BlackRock Capital Investment Corp (BKCC) 2015 Q4 法說會逐字稿

Good morning. My name is Ryan and I will be your conference facilitator today for the BlackRock Capital Investment Corporation fourth-quarter 2015 earnings call. Hosting the call will be Chairman and Chief Executive Officer, Steven F. Sterling; Head of Investments for BlackRock's US Private Capital Group, Michael J. Zugay; Interim Chief Financial Officer and Treasurer, Donna M. Milia; General Counsel and Corporate Secretary of the Company, Laurence D. Paredes; and Aaron C. Kless, Investor Relations and Strategy.

Lines have been placed on mute. After the speakers complete their update, they will open the line for a question-and-answer session. (Operator Instructions) Thank you.

Mr. Paredes, You may begin the conference.

Good morning, and welcome to BlackRock Capital Investment Corporation's fourth-quarter 2015 earnings conference call. 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 Capital Investment Corporation's actual results may differ from these statements. As you know, BlackRock Capital Investment Corporation has filed, with the SEC, reports, which list some of the factors which may cause BlackRock Capital Investment Corporation's results to differ materially from these statements. BlackRock Capital Investment 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 Capital Investment Corporation makes no representation or warranty with respect to such information. Please note we've posted to our website an investor presentation that complements this call. Shortly, Steve will highlight some of the information contained in the presentation.

The presentation can be accessed by going to our website at www.blackrockbkcc.com and clicking the March 2016 Investor Presentation link in the Presentations section of the Investor Relations page. Thank you.

I would now like to turn the call over to Steve Sterling, BlackRock Capital Investment Corporation's Chairman and Chief Executive Officer, who will provide an update on our quarterly and annual results.

Thank you, Larry. Good morning, everyone, and thank you for joining us for the fourth-quarter 2015 earnings call. Before I begin my comments on the quarter, I would like to note that March 6, 2016 marked the one-year anniversary of BlackRock's investment management agreement with the Company, and we are encouraged by the early impact that BlackRock's brand and firm-wide capabilities have had on the Company.

Our thesis, that BlackRock would provide an edge to the Company, is evidencing itself in key areas of market and investment insight; access to investment ideas, people, and financing; investing class operational resources and systems. The recently-completed fourth-quarter marked our third full quarter as the Company's investment advisor. And we are pleased with our business portfolio investment decisions during this period, and believe these decisions have positioned the Company to deliver long-term value to our client shareholders.

Allow me to share several highlights. BlackRock's market insight served to inform our decision to materially de-risk the Company during the second quarter of 2015, and influenced our decision to remain modestly leveraged. This was evidenced by the monetization of $161 million of minority equity positions within 3.6% of our marks during the second quarter. Additionally, we demonstrated capital deployment discipline, in anticipation of financial market volatility, that drove our net leverage to remain a modest 0.47 times as of December 31, 2015.

During 2015, our team reviewed over 300 opportunities and deployed over $300 million of gross capital, representing nearly one-third of our total investment portfolio at year-end 2015. Our stepped-up origination efforts during 2015 began to take hold in the second-half, with the change in management behind us and the team's connectivity to BlackRock becoming more established, particularly with its Global Fundamental Credit Group and Global Capital Markets Group, which referred 60 opportunities for the team's consideration. In a number of the opportunities reviewed during the year, we created a cross-platform team or leveraged BlackRock's resources for insight to enrich our investment decision process.

We added senior talent to the Investment team that included Michael Zugay as Head of Investments for BlackRock's US Private Capital Group; Kasai Cama of BlackRock's Risk and Quantitative Analysis Group; and Justine Duffin of BlackRock's Product Strategy Group. Today we are actively interviewing an impressive roster of sourcing and execution professionals that will further grow our capabilities, and thereby increase the Company's potential performance.

Despite upward pressures and constrained availability, we successfully renewed the Company's revolving credit facility on more favorable terms, including an increase of the commitment amount to $440 million, an extension of the maturity date to February 2021, and a reduction in pricing from LIBOR spread of 225 to 175 -- 200, depending upon leverage. Additionally, as per our third-quarter comments, we refinanced our senior secured notes under the revolving credit facility post quarter-end, which, on a run rate basis, will result in financing cost savings of approximately $6.9 million, or $0.09 per share.

And we further integrated the Company's business operations, accounting and reporting activities into BlackRock, as well as renegotiate their lease for physical space. These moves enhanced process and systems capability and reliability, and allowed us to reduce the Company's operating expenses by about $1.6 million per annum or $0.02 per share.

Now I'd like to address fourth-quarter results. The Company's financial performance was mixed, as our portfolio construction initiatives and patient capital deployment gave ground to portfolio pressure pertaining to a combination of the idiosyncratic developments arising from legacy investments that were created prior to BlackRock's new management team taking the reins and general mark-to-market valuation adjustments.

For the fourth quarter ended December 31, 2015, reported net investment income, calculated on a GAAP basis, was $0.25 per share, and net investment income as adjusted was $0.29 per share. Net investment income, as adjusted, compares favorably with $0.24 per share on a sequential basis.

Run rate net investment income, as adjusted, was $0.25 per share, which was calculated after giving effect to investment activity, the refinancing of the senior secured notes, and based on average fee income over the 2015 fourth-quarter period. Importantly, each of these measures of net investment income soundly covered shareholder distribution by over 115%.

The Company's reported net investment income, as adjusted, was, however, aided by the reversal in incentive fees, based on income during the fourth quarter, that offset adverse effects on total investment income from placing investments in New Gulf and Advanced Lighting on nonaccrual status. As a consequence of these investments going to nonaccrual, reported and run rate total investment income declined on a sequential basis 6.4% and 2.7%, respectively.

The decline in total investment income was despite an increasing yield on earning assets arising from $98 million of gross investments in higher-yielding opportunities in the quarter. Again, run rate total investment income was calculated after giving effect to investment activity and based on average fee income over the 2015 four-quarter period.

Relatedly, NAV declined 4.7% sequentially, due to a reduction in value of these nonaccrual investments and markdowns in certain legacy positions, as well as general mark-to-market-driven changes. Middle-market companies are naturally predisposed to events that may create challenges. Our team works with all available resources to navigate these challenges, as well as seek to protect the capital of our client shareholders.

At 0.47 times net leverage as of year-end, the Company has been afforded flexibility in a more compelling investment environment to execute on plans for growth of investments and net investment income. We are steadfast in our determination to protect value through the active management of legacy investments, and are committed to driving measured growth that will enhance the Company's distribution-paying capacity.

Further, we are mindful of capital allocation considerations, and have demonstrated our willingness to make prudent decisions, including significant share repurchases of $1.8 million and $7.9 million for the fourth-quarter and full-year, respectively. Since year-end, the Company has repurchased an additional $12 million of shares for a total of nearly $20 million of share repurchases since BlackRock assumed the investment management agreement with the Company.

Looking forward, our macroeconomic and market perspectives remain intact, as presented in early 2015. We are constructive on the US economy, but ever watchful of developing risks. We remain biased in our view that financial market volatility will sustain at elevated levels, and that we will continue to be presented with compelling middle-market investing opportunities.

We seek to deploy capital against these opportunities while adhering to important principles and guidelines, including, one, focusing on companies with sound business models and our collateral protection, as well as strong management teams; two, investing in direct diligent situations for which we have, and will continue to have, ongoing access to management teams that supports an information edge; three, preferring secured instruments with strong investor protections and attractive risk-adjusted returns, particularly focusing on capital preservation; and four, maintaining portfolio construction discipline.

With that, I'd like to now turn the call over to Mike to review our investing activity during the period and to provide additional portfolio detail as of the period end.

Thank you, Steve. Following up on some of Steve's comments, I would note that since our last earnings call in November, increased market choppiness led to several home financings that were sold at discounts, and the average bids for leveraged loans have continued to slide. Directionally, it paints a picture of what we are experiencing in the middle market, which is manifesting itself in the form of widening new issue spreads.

We are seeing approximately 100 basis point increase in yield for new issue loans in our market and a fair amount of price discovery as market participants cautiously deploy capital. This dynamic has led to lighter volumes, but provides opportunities to deploy capital at attractive risk-adjusted returns.

This was evident in our fourth-quarter investing activity, which included $98 million in gross investments primarily into four new companies. Our new investments were into Pomeroy Group, a vendor-agnostic provider of technology and infrastructure solutions; U.S. Anesthesia Partners, a provider of outsourced anesthesia services; Pittsburgh Glass Works, a manufacturer and distributor of automotive glass to OEMs and the aftermarket; and First Boston Capital Partners, a company that provides loans to homebuilders and developers primarily in New England.

Our gross originations were partially offset by approximately $93 million of prepayments. The weighted average yield on our newly-funded investments in the quarter was approximately 10.7%, which is above the 9.7% of fully-exited companies in the quarter, excluding foundation-building materials. We exclude foundation, as our investment was priced to take into expectations the investment would be a short-term bridge to a second-half 2015 company sale, which occurred in October of 2015 as expected.

If we include foundation in the prepayment calculation, the exits represented 10.5%. The trend of deploying capital at higher rates than what is being repaid has continued into 2016. Two investments during the quarter that highlight our sourcing, diligence, and structuring capabilities, are Pomeroy and First Boston.

Pomeroy was a deal with a new sponsor for our Group. While not the largest holder of the clubbed instrument, we provided leadership by driving the documentation process in a manner that both improved credit terms for the investors and provided certainty to the sponsor in a dislocated market.

With regards to First Boston, we sourced the deal through an introduction from our portfolio company, Gordon Brothers Finance Company. We partnered with a family office that was seeking a financial partner to help grow the business they founded. First Boston has a solid track record of lending to builders and developers, and the Family has a generational pedigree in the homebuilding industry. First Boston is invested in a portfolio of loans that are primarily first lien, secured by real estate at reasonable loan-to-value thresholds, which provides downside protection for our debt investment.

Finally, we led the negotiation of terms and invited another investor into the opportunity to reduce our investment size in alignment with our portfolio of construction discipline. In general, our direct origination efforts were solid, as our new investments in the quarter and a healthy combination of transactions with new sponsors, repeat business with sponsors we know, club deals with debt partners that we have a history of working with, and proprietary non-sponsored transactions, originated from our team.

We are sourcing investment opportunities that, in many cases, provide us the ability to agent or tranche and/or to lead the negotiations in legal documentation of the investment. Although we remain comfortable with the diversity of our investment portfolio, we are strategically deploying capital in a more diversified manner, given the broader economic environment with the backdrop of improving credit spreads.

As of December 31, 2015, our portfolio consisted of investments in 45 companies across a diverse set of industries and geographies. Oil and gas investments represented 9% of our total portfolio at fair market value at year-end. As mentioned in last quarter's call, the majority of this exposure is in U.S. Well, a Texas-based oilfield services provider that delivers both traditional and Clean Fleet pressure pumping services to operators in the Marcellus and Utica regions.

In spite of a difficult commodity environment, we take comfort in the management team's continued ability to mitigate these market challenges. As highlighted previously, we placed New Gulf Resources, an upstream oil and gas producer, and Advanced Lighting, a metal-halide lighting manufacturer, on nonaccrual status.

With regard to New Gulf, the Company filed for bankruptcy in mid-December. While a relatively small investor at less than 10% of the tranche, we were asked to participate in the restructuring process prior to the Company filing. At this stage, we continue to closely monitor developments in the Chapter 11 case.

Our investment in Advanced Lighting, as noted in the third-quarter call, is a high-yield bond whose limited reporting and covenant protections have made managing the investment challenging. As of December 31, 2015, these investments had a combined fair market value of $13.6 million, and increased our nonaccruals from none to 1.2% and 3.9% of the total portfolio at fair market value and amortized cost, respectively.

As in the case with any challenged investment, our team remains focused on managing the situations to protect value. We believe our strong track record, team capabilities, and access to resources, will enable us to maximize value for our client shareholders.

With that, I would like to turn the call over to Donna for some additional details regarding our financial results and portfolio statistics.

Thank you, Mike. I will take a few minutes to review additional financial and portfolio information for 2015. GAAP net investment income was $18.5 million or $0.25 per share, and $75.2 million or $1.01 per share for the fourth-quarter and full-year 2015, representing an increase of more than 49% over the full-year 2014 period. Similarly, net investment income, as adjusted, increased during the quarter and full-year 2015 to $21.7 million or $0.29 per share, and $72 million or $0.97 per share, respectively.

The growth in net investment income, both on a GAAP and an as-adjusted basis, was primarily driven by a decrease in incentive fees, which decreased on a full-year basis by $30.7 million. No incentive management fees based on income were earned during 2015, as the net unrealized depreciation [of] the portfolio for the trailing four-quarter period reduced our distributable income amount below the hurdle return.

As a result, $3.2 million of pro forma incentive management fees based on income for the first three quarters of 2015 were reversed in the fourth quarter, closing our net investment income, as adjusted, during the period to exceed our GAAP net investment income by $0.04 per share. Similarly, there was no accrual for incentive management fees based on gains during the fourth quarter, due largely to the cumulative $38.5 million of unrealized depreciation on our balance sheet as of year-end.

Run rate net investment income, as adjusted, was $0.25 per share, which was calculated after giving effect to investment activity, the refinancing of the senior secured notes, and based on average fee income over the 2015 four-quarter period. Importantly, each of these measures of net investment income soundly covered shareholder distributions by over 115%. Total investment income was $31.8 million and $129.4 million for the fourth-quarter and full-year 2015, representing a decrease of 16.2% and 3.7%, respectively, over the corresponding 2014 period.

The decline in total investment income was 100% driven by a decrease in fee income, particularly capital structuring fees and prepayment premiums during the respective periods, as investment income, excluding fee income, actually increased 6.2% and 9.3%, respectively. During the fourth quarter, the Company recorded a one-time reversal of $1.1 million in interest income due to the investment in New Gulf Resources being placed on nonaccrual during the quarter.

Run rate total investment income, which was calculated after giving effect to investment activity, including the New Gulf reversal, and based on average fee income over the 2015 four-quarter period, was $33 million, representing a 2.7% decline sequentially from the third-quarter 2015.

The composition of our portfolio remained fairly stable in the fourth quarter. Equities increased a modest 1% during the quarter to 11% at year-end, due to the net unrealized depreciation in our overall portfolio, yet marked a 48% decline from 21% at this time last year-end. Secured debt increased another 2 percentage points to 74%, while unsecured and subordinated debt decreased 3 percentage points to 15%.

The weighted average yield of our debt and income-producing equities securities at their current cost basis decreased 50 basis points during the quarter to 11%, largely a result of New Gulf and Advanced Lighting being placed on nonaccrual. The weighted average yield on our senior secured loans and other debt securities at their current cost basis declined 10 and 140 basis points, respectively, to 11% and 11.2% for the three months ended December 31, 2015.

During the fourth quarter, net unrealized depreciation increased $32 million, bringing total balance sheet unrealized depreciation to $38.5 million. Gross unrealized depreciation of $45.1 million was slightly offset by $5.6 million of gross unrealized appreciation, due to year-end valuations, as well as $7.5 million of appreciation primarily due to a reversal of previously reported amounts upon exit.

At December 31, we had approximately $364.5 million in debt outstanding and $12.4 million in cash and cash equivalents, resulting in net leverage of 0.47 times. Adjusted for available cash, receivables for investments sold, and payables for investments purchased, leverage was relatively flat as compared to the 0.45 times at the end of the third quarter. At December 31, 2015, we were in compliance with regulatory coverage requirements, with an asset coverage ratio of 302%, and were in compliance of all financial covenants under our debt agreements.

Post year-end, we refinanced our $158 million 6 1/2 senior secured notes under our $405 million revolving credit facility, and then successfully amended and restated our credit facility. The amendment increased the commitment by $35 million; extended the maturity date approximately two years to February 19, 2021; and reduced pricing by 25 to 50 basis points to LIBOR, plus an applicable margin of either 1.75% or 2%, depending on a ratio of the borrowing base to committed secured indebtedness.

Pro forma for the refinancing and amendment, we anticipate an annual run rate savings and financing costs of approximately $6.9 million or $0.09 per share. During the fourth quarter, we purchased another 198,000 shares of our common stock on the open market for approximately $1.8 million, including brokerage commissions, at an average price of $9.16 per share.

This brings our total purchases for the year to 889,000 shares at an average price of $8.91 per share, for $7.9 million, including brokerage commissions. The third and fourth-quarter 2015 purchases represent nearly 40% of our total share repurchase activities since inception on a dollar basis.

With that, I would like to turn the call back to Steve.

Thank you, Donna. As we begin our second year as manager of the Company, we'd like to thank you, our client shareholders, for the privilege of working for you. We feel good about our decisions and accomplishments during the past year as we sought to position the Company for long-term value creation.

As I highlighted, we are particularly delighted by the early impact of BlackRock's brand and firm-wide capabilities it had on the Company. Unequivocally, our thesis that BlackRock would provide an edge to the Company is evidencing itself in key areas of market investment insight; access to investment ideas, people and financing; investing class operational resources and systems.

For sure, we will experience challenges with individual investments, as we have recently experienced with the legacy positions Mike and I referred to. Rest assured, we are focused on the task at-hand, and will act in a constructive manner to protect value for our client shareholders. With year-end net leverage at 0.47 times, a distribution coverage ratio over 115%, a demonstrated access to attractive financing, the Company is positioned well to both manage its legacy investments and take advantage of opportunities the market is presenting in the face of elevated volatility.

In closing, I would like to take a moment to thank you, our client shareholders, for your support, and our team for their efforts.

At this time what I've like to do before taking questions is turn the call over to Larry Paredes for a comment.

Thank you, Steve. Before we address any questions, we would first like to point out that our earnings release contains a sentence that reads, as of year-end, our run rate net investment income, as adjusted, excluding any fee income, and before giving effect to refinancing the notes and renewal of the facility, is approximately $17.9 million or $0.25 per share, resulting in expected net investment income dividend coverage of approximately 117%.

Please note that the statement before giving effect to refinancing the notes in that sentence should actually read: after giving effect to refinancing the notes. So that the complete sentence should read: As of year-end, our run rate net investment income, as adjusted, excluding any fee income, and after giving effect to refinancing the notes and renewal of the facility, is approximately $17.9 million or $0.25 per share, resulting in expected net investment income dividend coverage of approximately 117%.

Thank you. Operator, you can now open the call to questions.

(Operator Instructions) Ryan Lynch, KBW.

Thank you for taking my questions. In the first quarter, you guys paid off some unsecured bonds by drawing down some leverage on your newly-expanded credit facility. Just as we move forward and you guys continue to grow the portfolio, are you comfortable funding the future portfolio growth by just continuing to draw down on the credit facility? Or what is your kind of long-term target split you'd like to have between credit facility debt and other unsecured debt on your balance sheet?

Thanks, Ryan -- it's Steve. Appreciate the question. You know, look, we're always going to look to strike an appropriate balance from a floating fixed point of view and from a diversity of funding sources point of view. So, as we look at building out the portfolio go-forward, depending upon market conditions and circumstances at the time, we would certainly look to turn out exposure, as we would consider that to be a prudent proposition.

Having said as much, we also understand and appreciate that the size of issuance does have effect on the quality of execution, and we do want to execute in the best way for our clients. So, as we look historically, based upon outstanding fundings available for prepayment, we hadn't really sort of approached to critical mass that we thought was appropriate for that sort of execution.

So, as we do build out go-forward, we will revisit that to get an appropriate -- what we would consider debt equity mix. As we sit here today, though, we are mid-60's floating rate asset exposure, and we're roughly mid-60's, as well, floating rate financing. So, we're not mismatched in any material way there. It's really a question of what's optimal as we go forward and we build a portfolio, to your point.

Great. And you guys have actually -- been very good about consistently using your share repurchase, and I definitely appreciate you guys implementing that and actually using it. And so, you guys have already purchased a lot of shares in Q1 2016. Just for modeling purposes, as we sit here today, are you guys still looking to basically use that -- utilize that full repurchase program going forward, pending your stock price stays where it is today?

You know, look, we think the market is showing some pretty attractive opportunities, as highlighted in the commentary in the outset. So we certainly want to be able to deliver long-term value for our clients.

With respect to share repurchase capital allocation decisions, obviously, we're evaluating the context of those opportunities and the proposed returns there. We do utilize a 10b5-1 program, stipulates exactly the way repurchases work, and we don't expect any sort of removal of the program as we move forward.

Okay. And then you mentioned in your opening remarks, U.S. Well Services, one of your largest energy investments -- can you just give us the color around that company's business model? And how is it performing so strongly, at least from your guys' fair value marks during this downturn of energy prices?

Yes, sure. So the Company is primarily in two regions that we highlighted. Their customers are contracted. Their customers are hedged for the most part, and the management team has done a great job of managing through the commodity price environment and through the -- just managing the fleet in a manner to keep them profitable.

So they are -- they're -- like I said, they are contracted and their counterparties on the other side of that are hedged as well. So they continue to see opportunities to delever and grow the book. And having said that, I mean, they are facing a pricing environment that is difficult. So, they've managed to work through it. And we feel confidence in the team to continue to do that.

And Ryan, I would just add on, for my third quarter comments, look, the -- this company has got relatively new assets, which means they operate at a point of efficiency on the curve that enables them, relative to the field, I think, to offer a better value proposition even in a more difficult general price environment that exists.

Further, the management team we consider to be incredibly good. And oftentimes not only the quality of the assets but the quality of the management team really is a differentiating factor in these middle-market companies. And these guys have, I think, in spades executed very, very well. So we continue to feel good about where this position is and certainly are comfortable with where that valuation stands.

Got it. Thanks for taking my questions.

Thanks, Ryan.

(Operator Instructions) David Chiaverini, Cantor Fitzgerald.

A couple of questions for you. The first is a follow-up on the oil and gas exposure you mentioned about 9% of the portfolio. Now a trend we're seeing in both the public and private markets is equity raises and equity infusions. And I was just curious if any of your portfolio companies have either recently raised equity or plan to raise equity in the near future?

Yes. Look, well, our book consists of really four companies. It's U.S. Well; Shoreline; New Gulf, which we've touched on; and MD America. We do think that there could be activity around some of those names with new equity raises. It is possible. Look, we don't have a crystal ball to say, will anything get done? But we're hearing the same thing you are -- that there's chatter around there, that there could be significant equity raises to delever companies.

And on U.S. Well Services, you mentioned about how the customers are contracted and hedged. I was curious as to how far out those hedges go?

We can't get and into too much detail on any one specific portfolio company. But in general, they are hedged through the near-term -- the significance of the hedges decline as you get into the outer years. But we feel good about where they are at through the medium to -- the near to medium-term.

Okay. Thanks for that. And I have a housekeeping question on your G&A expenses. The run rate looks very favorable in looking at professional fees, administrative services, investment advisor expenses and other expenses. Is that lower run rate sustainable on a go-forward basis?

Sure. As we mentioned on our last call, we restructured our Finance Group in the third quarter. We reduced headcount, and we're leaning into BlackRock for some of our back-office services. As such, we are expecting a run rate savings of approximately $1.6 million that we do expect to sustain.

I would just point out too that -- if I could refine that question -- one of the advantages of BlackRock is the operational and systems capabilities, which accrue to our client shareholders here, and is a reflection of the degree of operating leverage that the clients are benefiting from by virtue of the restructuring, but as well, just the overall enhancement of capabilities that just didn't exist previously, just given BlackRock being of its size. We have more to offer in that.

There are other things that we are doing too for the clients that doesn't accrue as an expense into the P&L, including risk and quantitative analytics, tight support that we apply across all of our funds is a dedicated capability here, for example. So, a number of different things that are behind the scenes, that are very value-accretive over time, are being absorbed from a BlackRock point of view as part of that value proposition and the operating leverage that accrues.

That's great. Thanks very much.

Jonathan Bock, Wells Fargo.

This is [Joe Mazoie] filling in for Jonathan Bock. And thank you very much for taking my questions. To start, I'd like to ask a bit about the investment in Pittsburgh Glass Works. We see that Franklin Square provided almost $200 million of the $410 million financing. And so what I'm curious is, is how is this loan originated? Is this something that you go in, BlackRock goes in there, New Mountain is in there, and Franklin Square are all in there? Or is this something that is maybe a piece that's purchased from Franklin Square?

So, look, you know, we have, and continue to create, what we consider to be a close-knit group of club relationships. As you know, as an experienced hand in the middle-market, clubbed transactions is one path of sourcing. It's also one which bolsters capital capability relative to particular opportunities.

We certainly see Franklin Square/GSO as the kind of partner that aligns with our BlackRock organizational sensibilities, and how we approach credit and opportunities. You should know that the relationship between BlackRock and Blackstone GSO is quite substantive -- well beyond what would exist in our BlackRock Capital Investment Corporation business activities.

And so as a consequence, we do have a fair amount of back-and-forth between the two organizations across our platform. It just so happens in the case of PGW circumstance, it's one in which they did bring to us as they were seeking to really confine into a small group that they felt were most representative of credit prospectives, if you will, at a time obviously when the market had a great degree of volatility to it.

And we certainly have a very good and deep relationship with a sponsor who reached out to us as well and asked if we would be willing to engage in conversation here. So, some of these things can get manufactured in a very club basis; it doesn't detract from their value. It's all about how do you make money for your investor clients and good risk-adjusted returns. In certain circumstances where those club relationships are there, we are certainly happy to engage those, as long as -- as I highlighted as our principles and guidelines at the outset -- that we do have direct access to the management team.

We can affect a diligence process that truly allows us to understand the business risk and the appropriateness of those risks being allocated in the capital structure, and ultimately, that we can influence the negotiations relative to the terms of that instrument that affords us levels of protection as a credit investor, that allows us to protect clients and capital. So, this particular situation, PGW checked all of those boxes. And so therefore, given our relationship with the party here, is one in which we became very constructive and engaging.

Yes. And this is Mike here, Joe. I won't spend too much time on this one, because Steve hit on all the points that are relevant. This one in particular also is one that's been announced that a public company is going to acquire this asset. So, unfortunately, it's new to the portfolio and will be coming out of the portfolio in the second quarter. That's public information and has been announced.

Okay. That's right. And just real quick, was that -- well, I guess it's relevant with this coming out. I was going to mention is that first versus second? The other two BCs had it marked as first. But again --

It's a last out security, so I think different people mark it in different ways. We did categorize it as a second lien, but technically, it's a last out position.

Okay. Fair enough. Thank you. The next question, Bankruptcy Management Solutions -- so this was marked up about, I think, $6 million last quarter, and then in the fourth-quarter marked up by another $1 million. Is this a company that performs better in maybe a higher default environment where the software is being utilized more?

Yes, I'll jump in and then Mike can add on to it -- it's Steve. So, BMS is definitely one of those. And you may recall from the third quarter call, as I had contemplated the monetization of equities, I stopped short of BMS in large part because BMS's business model was one that plays to the favor of a default cycle. And my view was that there was further upside in light of being later-stage in a business cycle, as well as, certainly at the time, a view around an increasing rate at the short end of the curve.

So, the short end of the curve, as well as default cycle, are the two key drivers of revenue performance for the Company. And so we continue to believe we are in a good spot as it relates to that.

We do anticipate, though, given the degree of interest around that name, that at some point -- whether it's in 2016 or in 2017 -- there is likely to be a transaction pertaining to the Company. And we believe that our positioning around that and taking the views that we did will ultimately prove out to be to the favor of our clients.

(multiple speakers) Sorry, Joe. I don't have much to add to that, but we are seeing -- to Steve's point, we are seeing positive momentum in that business that we feel is sustainable.

Totally makes sense there. And the last, I guess, two questions just relate to Vertellus. So, the first one is, how do you go about marketing this investment? The average dealer bid at 12/30 was somewhere around [71]. And then it's, of course, since drifted lower and is now somewhere near [50]. So the first question related to the valuation of that -- I believe it was marked at around [80, 81] and the portfolio at 12/31.

And then the second question related to Vertellus is, if you could talk about the competitive environment for the agricultural business, which is about 40% of Vertellus in China. And the anti-dumping tariff, I guess that was there in 2013 -- is the tariff still in place? Or if you could give any color around that situation.

Let me -- this is Steve -- let me go first on valuation and then I'll let Mike speak more specifically to the investment. So, from a valuation point of view, as we've shared in previous calls, we use independent valuation firms to arrive at what is value for a particular investment.

Our policies associated with valuation are articulated in our filings, so I would guide you to take a look at that. But nonetheless, they will make that determination based upon the available information at the time of striking of that value. These are obviously, as of 12/31, that information was provided to them. And based upon that, they made a determination of what the appropriate value is.

Clearly, as conditions develop as you move through time and more facts become available -- and I highlight the point, facts -- then, at that point, the valuation firm, independently acting on behalf of the Board of Directors of BCIC, will make a determination as to what the appropriate value is, and go from there. As I also said, I think in the third quarter, one needs to be cautious about indicated values by virtue of the secondary market.

As an experienced person in markets -- distressed market trading and the like, it is certainly not out of character, particularly if an instrument of this size in terms of the tranche, to put out one-sided levels in order to trigger liquidity, which is so hard to even get in the distressed world. So we want to be careful around that.

But all of that having been said, it is third-party valuation, the valuation firm will take into account any activity that might exist in secondary markets, as well as the fundamental information on the Company to derive that value.

So, I'll pause on that. And, Mike, if you want to speak to any specific credit issue?

Yes. I mean, with the Company, we are in active discussions with the sponsor and the lender group on this one. We're gathering information. But like I said, we are in active discussions on this, and there are strategic conversations going on around the business. So, I can't really say much more than that. But we are definitely switched on.

We have resources dedicated to this situation. And we are -- our team is laser-focused on maximizing value around this investment. And, like I said, we are in fact-gathering mode right now and the situation is fluid.

Okay. Fair enough. Thank you, guys, very much for taking my questions this morning.

All right. Thank you.

Thanks, Joe.

(Operator Instructions) We have no further questions in the queue at this time.

Great. Thank you very much, everybody, for participating today. We appreciate the questions. Feel free to reach out to myself and Aaron as the Investor Relations person for BCIC if you have any further follow-on questions. We look forward to chatting with you at about six weeks' time. Thank you. Bye bye.

And that does conclude today's conference. Thank you for your participation.