BlackRock Capital Investment Corp (BKCC) 2014 Q2 法說會逐字稿

Good afternoon, my name is Cindra 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; Chief Financial Officer, Corinne Pankovcin; and Secretary of the Company and General Counsel of the Advisor, Laurence D. Paredes.

(Operator Instructions).

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

Welcome to our second-quarter conference call. Before we begin Larry will review our general conference call information.

Thank you, Jim. Before we begin our remarks today I would like to point out that certain comments made during the course of this conference call and within corresponding documents contain 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 SEC reports which lists some of the factors which may cause BlackRock Kelso Capital Corporation's results to differ materially from the statements. BlackRock Kelso Capital Corporation assumes no duty to and does not undertake to update any forward-looking statements.

Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, BlackRock Kelso Capital Corporation makes no representation or warranty with respect to such information.

Please note that we have posted to our website an investor presentation that complements this call. Shortly Jim and Mike will highlight some of the information contained in the presentation.

At this time we would like to invite participants to access the presentation by going to our website at www.blackrockkelso.com and clicking the July 2014 investor presentation link in the presentation section of the investor relations page. With that I would like to turn the call back to Jim.

Thanks, Larry. Good afternoon and thank you for joining our call today.

The second-quarter highlights include new investments of more than $90 million, exits of more than $192 million, a $49 million realize gain on sale and increases in the valuation of many of our remaining equity positions. Adjusted net investment income equaled $0.23 per share exceeding our $0.21 dividend. Net realized and unrealized gains on our portfolio resulted in an increase in our NAV of $0.20 per share to $9.79 per share.

During the first half of 2014 we reduced our exposure to equity securities with the proceeds of more than $125 million. Earlier this year we entered into an agreement to sell our entire position in Arclin for aggregate proceeds of $59.2 million. And during the second quarter we realized on the sale of what had been our largest equity investment, ECI.

BlackRock Kelso received proceeds of $71.5 million and a realized gain of $48.4 million. As anticipated we have used these proceeds to reduce our outstanding borrowings on a temporary basis. (technical difficulty) for these transactions, lower debt balances reduced our interest cost without any accompanying reduction in our run rate earnings related to interest income.

It should be noted that we did not receive the proceeds from these sales until late in the second quarter. Over time we believe that we will be able to redeploy these proceeds into income producing assets.

Although our sale of ECI during the quarter reduced our equity exposure this was offset by continued appreciation on our existing investments. This contributed to a modest 4% decline in our equity investments to 17% of the total portfolio at quarter end.

With respect to the balance of our equity positions we continue to like their prospects. And although it remains our goal to exit them on a quarterly basis over time we expect to continue holding a substantial portion of them over the near to medium term.

Several of these investments are in the process of being sold. The rate of return on these investments has been accretive to our overall returns and continues to exceed the return that we can earn by reinvesting the proceeds.

Economic conditions generally and the performance of our portfolio companies remained positive in the second quarter of 2014. As we look at new investment opportunities we are still very careful to balance strong economic fundamentals against the weaker rates and terms available in today's credit market.

During the second quarter market conditions for investments in the middle market remained challenging. While there can be no certainty about it we believe that the recent economic strength demonstrated by continued increases in employment is likely to result in some rate increases. We have plenty of dry powder to put to work and we believe that the higher rates could benefit our market opportunity set.

More recently the liquid credit markets have eased, if only slightly. Through the second quarter continued allocation by funds and investors to performing credits and to floating rates more generally have helped sustain the easy credit environment through June 30.

Overall, the trend towards lower rates, higher leverage and issuer-friendly structures persisted during the second quarter of 2014. We believe that by setting the dividend last quarter at a level that is largely covered by interest and dividend income rather than by capital appreciation and fee income we are in a solid position to grow net asset value. Mike will now discuss our results and portfolio activity in more detail.

Thank you, Jim, and thanks everybody for joining the call today. In advance of the conference call we posted our quarterly investor presentation to our website and the overview of our second-quarter financial results starts on page 2.

We remain satisfied with the overall continued solid performance of our investment portfolio. Net assets increased to $729 million and net asset value per share increased to $9.79 from $9.54 at the beginning of the year. Total investment stood at approximately $1 billion at quarter end.

Our net investment income as adjusted was $0.23 per share relative to distributions declared of $0.21 per share resulting in net investment income dividend coverage of 108%. Realized gains during the quarter provided another $0.66 per share of earnings with no accompanying distribution requirement.

With respect to earnings our portfolio generated investment income of $33.8 million for the second quarter, which was an increase relative to the $29.6 million in the prior quarter. While interest income was approximately $800,000 lower than in the first quarter, fee income increased substantially.

Fee income tends to be relatively consistent over the long run but as always remains volatile in any particular quarter. For the quarter fee income totaled $5.9 million. This compares to an average of more than $4 million per quarter over the last 2.5 years.

Fees on exited transactions were $4.7 million compared with fees of $1 million on new commitments. Total expenses for the three months ended June 30 were down from $18.5 million in the first quarter to $17.3 million for the second quarter. The principal differences between the two periods related to incentive fees including those accrued on unrealized gains, interest expense and professional fees.

Incentive fees relating to income were zero in the quarter and incentive fees accrued based on hypothetical capital gains calculations were $3 million. On a pro forma basis incentive management fees for the second quarter were $2.6 million similar to the amount of fees attributable to the fourth quarter as adjusted. As of June 30, the accrual for incentive fees relating to capital gains stood at $32.2 million.

We believe that our adjusted net investment income, which removes the hypothetical fees and adds an adjustment to account for incentive fees earned on income, is the better indication of our quarterly performance. The reconciliation of these GAAP and non-GAAP measures appears on page 11 of the investor presentation. Adjusted net interest income of $16.8 million in the quarter compares with $14.3 million in the first quarter and again equated to $0.23 per share versus $0.19 per share in the prior quarter.

With respect to new investments made in the second quarter, and with our current investment pipeline, we are focused on investments that are generally more senior in the capital structures of the companies that we are investing in. Also, given the current high leverage levels in the market we remain focused on investments with some level of tangible asset coverage rather than those supported exclusively by enterprise value or future cash flows. As a result of this strategy we have been transitioning the portfolio to a heavier weighting in first rather than second lien loans and in secured rather than unsecured or subordinated notes.

Since yearend we have increased our percentage of first lien loans from 14% of the portfolio to just shy of 20% of the portfolio today. This has also increased our allocation to companies in the energy sector where asset coverage and lower loan-to-value ratios are more prevalent. Currently investments in companies in the energy industry comprise 12.2% of the portfolio up from 5.4% at yearend.

We view this posture as defensive. And we would expect to continue to seek more conservative investment structures and asset rich industries unless we were to experience a significant change in the current market dynamics.

In our middle market credit business hands-on attention to detail will always be of paramount importance in each of the investments that we make. As I mentioned on our last call, the performance and prospects of the companies, the stability of the industries in which they operate, the strength of the Company management teams and of course the covenant packages of our loan agreements are all added to a critical assessment of the assets of the business -- all support each investment and are essential components of our analysis of potential transactions.

As such, more than half of the investments made in the quarter were first lien loans and nearly half of the remainder were first lien senior secured notes. Significant new portfolio company investments included US Well and New Gulf Resources, both investments in companies that operate in the energy industry.

During the quarter we made a $45 million commitment to US Well Services, which is a Houston-based oilfield services provider. We funded $43 million of our commitment in the first lien term loan during the quarter and as part of the transaction we were taken out of our prior investment in the company's senior secured notes. The coupon on this loan is currently 12%.

We invested $25 million in New Gulf Resources, a Tulsa-based private E&P company with operations in the Woodbine region of East Texas. Our investment consisted of $21 million of senior secured notes which are the highest level of secured debt securities in the capital structure.

In addition, we invested in $4 million of securities consisting of subordinated notes and warrants for a 1.2% share of the common equity. Even if one were to ascribe absolutely no return whatsoever on the junior debt securities, which is obviously not an outcome we anticipate, our underwritten return in the transaction would be 10.3% to maturity.

In general, our portfolio of companies continue to perform quite well. We had no investments on non-accrual at quarter end and no material net change in the average ratings of our portfolio companies since yearend.

Lastly, in addition to the $71.5 million received in the sale of ECI that Jim mentioned, some of the other significant exit transactions in the quarter included the realization of our investments in American Residential Services, Crimson and Sizzling Platter. If one were to exclude the sale of ECI, exits totaled $121 million compared with you investments of $90.5 million in the quarter. And with that I would now like to turn the call over to Corinne to review some additional financial information.

Thanks, Mike, and hello, everyone. I will now take a few moments to review some of the other details of our 2014 second-quarter financial information.

For the three months ended June 30 our net income is $0.41 per share and our GAAP net investment income $0.22 per share as compared to $0.23 per share on an adjusted basis. The increase is due to prepayment penalties received in the second quarter as well as a decrease in incentive management fees and interest and credit facility fees.

Excluding our equity positions our portfolio composition was relatively stable in the second quarter. The percentage of our portfolio invested in senior secured loans and unsecured or subordinated debt securities increased 4% and 2% respectively to 48% and 19% while our concentration in senior secured notes declined 6% to 9% as compared to the prior quarter.

After the successful exits realized year to date we still have more than $190 million of fair market value invested in equity securities. The weighted average yield of the debt and income producing equity securities in our portfolio at their current cost basis remained stable at 11.9%. The weighted average yields on our senior secured loans and other debt securities at their current cost basis were flat at 11.4% and 12.9% respectively.

Net unrealized appreciation decreased $34.6 million during the quarter. While this number represents less unrealized appreciation in the portfolio in the aggregate than at the end of the prior quarter, this is largely due to reversals of unrealized appreciation of $48.6 million as a result of the exits during the quarter. Removing the reversals the current portfolio appreciated $14 million in value during the quarter.

Taken in conjunction with $49 million of realized gains during the period, our net realized and unrealized gains of $14.4 million helped to drive our net asset value per share up another $0.20 for the quarter to $9.79 at June 30. At June 30, we had approximately $77.8 million in cash and cash equivalent, $329.1 million in debt outstanding and subject to leverage and borrowing base restrictions, $380 million available for use under our amended and restated senior secured revolving credit facility. The majority of the cash held at the end of the quarter was due to the timing of the receipt of proceeds on several transactions including the payoff of our investment in American Residential Services, which was received on June 30.

At the end of the second quarter, our regulatory asset coverage ratio stood at 316%, our borrowing capacity was $433.6 million and we had $392 million in available debt capacity under our asset coverage requirement. As compared to the year-ago period, our weighted average cost of debt decreased 105 basis points to 5.13%.

This reduction is due to our securing a favorable pricing amendment of our credit facility earlier this year. Average debt outstanding increased to $417.2 million this quarter from $298 million in the second quarter last year. With that I would like to turn the call back over to Jim.

Thank you, Corinne. We are pleased with our accomplishments in the year to date period, particularly the successful exits of our two largest equity positions. Redeployment of the proceeds of these and future transactions will only further contribute to our ability to grow our net investment income per share.

As we think about dividends for 2014 and into 2015 and beyond, we have set the dividend at a level that we believe takes into account the rates available for more conservative types of investments that we are comfortable with in today's environment. Furthermore, while we expect further capital gains on our equity realizations over time, this dividend level requires no capital gains to sustain. We believe that the retention of any excess earnings and future capital gains 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 grow our net asset value and to protect and sustain our dividend over the long run. On behalf of Mike, Corinne, Larry and myself I would like to take this opportunity to once again thank our investment team for all of their efforts and to thank you for your time and attention today. Operator, would you now please open the call for questions.

(Operator Instructions). John Bock, Wells Fargo Securities.

Good afternoon, guys, and thank you so much for taking my questions. And congratulations on the material gain in ECI.

So real quick, it has been no secret that there is -- today is a more difficult time to originate quality risk-adjusted returns, Mike, and we appreciate your commentary. Yet we still have noticed you have been able to originate some attractive first lien securities at 11%, 12% coupons, US Well Services in particular.

And while you walk through some generalities as it relates to asset coverage, can you give us a sense of the risk in this investment in particular as it relates to overall leverage or coverage? Because we do understand this was -- you did have a second lien originally out to this investment that I believe was taken out. So any type of discussion there would be helpful because investors would want to know did leverage just encompass all the second lien and still charge the first lien price?

Sure. I think it's a fair question. The transaction itself, this is a company that is a growing business so it's not a flat business or a typical leverage buyout situation.

This is a growth company based in Houston. Obviously it's in the energy sector and what our financing provides for here is for the expansion of the fleet of -- their pumps really that the company uses to go out and complete projects out in the oilfield. And a lot of it is actually gas related.

So what's happening here is we are providing additional capital in a new capital structure as the company grows, to give these guys a larger and extended fleet where they can grow their business going forward. So it's not a typical sponsor-backed leverage buyout type of scenario where it is a pure refinancing of debt to save interest costs.

This is an expansion of capital. It's a new facility. There is more debt in the new deal than the old deal but EBITDA has increased and the assets have significantly increased as part of that.

And this is a company that continues to grow into its leverage as the assets get put to use online and they can charge fees for their use. So we are asset supported, we are first lien. The leverage is in the mid-4s and we like the opportunity and we like the opportunity to continue growing with this company over time.

That's a very very helpful. And then just perhaps a question, we understand that as you directly originate transactions as we look at this with kind of the sizable slug of $40 million of the $180 million tranche can you just walk us through -- I imagine there were discussions prior, non-sponsored deals or let's say off-the-run deals are little different. So maybe some of the different approaches that you utilized to not only source but then structure this investment as well?

Sure. So this is a business where we got the opportunity from two places. We originally got it from a manager and investor that we know that is in the oil business from many ever other previous investments. And so it came to us directly from an insider, so to speak, related to the transaction.

So we worked on this deal -- actually came to us back in February. We closed it in the second quarter. We worked on it that whole time, performing due diligence, doing more work. We obviously had a small investment in the business prior to this that was in more of an on-the-run-type opportunity.

This was heavily negotiated and structured by us. We have a co-investor in here that is also pretty large that we work in tandem with on lots of different transactions. It's non-BDC, it's a private group.

And we worked on this deal together with them, structured something that worked, got access to capital for the business, understood the growth plan, understood the asset values and were able over this three- to four-month period of time to make the investment happen. In terms of the $40 million out of the $180 million, that's what we believe is the adequate and appropriate size of the hold for us given our overall portfolio size and concentrations.

Makes sense and glad you were structuring there from the beginning. And then the last question relates to share repurchase.

I noticed you purchased roughly 210,000 shares, $2 million or so of equity back this past quarter relative to the $90 million or so of investments that were made. And this was despite the stock trading at below NAV.

And I think you've got about 1.1 million shares left under the buyback. And this is just the question, not only I but lots of investors would ask, is why are new investments that are generating coupons between 10% and 12% at some given level of risk, why are those superior to buying back equity at a 9.5% cost, which if you translate that to what you need to earn on assets in order to cover that dividend given 3% fees, would kind of put you close to cost parity? So could you walk us through maybe why no equity buyback if you have availability and very low leverage and why new investments?

I think each of Jim and I and Larry maybe will comment on it. I will start with the simple concept which is that we believe we are one of very few BDCs that have a stock buyback program. We have it in place and have had it in place for some time.

It is set ahead of time with certain types of Board approvals that you need to do this. And then it operates pretty much on an automated basis. And so it kind of turns out to be what it is.

We set it at a price level. We will buy shares below that price level and we have certain volume restrictions. And as Mike said, it's automatic.

We set it at a level that we think is attractive. And it's really a decision -- if there were more shares available at that price, or lower, we would've purchased more.

Okay. So then maybe if I rephrased, does it mean to say that purchasing at current levels would not be considered attractive from a buyback perspective?

The answer to that question is I wouldn't parse it that closely. We set a limit that happens to be relatively close to where we are today.

So I'm not going to say that buying stock back at today's price wouldn't be attractive. It's just that we determined that we would limit it at a price that's somewhat lower than where we are today.

Okay. Thank you very much for taking my questions.

Douglas Harter, Credit Suisse.

Thanks. Can you talk about the pace at which you can continue to work down the equity investments and redeploy those into interest earning assets just so we can get a pace for how you can improve the net investment income?

We have some $190 million of equity investments at quarter end. And as I said we really like the returns on those investments. They are really good companies and they tend to be, or at least taken as a generality, they tend to be performing quite well.

There is one that will probably be sold in the third quarter, I believe. There are a couple that are in the process of interviewing investment bankers. The timing of that is probably into the new year, I would think for closings.

And I would think at this time a year from now without any appreciation in the existing portfolio, that we would probably see that -- we would probably see the equity portfolio reduce in half. Some of these things will take longer.

It is quite possible in this environment that people, some of the investments have been -- people will change their minds and accelerate the sales process. But if I had to make a guess I would say probably will be down by 50% by this time next year.

The only thing I would add to Jim's comment is that we have a whole range of different amounts of and types of control in these investments. So part of it is our decision to hold or sell but part of it is a -- some of them are collective decisions to hold or sell.

Others are just not our decision at all to hold or sell. So the ability to precisely forecast outcomes of timing is a little bit difficult for this category of our investments, generally speaking.

Great. Thanks. That's helpful.

And the only other thing I would add is that during the next 12 months we would expect, as I also said in my comments, we would expect appreciation in those securities of some magnitude.

(Operator Instructions). Greg Mason, KBW.

Great, good afternoon, everyone. You talked about the lower dividend allows you to go after coupons that you are more comfortable with. Does that mean that you are going to go for lower yielding assets and what does that mean for the pace of new origination activity?

Sure. We are certainly not focused on trying to acquire lower yielding or lower returning assets. The dividend policy, the portfolio composition, where we stand at the moment in the credit cycle and in the current credit market, we have more flexibility to direct portfolio investments towards what we believe generally to be safer, higher loan-to-value, more asset secured or asset involved investments.

All other things being equal those investment opportunities tend to have slightly lower total returns than unsecured, typical mezzanine junior securities. Obviously everyone on this call knows that. So it's not as if we set a dial with a percentage on it and sweep in every deal that hits that number.

But rather what we do is we afford ourselves flexibility to find the best risk returning assets in the current environment where risk as opposed to return is the principal concern of the day. And in my prepared remarks we mentioned that we are trying to book more first lien loans. Some of the second lien loans that we book, and I mentioned this on the call last quarter, are second lien perhaps only behind a working capital revolver or small secured facility.

They're really quite in a secured position either from a leverage perspective or many times just from an asset backed or loan-to-value perspective. And we consider all of these things and by having the ability to do lower yielding securities, it gives us the opportunity to do some great investing where with a much higher dividend returning requirement we would have not had the opportunity to make what are otherwise solid investments in that category.

Got it. And then just looking at the origination pipeline. So far this year if I add up the first two quarters you've done about $153 million of new deals.

The back half of last year you did $301 million the last six months of 2013. So can you talk about what you are seeing in terms of the pipeline for the back half of this year and just what your thought process is towards origination activity in the back half of the year?

I would say that where we are right now is we have a pretty robust pipeline. We have a number of transactions that are nearing completion. We haven't completed anything yet in the third quarter.

But we have a fair number of transactions that have a high probability of happening. But as you know sometimes these things don't get done. But I am quite -- I am fairly optimistic at the moment about the originations in the third and fourth quarter given what we currently have on our plate.

I agree with Jim and I might even take it a step further to say I think our pipeline is more robust now than it has been in probably the last three, four, maybe even more quarters in terms of the mix of the quality of opportunities and the total dollar volume of opportunities. As Jim says, of course, there is no certainty which or any will close out of that group although I would add as he did that we are very very close on quite a few of those.

The only other thing I would say is that a very red screen today, a significant reduction in valuations in liquid credit markets over the last week or so, where it to be sustained or persist ought to give us incrementally more opportunities in the second half than we might have seen in the first. And so we are optimistic about that.

Great. And then kind of one additional question on -- you did two energy deals this quarter. Is there something specific that you are liking about energy right now and -- or are there other industry classes that you also want to look at, too?

So we try to say agnostic to industries. But why we have been more involved in energy companies this year and including in this last quarter, and there are a few in the pipeline as well, is that in a credit environment like this where covenant levels, leverage levels, total returns are somewhat weak from a credit investor perspective, we tend toward asset-related transactions.

Of the three pillars of credit support that one might look to, enterprise value, free cash flow and asset support, in this kind of an environment we turn our attention slightly more toward asset support. And that gives rise to more opportunities fitting what we are looking for in industries like energy. And so we have spent more time there in the first half of this year.

And frankly there's much more activity in the energy sector in the first six months of this year also.

Okay, great. And then one last final question.

On the incentive fees payable on the balance sheet, I know you have to record hypothetical gains, fees and you have had some nice writeups but I think your fee structure also works in realized gains through the last 12 months, through the end of June you get paid some amount of that. So in the third quarter what should we see in terms of incentive fee management payables that actually gets paid in cash that we see the reduction in cash there of that potential $32 million?

Corinne, why don't you take that one?

Sure. It's actually disclosed in our footnotes within the incentive fee baseline capital gains. The amount that will be paid and was payable as of June 30, is $16.2 million, which will be dispersed -- it may have a ready been dispersed as of yesterday.

We just have to wait for the quarter to close. It has been earned and accrued. And now paid.

Okay, great. Thank you.

Arren Cyganovich, Evercore Partners.

Thanks. I was wondering if you could just talk about the pace of exits or repayments from the portfolio that you would be expecting over the next couple of quarters. It's generally you sold some of the equities so that obviously made it a little bit worse this quarter but generally from the portfolio what are you thinking about?

I think we will continue to see a fair amount of activity on the exit front. We have a pretty good handle on possible exits over the next six months and it's hard to put a pin in it but I think it will continue to be fairly significant.

I think you mentioned it in the body of your question, Arren, I think approximately $125 million, more actually, of the exit receipts that we have had in the first half relate to these two large exit conditions. When you back those out, new investment versus repayments, there's a little better matched for the first half.

Okay, thanks. Do you feel that you are capable of growing the portfolio over the next six months or so?

That's our goal. I think we are quite capable of it. We need to continue doing what we do best.

We don't want to throw caution to the wind in terms of giving up on credit quality or structure. And I think the change in our dividend policy and the successful sale of these two particular equity securities free up a lot of room for us to make some incremental investments that we think will be very accretive to our net investment income.

Yes, I guess I would say it is slightly different. Based on what we have in the pipeline and what we see coming off our books we would expect to grow the portfolio.

Okay, that's helpful, thanks. And then from a competitive standpoint, obviously you have talked about it being somewhat difficult of an environment. Are you turning away more investments just at the onset when they are put in front of you or are you actually losing more in some sort of bidding process?

I don't think that's really changed much. I think the percentage that we turn away sort of early on I think is probably very similar to what it is, what it has always been. And the percentage that we walk away from because either the terms or the transaction or the rate, or the structure down the road, or somebody, as you point out, effectively outbids us down the road, I would say is very similar to what it has been over the last couple of years.

Okay. I guess to some extent you have said that you are looking -- you are essentially excluding a lot of cash flow loans, etc. for hard assets so that would imply that you are turning a little bit more away than you normally would.

What I would say about that is we are always looking to all three of those components to support any particular credit. We are always looking to enterprise value, we are always looking to future free cash flows, we are always looking to asset support.

And the more of those things that one has the more of than any particular loan makes it easier to make. Given some sort of toppiness in terms of leverage levels in the middle market, we think that relying on enterprise value more heavily than other things is probably, generally speaking, not the best way to support a credit.

Because with high leverage levels and high current purchase prices there is always risk that there is some deterioration there and that your loan-to-value gets too high over the course of your life. Free cash flows, there is some economic uncertainty although frankly the economy has been doing better and better. So we would look next to cash flows, future free cash flows, as something that are probably better support than enterprise value.

And then lastly it's very hard to argue with asset values particularly if you look at liquidation values and true asset trades supporting a loan. And so then we look most heavily in this environment to that component of our analysis.

It is not the case that we get a cash flow loan opportunity in and just throw it in the wastebasket. We work through every opportunity and we take into our analysis each of those three components.

Yes, I think -- I thought your question was do we, are we rejecting things out of hand early on. It tends to be more the case that we go down the road with some of these and it may indeed be that some of the cash flow loans are structured in a way that we don't find attractive today. And so when we ultimately get to the end of the line, we may be rejecting a higher percentage of those because of the terms that are available today.

Got it. Okay, thanks.

There are no further questions in queue at this time.

Well, I thank you all for joining us today. As always if you have any further questions we are here to answer them. I appreciate your dialing in.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. At this time you may now disconnect.