Gladstone Investment Corp (GAIN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Gladstone Investment Corporation's fourth-quarter and year-ended March 31, 2014, earnings conference call.

(Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, David Gladstone. Please proceed, sir.

All right, thank you, Charlotte, for that nice introduction. And hello and good morning to all of you out there. This is David Gladstone, the Chairman. This is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment. We have our common stock NASDAQ trading symbol GAIN.

Again, thank you all for calling in. We are always happy to talk to our shareholders and potential shareholders. We like to give an update on our Company, our portfolio companies and our business environment. I wish we could do this more often.

And, again, all of you, if you're in the Washington, DC, area, have an open invitation to stop by our offices here in McLean, Virginia, just outside of Washington, DC. Stop by and say hello. You will see a team of about 60 people, and now some of the finest in the business.

And now, let's hear from Michael LiCalsi, our Internal Counsel and Secretary, also serves as President of the Administrator. Michael?

Good morning, everyone. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934, including statements with regard to the future performance of the Company. These forward-looking statements inherently involve certain risks and uncertainties, and other factors, even though they are based on our current plans, which we believe to be reasonable. Many of these forward-looking statements can be identified by the use of such phrases as anticipates, believes, expects, intends, will, should, may, and similar expressions.

There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements, including those factors listed under the caption, Risk Factors, in our 10-K filing, and our registration statement as filed with the SEC, all of which can be found on our website at www.gladstoneinvestment.com or the SEC's website at www.sec.gov. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as result of new information, future events or otherwise, after the date of this conference call, except as required by law. Please also note that past performance or market information is not a guarantee of future results.

Please take this opportunity to visit our website, www.gladstoneinvestment.com -- sign up for our email notification service. We don't send out junk mail, just timely news on our Company. You can also find us on Facebook, keyword -- the Gladstone Companies. And you can follow us on Twitter at GladstoneComps.

Now, we will begin the presentation by hearing from Gladstone Investment's President, David Dullum.

Thanks, Michael. My voice is a little bit off this morning, so I apologize. Hopefully, it'll come through loud and clear. I usually like to start with a very brief review of what it is we do. It helps to keep the long-term goals in mind as we update on these calls our short-term results.

Gladstone Investment provides capital for the buyout of businesses. These usually are companies with annual sales between $20 million to $100 million. What we do is provide the subordinated debt in conjunction with the equity, and occasionally, some senior debt.

This combination produces a mix of assets for Gladstone Investment, and is the basis of our strategy, which means our debt investments provide income to pay and grow our monthly dividends. And we expect the equity to appreciate, and, of course, from time to time, to generate capital gains. This is also what differentiates us from other public BDCs that are predominately debt-focused, whereas we are equity-oriented.

So, for instance, during this fiscal year, we sold a company called Venyu Solutions, Inc., which we purchased, with its management team, back in roughly late 2010. The equity portion of this investment generated cash proceeds of roughly $32.2 million, resulting in a realized capital gain of approximately $24.8 million, with dividend income of $1.4 million, as well. Therefore, our original $6-million equity investment generated approximately a 5.5 times return, including the dividends received.

So, the sale of Venyu actually is the fourth exit, so to speak, from our management-supported buy-out investments. These four liquidity events, all capital gains, have generated approximately $54.5 million in realized gain since June of 2010. This realized gain -- or these realized gains, I should say -- have enabled us to offset the majority of cumulative realized losses that we had.

So, with this continued growth in operating income and these realized gains, our Board was actually able to declare a monthly dividend of $0.06 per common share for the last six months of fiscal year ending March 31, 2014, which was an increase of 20% over the first six months of this fiscal year. The Board has also gone ahead and declared $0.06 per share for each of April, May and June of 2014, which is actually a run rate of $0.72 per share per annum. So, again, we've been able to increase the dividend nicely.

Generally, these investment opportunities come through our partnering with management teams and other sponsors in the purchase of a business. Our strategy, which provides this financing package, including the debt and the majority of the equity, is a competitive advantage, as it gives the seller and, to some extent, whoever the buyer is, if we are partnering with a sponsor, a high degree of comfort that this purchase will happen. And the sources we concentrate on for these buy-out opportunities are independent sponsors, middle-market investment bankers, and middle-market private equity firms; all areas where our equity component is meaningful to the transaction. In addition to outright purchases, we occasionally will find opportunities to partner with a business owner who will sell a portion of that company to us, and use this capital to grow the business.

Looking at our activity for the quarter and the fiscal year, for the quarter ended March 31, we closed two new investments totaling $28.7 million; and they were as follows. In February, we invested $13.1 million in a combination of debt and equity to purchase Head Country, Inc., which is a manufacturer of a leading regional brand of barbecue sauce, seasonings and marinades.

Also in February, we invested $15.7 million, again, equity and debt package, in support of an independent sponsor, and allowed us, with them, to purchase Edge Adhesives, Inc. Edge is a developer and a manufacturer of innovative adhesives, sealants, tapes, and related solutions used in a variety of industries.

With these two buyouts in February, as a result, we actually added nine new proprietary investments during last fiscal year, which was a total of about $126 million. This activity is the highest in any year of the Fund's history. And now actually we have 29 portfolio companies, which is up from 21 at the last fiscal year end; so, pretty good growth.

Additionally, during the quarter, one of our portfolio companies, Noble Logistics, had to file for protection under the bankruptcy code, and opted to sell its operating assets in what's called a 363 sale. In this regard, we, being GAIN, formed NDLI Acquisition, Inc., which is a new investment for GAIN, with $2.6 million funding we put in, and became what's called the stalking-horse bidder for these assets. NDLI prevailed in the court-administrated auction. So, as a result, NDLI assumed various debt instruments owed to GAIN by the old Noble. And these loans, now, continue as a current-pay accruing loans on the GAIN balance sheet. NDLI operates in the same-day package delivery business.

In connection with this transaction, we ended up writing off our previous equity investments in Noble, and recorded a realized loss of $3.4 million. As a result, though, today GAIN has a total investment at cost of $17.9 million in NDLI. And our debt investments in NDLI pay currently at the rate of 10.7%. And we also own a majority of the non-voting equity of the company. The other owners becoming or, indeed, are the managers.

Turning to the pipeline for new deals, the team at GAIN, of course, is focused and very engaged on the active marketing and deal-generating activity. Our goal is to, of course, find the opportunities that fit our investment parameters, generally where the valuations, relative to EBITDA, are in the multiples of up to around 6 to 6.5 times. In today's market, we are frequently seeing opportunities with much higher valuations and, frankly, we tend to avoid these if we can. We do look at them on occasion, and we might pursue one of these if there is some unique characteristics that we believe that the underlying intrinsic value is there.

Currently, we are in an extremely competitive and a challenging market environment, I need to say. However, we are encouraged by our marketing efforts, and it's, of course, reflected in our new deal activity this past year. So, we continue to grow our presence in the marketplace, building a foundation to continue our growth trend and our position in the marketplace with our debt and equity product. The outlook, in summary, for this Fund, is to maximize its distributions to shareholders, with good, solid growth in both the equity and the income portion of the assets.

With that, I will turn it back over now to our CFO and Treasurer, David Watson.

Good morning, everyone. As Dave discussed, we had a decent amount of activity this quarter, which concludes our largest year of origination in the Fund's history. Not surprising, then, we achieved our best year of operating performance, with over $36 million in total investment income, and $19.3 million in net investment income.

We were also really pleased with our net realized gain activity of $8.2 million, which has resulted in the fund to offset the majority of our cumulative realized losses since inception, of which $40 million of the prior losses were incurred primarily during the recession in connection with the sale of performing loans to pay off a former lender. That chapter is fully behind us now, and we are pleased with the position of the Fund and our growth prospects.

Regarding our balance-sheet position, at the end of the March quarter we had $331 million in assets, consisting of $314 million in investments at fair value, $5 million in cash and cash equivalents, and $12 million in other assets. At our cost basis, 73% of our portfolio assets consisted of debt investments of approximately $279 million, and 27%, or $105 million, consisted of equity securities, which we hope to produce capital gains.

For the first time since June 2009, we did not purchase US treasury securities at quarter end to help satisfy our asset diversification requirements. As forecasted, the amount of T-bills that we have had to purchase has been coming down consistently over the past year due to the increased size of our portfolio and qualifying assets. We would have passed the diversification requirements the last three quarters without them. And unless some unforeseen event occurs, we do not expect to have to purchase them in the future.

As for our liabilities, we had $110 million, consisting of $40 million in term preferred stock, $62 million in borrowings outstanding on our $105-million credit facility, $5 million in secured borrowings, and $3 million in other liabilities. So, in all, as of March 31, 2014, we had $221 million in net assets, or $8.34 per share.

Today, our balance sheet is largely the same as it was at year end. We have investments at fair value of $315 million, cash of $3.4 million, $62 million in borrowings on our line of credit, and $5 million in secured borrowings. In other words, we have over $45 million in available capital to deploy in new investments prior to any potential increases of our borrowing capacity.

Moving over to the income statement: For the March quarter end, total investment income was $8.8 million versus $8.7 million in the prior quarter. Total expenses, including credits, were $4.2 million versus $4.3 million in the prior quarter, leaving net investment income, which is before appreciation/depreciation gains or losses, of $4.6 million versus $4.4 million for the prior quarter, an increase of 5.5%. The increase in our investment income was due to an increase of $0.4 million in interest income, which is from holding a larger portfolio, partially offset by a $0.3-million decrease in other income, which was due to fewer success and pre-payment fees that were received this quarter compared to the prior quarter.

Over the last two quarters, other income has accounted for 9.4% and 12.7%, respectively, of our total investment income. And, as I've mentioned on previous calls, during the past four fiscal years, other income has averaged over 20% of our total investment income, and 16% during the latest fiscal year. We expect other income, which is primarily composed of success and pre-payment fees, as well as dividend income, to remain meaningful but volatile from quarter to quarter.

Our net expenses decreased quarter over quarter, primarily due to a $0.5-million decrease in other expenses, partially offset by an increase in interest expense from increased borrowings for our new deals. The other expenses were down due to lower debt deal expenses in the current quarter, and the excise tax in the prior quarter. In total, our net investment income, which was $0.18 per common share, increased 5.9% over the prior quarter of $0.17 per common share.

For the fiscal year end, total investment income was $36.3 million versus $30.5 million in the prior year. Total expenses, including credits, where $17 million versus $14 million in the prior year, leaving net investment income of $19.3 million or $0.73 per share, versus $16.5 million or $0.68 per share for the prior year, an increase of 17%. This increase was driven by an increase of $5.7 million in interest income from holding a larger portfolio, partially offset by related costs that are incurred from holding a larger profile, such as borrowings and management costs, and specifically the base management and incentive fee. Of note: Other income was significant but consistent from year to year at $5.8 million, or 17.3% of all investment income on average over those past two years.

Regarding our debt investments, our debt portfolio on a weighted average basis has grown from $198 million last year to $241 million this year, with an average of $256 million in the fourth quarter. Our weighted average yield on interest-bearing debt investments was 12.6%, down slightly from last quarter of 12.7%. The yield had a slight increase year over year to 12.6% from 12.5% last year.

Keep in mind: We often have success fees as a component of our debt instrument, but they are excluded from our reported yields. Success fees are contractually due upon a sale of a portfolio company, although the portfolio company can pay it earlier. As of March 31, 2014, approximately 81% of our interest-bearing debt has associated success fees, with an average contractual rate of 3% per annum.

The success fees owed to us are approximately $17.2 million, which is about $0.65 per share. We generally do not accrue these success fees on our balance sheet. For comparison purposes, if we had accrued these success fees as we would PIK, our weighted average yield on interest-bearing assets would approximate 15.6% during the March quarter.

There is no guarantee that we will be able to collect all the success fees or have any control over their timing. Overall, we believe this is positive portfolio growth, and debt investments alone has positioned this Company well for the future. And, in part, has enabled us to increase our dividend rate on our common stock by 50% since late 2010, and 20% of loans during this past fiscal year.

Let's turn to realized and unrealized changes in our assets. Realized gains and losses come from actual sales or disposals of investments. Unrealized appreciation and depreciation come from our requirement to mark our investments to fair value on our balance sheet. The change in fair value from one period to the next is recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event.

With our $24.8-million realized gain from the sale of Venyu in August 2013, we took the opportunity during the last six months of fiscal year ended March 31, 2014, to strategically sell two of our portfolio companies, ASH and Packerland, which resulted in realized losses of $11.4 million and $1.8 million, respectively. We also realized a capital loss of $3.4 million in Noble in the March quarter.

While these actions generated a realized loss, they were accretive to our net asset value in aggregate by $5.7 million, reduced our distribution requirements related to our realized gains, and reduced our non-accruals outstanding. The result of all this activity was a net realized gain of $8.2 million for the fiscal year, and a cumulative net realized loss position since inception of the Fund of just $0.2 million.

As for our unrealized activity, the net unrealized appreciation over our entire portfolio for the quarter ended March 31 was approximately $0.2 million. This included the reversal of $3.4 million in unrealized depreciation related to the Noble write-off. So, if you were to exclude reversals, we had $3.2 million in net unrealized depreciation for the three months ended March 31, 2014.

This unrealized depreciation was primarily due to decreased equity valuations in several of our portfolio companies. This results from a quarter-over-quarter decrease in certain of the portfolio companies' earnings used in our methodology to estimate the fair value of the equity of our investments.

We are always mindful of the amount of unrealized depreciation on our portfolio quarter over quarter. But, as with our other income, we experience a lot of volatility in our valuations, as market-comparable multiples are difficult to obtain for lower middle-market private companies.

To underscore this point, over the last five quarters, excluding reversals, we have seen our unrealized appreciation and depreciation fluctuate significantly from $0 to $10.4 million of appreciation, to $11.4 million of depreciation, to $1.7 million of appreciation, to $15.5 million of depreciation, then to $3.2 million of depreciation this past quarter. So, given our long-term view related to our investments, we have been pleased with the realized values of which we have exited our investments, and are generally less concerned about the inherent quarter-to-quarter fluctuations in our valuations. For the March quarter end, our entire remaining portfolio was fair-valued at 82% of cost, which is up from 80.7% of cost last quarter, but down from 87.8% of cost at March 2013.

Now let's turn to our net decrease/increase in net assets from operations. This term is a combination of the net investment income, unrealized net appreciation or depreciation, and realized gains and losses.

The March 2014 quarter end, this number was an increase of $0.9 million, or $0.03 per share, versus a decrease of $10.7 million or $0.40 per share in the December quarter. The quarter-over-quarter change is primarily due to the aforementioned realized activity on unrealized amounts of the two quarters.

For the March 2014 year end, this number was a decrease of $1.3 million or $0.05 per share, versus an increase of $17.3 million or $0.71 per share in the prior year. Similar to the quarter-over-quarter changes, the year-over-year change is primarily due to the aforementioned realized activity on unrealized amounts over the two years. All of our portfolio companies are current in payments, except for one, which continues to remain on non-accrual, which represents 0% of the fair value, and 4.2% of the cost basis of our total debt investments as of March 31, 2014.

Regarding interest rate risk, approximately 83% of our loans have variable rates, but they all have a minimum or floor. So, we have been protected in the low interest rate environment that we have experienced over the last several years. These floors have minimized [any potential] negative impact to our interest income for distributions.

As of March 31, the weighted average floor on our variable rate loans is 2.6%, with a margin of 10.1%, resulting in an all-in rate of 12.7%. The remaining 17% of our loans are fixed, with a weighted average rate of 11.8%.

If you had a chance to review the 10-K that we filed last night, you may have noticed that a number of our investments were re-classed from control to either affiliate or non-control non-affiliate. As part of this re-class, we have revised prior-period financials to reflect the re-class for comparability purposes. The general change in the definition of classifications from prior reported periods to the year ended March 31, 2014, relate to the use of voting securities as a primary determinant of classification compared to the use of both voting and non-voting equity securities in prior periods. There was no impact to our bottom line as a result of this re-class.

Also, over the last four fiscal years, our net investment income per share of $2.76 has outpaced the distributions we have made to our common shareholders by $0.36 per share, or 13%. This has largely been driven by income generated from our equity investments. Our Board continues to maintain a conservative distribution policy to ensure we earn our dividend.

RICs generally have to distribute at least 90% of their taxable ordinary income and capital gains. As in the past, we will continue to utilize Section 855A of the IRS code, which allows us to carry forward a reasonable portion of our income and gains. The balance as of March 31, 2014, was $3.9 million, or $0.15 per share. Given our desire to be tax efficient, over the last six months, the Board increased our monthly sustainable distribution rate by 20% to $0.06 per common share a month, and also declared a one-time special distribution of $0.05 per share that was paid in November.

We look forward to maintaining all this momentum, and increasing shareholder value. That concludes my remarks, and I will now turn the call back over to Mr. Gladstone.

All right, thank you very much, Michael, Dave and David. Those were good -- really great summary reports. And since they're summary reports, I hope all of our listeners will read our press releases issued yesterday. And also, yesterday we filed our Form 10-Q. All of these have a lot of information in them about our Companies. You can access the press release and the 10-K on our website at www.gladstoneinvestment.com and also on the SEC's website.

This fourth quarter was another good quarter of growth for this Fund, and it builds upon the first three quarters for the fiscal year. Our team accomplished a lot during the fiscal year ending March 31, 2014. These include things like increasing the dividend by 20%, which is a current monthly rate of $0.06 per share per month, and it is a run rate of $0.72 per year. It is quite an accomplishment to move it by 20%.

We paid 12 monthly dividends, plus an extra dividend of $0.05 in November. So, not only did you get the monthlies, you got an extra in November.

Increasing the investment income by 7.4% to $0.73 per share during the year; again, another win. And increasing income on top of that, there was a net realized capital gain of $8.2 million. All of those are increasingly showing progress in this Company. We invested $126 million in new portfolio companies -- that is certainly a record -- $6 million in existing portfolio companies, and then renewed our line of credit for three years, increasing the commitment by 75% up to $105 million; all tremendous things during the year ending March 31.

Our biggest challenge today is to sustain the growth that we've accomplished over the last three years, and continue to find new investments that all of us believe survive another possible recession like the last one we had, as well as all the inflation that must come given the government's spending. We continue to avoid industries like housing, banking, finance companies that are highly leveraged, high-technology companies, venture capital companies, all these commodity-oriented companies in highly cyclical industries.

Availability of capital is always a concern for companies like ours because we pay out all of our income. So, we have to raise capital. And we will continue to use our current credit facility to grow and look at raising additional long-term debt and equity capital as time goes on.

Although the recent economic indicators have been more positive, the economic recovery that has been going forward has always been sluggish. We still don't have a robust economic recovery. We continue to monitor the economic outlook, which affects all the investment climates in which we operate.

And we feel we have a few concerns, namely: There's still uncertainty around the Federal Reserve's monetary policies and the impact on future interest rates. We always worry about that each time we look at a deal. The fiscal crisis in the federal government is still on top of mind of all of us here. The federal deficit now is over $17 trillion, and continues to climb as the government spending is just unsustainable.

Many private companies, like those which we invest, feel that there's too much regulation around the areas of healthcare, financial services, the energy area, emissions. All of those continue to bother our small business concerns. It is hindering their performance and expansion, and certainly preventing them from continuing to increase the number of jobs.

Despite these economic outlook, our funds have continued to make consistent monthly dividends. We have a history of earning our dividend, which I think some of the BDCs don't. We've continued to make monthly distributions to our shareholders.

And during the fiscal year ending March 31, 2014, we increased the dividend, as I said, by 20%, and paid out a bonus dividend of $0.05. In total, we paid out $0.71 per common share. In April 2014, our Board of Directors declared a monthly distribution to our common shareholders of $0.06 per common share for each of the months ending April, May and June of 2014. The Board will meet again in July to consider and vote on the monthly distribution for July, August and September.

Through the date of this call, we have made 107 sequential monthly cash distributions to our common shareholders, and some bonus dividends or extra dividends along the way. At the current distribution rate for the common stock -- the stock's trading at $7.87 -- paying $0.72 of yield on the distributions, about 9.2% -- this, to me, seems extremely high given the aggressive growth that this Company has had. The average yield during the last three calendar years has been approximately 8%, so we are trading above our three-year average.

The monthly distribution of 7.125% for our preferred stock translates into about [$0.1484] monthly; that's $1.78 annually. Preferred stock had a closing market price yesterday of $26.16 on NASDAQ, ticker symbol GAIN, with a P at the end for Preferred. Gives a yield of about 6.8%. That's very solid because the coverage ratio is outstanding at this point in time.

So, if you want a certainty of dividend, you can get 6.8%. If you want to take a little more aggressive posture and get 9.2%, with a chance to get extras and upturns in the dividend, you can buy the common stock at $7.87.

I think the management team here has a very successful track record of investing in middle-market businesses. They've worked together through multiple economic downturns. We all believe that Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions, with the potential for special dividends from our capital gains. And we continue our disciplined approach of investing while focusing on making very conservative estimates in American-owned businesses.

So, now I'm going to stop. And, Charlotte, if you'll come on, we will take questions from any of our loyal shareholders.

(Operator Instructions)

Jeremy Roane, Hilliard Lyons.

On the capital needs front, I see that your cash balance has fallen to $4.5 million at the end of the quarter. And you're using a substantial portion of your credit line. How are you thinking about your need for capital going forward?

Just like always, we weighed into our capital that we have from our line of credit. At some point in time, when we feel the moment's right, we will have to raise preferred stock or common stock, or some kind of long-term debt. As you know, yesterday we finished our new preferred stock in Gladstone Capital. It was well received, so as a result I think there would be no problem in selling additional preferred here.

I suspect the same is true at a 9.2% yield. I think we could raise capital here. I really don't like to raise common stock at this point in time, mainly because we're trading below net asset value. But obviously, in order to grow and make everybody get higher dividends, we do common stock. But that's the way we solve our capital needs since, as you know, we pay out all of our ordinary income, we don't keep any.

Jeremy, we were able to, if you recall, we were able to increase our line of credit pretty significant over this past year to $105 million. So, there's always a possibility to increase the size of that and that commitment, as well.

Okay. Thank you very much.

(Operator Instructions)

JT Rogers, Janney Capital.

Just a general question about the environment right now, the near-term pipeline. What are you guys seeing? And any anticipation for sponsor activity? Do you see it growing throughout the year, staying stable, or falling off?

JT, it is Dave Dullum. I'd say it's a challenging environment right now. As I mentioned earlier, we have what I think is a good head of steam looking at a number of opportunities. I think it is hard to predict, obviously, and I would not predict, where we will be. But all I can say is that, relative to the pipeline, we keep filling it, of course, the funnel at the top. We're very careful in how we look at these deals. Frankly, there have been a number that we've not been able to get forward on because of the valuation that we see other folks willing to pay. We are not going to do that. We're sticking to our knitting, keeping -- working really on filling the pipeline.

Again I think we will have another decent year. I look forward to that. It's just a lot of hard work -- and as I keep telling our folks around here, shoe leather, to generate the investment opportunity. But it's challenging just because of valuations, frankly, that we are seeing.

Okay. And then just on that valuation point, I know you guys have talked about this before but if you could just refresh my memory on this. I know that you said that there was unrealized depreciation due to lower net income in the quarter. I was wondering, do you change your valuation multiples given that we are seeing increasing valuations elsewhere in the market?

That's a great question. Historically our methodology, which of course is public, and that our Board operates under, we've got a methodology where we effectively index the multiple we originally paid for the portfolio companies. So, where we'd, frankly, generally made good purchases, so to speak, the index, if you will, generally fluctuates quarter to quarter obviously, but generally is not really truly reflective of the current marketplace. We will and have in certain circumstances made exceptions.

In a couple of cases, back a couple years ago when we were close on the sale of a portfolio company, we had to acknowledge that we had legitimate offers, if you will. And so we adjusted for that. But it is not something we do as a course, normally. We are looking at it, continue to revise our thinking because, truthfully, we probably are using multiples, in some cases, that are indeed below where the market is today, certainly from what we are seeing transactions being completed at. But our process keeps us somewhat on a different track.

And, JT, just piggybacking on that, we use two approaches on those multiples. One is from indexes out there that have, what I will call, an index of small and mid-sized businesses as a general index. And then in some cases we have indexes that are specific to the industry. And again it is very hard to drill down and get an index on a small business area. They just don't exist. And so, as a result, we have to revert back to the general index. But when we can find an index that's specific to smaller businesses in a particular area, we will use that. And that's usually higher than what the general index is because the general index obviously has all flavors of businesses in it.

I would encourage everyone not to spend a lot of time on valuations and net asset value simply because it is so tenuous. And I think if you gave a business to be valued to six or seven people you'd get six or seven different valuations. Unlike mutual funds which can look in the index, as well as in their own market, and find exactly what a holding is, we have no way of doing that. So, while we see people paying very high amounts for, and multiples for, businesses, we are not following that index up. And I don't think it benefits anybody to have a huge net asset value. So we are just being conservative on that in case the world comes down to reality in the near term.

Great, thanks for the detail on that. And then just one last question on Noble Logistics, continuing to add capital to that position. I was wondering if you could talk about the trends there, what your expectation is, when you were making the stalking horse bid?

JT, this is a company -- of course, the old Noble logistics was in the portfolio a couple years. It is in actually a pretty interesting industry in the same-day delivery business. Without going into a lot of detail, or actually very little detail -- I'd rather not at this point, as some of the sensitivities -- but it is a fundamentally sound business. The company continues to and performs well.

They chose -- they being the Company -- for a variety of reasons regarding a class-action lawsuit, primarily in California, that caused them to take the decision to do the bankruptcy protection and then in turn sold the assets. And that gave us the opportunity, as I mentioned, to provide the stalking horse bid, which we ended up, of course, being successful in. So, what we have now, frankly, is an investment that we believe is a good investment going forward given the nature of the industry. We've actually seen a lot of activity, frankly, in that industry at fairly high values. We've got a good management team.

Think of it as effectively a net new investment going forward. Perhaps the best part of all this is essentially the relatively small amount of equity, if you will, that we had to write off, which was from the old investment. Now the new investment, effectively also own a very significant equity position in the business going forward with the debt that we effectively had before. So, I have a good feeling about this business going forward. Just have to keep working with it.

JT, [just something minor], in the past couple of years we haven't had the support in Noble with capital. So this is more of a situation that Mr. Dullum just described.

Okay, great. That's really helpful. Thanks a lot.

(Operator Instructions)

At this time I'm not showing any further questions. I would like to turn the call back over to David Gladstone for any closing remarks.

All right, thank you all for dialing in. It was a good call. Have a lot of good information out there. I hope you all have a chance to dig into the details and hope you buy a lot of shares. That's the end of this call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.