Fidus Investment Corp (FDUS) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fidus Investment Corporation's Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Jody Burfening. You may begin.

Thank you, Gigi, and good morning, everyone. Thank you for joining us for Fidus Investment Corporation's Third Quarter 2018 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com.

I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived webcast replay will be available on the Investor Relations page of the company's website, fdus.com, following the conclusion of this conference call. I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included in -- on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, November 2, 2018, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the SEC. Fidus undertakes no obligation to update or revise any of these forward-looking statements.

With that, I would now like to turn the call over to Ed. Good morning, Ed.

Good morning, Jody, and thank you. And good morning, everyone, and welcome to Fidus' Third Quarter 2018 Earnings Call.

I'll start today's call with a high-level perspective on our third quarter results, and then I'll cover our investment portfolio performance and conclude with comments on our view of the market and Q4 activity levels. Shelby will go into more detail about the third quarter financial results and liquidity. Once we have completed our prepared remarks, we'd be happy to take your questions.

Throughout 2018, we have stayed the course executing our strategy of building a well-diversified portfolio of debt and equity investments in lower middle market businesses that we believe will perform well over the long term with an emphasis on companies that operate in industries we know well, generate excess cash flow for debt service and have positive long-term outlooks. By adhering to our underwriting discipline focused on capital preservation and generating attractive risk-adjusted returns, we emphasize quality over quantity and the long-term over the short term. Our investment strategy and underwriting principles ensure that we stay focused on our primary goal of delivering stable dividends and growing net asset value per share over time.

The third quarter was no exception. Our operating results for the third quarter were in line with our expectations. Adjusted net investment income, which we define as net investment income excluding any capital gains and incentive fees attributable to realized or unrealized gains and losses, was $8.9 million or $0.37 per share, reflecting a high level of current and recurring income from debt investments. We realized net losses of $7.2 million primarily related to the anticipated exit of 1 portfolio company that was outweighed by further unrealized appreciation in our equity portfolio. As of September 30, 2018, our net asset value, or NAV, was $401.5 million or $16.41 per share, 2.2% higher than the net asset value as of December 31, 2017.

On September 21, 2018, Fidus paid a regular quarterly dividend of $0.39 per share. At September 30, estimated spillover income or taxable income in excess of distributions was $8.4 million or $0.34 per share. On October 30, the Board of Directors declared a regular quarterly dividend of $0.39 per share and a special cash dividend of $0.04 per share, both of which are payable on December 21, 2018, to stockholders of record as of December 7, 2018.

Turning now to our investment activity during the third quarter. We invested $40.6 million in debt and equity securities, of which $29.8 million or nearly 3/4 went to 3 new portfolio companies. In 2 of the 3 new debt investments, we invested in first lien floating rate debt, which illustrates our ability to offer flexible debt solutions while generating attractive risk-adjusted returns for our shareholders.

Let me briefly recap each of our new portfolio company investments. We invested $9.2 million in first lien debt, preferred equity income and equity in Global Plasma Solutions, a leading provider of indoor quality solutions for commercial and residential HVAC applications; $10 million in first lien debt in Hunter Defense Technologies, a leading provider of highly engineered solutions for the U.S. Military and other defense and industrial customers; and $10.6 million in second lien debt and common equity in Road Safety Services, a multi-regional provider of pavement marking and traffic control services. Road Safety is a spin-off of an existing portfolio company, Consolidated Infrastructure Group.

In terms of repayments and realizations, proceeds totaled $26.8 million, including we received payment of $5.4 million related to the exit of our debt and equity investments in Jacob Ash. We received payment of $4.7 million related to the exit of our debt and warrant investments in Ice House America and realized a gain of approximately $0.1 million. We received payment of $2.1 million on our second lien debt and equity investments in Consolidated Infrastructure Group. We received payment in full of $12.1 million on our second lien debt investment in Vanguard Dealer Services. And we exited our debt -- our second lien debt investment in Cavallo Bus Lines Holdings and realized a loss of $7.4 million. And we exited our debt investment in Inflexxion and realized a loss of approximately $0.1 million.

As reported in our third quarter press release, subsequent to quarter end, on October 1, 2018, we invested $13.7 million in a new subordinated debt investment of Rohrer Corporation, an existing portfolio company. Also on October 1, 2018, we exited our debt investment in Toledo Molding & Die and received payment in full of $10 million on our second lien debt. On October 4, 2018, we exited our debt investment in Midwest Transit Equipment and received payment in full of $12.6 million on our subordinated debt, including a prepayment penalty. Also on October 4, 2018, we exited our debt and equity investments in Thermoforming Technology Group. We received payment in full of $23.4 million on our second lien debt and received a distribution on our equity investment, resulting in a realized gain of approximately $0.7 million.

On October 23, 2018, we invested $7.5 million in first lien debt and common equity of Alzheimer's Research and Treatment Center, a leading clinical trial site services provider with a focus on trials targeting the treatment and prevention of Alzheimer's disease. Finally, on October 26, 2018, we realized a gain of approximately $3.3 million on our equity investment in FAR Research.

Turning to our portfolio construction and metrics. The fair market value of our investment portfolio as of September 30, 2018, amounted to $668.5 million, equal to 107.9% of cost. The breakdown on a fair value basis between debt and equity was 80.1% in debt and 19.9% in equity investments. We believe this portfolio diversification can provide us with high levels of current and recurring income from debt investments and the incremental returns from the potential monetization of mature equity-related investments, along with a reasonable margin of safety. We ended the quarter with 65 active portfolio companies and 1 portfolio company that had sold its underlying operations.

As of September 30, 2018, we had debt investments and 2 portfolio companies on nonaccrual status, representing 3.5% and 1.4% of the total portfolio on a cost and fair value basis, respectively. In addition to Restaurant Finance Co, during the third quarter, we placed K2 Industrial Services on nonaccrual. We are actively managing both of these investments.

Moving to portfolio performance, we track several quality measures on a quarterly basis to help us monitor the overall stability, quality and performance of our investment portfolio. In the third quarter, these metrics remained solid. First, we track the portfolio -- portfolio's weighted average investment rating based on our internal system. Under our methodology, a rating of 1 is outperform, and a rating of 5 is an expected loss. As of September 30, the weighted average investment ratio for the portfolio is 1.9 on a fair value basis, in line with prior periods.

Another metric we track is the credit performance of the portfolio, which is measured by our portfolio companies' combined ratio of total net debt through Fidus' debt investments to total EBITDA. For the third quarter, this ratio was 3.8 compared to 3.6x for the same quarter last year.

The third measure we track is the combined ratio of our portfolio of companies' total EBITDA to total cash interest expense, which is indicative of the cushion our portfolio companies have in aggregate to meet their debt service obligations to us. For the third quarter, this metric was 3.8 compared to 3.7x for the same quarter last year.

We believe the soundness of these metrics reflect our debt structuring philosophy of maintaining significant cushions to our borrower's enterprise value in support of our capital preservation and income goals.

As we enter the final months of 2018, we see a continuation of the improved quality of deal flow and M&A activity that we saw in the third quarter relative to the first half of the year in anticipation of a push-to-close deals before year-end, which can position us for a healthy quarter from an origination perspective.

As I mentioned on last quarter's call, we also expect to see a fairly robust level of realizations as the year comes to a close as several portfolio companies are evaluating strategic alternatives or going through sales processes. To illustrate this point, we reported in our subsequent event section, we realized $4 million in gains on the sale of 2 equity investments in October.

We believe these gains and potential realizations, in addition to the losses on debt investments we have incurred this year, demonstrate the benefit of maintaining a well-diversified portfolio, a key element of our investment strategy. We know that write-downs and losses are inevitable in our business. We also believe that having a high-quality equity portfolio not only provides the opportunity for incremental profits, but also a reasonable margin of safety.

As of September 30, our equity portfolio is valued at a little more than 2x cost. The combination of our investment strategy and underwriting discipline keeps our portfolio well positioned to generate attractive risk-adjusted returns.

While we are looking forward to a busy fourth quarter, we intend to continue to selectively invest and manage the business for the long term with an emphasis on capital preservation.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Thank you, Ed, and good morning, everyone. I'll review our third quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q2 2018.

Total investment income was $17.9 million for the 3 months ended September 30, 2018, a $0.2 million decrease from Q2. Interest and PIK income decreased by $0.1 million related to incremental assets under management, offset by placing our debt investment in K2 Industrial Services on nonaccrual. Fee income decreased by $0.2 million primarily due to more prepayment and structuring fees in Q2. Dividend income in Q3 was $0.4 million, a $0.1 million increase versus Q2.

Total expenses, including income tax provision, were $10.4 million for the third quarter, approximately $1.2 million higher than the prior quarter primarily related to the capital gains fee accruals.

Total G&A expenses decreased by $0.5 million due to the acceleration of noncash expenses related to an expired registration statement and Annual Shareholder Meeting cost incurred in Q2. Base management and income incentive fees increased by $0.2 million, and accrued capital gains incentive fees increased by $1.7 million.

Interest expense was $0.1 million higher in Q3. Interest expense includes interest as well as any commitment and unused line fees. As of September 30, the weighted average interest rate on our outstanding debt was 4.1%.

As of September 30, we had $301.5 million of debt outstanding comprised of $214.5 million of SBA debentures, $50 million of public notes and $37 million outstanding on our line of credit. Our debt-to-equity ratio was 0.75x or 0.22x statutory leverage, excluding exempt SBA debentures.

Net investment income, or NII, for the 3 months ended September 30, 2018, was $7.5 million or $0.31 per share versus $0.37 per share in Q2. Adjusted NII was $0.37 per share in Q3 versus $0.36 per share in Q2. Adjusted NII is defined as net investment income, excluding any capital gains, incentive fee expense or reversal attributable to realized and unrealized gains and losses on investments. A reconciliation of NII to adjusted NII can be found in our earnings press release that was issued yesterday afternoon and is also posted on the Investor Relations page of our website.

For the 3 months ended September 30, 2018, Fidus had $7.2 million of net realized losses primarily related to the write-off of our debt investment in Cavallo Bus Lines. Our net asset value at September 30 was $16.41 per share, which reflects payment of the $0.39 per share regular dividend in September.

Turning now to portfolio statistics. As of September 30, our total investment portfolio had a fair value of $668.5 million. Consistent with our debt-oriented investment strategy, our portfolio on a cost basis was comprised of approximately 7% first lien debt, 66% second lien debt, 17% subordinated debt and 10% equity securities. Our average portfolio investment on a cost basis was $9.5 million at the end of the third quarter, which excludes an investment of one portfolio that sold its operations and is in the process of winding down.

We have equity investments in approximately 91% of our portfolio companies with an average fully diluted equity ownership of 6.3%. Weighted average effective yield on debt investments was 12.6% as of September 30. The weighted average yield is computed using the effective interest rate for debt investments at cost, including the accretion of original issued discount and loan origination fees but excluding investments on nonaccrual, if any.

Now I'd like to briefly discuss our available liquidity. As of September 30, our liquidity and capital resources included cash of $38.1 million and $38 million of availability on our line of credit, resulting in total liquidity of $76.1 million. In October, we upsized our line of credit facility to $90 million. Taking into account subsequent events, including the incremental availability under our line of credit, we currently have approximately $118.6 million of liquidity.

Now I will turn the call back to Ed for concluding comments. Ed?

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support.

I will now turn the call back to Gigi for Q&A. Gigi?

(Operator Instructions) Our first question is from Robert Dodd from Raymond James.

Ed, can I ask you about your comments about improved quality of deal flow versus the first half of the year, Q3, Q4, and the outlook from there? I mean, can you give us any color on what's improving? Is it -- I mean, obviously, the deals you did in the third quarter, 2 of the 3 were first lien. So is it kind of spreads on, on first lien? And is it better structures? I mean, what exactly would you quantify, if you could, as...

Sure. Sure. Well, Robert, it's a great question. It's also a difficult question to answer other than, let's say, during the first 6 months of the year, I mean, the market was open, but just the quality of the opportunities we were seeing were kind of okay at best. We obviously lost a couple of deals due to competition, but it really wasn't that good in the second quarter, in particular. And I would say, we saw a significant improvement really starting in July, and I think I commented on that in the last conference call as well. And so since that point in time, we're just seeing much better opportunities in terms of what we want to invest in. And so what do I mean by that? I mean, recurring revenue businesses, high free cash flow businesses, things that we think will withstand any potential recessions that could happen in the not-too-distant future. So those types of businesses. It's just there's a difference in terms of the quality of the opportunities that we're seeing today and have been seeing, really, since July relative to Q2, in particular, but relative to the first 6 months of the year.

Got it. Got it. So it really is the quality of the company. It's not the quality of the structures.

That's correct. That's very much correct.

Got it. Got it. Perfect. And then on robust realizations. I mean, if I look at just the affiliate segment of your schedule of investments, I mean, between [funds] deal where the equity is obviously up, way up, Pinnergy, the A2s at 10x cost. I mean, are those -- some of the ones, I mean, without -- I'm trying to pin you down on specifics. But is it those kind of businesses that you're seeing -- really see high levels of interest from the acquirers? Or is it just more broad based or...

Well, I think, what I would say is we're not -- first and foremost, we are in almost all of the situations. We're not in control of the decisions to sell a company, if you will. But what I would say, having said that, is there are numerous portfolio companies in our portfolio that are undergoing strategic alternative evaluations or in sales processes. And so we've seen that several events take place in the last 3 months or so, and it -- but it's our anticipation that more will come. And we do have more than a few portfolio companies that are, I would say, right for sale, if you will, but I don't know that I want to comment any more than that. At the same time, these are processes that are unpredictable, meaning someone is engaged, and they may sign up an LOI and do all their diligence. And then people fight about the working capital adjustment, and the deal doesn't happen. And so they're unpredictable. And it's hard -- so it's hard for me to say any more that I just said. But what I would say is we've got numerous portfolio companies that are undergoing strategic alternatives, and we're evaluating them. And that we're optimistic that, hopefully, several of our portfolio companies that are right for monetization, that those transactions will take place.

Got it. I appreciate that color. And then one more, if I can, kind of on just the arithmetic. Given what you've had in terms of realizations and exits so far in October, your earning assets are down sequentially right now. Your pipeline, you say, you could have a very active back end to Q4, potentially more realizations below the line, but potentially more repayments, maybe a bit more originations as well. Would it be fair to say, though, that given where you are today, which is down sequentially versus Q2, if these originations happen, they're likely to happen late, and so Q4, maybe weighted average interest-generating assets are probably going to be down versus Q3, but potentially then, obviously, you pick up the bump in Q1? But is -- would that be fair to say right now based on what you think you're going to see the rest of the year?

Yes, Robert. I think that's actually a good way to look at it. We do anticipate this quarter to have more repayments and realizations than we do originations. It's early. There's still a lot being worked on, but that would be -- and there's a lot of uncertainty in that statement, both from an originations and a repayments perspective. But as I look at it today, I would say that is an accurate statement. And that's what our expectation is at this point.

Our next question is from Mickey Schleien from Ladenburg.

Yes, I'm here. Can you hear me? Hello?

We can now. Yes. We can now, Mickey. We couldn't before, but we can now.

Yes. Not sure what happened there. Look, Ed, none of us, obviously, has a crystal ball, but the equity portfolio's mark has expanded sharply this year. I'm trying to understand when you look at valuation, how that's been driven in terms of -- can you give us a sense of how much of the increase in valuation was driven by operating performance and the tax cut or -- and higher market multiples?

Sure. I'll do my best. I think to generalize, which is the only way to do it, I think, at this point, I would say a large, large majority of it has been driven by operating performance of the portfolio companies. There are a couple in the list of where we have appreciation that we did increase the multiples, and some of that was due to interest in the company from a potential acquisition. And so we -- obviously, when we get that kind of information, we update our valuations. But I would say a large, large majority of it has been driven by operating performance of the underlying portfolio companies. Tax code really has had nothing to do with it, generally speaking.

Okay. And given what you just said and the concerns on the market about the outlook for growth, I don't know. It's probably early days yet. I mean, you probably haven't seen numbers for October. But is your sense that, at least in the middle market growth and, therefore, operating performance is stable this quarter? Or are you seeing pockets of weakness? I'm just looking into 2019 trying to get a sense of how things will shake out.

Sure. It's a great question. I would say, overall, we feel -- first and foremost, just about our portfolio, we feel very good about the overall health and the quality of the portfolio. And I would characterize it as being in a slow growth mode from a -- both a revenue and an EBITDA perspective. Within a portfolio, when you have 65 companies, we obviously have some that are exceeding expectations, and we also have some that are underperforming. But they're not due -- they're really due to individual situations as opposed to broad industry problems, if you will. So we're really not seeing from a pockets -- or concern perspective, we're not seeing any real concerns. There's, obviously, little things that we are noticing, tariffs, for instance, with regard to a couple of manufacturing companies we have. Steel prices are up, so people having to find ways to manage margins. Having said that, that is -- it's not overly alarming at this point, and we believe it's pretty manageable. But there are things like that, that we're paying attention to. When I think about industries we're not very interested in investing in at the moment, health care would be one on the services side where there's reimbursement rate risk. The consumer is -- obviously, where they're buying things is an ever-changing dynamic, if you will. And so we're being very careful on the consumer side of things right now. But -- and then energy, obviously, is volatile by nature, and it's something that we're obviously being careful with as well as staying away from, generally speaking. So hopefully, that's helpful. But we're not seeing anything today that is concerning from a performance perspective, but there are clearly things to watch.

Okay. I appreciate them. Just a couple of questions about liquidity. One housekeeping question. Could you just give us a sense of how much of the cash at September was in SBIC 1 and 2?

Sure. I'm going to let Shelby obviously answer that.

Yes. So as of the end of September, about 50% of the cash that we had on the balance sheet was in the SBIC funds, with the remainder at the parent company.

Okay. And was that more in SBIC -- forgive me if I forgot...

Yes. So the vast majority or so of that 50%, call it, 43%, was in the first SBIC funds, which is in the process of wind-down, which is probably where you're going. So that is the fund. Because we're in wind-down, we cannot use that cash to reinvest in new portfolio company investments. However, there are some portions of that cash that we could use to upstream to the parent to use for other purposes. But there will be some trapped cash, if you will, in Q4 in that fund before we pay down SBA debentures.

Okay. That's helpful. And just thinking about management of liquidity, Shelby. Obviously, the regulatory leverage is very low at your company. Could you give us an update on the progress toward SBIC 3? You have already mentioned it. And why wouldn't the board approve higher leverage even if nothing else is an insurance policy against market volatility down the road?

So from an SBIC perspective, as everybody I believe knows, we have submitted our request for a third license. We are continuing to progress in the SBA process for approval, and we're optimistic that we'll continue to make some headway in that front in Q4. As to specific timing, there's really nothing further I could say on that front.

And I'll jump in here on the leverage opportunity. I guess, what I would say is, Mickey, we don't really have a, what I would say, a current need to utilize the increase in leverage opportunity that's been afforded by the Small Business Credit Availability Act. We don't think we need that leverage to perform well for our shareholders given our investment strategy and, quite frankly, the utilization of SBIC funds. However, it does make sense, and we are continuing to evaluate it from a long-term flexibility perspective. Hopefully, that's helpful.

That is. And Shelby, can you just remind us in SBIC 1 what levels of debentures need to be repaid in the near term in that subsidiary?

Sure. We still have $64.5 million of SBA debentures that are left to repay before that fund is fully wind down.

Okay. So the cash will go primarily towards that.

Correct.

Our next question is from Ryan Lynch from KBW.

First question has to do with Pinnergy. You guys had about a $6 million gain, which was the vast majority of your total gains reported this quarter. So can you just comment on what is really driving the gain in your equity investments in Pinnergy? And then, where do you guys really see the eventual outcome of this? I mean, it's about a $40 million investment in your portfolio today. It's a fairly large investment. It's been a great-performing investment. I know you mentioned that you're not in control of most of the situations or not -- you don't have control of the equity ownership to decide for a lot of the companies that you own. I know this was a previously restructured investment. Just wanted to know how much influence you have on the eventual outcome of this as well as if you don't have controlling ownership of Pinnergy, which I assume you wouldn't, is there any thought to potentially sell off a piece of your investment to another strategic buyer versus just waiting for the controller of that equity to potentially sell? Or do some M&A with that business?

Sure, Ryan. Great question. And maybe I'll just talk about Pinnergy for a second at a high level, which is it's an oil-field services company that's focused on the Texas, the Oklahoma and Louisiana markets. A large majority of its revenues are focused on the handling and disposal of fluids from producing wells. The balance of the business is drilling related. Fortunately, the company is diversified by hydrocarbon. Meaning it serves both the gas -- or the oil and the natural gas markets, and it's also focused on some of the lowest-cost basins, in particular, the Permian. The company has a great customer base, blue chip. And we are now a small second lien investor and, what I would say, a very meaningful equity investor in the company. But having said that, we do not have a control lien position. So the company is performing extraordinarily well, which is great, and we are, yes, evaluating our -- the opportunities for some form of liquidity. But that is -- there are others that are involved in that equation, and it's a multipronged thing, if you will. And so we are continuing to, obviously, work with the company as we did in the restructuring to figure out a long-term path forward, is what I would say.

Okay. That's helpful. And then one other portfolio company. I mean, K2 Industrial, I would say, a new nonaccrual this quarter. That's been a long time portfolio company, had a pretty big markdown. Just any sort of commentary or color on that would be helpful.

Yes. I'll give you a little bit of just an overview of the business. It's an independent provider of outsourced cleaning, coating and maintenance services in the, what I would call, highly fragmented industrial cleaning and coating services market. So they are very much serving process industries, so think about chemical companies, steel companies, oil companies, refineries, that kind of thing. They offer what I would consider mission-critical support programs ranging from regular comprehensive cleaning of production equipment and facility systems to scheduled shutdowns. The company serves over 500 customers in a variety of end markets, as I discussed. The risk profile of our investments in K2 recently increased, and that's reflected in our valuation. And I think the one thing I'd say is there are more onetime in nature stuff that has occurred, and so that is reflected in our valuation. I think I'd probably prefer to leave it there at this point.

Sure. That's fair enough. That's helpful. And then just one last one. You mentioned a couple aggregated portfolio statistics, debt-to-EBITDA and interest coverage. The debt-to-EBITDA year-over-year increased to 3.8 from 3.6, which is a little bit of a downtrend, and then -- but interest coverage increased to 3.8 from 3.7 year-over-year. So I'm just -- how do you view those 2 metrics? Because they're -- they move a lot, and so I don't want to overstate this. But they did move at opposite directions. Do you view one more favorably than the other? Or is there one that you focus on more than the other?

Great question. Obviously, I focus more on the interest coverage, quite frankly, and making sure that we have adequate cash flows at the portfolio company level to support, obviously, cash interest but also just debt service requirements. And so with interest rates overall being relatively low still, especially compared to long-term averages, we're in a very good spot, which I think is a good thing for just credit investors, in general. When I look at leverage, yes, we're up, and I think that's indicative of a couple of things. One is, I think the market is up from a leverage perspective a little bit over the last 24 months, for sure. And so -- and what we're looking to do -- and we're fine, actually, increasing the leverage as long as the quality of those portfolio companies are intact. And so back to high free cash flow businesses, recurring revenue businesses where we believe the EBITDA is truly sustainable and/or growing. And so that's how we're looking at it. So it's the quality of the underlying asset. And for instance, if someone is going to buy a company that we think is very high caliber and they're buying it for double-digit EBITDA multiple, will we leverage it to a market multiple? And the answer to that is yes because we've done that for a long period of time. We're comfortable going into the 5s and even to 6x for the right assets. And that does -- so that's part of the equation. But having said that, this last quarter, I would tell you that 2 of the investments we invested in were more in the 3, mid-3s range leverage, and 1 of them was more in the mid-4s. And so it really depends on the quality of the company and the type of situation. But back to your -- which do you focus on the most, first, the focus on the quality of the underlying company. And then after that, the structure needs to work well, and that's where interest coverage comes in.

That makes sense. And that's helpful. It's not surprising to see whoever just take out just a little bit given where overall purchase price multiples are increasing and leverage levels just in the overall market. So that's all my questions for me. I appreciate the time today.

(Operator Instructions) At this time, I'm showing no further questions. I would like to turn the call back over to Mr. Ross for closing remarks.

Thank you, Gigi. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our fourth quarter call in late February 2019. Have a great day and a great weekend.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.