause actual results to differ materially from expectation.

Now at this time for opening remarks, I would like to introduce Chris Lacovara, Chairman. Chris, please go ahead.

Thank you and thank you all for joining Kohlberg Capital for a review of the Company's year-end 2010 financial results. I will open the call with some highlights about the financial performance of our middle-market lending and asset management businesses. I will then turn the call over to Dayl Pearson, our Chief Executive Officer, who will discuss our investment portfolio in more detail. After that, our Chief Financial Officer, Mike Wirth, will provide a recap of our fourth-quarter and annual financial results and performance. We will then open the line up for your questions at the end of the call.

Our December 31, 2010, net asset value per share was $8.21. Part of the difference in NAV relative to our $8.84 NAV at the end of the third quarter related to the timing of our fourth-quarter record date, which requires us to record the $0.17 dividend per share as a liability, whereas in other quarters, our record date is post quarter-end, and thus, no liability was recognized. This would imply that our NAV decreased since the end of the third quarter by $0.46 per share, most of which is attributed to realized and unrealized losses since the third quarter.

For the three months ended December 31, 2010, net investment income was $0.23 per share, and for the full year, our net investment income was $0.53 per share.

The Company declared and paid in cash a dividend of $0.17 per share for the fourth quarter of 2010. The Company's dividend per share for the full year was $0.68 per share. Part of the difference between our net investment income as compared to dividends paid includes the impact of increased legal, accounting and valuation professional fees of approximately $4 million or $0.18 per share related to the costs of our restatement of our year-end 2008 and first- and second-quarter 2009 financial statements earlier in 2010.

For the three months ended December 31, 2010, KCAP had $6.9 million of total investment income, and for the full year, our total investment income was $29.4 million. This compares to investment income of $7.4 million and $33.9 million for the three months and year-end December 31, 2009. This approximately 13% decrease in the Company's investment income was primarily due to a reduction in our loan investment portfolio.

Our portfolio of loan investment assets decreased from $297 million at December 31, 2009, to $91 million at December 31, 2010, primarily due to the sale or pre-payment of debt securities in which we had investments. However, it is worth noting that over the course of this period, the Company used the proceeds of these sales and prepayments to reduce total indebtedness from $218 million at the beginning of the year to $86.7 million as of December 31, 2010, and culminating with the full repayment of our debt as of January 31, 2011.

As noted during previous quarterly calls during 2010, we have seen a complete recovery in the performance of our managed CLO funds. Approximately 10% of our CLO funds managed by our affiliate, Katonah Debt Advisors or KDA, curtailed payments during 2009 to their equity and subordinated management fees payable. By the end of 2010, all of these KDA managed funds had resumed distributions to their junior securities, and all deferred accrued management fees had been fully repaid to KDA.

Currently all CLO funds managed by KDA are paying both their senior and subordinated management fees on a current basis. This improvement is due in part to careful management of these funds by Katonah Debt Advisors, in particular superior credit selection and the avoidance of asset sales at distressed prices during the financial crisis.

Our investments in the Katonah X and Katonah 2007-1 CLO funds, which represent 80% of our total CLO investments and 90% of KDA-managed CLO funds, experienced much less significant rating downgrades and never suspended their distributions.

Turning to our Asset Management business, KDA, as of December 31, 2010, KDA had approximately $2.1 billion of assets under management. Our 100% ownership of KDA was valued at $41 million based on its assets under management and prospective cash flows at December 31, 2010. In 2010 KDA distributed $4.5 million to the Company, which partly offset the impact of KCAP's unusual legal accounting and valuation fees incurred in 2010.

At December 31, 2010, our borrowings totaled $86.7 million, and our asset coverage ratio was 315%, well above the minimum 200% requirement for a BDC. Since the end of the year, on January 31, 2011, we repaid in full the outstanding balance of our borrowings.

If you recall from previous disclosure, in mid-September 2010 we settled a dispute with our lenders. Under this settlement, the alleged maturity date of December 31, 2010, claimed by the lenders was extended to February 28, 2011.

In addition, for the remaining term of the loan, the rate of interest reverted back to the original non-default interest rate of CP plus 85 basis points or approximately 1.2% as compared to a default rate of interest of approximately 4.9% we had previously been paying.

As a result of our complete payoff of this facility, approximately $73 million of collateral previously securing the facility was released to KCAP.

In addition, we received a settlement payment of $2 million from the lenders, which will be recognized in the first quarter of 2011.

Since the end of the third quarter of 2010, in order to pay off the credit facility, we used proceeds received from the paydown, amortization or sale of portfolio loan investments totaling approximately $133 million together with available cash. The negative impact on net asset value from the sales and other activities undertaken to fully repay the credit facility was approximately 1.9%.

As we move forward into 2011, we also continue to evaluate debt financing options, which would provide us with additional borrowing capacity to return to balanced sheet growth. Dayl and Mike will elaborate further on some of my comments, and now I would like to turn the call over to Dayl, our President and Chief Executive Officer. Dayl?

Thank you, Chris. I will start with some highlights of the year and then review our portfolio of middle-market corporate loans and equity.

The most important highlight of the year was the complete repayment of our credit facility and the settlement of our related lawsuit that we had brought against our lenders. I just want to correct one thing.

Chris said earlier that the alleged maturity date was December 31, 2010. It was actually September 30, 2010, so it was a five-month extension, not a two-month extension. But, as he mentioned earlier, we repaid approximately $218 million that was borrowed under the facility as of 12/31/09 with a minimal impact on our NAV and was completely paid off by January 31, 2011.

By the time we reached a settlement with our lenders on September 10, 2010, the facility had already been reduced to a $137 million, mostly through repayment of loans at or above par during the year.

Over the course of the next four months, we had repayments or made asset sales that completely paid off the facility and had a less than 2% impact on our NAV. Today we are completely de-levered with no assets pledged to any third party. This gives us the opportunity both to reinvest some of the lower yielding loans as they pay off in new higher-yielding securities and gives us the flexibility to grow our business.

We also believe the very limited impact on our NAV from the de-levering further confirms the accuracy of our valuation methodology.

As you know, our valuation process focuses first and foremost on the attributes of the subject asset, the credit quality performance, industry and other unique characteristics of the investment. In determining fair value, we also consider any available marks, trading activity or other relevant market data.

In addition, we continued to use a present value technique that discounts contractual cash flows based upon bonds, spreads and yields for comparable issuers for the specific asset, and then adjust those yields using two market indices to adjust for the priority of the assets. The comparable issuers are chosen by both industry and credit considerations.

We also further adjust those discount rates to reflect any amendments or prepayments during the valuation period. As a result, the fair market value of our portfolio more closely tracked the broader market yields for high yield bonds and leveraged loans.

As of December 31, 2010, our weighted average mark on our debt securities portfolio was 70.

As for our CLO portfolio, for which we are currently attaining weighted average yields on their fair values of approximately 25%, our weighted average mark as of 12/31/2010 was 74. CLO equity positions in our CLO investments rarely trade or privately trade, and thus, it is typically difficult to obtain market indicators for these positions. As a result, we establish a fair value using a discounted cash flow valuation model using market inputs.

However, early in the fourth quarter, we noted an actual trade at one of our larger CLO equity positions which validated our fair value methodology and estimate.

Our total investment portfolio at the end of the fourth quarter was $191 million. As noted by Chris, our debt securities portfolio decreased relative to prior periods due to our de-levering by using principal repayments on our investments, as well as selected asset sales.

Looking at the composition of our investment portfolio, our portfolio quality continues to hold up quite well. At the end of the fourth quarter, our debt securities totaled approximately $91 million and represented about 48% of the investment portfolio. With our secured financing balance amount paid off, our portfolio balance is more heavily weighted to second-lien investments, which we deem appropriate, especially given the current, more conservative nature of the debt markets. As a result, secured first-lien loans now represent 24% of debt securities portfolio, and secondly, loans represent 70%.

As of December 31, 2010, the weighted average yield on our income-producing loan and bond portfolio was approximately 8.6%. Approximately 2.5% of our investments are fixed-rate investments today, although some of the floating rate investments do have LIBOR floors.

As we noted earlier, credit quality on our portfolio remains relatively good. At December 31, 2010, we had five issuers on non-accrual status; however, since year-end our largest non-accrual investment was restructured, and as a result, our [hard wash] list currently consists of only four issuers, comprising less than 1% of total assets.

Although loan repayments have slowed relative to those experienced in 2010, we continue to see prepayments at or above par, which supports our belief that the unrealized losses currently reflected in our portfolio will not necessarily result in realized losses in respect of those investments. Since the beginning of 2009 when we started to de-lever our portfolio, we had $265 million of par investments and payoffs. The sale of these assets relative to their immediate prior quarter's fair value marks negatively impacted fair value by approximately 1.4%.

And now I will ask Mike to walk you through the details of our financial performance. Mike?

Thank you, Dayl. Good morning, everyone. For the year ended December 31, 2010, we reported net investment income of approximately $11.9 million or $0.53 per share compared to approximately $18.3 million or $0.83 per share in 2009. For the three months ended December 31, 2010, we reported net investment income of approximately $5.2 million or $0.23 per share. Our total investment income for the year ended December 31, 2010, was approximately $29.4 million as compared to approximately $33.9 million for the same 2009 period. Our total investment income for the three months ended December 31, 2010, was approximately $6.9 million as compared to approximately $7.3 million for the same 2009 period.

The most significant driver impacting the decline in investment income in 2010 was a reduction in interest income from investments and debt securities. This reduction is primarily due to lower average investment balances on which interest is earned as we de-lever the portfolio.

The average loan investment balance for 2009 was approximately $4 million as compared to an average loan investment balance of $3 million -- or I'm sorry -- yeah, $3 million for 2010.

As Chris mentioned earlier, this was primarily due to asset sales and prepayments during 2010 which helped us reduce our indebtedness on fully un-levered at January 31, 2011.

The decline in debt securities revenue was offset by a cash dividend from our asset manager, Katonah Debt Advisors, of $4.5 million in 2010 relative to 2009 where there were no distributions made from Katonah Debt Advisors.

For the three months ended December 31, 2010, our CLO securities dividend income was approximately $3 million as compared to approximately $1.9 million for the same period in the prior year. For the full-year 2010, CLO securities income was approximately $10.2 million, a $900,000 increase from the prior year's reported CLO income of approximately $9.3 million.

Overall approximately 98% of our equity CLO investments are distributed in cash flows of current weighted average annual returns of 25% to fair value. Given that our CLO portfolio has an average remaining term of approximately eight years, we expect to continue to receive significant equity distributions from our CLO investments for many more years.

Expenses for the year ended December 31 totaled approximately $17.5 million as compared to approximately $15.5 million in 2009. Expenses for the three months ended December 31, 2010, totaled approximately $1.7 million as compared to approximately $4.7 million for the same quarter in 2009. The increase in expenses for 2010 relative to 2009 is due to increased professional fees that are partially offset by a decrease in interest expenses. In 2010 we had professional fees of approximately $5.4 million compared to $1.7 million for the same period in 2009.

We have incurred higher than usual accounting third-party valuation and printing fees expenses of approximately $3.5 million related to the restatement of our year-end 2008 first- and second-quarter 2009 financial statements. In so doing, we effectively paid twice -- once for the original services and then again related to the statement for the financial audits for 2007, 2008 and for valuation services related to 2008.

In addition, we have incurred legal fees with respect to the defense of the class-action suits related to the restatement and have incurred other professional fees related to the SEC investigation. Through the year ended December 31, 2010, these fees have totaled over $3.8 million, most of which are covered by D&O insurance. Our D&O deductible is $500,000.

Lastly, we incurred increased legal fees in 2010 with regard to our claim and litigation against our lenders. As for interest expense, as previously noted, during select periods of 2010 and 2009, we were paying under protest a default rate of interest which was nearly 4 times the rate of interest we would have otherwise been paying. However, in accordance with the settlement agreement with our lenders, as of September 10, 2010, the advances under the facility accrued at interest at the original lower rate provided for under the loan agreements. This reduced rate, coupled with the continuing reduction in our advances outstanding, contributed to a decrease in the interest expense in 2010 relative to 2009. Net interest expense in 2010 was $7 million as compared to $9.2 million in 2009.

Realized losses of approximately $17.8 million or $0.79 per share were recognized during the year 2010, of which approximately $7.1 million or 31% -- I'm sorry, $0.31 per share -- was recognized in the fourth quarter, primarily due to the sale or settlement of certain assets below their original cost. These realized losses, however, had a relatively small impact on the prior quarter's NAV of approximately 2%.

As a result of the sales and paydowns this year, we have reduced our debt facility outstanding balance to $86.7 million at year-end, and as noted previously at January 31, 2011, our debt facility was fully paid off, mostly with year-end restricted cash on our balance sheet of approximately $67 million, unsettled trades at the end of the year of approximately $8 million, and year-end cash of approximately $10 million.

In addition, we had approximately $7.8 million of additional near par sales and paydowns since the end of December 2010.

During the year December 31, 2010, our total investments had net unrealized depreciation of approximately $8 million. During the year December 31, 2009, our total investments had net unrealized appreciation of approximately $32 million. The $8 million of unrealized losses during the year ended December 31, 2010, are due to unrealized gains of $12 million on debt securities, equity securities and sale of fund securities on our portfolio, and a $20 million decrease in the value of the Katonah Debt Advisors. The decrease in the fair value of Katonah Debt Advisors is due to the receipt of approximately $5 million of previously accrued subordinate management fees during the year that were dividended up to the Company and a disposition of one of its affiliates, as well as current market conditions.

On the liability side of the balance sheet, as previously noted, we had a balance of approximately $87 million on our debt facility. That is a substantial reduction from our 2009 year-end debt balance of $218 million and obviously represents a significant de-levering of our balance sheet since the beginning of the year.

As previously noted, fully paid off since January 31, 2011, at which time we were fully unlevered. We also received a settlement payment of $2 million from our lenders, which we recognized as income in the first quarter of 2011.

In the fourth quarter, we declared a $0.17 dividend which was paid in cash on January 29, 2011, to holders of record as of December 24, 2010. In determining the dividend for the fourth quarter, the board considerations included the estimated current quarter net income, anticipated net income for the full year, the impact of increased legal, accounting and valuation and professional fees associated with the restatement, and the resolution of our dispute with the lenders and the sustainability and smoothing out of the dividend for future quarters.

The aforementioned discussion of the fourth-quarter 2010 results are also discussed in our recently filed Annual Report on Form 10-K, as well as past quarterly reports on Form 10-Q, which are available at our website, www.kohlbergcapital.com or at www.SEC.gov.

With that, I would like to turn the call back to the operator to start the Q&A session. Operator?

(Operator Instructions). Bruce Baughman, Franklin.

Could you walk us through the change in valuation year to year for Katonah Debt Advisors?

Sure. Part of it relates to the fact that at the end of 2009, there was -- part -- one of the valuation metrics that we look at for value in KDA is on a cash flow method valuation, which is discounted back.

At the end of the year of 2009, KDA had a substantial amount of cash accrued for deferred subordinate management fees. Obviously that is a big number that gets put into the cash flow, and that's actually a near-term cash flow as we expected to get those payments in during the course of 2010. Those amounts were paid off in 2010, and thus, the future cash flows were reduced accordingly.

And what was that amount?

It was about $5 million.

Okay. That is what I thought.

And you can look at is -- it is a reduction of KDA's value, and ultimately, as I mentioned before, that was distributed in the form of the dividend up to KCAP, the parent. And then we obviously update cash flows on a quarterly basis. We tried to triangulate with market indicators, and so some of that is just a change in market conditions.

Was the value given to the assets under management changed, the capitalization rate?

The various assumptions were changed in the cash flow methodology.

Are you talking about the percentage of AUM?

Yes.

Percentage of AUM -- the way we do it is, we take the lower of the value we get from either the discounted cash flow or the percentage of AUM. Since that amount was lower under the DCF calculations, if you look at the AUM, the value you see on the balance sheet is lower than the 2.75% we have been using. But we still use the 2.75% to come up with that valuation metric.

Okay. And what were the changes -- I mean that is a big drop, $16.5 million. I guess it is a $11.5 million if you take out the $5 million cash payment. So can you just describe what it was that drove the big drop in the DCF?

The other aspects of it (multiple speakers) -- [Pixie] was separate, but it was --. Also, at the end of the year, even though it did not transact until subsequent after year-end, we did have a slight decline in AUM as a result of selling a small piece of KDA called Scott's Cove. That was another piece of it. And I think most everything else relates just to changes in assumptions.

And what are those assumptions then?

Well, obviously for the cash flow, you are talking about a discount rate that you use. We actually use two different discount rates when we value KDA. We use one discount rate for the normal recurring stream of fee income and expenses related to just the senior and the sub fees. And to the degree that we model out any incentive fees, we also apply a much higher discount rate.

But do those discount rates change year to year?

They can, yes.

But did they?

And they did and they could.

And what are the conditions that are different at the end of 2010 versus 2009 that caused those discount rates to increase?

Again, market conditions. I mean we have to try to triangulate as best we can the values based off of what limited information we can for other asset managers in the overall market and how that may impact valuation.

Can you be a little more specific? Has the picture for asset managers gotten that much darker year to year? And if so, can you characterize it or describe what those changes are?

Well, it depends on the type of asset manager you are talking about. One of the things we --

I'm talking about Katonah obviously.

Yes. I mean there were quite a few sales of asset managers which we could not triangulate any kind of value on. A lot of those asset managers were distressed. And so those impact our view somewhat, but KDA is not distressed because all its funds are returning senior and sub fees. So it is earning all of its fees, whereas most of the asset managers that sold in 2010 were not. So it is just a matter of, again, trying to take the aggregate of the information available to us and coming up with a reasonable valuation.

And having gone through that exercise, what is worse about the way things stood at the end of 2010 versus 2009?

As far as -- I guess what I don't understand is -- I mean, again, it is trying to triangulate -- I mean the cash flows are the cash flows. So Katonah's cash flows have gone down a bit because of the disposition of Scott's Cove, which we did, in fact, earn in at year-end, even though it subsequently occurred as we were planning it.

We did factor in.

We did factor in. Yes, we did factor in the reduction of those cash flows as well as --

That does not sound like a $11 million worth of present value.

Yes, I'm trying to think of what else we changed. I believe we also changed, which I don't have handy in front of me, the amount of incentive fees and the timing of the incentive fees that would come in. Those are actually a little bit later in the cash flow, so it has some impact. But I don't think it is substantial impact.

Is the Company going to recognize a loss on the disposition of Scott's Cove.

The Company will recognize a loss on the disposition of Scott's Cove.

Is it something you can quantify at this point?

Not at this point. It will be disclosed in the first quarter, but again, the recognition of that loss is not going to be that substantial because of the fact of we fair value KDA anyhow.

Okay. All right. I will let somebody else ask a question. Thank you.

Samuel Hayes, Harvard Business.

I have a couple of questions. The first one relates to the strike suits that were launched against Kohlberg about a year, year and a half ago. Is it a reasonable assumption that those have now been dropped by those who were pursuing that?

Well, the derivative suit was dismissed, but they have the right to appeal, which they have done. The other suit really has not gone anywhere because they still don't have a class identified because they have had difficulty identifying an individual with a loss in the stock. So that has gotten drawn out, and we are a sort of waiting for the judge to make some sort of decision on how to proceed. But, again, given the circumstances, I think our council has said the best thing to do is to just sort of sit and wait because we don't really believe that these suits have any merit. And so the fact that they have not been able to really find -- even get a class identified is indicative of that.

Given the likelihood that these will not go anywhere, is it a reasonable assumption that the expenses that have been incurred, particularly during 2010, that relate to those suits will not be -- will not recur or certainly will not recur in the volume that they have and that this will have a positive impact on the net earnings which can be distributed as dividends?

Relative to the prior year, definitely. I mean there will still be expenses -- legal expenses related to that, but they will be covered by the D&O insurance. And since we have already met the deductible, those future costs will be covered by D&O. They will not flow through -- ultimately net-net they will not flow through to the P&L.

Do you have any insight as to why there was a big selloff in the stock the other day? Was it related to this change in the valuation of Katonah?

We really have -- we don't know. There was a lot of very significant activity on Monday morning, but we contacted NASDAQ to see if there is anything they could do to help us find out what was going on, but we don't know.

David Ratliff, Doucet Asset Management.

Well, I think I did not hear exactly what the last caller said, but I think the selloff on Monday was in large part due to in light of what is going on with the changes in your portfolio. By putting out news and then not having a call until Friday, I think that had -- from being a trader, I think that had a large part to do with the selloff and then the subsequent recovery. But that was not (multiple speakers) my question.

I guess my main question surrounds the dividend. You guys -- I know it is a moving target, and you did not really speak much about it in the prepared remarks. But we know there has been a significant reduction in income-producing assets. I assume, too, that the further reduction since Q4, in the Q4, was in your debt securities versus your CLOs. So, by my estimation, you have approximately $176 million invested, and you have more than 50% of that is your CLO assets.

So going forward you made $6.9 million in investment income in Q4. Is that sustainable? Was that any catchup provisions from Katonah or any of the other CLOs? Just any color you could provide on the dividend going forward.

Well, first of all, let's just make clear what happened since year-end. At year-end there was $87 million outstanding on the credit facility. That is because of the way the waterfall worked in the credit facility. You don't actually pay down the money that comes in in December until actually after year-end in January.

So, if you look at that, you had $87 million of credit facility. There was $67 million of restricted cash. So you reduce that, that is $20 million, and then there was almost $8 million of unsettled trades, and that gets you down to $12 million. And then we had two loans pay off in the first quarter that generated about $9 million of proceeds (multiple speakers) and the rest was some cash. (multiple speakers)

So the portfolio really did not go down significantly from what you see at year-end, and the portfolio quality is very good, and the yield is obviously significantly higher than it was previously because we focused in the selldown, and actually most of the repayments occurred in the lower yielding securities.

So overall I don't -- our net investment and net interest income probably is not going to be significantly lower than it was in the past and perhaps higher than some of the earlier periods in 2010 when we were paying a very high interest rate on our debt.

So when the board looked at the dividend, I think they took all these factors into account, plus the unusual expenses we had last year, and so I think that is how we settled into the $0.17 a share during 2010. And while we don't give any guidance, I think if you look at some of the models that a couple of the research analysts have done, I think they think that is sustainable going forward.

Okay. Well, I do want to congratulate you on accomplishing what you guys set out to do to deleverage in an orderly fashion and at the same time support the dividend and support the share price. So good luck next quarter.

[Charlie Tris], Tiburon.

Could you comment maybe on timeframe for where you are with respect to talking to lenders for a potential new credit facility to take advantage of the market and start putting some new deals to work?

We have a number of conversations that are ongoing at the present time. I cannot really comment on the state of those and when we expect any of those to actually occur. But that is something we are spending a lot of our time on at this point.

Given the experience with your prior lenders and what you went through, has that impacted the other lenders out there that are looking to provide a new facility? Has that caused any impact? And then also, the size of the facility, is it going to be approximately about the same to what you have had previously in the past?

Well, I would say, to answer your first question, it has had more of an impact on our willingness to pledge a lot of assets to banks based upon what happened last time around when we did that.

So I think we did have an opportunity in the fall to get a new facility, which would have refinanced probably about $110 million to $120 million of the assets that we ended up selling. But the terms -- and let's talk about the interest rate, which was high -- but the terms were so restrictive, it really would have limited our ability and flexibility to grow the business. And so we decided we were much better off completely de-levering, and since then I think the market has improved in terms of the types of terms you can get from a lender. But I think we don't want to get back in a situation where we have a lender that has control over a significant portion of our assets. We did not pledge all of our assets to the old facility, only about 60% of the assets, and the fact that we did not do that is what really kept the Company going.

So we are going to be very cautious. The board is very cautious about significantly putting a lot of restrictions on how we can invest and our cash flows.

And the content -- I know you can't really comment, but the contemplated size, do you expect to be in line? I think the impetus to that question is because I want to get a sense of how much capital you expect maybe over the next 12 to 18 months to put to work just in terms of NAV impact.

Yes, I don't think we are going to have as much leverage going forward as we did in the past. I think the leverage was extremely cheap when we started in 2007, and markets were -- companies were -- leverage was significantly higher, and cash flows were inflated. And so we tried to play much more in the senior end of the capital structure given those market dynamics. I think now we are going to focus more on more high quality junior securities. And I think as a result I think we are not going to have as much leverage. But I think from a return perspective it will still be very attractive to our shareholders.

(Operator Instructions). Casey Alexander, Gilford Securities.

The last two guys asked my questions, so I'm good. Thank you.

(Operator Instructions). I'm not showing any other questions at this time.

Okay. Thank all of you, and we look forward to talking to you in the near future.

Ladies and gentlemen, this does conclude today's program. You may now disconnect, and have a wonderful day.