BlackRock Capital Investment Corp (BKCC) 2010 Q1 法說會逐字稿

Good afternoon. My name is Christian, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Kelso Capital Corporation Investor Teleconference. Our host for today's call will be Chairman and Chief Executive Officer James R. Maher; Chief Operating Officer Michael B. Lazar; and Chief Financial Officer Frank D. Gordon.

All lines have been placed on mute to prevent any background noise. After these speakers' remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. Mr. Maher, you may begin your conference.

Thank you, Christian. Welcome to our first quarter conference call. We will begin by having Frank review some general conference call information.

Thank you, Jim. Before we begin our remarks today, I would like to point out that during the course of this conference call we may make a number of forward-looking statements. We call to your attention the fact that BlackRock Kelso Capital Corporation's actual results may differ from these statements.

As you know, BlackRock Kelso Capital Corporation has filed with the SEC reports which list some of the factors which may cause BlackRock Kelso Capital Corporation's results to differ materially from these statements. Finally, BlackRock Kelso Capital Corporation assumes no duty to and does not undertake to update any forward-looking statements.

I would now like to turn the call back over to Jim.

Thank you, Frank. It's great to have the opportunity to speak to you about our first quarter results. Our first quarter performance was strong. 2010 has had a good start, and I expect a productive year for BlackRock Kelso Capital. Our portfolio continues to produce strong investment income.

I'm very encouraged by the improving economic environment and its impact -- positive impact on our investments. We are seeing more and more investment opportunities, and we continue to actively manage our existing portfolio. As I mentioned last quarter, during 2009 we exited several investments with either low interest rates or significant PIK interest features; this continued in the first quarter of 2010.

We generated more than $70 million in additional cash, and further reduced our leverage during the quarter. We finalized the first stage of our credit agreement amendment, extending a significant portion of our debt maturities by three years. For the quarter, we had net invested income of $0.36 per share.

Net investment income as adjusted for incentive fees equal $0.30 a share. Yesterday our Board of Directors declared a record second quarter dividend of $0.32 per share. This dividend is consistent with the Company's first quarter dividend, and is supported by net investment income. The volume of new transaction opportunities began to increase late last year. This increase has been sustained and has accelerated into the second quarter of 2010.

Importantly, an improvement in the quality of actionable opportunities has been evident. Solid businesses that have performed well in the most recent cycle are now seeking capital for new transactions. Portfolio valuations continued to improve during the first quarter.

During the quarter ended March 31, 2010, the investment portfolio increased in value by $10.2 million. We attribute this increase to stronger general economic conditions, a contraction in market interest rates and credit spreads, and specific efforts made at certain portfolio companies to improve balance sheets and reduce debt. The effects of cost reduction programs put in place by many of the portfolio companies' management teams are also having a positive impact on profitability and valuations.

Our balance sheet remains very conservatively positioned. Net debt stood at less than $250 million on March 31st. Our statutory BDC asset coverage tests stood at less than 0.5 to 1. We are pleased that we've completed our credit facility extension and would especially like to thank our banking partners at Citi, Bank of America, UBS and Credit Suisse for their support. Access to equity and debt capital will allow us to resume and sustain our profitable growth into the future.

Net asset value increased again during the first quarter and now stands at $553 million. That equates to $977 per share, up from $955 per share a year, and $904 per share last March 31st. We believe that the current investment environment provides us with an attractive opportunity to put capital work at rates that are accretive to our net investment income. There continues to be attractive investment opportunities available in the middle market, and fewer capital providers to middle market companies.

We're excited to have the capital resources and disciplined investment process in place to take advantage of these opportunities. We remain conservatively positioned for the long term. Our balance sheet is solid, and we believe that we have the financial flexibility to profit from the improving market and economic environment through 2010 and beyond.

Mike will now discuss our portfolio activity and market conditions in more detail.

Thank you, Jim. I'm pleased to have the opportunity to speak with you about the portfolio and current market conditions today. Portfolio activity increased in the first quarter and into the second quarter, both for new portfolio repayments and exits -- excuse me, for portfolio repayments and exits, as well as for our review of new investment opportunities.

We completed several follow-on investments in existing portfolio companies during the first quarter, and are currently working on multiple investment opportunities that we sourced during the first quarter. While we can't make assurances about which transactions will ultimately close, we do have an active pipeline and hope to close several transactions in the next few months.

We are very optimistic about our current deal pipeline and the current origination environment. During the first quarter, we reviewed both new investment opportunities and follow-on investment opportunities for several of our existing portfolio companies.

Portfolio acquisitions during the first quarter totaled $16.4 million, all in existing portfolio companies. This activity was once again focused on investments in portfolio companies to improve their capital positions or advance our position in a capital structure. Repayments of investments equal $72.7 million during the quarter.

Since quarter end we have exited several additional investments totaling $144 million. This includes our investment in Advantage Sales and Marketing PIK notes together with the exit of other securities, including our investment in the PIK notes of Marquette Transportation Company. In the first quarter, more than $110 million of non-cash interest-bearing securities have been removed from our balance sheet.

The current investment environment is attractive. While the market has been more active recently, new transactions are more conservatively capitalized, have lower levels of leverage and higher levels of debt coverage. Lenders are provided better protections and higher credit spreads.

In addition to these general market trends, we continue to find that the middle market offers the most attractive overall investment profile. The middle market lending environment remains characterized by lower leverage multiples of cash flow. New debt investments in today's transactions are markedly more conservative than transactions structured under the prevailing market conditions of 2007 and 2008.

Middle market debt investments continue to have better loan-to-value coverage than is available in the more liquid credit markets. There are fewer market participants in both the middle market and in the liquid credit markets today than two years ago. This continues to yield improved all-in return opportunities for us.

Our portfolio continues to be very well positioned for the economic environment. At quarter end, our portfolio consisted of 55 companies, and with 60% invested in senior secured loans and 6% invested in senior secured notes.

At the end of the first quarter, 7% of our portfolio was invested in equity securities, and less than 1% in cash and cash equivalents. The remainder of the investment portfolio, or approximately 26%, was comprised of unsecured or subordinated debt securities.

Portfolio valuations once again improved overall during the quarter. The total portfolio experienced appreciation, net of reversals, of approximately $10 million during the quarter and our net asset value increased approximately $57.4 million since its low on March 31, 2009.

On March 31, 2010 our portfolio was valued at 84.1% of cost, an increase from 80.3% of cost at year end, and from the June low of 72.9% of cost. We are pleased that the performance of our portfolio of companies continues to be strong at March 31, 2010, 2.1% of our total debt investments at fair market value were on non-accrual status.

The fair value of these assets is $15.9 million at March 31st, compared with $27.9 million at December 31st. The cost basis of our debt investments on non-accrual was $46.3 million, were 5.3% of amortized cost at quarter end. This slight decrease in non-accruals is the net result of no new securities having been placed on non-accrual, two securities removed from non-accrual, and a smaller total portfolio.

During the first quarter, our weighted average yield on income-producing securities increased to 11.6% from 11.2% at the end of the fourth quarter. At quarter end, the Company was in compliance with regulatory coverage requirements with an asset coverage ratio of 311% and was in compliance with all financial covenants under its credit facility.

At quarter end, we had net borrowings of approximately $254 million. At the end of the quarter and subject to leverage restrictions, we had more than $298 million of cash equivalents and borrowing availability under our senior credit facility. Since quarter end, we have reduced our debt balance even further.

As of May 5th, debt outstanding on our credit facility was down to $245 million. Last month, we entered into an agreement to amend our credit facility. The amendment extends lenders' commitments, totaling $300 million, for more than three and a half years from today through December 2013. The extended commitments consist of $200 million of revolving loan commitments and $100 million of term loan commitments.

Subsequent to the amendment becoming effective, we added a new lender to the facility with a revolving commitment of $50 million. The addition of this commitment would bring the total extended commitments to $350 million, and the total current commitments to $595 million.

Non-extending lender commitments of $245 million mature on December 6th, 2010 unless they are extended prior to that date. Pricing for borrowings made by non-extending lenders will remain at LIBOR plus seven-eighths for revolving loans and LIBOR plus 1.5% for term loans. The pricing for outstanding borrowings made by extending and new revolving credit lenders is now LIBOR plus 3% or 3.25% based on a pricing grid. Extended term loans are priced at LIBOR plus 3%.

On May 5, 2010, the effective LIBOR spread under the credit facility was 2.34%. The credit facility includes an accordion feature that allows us to increase the size of the facility by up to an additional $550 million of commitments. Going forward, we expect to approach new lenders to solicit additional commitments to our credit facility.

With respect to exits, since 2006 we have exited 43 investments, of which 41 have been exited for proceeds that exceeded the fair market value in our most recent financial statements. We took the opportunity to realize some losses in the first quarter, a portion of which may offset income and reduce the amount of any excise tax payable for 2010. Realized losses of approximately $43 million were matched by a like amount of net unrealized depreciation reversals.

With that, I would now like to turn the call over to Frank Gordon to review some of the GAAP financial information for the quarter.

Thanks, Mike, and hello, everyone. I will now take a few moments to review some of the details of our first quarter 2010 financial information. Net investment income totaled $20.3 million or $0.36 per share for the three months ended March 31, 2010. This compares with net investment income of $23.8 million or $0.43 per share for the three months ended March 31, 2009.

The decrease in investment income primarily reflects a reduction in the size of our portfolio due to sales and repayments, as well as the impact of lower levels of LIBOR on our floating rate debt investments. This quarter, we are introducing certain non-GAAP financial measures intended to address the concentration of our incentive fees in the fourth quarter of each year as occurred in 2009.

These measures reflect the application of the formula for computing incentive fees to each quarter's results, rather than on a trailing four quarters' basis. Should conditions remain relatively stable through the end of the year, the estimated incremental incentive fee reflected in our as-adjusted results may become due in the fourth quarter.

Net investment income as adjusted totaled $16.8 million, or $0.30 per share, for the three months ended March 31, 2010, compared to net investment income as adjusted of $19.1 million or $0.35 per share for the three months ended March 31, 2009. Total expenses for the three months ended March 31, 2010 were $7.5 million, versus $8.1 million for the three months ended March 31, 2009.

The decrease in expenses is largely due to lower interest expense and base management fees in 2010. Total net realized gain or loss for the three months ended March 31, 2010 was a loss of $42.4 million, versus a gain of $2.1 million for the corresponding 2009 period.

The net realized loss on investments resulted primarily from the restructuring of our investments in Penton Media, Inc. and Arclin US Holdings, Inc. Nearly the entire net realized loss on investment represents amounts that had been reflected in net unrealized depreciation on investments in prior periods.

For the three months ended March 31, 2010 the net change in unrealized appreciation or depreciation on the Company's investments and foreign currency translation was a decrease in unrealized depreciation of $52.6 million, versus an increase in unrealized depreciation of $29.9 million for the three months ended March 31, 2009.

The decrease in unrealized depreciation on investments for the three months ended March 31, 2010 includes $42.5 million relating to reversals of prior period net unrealized depreciation as a result of investment restructurings and dispositions.

Net unrealized depreciation was $155.3 million at March 31, 2010, an improvement of $52.6 million from the December 31, 2009 level of $207.9 million. The valuations of our investments were favorably impacted by market-wide decreases in interest yields, as well as increases in multiples used to estimate the fair value of some of our investments.

Market-wide movements in trading multiples are not necessarily indicative of any fundamental change in the condition of prospects of our portfolio companies. The weighted average yield of the debt and income-producing equity securities in our portfolio at their current cost basis was 11.6% at March 31, 2010 compared to 11.2% at December 31, 2009. The weighted average yields on our senior secured loans and other debt securities at their current cost basis were 10.3% and 13.9% at March 31, 2010.

With that, I'd like to turn the call back to Jim.

Thank you, Frank. As we look forward from our first quarter results, we find that the business environment has stabilized and our portfolio is performing well. We believe that BlackRock Kelso Capital is well-positioned to return to actively growing our portfolio.

We have extended our bank credit facilities to December 2013, investment opportunities continue to increase, and we expect the environment to support our focus on originating and structuring new transactions. In short, we are in a position of strength to produce profitable growth in 2010 and beyond. I'd like to thank our team for their hard work, and thank you for your continued interest in BlackRock Kelso Capital.

Christian, please open the call to questions.

Certainly.

(Operator Instructions)

Our first question comes from the line of Greg Mason with Stifel Nicolaus.

(Inaudible) April and May, were those to new companies? And what type of rates are you seeing on new investments today?

Hey, Greg, it's Mike. I think you right have a mute button on at the beginning of your question. We couldn't hear the front end of it.

Sure, I apologize. The $58 million that you had in new investments from April to May -- can you talk about those? Were those investments to new companies, and what type of terms were you seeing on those investments?

I'm not sure I'm in a position to disclose that at this point. There's a couple of transactions that are in the public purview. The largest one I mentioned, in -- my remarks, which was Advantage Sales and Marketing. That, unfortunately, the one which is public, it's publicly known that it was refinanced. But I don't think there's public information about all of the new investments that we made yet.

Okay. Can you talk just broadly about what you're seeing in the whole market then in terms of leveraged multiples and rates of return on new investments broadly?

Sure. I mean, I can speak generally about it. It's been consistent for the last couple of weeks or months. The opportunities that we're most focused on at this point tend to be debt investments with expected total returns, IRRs, in the sort of low teens to mid teens, depending upon where a particular investment is in a particular capital structure. We're seeing that set of opportunities increase as deal activities continue to pick up at this time.

And then, I know you mentioned on the $144 million of repayments from the end of the quarter, Advantage Sales and Marketing looks like makes up a third of that. The rest, is that coming from refinancing activities, or are you going out and purposely selling the investments? Just trying to get a feel for an 18 percent type of repayment on your portfolio is pretty meaningful here?

Yes, I think a good portion of that is sort of corporate activity or capital markets activity in terms of realizations. Again, the most significant dollars is Advantage Sales and Marketing. There are other investments where we'd been working with the equity owners of the business or with other people in the capital structure to try to create an exit opportunity. Of course, in some cases, it's a recapitalization.

And as I think through the various repayments that have happened so far this quarter, two of them were substantial ones -- other than Advantage Sales and Marketing are capital markets activity or recaps that take out our loans. One is an equity market recap; the other one was a debt market recap. And then again, as I think is out in the public domain, Advantage Sales is a debt capital market recapitalization of our investment there.

Okay, great. Thank you. And then one last question, and I'll hop back in the queue. On the two securities removed from non-accrual status, were those removed because they turned back to performing status, or are they part of the realized loss during the quarter?

It's actually, I think, a mixed bag.

Okay. Half and half? Okay.

I think the Q has some detail about this, but the two securities are part of an investment in the same company. And one is now a current cash-paying instrument, and one has been converted as part of a restructuring.

Great. Thank you, gentlemen.

Our next question comes from the line of Arren Cyganovich with Ladenburg.

Hi, guys. I'm just wondering if you could maybe give me a little bit better feel for why there's been such a lack of new primary market transactions. And now that you've closed your credit facility -- or not closed it, but amended your credit facility out three years, do you feel that the primary market activity will start to increase now that there's a better sense of your funding going forward?

Yes, I think there's no question. I think we've made the point several times in our presentation. We are seeing a fair amount of actionable transactions, and we, clearly as Mike said, expect to -- never say never, but I think we expect to close on a number of those transactions in the near future, and the number of deals in the pipeline continues to grow.

So there's always -- this business can be a little lumpy. Some transactions have been pushed off over time. And that isn't reflective of what we're seeing in the marketplace today.

So it wasn't really a choice, from your perspective, of reducing --?

No, I think -- look at -- the level of inquiry, the level of activity started to increase, I'd call it November of last year, and it has continued to increase. The life of one of these transactions is anywhere from two to four months. If you had to pick an average gestation period, it's probably three months, and we're just hitting that period now.

Yes, in terms of -- this is Mike -- just in terms of the timing of transactions, which Jim was getting at there toward the end, if we saw an increase in opportunities sort of in the middle of the first quarter and toward the end of the first quarter, things that we really liked and had done a bunch of work on, our normal expectation is that of those transactions that eventually have a closing, they would be closing somewhere in the second to third quarter, just based on how long it takes to complete a transaction.

So, there's an element of timing built into ramping up the investment activity for our firm.

That's very helpful. I appreciate that. And then finally, kind of getting back to Greg's question about the repayment activity -- and I know this also is pretty lumpy and it's hard to predict -- do you expect beyond what we've seen thus far a large amount coming forward again, going over the next couple of quarters, or is it just too hard for you guys to predict that?

I think the activity that we saw at the end of the fourth quarter and into the first quarter is likely to diminish going forward in the second, third and fourth quarter. I mean, it's very hard to predict because we don't -- sometimes people make a decision to sell the business and we're not advised of that. But I would -- my guess is that that level of activity will decrease and probably decrease fairly significantly over the next three quarters.

Yes, I mean, I think, this is -- back to, it takes three to four months to complete a transaction, same is true for a transaction where we're exiting as it is for making a new investment.

Yes.

These tend to be private companies. There tended to be a process. Tended to take a while for that process to come to completion. And so things that we started the process of exiting maybe at the end of 2009 and in the first quarter of 2010, many of those transactions came to pass here in the second quarter.

And I would expect that this is going to be a pretty big quarter. Certainly we've mentioned it's been pretty big already for repayments. And again, that goes just to the time frame that it takes to typically completed one of the private transactions in which we're involved with, both in a new investment as well as something that we're taking off the balance sheet.

Yes, although we're not always aware of when somebody's going to sell a business. But we have pretty good visibility into what's going into our portfolio. And I think the level of activity in terms of repayments, at least in terms of our visibility, is clearly lower than what it's been year-to-date.

Understood. Thanks a lot.

Our next question comes from Jasper Birch with McGuire.

Good afternoon, guys. It's with Macquarie Capital. Just to go back to the pipeline and deal flow question. Just wondering, where are you seeing the deals coming from, and sort of what sorts of usage? Is it all still a recap? Are you seeing any maybe six months down the road buyout financing that you're working on, change of control, growth capital -- things like that?

Jasper, it's Mike. I think the answer to all of your questions is yes. We have a very broad network for sourcing new transactions. We continue to be actively participating in calling on all types of companies and sources of deals in the middle market. We have an active sourcing effort and a lot of senior professionals here working on several transactions.

It's always unclear at the front end which will come to pass muster with us, get through our investment diligence process, and become an actionable investment opportunity. But you know, the breadth of sources remains pretty wide. We have relationships with banking firms, Wall Street firms.

We have relationships directly with private equity sponsors in the middle market, other folks who transact business whether it's lawyers, other finance companies, accounting firms -- you name it, relationships with management teams. And we're seeing transaction opportunities come into our shop from all of those different sources. And they represent all different kinds of transactions.

Banking firms might be working on a preponderance of recapitalizations at the moment. Lawyers might come to us with private companies that they're seeking to finance or somebody's trying to sell. Private equity sponsors, they're quite flush with cash at the moment and are looking, now that there's some stability in the economic environment, to put that capital to work. So really across the board, yes to everything. Our sourcing remains pretty broad.

Okay. I guess my question was more to the health of those markets. So I guess, taking from your answer, you are seeing, in your level of the middle market, the health coming back into things other than recap?

Absolutely. I guess hard to know exactly what you meant by recap. There's recap like a company that's got some sort of problems, issues, is over-levered and needs to be recapitalized in some distressed way -- which is still a portion of what we're seeing.

But there's also recaps, as in recapitalizing balance sheets, where sponsors and other equity holders in these companies have put equity into the business during the down cycle to see them through, and now are looking to recapitalize their balance sheet to take those equity positions out, those temporary investments, to stabilize companies.

Excellent, thank you. And then in terms of -- last quarter you seemed somewhat cautious with commentary on the economic recovery. Is it safe to say you guys are a little bit more bullish now? And just in terms of your portfolio companies, I understand that they've done a lot to bring down costs and improve EBITDA trends. But what are revenues looking like, and what's sort of the track that they're pacing on?

Our portfolio is pretty far reaching, so it'd be pretty hard to comment on -- to generalize on the type of growth in revenues. We are seeing, in certain cases, very, very significant growth in revenues. We also have other companies where the growth in revenue, later cycle companies, is somewhat muted. So it's really all over the lot, depending on the type of company and where it participates in the cycle.

Further what Jim says, there's such a diversification in our portfolio -- there's so much diversification in our portfolio among industries. And then, in any particular industry, the companies are so nichey, from the fact that they're middle market companies. Having said that, I think it's fair to generalize to say that some of our companies, maybe health care businesses or advertising-related businesses, are starting to see some strong recovery.

I think the fact that a lot of the questions about what health care was going to look like as the folks down in Washington, DC got their hands on legislation, I think there's been improvement in some of those businesses and businesses related, again, to advertising where people are sort of seeing the bottom, there's some stability, revenues are beginning to increase in those businesses.

Some of our more cyclical companies cover industries that are earlier cycle and so they might be once removed from some improvement in revenues. But I think it's very tough to generalize other than that.

On the other hand to, I guess your base question, are we more optimistic than we were at the last call, I would say decidedly so.

Okay. That's good to hear. And then just one last question. First of all, congratulations on all the action with the facility -- the extension. In terms of going forward a year, two years from now, do you have any commentary on what you think the new sort of capital structure of the BDCs -- what's going to be optimal? Is it going to be a revolver? Do you think BDCs are going to move more to having securitizations on balance sheet, maybe having preferred in their capital structures? Have you guys been thinking about that and talking about that?

Well, this is Mike. I mean, we've certainly been thinking about it and talking about it. As to my guess about what the industry might look like in two years, it's hard to say.

Or, your firm --

We've always had a very simple approach to our financing, to our balance sheet. We've wanted to make sure that we had certain view of financing, consistency, sort of opportunity to grow our financing over time. We've had good partners in our banking facilities. Certainly that's not the only type of financing that we've entertained, but it has been, to-date, the only type of financing that we've utilized.

We do not require lots of leverage for our model of our business to work. Obviously the prudent use of some leverage in our model is important. But unlike some other folks, as you talk about the industry, that have optimized leverage over time -- we always look at optimizing the investments, doing our best work on coming up with the sort of best portfolio, managing it appropriately, managing it for cash flow.

And we've always found -- which, sometimes it's been easier than others -- sufficient financing to continue to grow our business and provide us with an appropriate amount of leverage for the portfolio.

I think it's fair to say, in an ideal world, we'd like to have some laddered term debt in our capital structure. And we think that will become available as we move out over the next year or so and use a revolver as sort of surge capacity. We think that's the ideal capital structure for us, and we think it'll be the ideal capital structure for the -- if we think it's ideal for us, we obviously think that would be ideal for the rest of the industry.

Great, thank you. That's very helpful. Appreciate your time.

Our next question comes from Chris Harris with Wells Fargo Securities.

Great, thank you very much. Obviously a lot of discussion, guys, on your pipeline. And I'm just curious, what does the competitive landscape look like these days for your transactions? I know a couple of your peers have talked about competition heating up in certain markets. And I'm just wondering if that's the case with your transactions or if there's competition still very light? Maybe if you can just give us an overview of that situation.

Well, look it, there's always competition for any transaction. And it sort of varies in terms of degrees, depending on how hard the sponsor wants to push and the type of -- and then also depending on the asset that's being financed. Certainty and relationships are a very important part of the universe that we operate in.

And so being cost effective is important, but being able to structure a transaction that works for the sponsors at a reasonable rate tends to win the day in the marketplace that we operate. Now you can't be off by 50 or 100 basis points and expect to win that transaction. But it's not, nowhere near akin to what you would see in the public high-yield markets where you can basically have a feeding frenzy. It just doesn't happen in this marketplace.

I would add, Chris, to Jim's remarks. And I would just suggest that perhaps the end -- as you think about the breadth of the parts of the capital structure that we're able to and actively participate in, in any particular transaction, it's in the sort of syndicated senior loan, which is really not what we do, where there's been the most active and heated competition that we've observed in these transactions.

Again, that's not a capital structure segment that we participate in actively. But that's where we are seeing the most competition among other institutions. And I think that that goes back to the fact that first quarter of 2010 has seen a very, very active market in larger existing private equity-sponsored deals using the high-yield fixed-rate bond market, whether public or private, to take out what had been pretty aggressive loans made back in the 2006/2007 timeframe.

That capital returned to those funds needs to be put back into the marketplace. And I think that's what's leading to such an active market and competitive market on that end of the spectrum. Again, that's not really what we do.

Okay. That's very helpful. Obviously, you guys just declared a $0.32 dividend here. Your adjusted net investment income, not quite covering the dividend, although it's close. With your credit facility expenses, I guess that derives here over the course of the next year here. How do you guys determine the appropriate level of the dividend, or what do you think -- ? I assume you think you can grow into the current dividend. Is that kind of what the view

Well, when we put the -- reinstated the dividend -- we took a look out over a fairly lengthy period of time, including, obviously cognizant that we were going to be refinancing our debt, that some assets would be coming off of our books, and that there'd be opportunities going out there. And we set the dividend at a level that we thought was sustainable, and continue to think that.

I'm sorry for jumping in. And I would just add, we did carry forward into 2010 a pretty significant earnings carry-forward of $0.46.

Right.

Fees are lump in this business. Levels of fees in the first quarter were relatively thin compared to other quarters. Would you agree with that, Frank?

Yes, absolutely.

Then on the adjusted NII figure, just so I -- making sure I'm understanding it correctly here -- if it's $0.06 lower than what the reported NII for the period was, are we to assume that your estimate of incentive fees for the year is roughly $0.24 per share?

It's actually calculated on what it would be for the first quarter if we were able to pay it from the first quarter.

Right.

So it will depend on the actual income in the second, third and fourth quarter.

So we don't actually estimate it, we just --

Right, so it's just what it would have been, had you paid --

We just calculate it. And again, one of the components of the way our fee works, is it looks back over the prior four quarters and reduces any fee payable in a particular quarter by fees paid recently. And since are fees are lumpy and we just paid the full amount in the prior quarter, that's the limiter on the fee payment for this first quarter.

Okay, got it. Then final question here - can you guys remind us what your exposure to Greece is please?

That's a very short answer, I'd be happy to give it to you. We don't have any exposure to Greece.

Obviously joking. Thanks, guys.

(Operator Instructions)

Our next question comes from Jim Ballan of Lazard Capital Markets.

Thanks a lot. In the process of trying to get more bank commitments, can you talk to me about -- give me some color on where you are in that process? Are you in active discussions with a number of banks? Or, is that something that you're sort of planning on continuing to do over time? Can you just give me some color on your thoughts on increasing the bank commitments?

Yes, hey Jim, it's Mike. With respect to the bank credit facility, it's always been our intention -- and I think we've said this for a while now -- to take it in what I would describe as two phases. Phase one was to work with our existing lender group and identify lenders that would be interested in extending the commitments, and work with them to create that amendment and to go through that process.

We completed that process at the very beginning of this second quarter. And in fact, shortly or almost immediately after the conclusion of that process, we were approached by a new lender with whom we've been having conversations for a long, long time for all sorts of business opportunities who desire to get into the credit facility based on the way that we had amended it with our existing lenders.

Normally, we would have gone out at some later date and done a more organized and orderly syndication process. But because of the action and the interests -- reverse inquiry almost -- of that institution, we've changed our strategy slightly. We've brought that new institution in. And we would expect to approach other institutions serially as needed to continue to grow the facility over time.

Okay. And I hate to go back to this -- investment spending and capital return issue that I think we've talked about a lot --

Sure.

-- but there's one last question on it, maybe a little more direct. I mean, there's obviously net capital coming back at you in the first quarter. And it looks like, unless there's a significant change, that may happen again in the second. For the second half of the year, is it -- do you think that you could find yourself back in a net investment position for the second half?

I mean, obviously there's been a pretty significant decrease in your leverage over the last year, maybe a little bit more than that. I mean, are your thoughts that you would want to be in a net investment position and getting that leverage back up again?

The answer is yes.

We fully expect to be a net adder to -- a net investment increase in the second half of this year.

Okay, great. Great, terrific.

Yes.

All right. Thanks a lot, gentlemen.

Thank you.

(Operator Instructions)

Well, Christian, if there are no further questions, I'd like to thank everybody for calling in.

Yes, there appear to be no questions at this time. Are there any closing remarks?

I'd just like to thank everybody for calling in and being supportive. We appreciate it. Thank you.

Ladies and gentlemen, this does conclude today's BlackRock Kelso Capital Corporation Investor Teleconference. We thank you for your participation. You may now disconnect.