BlackRock Capital Investment Corp (BKCC) 2011 Q1 法說會逐字稿

Good afternoon. My name is Carly and I will 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 the speakers remarks, there will be a question and answer session.

(Operator Instructions).

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

Thank you, Carly, and, welcome, to our first quarter conference call. Before we begin, Frank will 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 subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words, such as; anticipates, believes, expects, intends, will, should, may, and similar expressions.

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 SCC 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.

Well, thanks, Frank. I would like to begin today's remarks by discussing the current state of the market, and, how current market conditions influence our portfolio and balance sheet management. In addition, Mike and I will talk about our strategy for managing the portfolio today, and, over the next 12 to 24 months.

Later, Frank, will touch upon some of our financial highlights for the quarter. And then, we will open the call for a question and answer session. The first quarter of 2011 marked a more than 200% increase in the issuance of leverage loans and high yield securities compared to the first quarter of 2010. It nearly doubled the volume of the fourth quarter.

More than 75% of the $137 billion of broadly syndicated leverage loans tracked by Standard and Poors during the first quarter, represented recapitalizations, repricings, or, other refinancing transactions. As a result, not withstanding near-term record new loan volumes, no net new supply was added to the syndicated loan market. Meanwhile, the broadly syndicated leverage loan market has seen an abundance of capital in-flows into retail loan funds and institutional accounts.

Year-to-date in-flows into these loan funds have exceeded the full year totals for 2010. This increase in demand for leverage loans as it's paired with the absence of any increase in net supply, has resulted in a general tightening of credit spreads and a loosening of credit standards on new broadly syndicated loans.

For example, 24% of first quarter institutional loan volume and issuance was structured is covered in light. Fortunately, middle market transactions; including those that relate to refinancings, recapitalizations, and, repricings; continue to exhibit better returns at lower risk levels than the larger broadly syndicated loan and high yield markets.

That said, the middle market has not been immune to the trends that are driving tighter spreads and lower risk premiums. While the structural and pricing changes are more evident in the broadly syndicated markets, these trends do have an affect -- albeit it somewhat muted -- on middle market terms.

Many potential factor, most importantly, new change of controlled transactions coming to market could reverse these current trends. We remain conservative and diligent given the current market environment, and, will continue to take advantage of market opportunities as they arise.

All of these factors, when tempered by our overall conservative investment philosophy -- focusing on preservation of capital -- have contributed to a slower pace of investment for BlackRock Kelso Capital than we anticipated at the beginning of the fourth quarter of last year.

While investment opportunities have certainly existed for us, we believe that, generally speaking, to achieve outsized returns during the first quarter we would have had to have taken inappropriate risks. On the flip side, many of the higher quality financing opportunities, that we reviewed during the quarter, were ultimately priced below our return thresholds.

Overall, while our pipeline of opportunity was robust, our completion rate was low as we remained disciplined. We believe that this current market environment is temporary. While we have no crystal ball regarding the inflow of capital into new and existing leverage loans, and, other floating rate assets. We have begun to witness an increase in new M&A and leverage buyout transactions during the second quarter. In fact, the LBO related loan forward calendar, at the end of April, exceeded the total of all leverage loans completed in the first quarter.

We monitor the equity capital markets, and, dead capital markets as we do the leverage loan and high yield markets to afford ourselves the opportunity to raise capital as effectively and opportunistically as possible. When we completed our equity capital raise in the fourth quarter of last year, we anticipated a higher velocity of new middle market leverage buyouts for the first quarter of 2011 than actually materialized.

We believe the terming out of a portion of our liabilities in today's low interest rate environment and assuring long term access to capital are prudent measures. We raised $175 million of capital, with five and seven year maturities, during the first quarter.

The near term effect of this capital raise increased our interest costs and reduced our NII per share. All of these factors influenced our decision to reduce our quarterly dividend to $0.26 per share. Our decision reflects the slow pace of investment, coupled with the increase in shares outstanding, our temporarily under leveraged balanced sheet, and, higher borrowing cost. This dividend rate moves us towards our longer term goal of better matching our dividends to our GAAP net investment income. 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 everybody this afternoon. With respect to the quarterly portfolio details, total investment income was $25.2 million for the fourth quarter, compared with $25 million for the fourth quarter that ended December 31, 2010.

Net investment income totaled $0.20 per share compared with $0.03 per share in the fourth quarter. Now, had our incentive fees been accrued ratably throughout the year, rather than heavily weighted to the fourth quarter as is required under GAAP, our net investment income would have been $0.19 per share in the fourth quarter, and, $0.20 per share in the first quarter.

Pre-incentive fee net investment income per share was $0.20 in the most recent first quarter. This compared with $0.24 per share during the prior quarter. The two largest contributors to the decrease are interest expense, resulting from our senior notes issuance, and, the effects of a larger weighted average share number during the first quarter.

Given the market conditions that we observed during the first quarter, we made only two new portfolio company investments during the first quarter of 2011. The larger of these two was a $34 million investment in the senior secured first lien loan of Airvana Network Solutions.

In aggressive markets, we believe that a focus on senior secured floating rate loans, with a shorter than average expected duration, are the most prudent uses of our capital. Airvana, a club deal, where we joined a handful of other lenders in making this investment, characterizes this approach; with a senior secured position, first priority liens, mandatory amortization requirements, and, full financial maintenance covenants.

Both Airvana and our other smaller new portfolio company investment are floating rate and contain live or floor arrangements as well as call protection. In addition, these investments were subject to either a closing fee payable to BlackRock Kelso Capital, or, at an original issued discount to part.

Investments in existing portfolio companies were primarily the result of a series of opportunistic, secondary market purchases with bankruptcy management solutions, which were characterized by high-floating rate coupons purchased at discounts.

Our involvement in the sourcing, due diligence, and, structuring of the investments that we make is an important component of our investment strategy. At the end of the first quarter, more than 80% of the investments in our portfolio were in transactions where we played a sole, or, shared a lead role in the structuring of those securities.

Our portfolio continues to be well positioned. At quarter end, our portfolio consisted of investments in 52 companies, was invested 58% in senior secured loans and senior notes, and, 24% in unsecured or subordinated debt securities with 12% in equity investments and 6% in cash and cash equivalents.

Approximately 61% of our debt investments bore interest at a fixed rate. More than half of the remaining 39% of our debt investments are floating rate, but, subject to a live or a floor arrangement as of quarter end.

Our balance sheet remains extremely under leveraged. Total debt stood at $275 million on March 31st. In addition, we had cash and cash equivalents on our balance sheet of $54.4 million for net debt of just over $220 million, or, .32-to-one coverage on a net basis.

Our balance sheet provides us with significant capital resources available for new investments. During the first quarter, we once again had a slight improvement to underlying portfolio company evaluations. Appreciation on investments during the quarter exceeded depreciation and losses by approximately $3 million.

At March 31, 2011, our portfolio was valued at 94% of cost. An increase from 89.4% of cost at year end, 2010. We continue to be pleased with the overall performance of our portfolio companies. Non-accruals remain low. Currently 1.1% of our total portfolio, and, 1.3% of our debt portfolio -- at fair market value -- corresponding to 1.6% of our total portfolio, and, 1.8% of our debt portfolio at cost. This is held on non-accrual. This represents a slight decrease from year end, and, is the net result of one company removed from non-accrual, and, a net larger total portfolio.

Finally, the weighted average rating of our portfolio companies at March 31st, was 1.26 compared to 1.32 at December 31st. During the quarter, our weighted average yields increased compared to the previous quarter. At March 31, 2011, the weighted average yield on senior secured loans was 10.8%, and, on other debt and income producing securities was 12.2% -- both on a cost basis.

This resulted in a blended cost basis yield of 11.4%. Up from 10.9% on the same basis at year end. So increase in yield is largely a result of the full run rate affect of higher rates on investments made in the fourth quarter of 2010 on a net basis, and, in the most recent quarter.

Since the end of the first quarter, we have made investments of $45 million in new portfolio companies. And, we've had no existing portfolio company sales were unscheduled prepayments during April.

Our opportunity pipeline has grown in the last several weeks as M&A and leverage buyout activity, and, related financing has increased. We do expect one significant pre-payment of approximately $50 million during the second quarter, although, no absolute assurances can be given that the proposed transaction will close. Should the transaction close, BlackRock Kelso would receive a significant fee income related to that pre-payment during the current quarter.

As we think about dividends for 2011, and, into 2012 and beyond, we start with a generally conservative philosophy. In the first quarter, adjusted net investment income of $0.20, together with $0.12 of spillover income from 2010, supported our $0.32 dividend.

In the current quarter, we expected our adjusted net investment income, combined with other taxable items; such as, the expected pre-payment fee mentioned earlier; should more than cover our current $0.26 dividend run rate. Although, of course, we can not make any commitments about this at this time.

While BDC RIC rules require that we, like any BDC, distribute at least 90% of taxable income; it is our philosophy that over the long term, net investment income as presented on a GAAP basis better represents the sustainable run rate earnings power of our company.

In quarters characterized by high portfolio turnover, with significant originations, taxable income may exceed GAAP net investment income. In both 2009 and 2010, BlackRock Kelso Capital's taxable income exceeded our dividends paid, and, we retained the excess capital paying a 4% excise tax.

We believe that the retention of any excess capital, as permitted by the RIC tax rules, is a prudent and cost effective way to grow available capital, and, therefore, total assets. Any future retention of excess capital would be available to help protect and sustain our dividend over the long run. Also, in the extremely unlikely case that we should enter into another prolonged period of market dislocation, BlackRock Kelso Capital should have ample capital to grow the portfolio and sustain the dividend.

Looking forward into late 2011, and into 2012, as well as longer term, we expect that we will be able to increase our net investment income by growing our total assets with the use of our currently available loan facilities to make new investments.

The affect of the negative carry of the cash on our balance sheet at quarter end is more than a penny per share by itself. Any future borrowing that might be made under our revolving credit facility to fund additional investments, would be at approximately half of the net cost of our current borrowing under our senior notes, assuming LIBOR were to remain steady with where it is today.

If one were to assume that our currently available revolving credit facility were fully utilized to invest in transactions similar to those that we closed in the past six months, and, that a normal rate of portfolio turnover were to occur over the course of the next 12 months, the run rate of both our GAAP net investment income and our taxable income would likely exceed the annualized dividend rate based on our current $0.26 per share dividend. Naturally, the timing and magnitude of our investing will have an impact on net investment income.

Despite higher near term costs, we feel strongly that raising debt and equity capital ahead of our immediate needs, and, when market windows are open, is a prudent way to access capital at advantageous pricing. As a result of our earlier actions to secure debt and equity capital, we have sufficient capacity to achieve the net investment income run rate to support our dividends over time.

At BlackRock Kelso Capital, we continue to have an active opportunity pipeline, and, hope to close several transactions in addition to those investments we have already made in the second quarter. While the market has been aggressive recently, middle market transactions continue to be more conservatively capitalized, have lower levels of leverage, and, higher levels of debt coverage than those available in the liquid credit markets.

Our investment opportunities are weighted toward transactions involving merger and buyout activity in the middle market. We remain optimistic that the improving economic environment, coupled with a large amount of undeployed capital controlled by private equity firms, will drive an increase in new deal volume during the remainder of this year. I would now like to turn the call over to Frank Gordon to review some of the GAAP financial information for the first quarter.

Thanks, Mike, and, hello everyone. I will now take a few moments to review some of the details of our first quarter 2011 financial information. In comparing the first quarter with the previous three months, our investment income was approximately flat. Up one half of 1% as a result of the net new investments made in the fourth quarter of last year, and, in the first quarter.

On average, our net investments made during the first quarter were very heavily weighted toward the end of the quarter, so, little interest income was earned on new investments during Q1 2011. Pre-incentive fee income of $14.9 million, or $0.20 per share, is $2.1 million lower than in the fourth quarter. This is due primarily to the increase in interest expense in the first quarter resulting from our issuance of $175 million of senior notes at the beginning of the quarter.

On an adjusted net investment income basis, the first quarter was up slightly relative to the fourth quarter of 2010, at $14.6 million, or $0.20 per share. Total net realized loss for the three months that ended March 31, 2011, was a loss of $42.9 million. The net realized loss on investments for the three months resulted primarily from the restructuring or disposition of our investments in Facet Technologies, and, Mattress Giant.

Nearly the entire net realized loss on investments represents amounts that had been reflected in unrealized depreciation on investments in prior periods. For the three months that ended March 31st of 2011, the net increase and net assets from operations was $18 million, or, $0.25 per share.

NAV per share was $9.56 per share at March 31, 2011. This is down from $9.62 per share at year end due to the effects of the higher weighted average share count in the first quarter, and, the affects of dividend payments; a portion of which represented carryover income from the prior year; exceeding net investment income earned in the first quarter. With that, I would like to turn the call back to Jim.

Thanks again, Frank. We continue to believe that BlackRock Kelso Capital is well positioned to prudently accelerate the growth of our portfolio. We've built a solid foundation by increasing our equity capital and accessing new and longer term debt financing.

Last year, we originated more than $400 million of new investments, and, we expect to be able to increase this rate of investment prudently over time by continuing to focus on originating and structuring new transactions. Our approach has been conservative and will remain so.

Over time, we've witnessed many financial companies fail to achieve their long term goals as their reach exceeded their grasp. You have entrusted us with your capital, and, we believe it is our responsibility to protect it while providing a predictable, consistent, and, high absolute current rate of return relative to risk.

We believe that this is our mission, and, we do not take it lightly. It manifests itself in our investment process, our asset selection, our conservatism in capital raising, our solid balance sheet, and, our dividend policy.

On behalf of Mike and myself, as well as the entire BlackRock Kelso team, I thank you for your time and attention today. Carly, would you please open the call for questions?

(Operating Instructions)

Your first question comes from Greg Mason with Stifel Nicolaus.

Great, could you tell us in the size of portfolio companies that are existing in your portfolio -- like average EBITDA -- and, then where your focus is, and, how you're seeing those markets play out in terms of yield compressions or opportunities?

Go ahead.

Sure. We can get to the statistical average of EBITDA -- I don't have it with us in the room -- but, our focus has always been, and remains, on companies that generally have EBITDA or operating or cash flow, generally speaking, of above $10 million. That's meant to represent real companies with professional management, and, well capitalized businesses that have existed for a period of time.

All the way up to whatever size EBITDA would correspond with -- as big as it could be -- without having access to liquid credit markets where pricing and structure are not as advantageous. And, where our involvement in the process wouldn't yield the same type of due diligence and structuring -- results that we get for the type of credit underwriting that we do. So, generally we've thought about that number as approximately $40 million to $50 million. Although, depending on the time in the market, and, the industry in question, that number can move around quite a bit.

Okay, and, can you give us a sense as you look into your current portfolio any known repayments on the horizon versus the pipeline of new opportunities you're seeing?

Sure. We mentioned in the call that we're aware of one transaction. It's approximately $50 million asset where we expect to be prepaid sometime during this quarter. Although, we can't make any assurances of that, and, I think that's the way I said it earlier.

In terms of the pipeline, we also mentioned that we've invested nearly an equivalent amount so far quarter-to-date -- and, as you know, the quarter is something like 37 days old at this point. We've seen an increase in opportunities derived from leverage buyout and M&A transactions -- which is very much our focus area. We like those transactions, because, there is usually new capital being put to work in addition to ours, and, opportunity to perform a robust due diligence process exists.

Okay, and then --

Go ahead.

Could --

The one thing I would just also note on that one transaction, as Mike said earlier, it has a significant, what's called a prepayment penalty, because, it is non-call at the moment.

Okay. One final thing, Mike, in your comments you mentioned normalized NOI comparison of $0.19 last quarter to $0.20 this quarter, what's the normalized NOI in this first quarter?

The number that I was using, the $0.20 for this quarter, would be the net investment income normalizing for our slightly quirky incentive fee -- which tends to be largely fourth quarter dominated. So, if you were to spread that fee across the quarters, by calculating it on a quarterly rather than a last 12 months basis -- this is something that we do, and, we've been doing for some time -- we disclose it in some of our supplemental materials. And, you can find it in the back part of the queue that we released earlier today.

Okay, great. Is that lower than the $0.20 GAAP NOI number?

It's actually coincidentally just about the same for the quarter.

Okay, great --

But --

Thanks.

Or said another way, we effectively earned no incentive income in the first quarter.

All right, did --

A small --

(inaudible) --

Amount given the way the calculation is performed.

Got it, thank you, guys.

Your next question comes from Arren Cyganovich with Evercore.

Thanks, gentleman. All right, when you talk about the increase in opportunities on the M&A and LBO side, does that change where you're looking in the balance sheet to invest? You said recently you're focusing more on the senior given the high amount of competition, does that open new opportunities with a little more yield or a better risk dynamics there?

It's Mike, again. We do like new de novo M&A and LBO transactions, because, it affords us an opportunity to really look at where the best risk adjust return is. Having said that, every company and every situation provides us with a slightly different set of circumstances. And, so, new transactions and new leverage buyouts are a little bit more of a blank page for us to go perform the work and figure out where we would best fit in the capital structure. And, so, we do see more junior debt capital opportunities in those types of transactions.

Part of the reason for that, is that, in the absence of new LBO's or M&A transactions, what the market has presented for the preponderance of the early part of this year was, refinancing opportunities, so, same credit lower price. Or, more credit, more debt, same price. Or, and around, sponsor dividends or equity dividends coming out of those companies.

So, in those three occasions, we tend toward the only participating when we have a great deal of comfort, and, we're able to perform a robust due diligence process. In the first quarter of this year, those opportunities were really focused on floating rate, senior secured opportunities for us.

Okay. You are carrying about $52 million of cash, why were you carrying cash when you could just pay a good portion of that down on your facility? I was a little confused by that.

Because, that's the total -- and, we have to carry cash because we have that much term debt -- we could pay down the term debt, but, we're not about to pay down the term debt.

Okay, sorry, about that. You mentioned the significant pre-pay. I don't suppose you could give us an idea of how long in the cycle that's been in your portfolio, so, we can get an idea of how much -- the prepayment penalty --

To help you guess without guessing, it's approximately a $50 million investment, and, that will help narrow things down. There's no certainty that the transaction will close, but, it has been announced. So, if you sort of cross tabulate $50 million investments in our portfolio, give or take -- we have companies that have made an announcement in the first quarter and into this quarter -- you will probably get there.

Okay. And, then, I'm sorry, I think I missed this, and, you may have mentioned it twice in the call, but, I think I missed this. You said the $50 million -- you have a quarter's date amount that's roughly the same as that amount of --

Yes, the script says, it's $45 million invested second quarter-to-date.

Okay. All right, thanks, guys.

Thank you.

Your next question is from Rick Shane with JPMorgan.

Thanks, guys. I just want to make sure that as we're looking at this, you make the comment in here that the entire net realized loss had been largely reflected in previous depreciation. It looks to me like facet had basically been written down to zero. Can you just help us understand, on an investment by investment basis, if there was any significant percentage differential that we should be aware of?

No, as Mike mentioned, on a net basis we were up $3 million on unrealized appreciation.

Okay, well, let me ask the question in a different way then -- just to see if I can get there -- so, the $3 million was the reversal plus whatever write-ups you had. What were the additional write-ups those two to get an idea of what the overall portfolio health was during the quarter?

Well, to do a proper, complete, thorough job of that, we'd have to go through the statement of investments and go through every single change period-to-period. Generally speaking, the portfolio was -- I think the comment that Frank made -- was relatively flat. There were some ups and some downs, but, most of the change can be easily picked up if you could just compare the SOI from the 10K to the most recent 10Q.

Okay.

There's not a lot -- again, I've said it lots of different ways --

Just a couple million dollars --

There's not an enormous standout up or down. It's generally pretty flat. There are a few where we've seen some appreciation. There's been some good performance in some of the companies. Separately, again -- in Frank's comments -- he was referring to the fact that the two portfolio companies he mentioned Facet and Mattress Giant, where a loss was realized, that that loss that was realized was approximately the same as the amount that had been previously written down in the depreciation. So, the reversal pretty much covered the loss.

Okay.

There are some significant changes on a percentage basis, but, of those securities that have a significant change on a percentage basis, they're relatively small and are not meaningful to the overall portfolio.

Okay, thank you, guys.

Our next question comes from the line of Joel Houck with Wells Fargo.

Okay, thanks. With respect to the line of credit, which I guess was $100 million -- are you saying you have to maintain $100 million outstanding? Or, you have to keep a minimum amount of cash against that facility?

Hey, Joel, it's the prior of those comments. We have three types of credit extended to us. One is the senior notes that were completed at the beginning of the first quarter. Those have two series. One five-year-series and one seven-year-series. And, by their nature, they need to be outstanding until they are terminated. In either five or seven years out.

The bank credit facility has two pieces to it. The revolving credit portion, as well as, a term loan portion. The term loan portion, if it is prepaid prior to maturity, can't be reborrowed. So, there's no collateral requirement that we hold cash. However, we believe that it would be imprudent over the long term to take the short term cash that's on our balance sheet, and, reduce our term loans, because, that amount of capital would no longer be available to us going forward.

Okay, that makes sense, I got it. All right, so, then onto a different topic. I hear your comments on the lending environment Q1, and, it's not inconsistent with what others have been saying. And, we'll see what happens to the balance year. But, with respect to your existing portfolio, can you give us some color in terms of the equity bucket, as well as, the lower yielding bucket in terms of what you might do? The balance of the year in terms of churning some of those assets. If these other quality investment opportunities materialize?

Sure, I think we can make some generic comments. Which is that, longer term we view an appropriate amount of equity exposure for BlackRock Kelso Capital to be less than 10% of total assets. Currently, we're slightly more than 10% of total assets. That's the result of some good performance from the companies in which we have these equity investments. So, the value has increased.

As private equity guys at heart, we look forward to exiting, as appropriate, those equity investments. Hopefully for gains, as soon as it is reasonably possible. We can't make assurances about when and where, because, we don't control 100% of the equity in those investments. And, so, we have partners. But, longer term, if companies continue to perform, we would intend to sell those equity investments, and, redeploy the capital to get the total exposure to equity in the portfolio back below 10% over time.

Add some color on the lower yielding debt investment side?

We're constantly working on that as well. The good news about the companies where we have some lower yielding in overall debt investments, is that, the reason that we have them is they're performing so well that nobody wants to refinance them in a new market with wider spreads and LIBOR floors. But, some of them are actually making amortization payments, and, being paid down over time. We would hope that that accelerates as the economy improves.

We would hope that opportunistically we'll be able to exit. And, we're hopeful that those transactions where we have lower yielding, non-LIBOR floor investments would be the kind of companies that will be sold ultimately by the underlying private equity holders. We will have our realization. We don't have as much control over that, but, it's certainly something that we monitor closely, and, we try to affect the outcome whenever reasonably possible.

Many of the LIBOR based one's were done when LIBOR was around five. So, they tend to be some of the older securities that have been with us longer than certainly the average life of our portfolios. So, taking that into consideration, that some of them are likely to see some realization this year.

All right, thank you --

Hopefully --

Very much --

Likely.

Hopefully likely.

Okay.

(Operator Instructions)

Your next question comes from Jim Ballan with Lazard Capital Markets.

Great, thanks a lot. Could you remind us of your target, or, what your view is on your optimal leverage level? I mean obviously it's hard to predict net investment, but, give us an idea of what you think the timeframe to achieve that? Is it the end of this year, or, is it the end of next year? Can you give us some feel for that?

We've never tried to put a pin in the optimal amount, because, we have always said, depending on the visibility of assets coming off of our balance sheet, and, what the deal flow is at the moment, it's hard to put a pin in it. On the other hand, if you asked me today, in an ideal world would be fully invested with all of our credit facilities that we have at the moment. Which, would put you a lot closer to a .75 then .03.

Yes.

That's where we would like to get there. Now, the timing of that is probably the most difficult question. We are less optimistic then what we were back at the beginning of November in terms of the speed of the flowing net capital. But, as we move from March into April into May, we're seeing more transactions, as Mike mentioned, of change and control transactions. We think that will benefit us.

As you know, these transactions are quite lumpy. I was looking at some transactions that we missed in the first quarter on rate, and, there's an easy $125 million of transactions that we passed on that we could've done. We didn't do, because, the rate was lower than what we wanted to do. So, deploying that capital between now and some point in time is a certainty. When that point in time is very difficult to predict.

And, Jim, it's Mike. Jim Maher said it correctly, I would summarize it by saying that we want to remain above all else disciplined.

Right.

We don't want a moment in time or a moment in the market to influence the long term performance of our company, and, of our portfolio. The remarks toward the end of the prepared remarks, addressed that. We want to remain disciplined. We want to remain focused on what we do best, and, the types of transactions where we have an advantage. And, we believe in making sure that we preserve capital first and foremost, and, that we earn the right risk adjusted return, second.

So, patience is in fact a virtue in our business, we believe. That, not withstanding, we are so present in the market, and, we see so much, that I, for one, am confident that this money will get put to work. And, as Jim just said, it's only a matter of when.

All right, I agree with you. When you make these investments, and, you have to live with them. So, I agree that keeping your credit standards is paramount. Can you talk a little bit about the investments in the existing portfolio companies during the quarter? Were these for additional working capital or growth loans? Were they restructurings? Can you give me a sense of what types of investments these were?

Sure, first of all, it's a de minimis amount of capital relative to our overall portfolio. Second, it's actually a de minimis amount of capital relative to the portfolio companies in question. Certainly, all of them in bankruptcy management -- which is the majority of the investments that we made -- were made on a secondary basis. So, we bought things from other people, and, we did that, because, we're being quite opportunistic on price.

Got it. Terrific, thanks a lot, gentleman.

Your next question comes from Dean Choksi with UBS.

Hello, gentlemen. Looking back at your past earnings calls, it seems like the focus for the dividend was on taxable income. On this call that you said it was on net investment income or GAAP income. Can you talk about the philosophy on the dividend? If anything changed there?

Absolutely. I'm glad that you picked up on that, Dean. What we've done in setting our dividend where it is now, is we've focused on GAAP net investment income. Not withstanding the fact, that taxable net and investment income drives the RIC distribution requirement. We've done that -- because, like in everything else we do, about how we run the portfolio and select our investments -- we believe it's more conservative. We believe it's a sustainable number. It's an easier number to understand, and, for people to pick up off of our income statement, and, it's something that we can repeat consistently over time.

May our taxable income exceed our GAAP net investment income from time-to-time? Yes. In fact, over the past, more often than not, it has. That leaves us in the position, as it has over the last two years, to roll forward some portion of that income. Pay the small excise tax amount, and, create a cushion for operating our business should times get bad. To grow our capital base very cost effectively.

We've always done it -- and, we've been stuck around communicating and setting levels -- based on estimated taxable income. We're taking this opportunity -- since we're slightly under invested, and, it makes sense to cut the dividend slightly at this time -- to set it on this different metric. Which, we believe, is more sustainable going forward.

Okay, thank you for that. Did I catch that you said on the call that you're goal is to cover the dividend with GAAP earnings by the end of the year?

Well, we didn't say that specifically.

Okay.

I did make some comments about; were we to invest the currently available cash and debt capital that we have today; and, making some kind of an assumption about normal portfolio turnover, and, then lastly if you look at the types of investments that we've made over the past six months. You put all that together; if all of that were to happen, we would likely earn taxable and GAAP net investment income at or above the current dividend level.

Okay, and, I thank you for the clarification. Can you just remind me what the yield would have been on those new investments, or, on the current pipeline? What we should be considering going forward?

Well, I'd have to go back and look at specifically what happened during the fourth quarter. But -- and, why don't I just do that rather than throw a number out there -- but, the investments that we made during Q4, perhaps more so than the one small investment that we made in Q1, were all at yield to worsts. So, realized yield. I'm looking across the table at Frank. I think over 13%, but, that's a number we would have to verify before we chisel it into stone.

Is that what you're seeing on the pipeline of senior secured?

Not necessarily on senior secured first lien loans. To be fair, but, over the fourth quarter we had more of a range of types of investments that we made than in the first quarter where we made the two investments in new companies. One of which, the much larger one, was a first lien senior loan.

However, because of the expected short duration of that particular first lien senior secured loan, the discount at the time of the purchase, the high LIBOR spread, and, the LIBOR floor arrangement. When you add that all up, we have an expected return that's pretty significantly higher than just the run rate of the L PLUS spread, that you would get on most regular broadly syndicated first lien loans. So, it's a double digit yield-to-worst type of outcome. It's slightly higher yield to expectations outcome.

Great, thank you, for the additional details.

A pleasure.

Your next question comes from Casey Alexander with Gilford Securities.

Hi, good afternoon. Maybe I missed something there. Have you made any additional investments in the current quarter?

Yes, we've mentioned earlier that we put to work some $45 million in the current quarter so far.

So $45 million in the current quarter so far, okay, great. You had mentioned last quarter that you were carrying forward some excess distributable income. I seem to remember the number $0.13 a share, but, I'm not sure if that's the correct number --

$0.12 a share.

$0.12, how much do you have now?

We pretty much utilized that during the first quarter.

Okay.

So.

Although, and, this is Mike. I would just add that you don't really know until you get to year end, because --

Right --

Taxable income carried forward is an annual concept.

Okay, lastly, I noticed in here that you purchased 200,000 shares of the stock in the open market for $2 million, which, is $10 a share. Which was at a premium to NAV. Which, therefore, that's dilutive to NAV. Can you give me your philosophy on why you would do that?

It was basically a back-to-back transaction with the advisor. The advisor bought 2 million shares from the (inaudible - multiple speakers) --

200 --

I'm sorry 200,000 --

And, I'm sorry to interrupt Jim, 200,000 shares.

$2 million worth --

Right.

We subsequently bought those shares back in the marketplace --

At essentially the --

At essentially the same price.

Okay, all right, good enough, thank you.

And, just to be clearer, I believe that the purchases were above not below.

I said above.

Yes --

Yes.

Okay.

Yes, it was really just a back-to-back transaction.

Yeah, okay.

At this time, there are no further questions. I'd like to turn the call back over to management for any closing remarks.

Well, all I would say is, I thank you all for attending, and, we look forward to the next meeting. Thank you. And, again, if you have any further questions we are always available for you, thank you.

This does conclude today's conference call. Thank you for participating, you may now disconnect.