Gladstone Capital Corp (GLAD) 2013 Q1 法說會逐字稿

Good morning and welcome to the Gladstone Capital first quarter ended December 31, 2012 conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to David Gladstone. Please go ahead.

Well, thank you, Emily and thank you all for joining us this morning. This is David Gladstone, the Chairman and this is our quarterly earnings call for shareholders and analysts of Gladstone Capital common stock trading under the symbol GLAD and our preferred stock trading under the symbol GLAD with a P for preferred. Thank you all for calling in. We love these moments when we are able to talk to shareholders about the Company and wish there were many more of these calls.

Hope you will take an opportunity to visit our website, www.GladstoneCapital.com, where you can sign up for e-mail notifications so that you can receive information and timely information about what is going on at the Company. And please remember that if you happen to be in the Washington, DC area, we are here in McLean, Virginia. You have an open invitation to come by and see us and say hello. You will see the finest people in the business.

And remember that we are holding our annual shareholders meeting this Thursday, February -- on Thursday, February 14 at the Hilton McLean Tysons Corner. That is at 7920 Jones Branch Drive in McLean, Virginia. So please remember to vote your shares or your proxy proposals that are coming up for approval. We need to get the votes in.

Now I need to read a statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933, 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 and we believe those plans to be reasonable. Many of these forward-looking statements can be identified by the use of the words such as anticipate, 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 the forward-looking statements, including those factors listed under the caption Risk Factors in our 10-K and 10-Q filings and in our registration statements as filed with the Securities and Exchange Commission. All of this can be found on our website at www.GladstoneCapital.com and also on the SEC website.

The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise after the date of the conference call. Please also note that past performance or market information is not a guarantee of future results.

Well, first of all, we will start off by hearing from Chip Stelljes, President and a Board member of the Company. Chip is also the Chief Investment Officer of the Company. The company has publicly-traded funds with the exception of Gladstone Land and through our press release and 8-K in November of last year, we notified everyone that Chip intends to resign from the Company and his positions in other Gladstone publicly- traded funds sometime in the very near future.

We will be working with him on a new type of fund for him to manage, so this may be the last report from Chip and you will have to listen to me give the reports as I used to do. We have two possible firms that we are selecting from to search for Chip's replacement as President of this fund. If you have any idea or resumes, please send them into me and now, Chip, would you give a report on the past quarter?

Sure, good morning. During our last -- our first fiscal quarter ended December 31, 2012, we had a lot of new investment activity, which we are excited about. We also experienced several early payoffs at par, which provided additional liquidity to pay down our line of credit and invest in new portfolio (technical difficulty), also providing $1.1 million in success fees and $0.5 million of prepayment fees this quarter.

Overall, net production was slightly down this quarter as compared to the quarter ended September 30. We invested an aggregate of $50.2 million in six new portfolio companies and an aggregate of $1.6 million to existing portfolio companies through existing revolver draws. We had seven portfolio companies pay off early at par for an aggregate of $47.7 million.

Our two proprietary investments during the quarter were the following -- $14 million in combined senior subordinated debt and equity securities in AG Transportation Holdings, which is a regional food-grade liquid and dry bulk carrier providing a variety of bulk transportation services, and $19.5 million senior subordinated debt now on the Edmonds Shoe Corporation, which is a premier men's footwear and accessories manufacturer.

In addition, we sold one non-accrual investment for net proceeds of $5.9 million, which was $4.3 million above the prior-quarter valuation and wrote off another non-accrual investment valued at zero during the quarter. The combined cost basis of these two investments was $9.2 million.

During the quarter, we continued to manage our current portfolio while working on our pipeline for new deals that fit within our current investment strategies and objectives to, one, achieve and grow current income by investing in debt securities, have established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and two, provide our stockholders with long-term capital appreciation from the value of our assets by investing in equity securities of established businesses that we believe can grow over time and can permit us to sell our equity investments for capital gains.

Our aim is to invest approximately 95% of our portfolio in debt securities and 5% in equity securities. Our focus continues to be making consistent distributions to our stockholders that will grow over time.

Subsequent to December 31, 2012, we are pleased to report that we were able to amend our credit facility to remove the minimum LIBOR floor of 1.5%. This will provide a lower cost of capital for making the investments going into the future, incurred fees of $600,000 related to this amendment and all the terms of the credit facility remain unchanged.

In addition, on January 18, 2013, the Securities and Exchange Commission declared our registration statement effective. This registration statement allows us to issue various types of securities to raise additional capital when needed.

Since December 31, 2012, we have made two new investments for a combined $6 million and invested $200,000 in existing portfolio companies or existing revolver draws. We have also received $900,000 in scheduled and unscheduled principal repayments.

We have continued to see increased competitive pressure in the BDC and in the investment company marketplace for senior and subordinated debt resulting in lower yields for increasingly riskier investments. In spite of this increased competition, we have maintained a weighted average yield on our accruing investments of approximately 11.5% for the past three quarters and we continue to work hard to fill our pipeline with solid deals that provide good returns.

During the fourth quarter of 2012 fiscal year, the SEC approved an exemptive order that allows us to co-invest with our affiliated BDC fund, Gladstone Investment Corporation and this provides origination opportunities on a broader range of companies and flexibility to invest in some larger companies. To date, we have not made co-investments under this award, but are looking for the right opportunities.

Additionally, in October 2012, our Board of Directors approved limited revisions to our investment objectives and strategies, which went into effect on January 1, 2013 and all of our current portfolio investments fit within the scope of our revised objectives and strategies and no change was made to our current portfolio as a result of the revisions.

As of December 31, 2012, our portfolio consisted of loans to 48 companies in 27 states and 22 different industries. Our portfolio is comprised of approximately 97% in debt investments and 3% in equity investments at fair value as of December 31, 2012. We aim to have a diversified portfolio by industry classification, by geographic region and are not too heavily invested in either one of those specifically, nor are we invested too significantly in any one portfolio company.

We are constrained in certain concentration limits in our portfolio by our credit facility, as well as in our regulated investment company test under the IRS rules, all of which we had met and continue to meet as of December 31, 2012.

As of December 31, 2012, we had cumulative unrealized depreciation of $86.2 million, a decrease of $4.9 million quarter-over-quarter. Of our current investment portfolio, 18 portfolio companies originated through December 31, 2007, which represents approximately 51% of the entire cost base of the portfolio valued at 59% of cost and include all of our non-accruals. The 30 portfolio companies originated after 2007, which represent approximately 49% of the entire cost basis of our portfolio, were valued at 93% of cost.

And while we are disappointed in the size and the amount of cumulative unrealized depreciation, we still believe we will be able to recover a meaningful portion of the value of our portfolio. The cumulative unrealized depreciation on our investments did not have an impact on our current ability to pay distributions to stockholders; although it may be an indication of future realized losses, which could ultimately reduce our income available for distribution.

On a related note, the number of our non-accrual investments is still higher than we consider acceptable even though we were able to decrease the number of non-accruals by two this quarter. All the remaining four non-accrual investments were originated in 2006 and 2007 and pipelines were significantly impacted by the recession. We will continue to work to fix these companies and recover a meaningful portion of our capital.

We reduced the number of non-accrual companies by two from last quarter due to the sale of Viapack, Inc. for net proceeds of $5.9 million and the write-off of Access Television Network, Inc. In the quarter ended December 31, 2012, we recognized realized losses of $2.4 million on the sale of Viapack and $900,000 from the write-off of Access. We had exhausted all viable strategies to turn them around and believe this was a prudent step for the two investments and in fact, Viapack was sold at a value that was $4.3 million above where we had it marked as of September 30, 2012.

We remain diligent and focused on managing our current portfolio. We feel we have been able to stabilize and improve some of our non-accrual companies, which resulted in unrealized appreciation on some of these companies during the quarter. In addition, subsequent to December 31, 2012, we signed a purchase agreement to sell another one of our non-accrual companies, which we expect to close in the second quarter of our fiscal year.

The four investments classified as non-accruing had a cost basis of $56.6 million or about 16.4% of the cost basis of all debt investments of our portfolio as of December 31, 2012. From a fair value perspective, the non-accruals fair value represents $5.9 million, so about 2.3% of the fair value of all debt investments in the portfolio at quarter-end. No new non-accrual investments have been added for the last five quarters and none of them added [significantly to the] quarter.

Regarding interest rate risk, our portfolio continues to have a high concentration of variable rate loans, approximately 89% as of December 31, 2012. These variable rate loans usually have a minimum rate or a floor so that the effects of declining interest rates, which we have certainly seen over the last number of years, are mitigated when rates begin to increase, which should see higher income and this is consistent with last quarter and our approach to managing interest rate risk in general. All of our variable late loans generally have rates associated with the one-month LIBOR rates.

Weighted average floor on our variable rate loans was 2.5% in relation to one-month LIBOR with an average margin of 8.8% resulting in an all-in average rate of 11.3% on our income-producing investments as of December 31, 2012 as compared with 11.3% as of September 30, 2012.

We view the quality of our income as consistently good. We generated limited income generated from paid-in-kind or original (inaudible) discount structures and these generate non-cash income and that represented less than 1% of our investment income over the last two years.

On the other hand, our investors have seen a high level of success fee income recorded over the last several quarters, particularly the $1.1 million earned in the first quarter of 2013 and a combined total of $4 million earned during fiscal year 2012, all related to portfolio companies that exited from payoffs during those periods.

Success fees are contractually due upon a change of control of a portfolio company generally through a sale and are not recognized until received in cash and we do not include success fees in our reported deals since they are not consistent with our actual current cash run rate.

As of December 31, 2012, approximately 42.6% of our interest-bearing securities had success fees related to them. Our success fees have a weighted average contractual accrual rate of 2.6% per annum on their accruing principal amount and as of December 31, 2012, we had a current off-balance-sheet contractual success (inaudible) receivables of approximately $12.2 million on our accrued debt investments that would be owed to us based on our current portfolio if paid off and a change of control occurred.

Success fee accruals are not reported in our income statement or balance sheet. We recognize success fees (inaudible) earned in our income statement at the time of receipt. Due to their contingent nature, there are no guarantees we will be able to collect all these success fees or know the timing of such collections.

As for the marketplace, the senior subordinated in the debt marketplace for larger middle market companies continues to improve. We believe that there are encouraging economic trends in this marketplace coupled with decent liquidity. The market for loans to companies at the lower end of the middle market, which we seek to invest our capital, has seen more competition not from banks. Competition is generally coming from other public funds like ours and many small private funds. (inaudible) conditions, we still feel like we have a good market opportunity.

We are focused on our pipeline. We feel we will be able to show our shareholders some new quality deals over the next several quarters, which will generate solid income growth. We believe we have got the capital to deploy for the right opportunities in line with our investment strategy and objectives. And with that, I will turn the presentation back to David.

All right, thank you, Chip. That was a good report and now let's turn to the financials for the quarter ending December 31, 2012 on our first quarter for the fiscal year 2013 and for that, we hear from David Watson, Chief Financial Officer and Treasurer of the Company.

Good morning, everyone. Yesterday, we released our first fiscal quarter earnings press release and filed our Form 10-Q, which I hope you have had a chance to review. On this call, I will provide a financial overview of the quarter and I will start with the income statement.

For our first quarter ended December 31, 2012, net investment income was $4.9 million, or $0.23 per share, as compared to the prior quarter ended September 30, 2012 of $4.5 million, or $0.22 per share. The 7% increase in net investment income was primarily due to a decrease in total operating expenses of $500,000, offset by a decrease in total invested income of $200,000.

Operating expenses decreased in the three months ended December 31, 2012 as compared to the prior quarter primarily due to a decrease in interest expense resulting from decreased borrowings on our line of credit. Interest income on investments decreased by $600,000 quarter-over-quarter due to several early payoffs at par occurring during the fourth quarter of fiscal year 2012 and the first quarter of fiscal year 2013.

Other income increased by $400,000 quarter-over-quarter due to an increase in success and prepayment fees resulting from the early payoffs during the quarter ended December 31, 2012. Please keep in mind that other income is relatively high for both quarters when compared to historical norms and that this type of income can be very uneven and unpredictable.

100% of common and preferred stock distributions paid in the three months ended December 31, 2012 and frankly over the last two years were covered by net investment income, which highlights our commitment to prudent growth and building shareholder value.

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

Regarding our realized investment activity, we recorded a net realized loss of $3 million in the first quarter and is primarily related to the sale of Viapack of $2.4 million and the write-off of Access TV of the $0.9 million. These realize losses were partially offset by aggregate realized gains of $0.2 million from unamortized discounts from several early payoffs during the quarter.

From an unrealized standpoint, for December 2012 quarter-end, we recorded net unrealized appreciation of investments in an aggregate amount of $4.9 million, which included the reversal of $7.6 million in combined aggregate unrealized appreciation primarily related to the sale again of Viapack and Access TV. Excluding reversals, we had $3.2 million in net unrealized depreciation for the three months ended December 31, 2012. And this is primarily driven by a decline in certain portfolio companies' financial and operating performances.

Our entire portfolio was fair valued at 75.8% of cost as of December 31, 2012 and this is relatively consistent with the 75.1% of cost as of September 30, 2012. The cumulative net unrealized depreciation of our investments largely related to investments made in 2007 and earlier, as Chip had mentioned, does not impact our ability to pay distributions to stockholders, but does indicate that the assessed value is lower and there may be future realized losses that could ultimately reduce our distributions.

Net increase in net assets resulting from operations, this term is a combination of net investment income, net unrealized depreciation or appreciation and net realized gains and losses. For the December 2012 quarter-end, the net increase in net assets resulting from operations increased to $8.4 million or $0.40 per share versus an increase of $5.5 million or $0.26 per share in the September quarter.

Moving over to the balance sheet, as of December 31, we had approximately $292 million in total assets consisting of $271 million in investments at fair value and $21 million in cash and other assets. Our borrowings totaled $55.8 million at cost on our line of credit and $38.5 million in our 7.125% series 2016 term preferred stock, which was issued in November 2011 and has a mandatory redemption feature.

For the quarter ended December 31, 2012, we had approximately $193 million in net assets as compared to $189 million in net assets as of September 30, 2012. This represents an NAV per common share of $9.17 as of December 31 as compared to $8.98 as of September 30. Our $137 million credit facility matures in January of 2015 with the ability to expand it to a maximum of $237 million through the addition of other lenders.

Yesterday, we were able to remove the LIBOR floor and our interest rate is now LIBOR plus 375 or roughly 4% today. So from a liquidity perspective, at the time of this call, we have about $65 million in aggregate in cash and availability on our $177 million credit facility. But we have the ability to deploy more capital for the right opportunities in line with our investment objective strategies.

We believe this is a safe balance sheet for a company like ours and we believe our overall risk profile is low. Now I will turn the program back over to David.

All right. David Watson, thank you. I hope all our listeners read our press releases and review our quarterly reports. That is the Form 10-Q, which we just filed with the SEC. You can access the press release and the 10-Q on our website, www.GladstoneCapital.com, and also on the SEC website.

The big news this quarter obviously was we had good production this quarter; however, we also had a lot of good loans to pay off and also, we exited two nonperforming loans that enabled our team to focus on the remaining portfolio, and as well as new investments. We had growth in net investment income by about 7% over the last quarter and maintained our interest-bearing portfolio. Pretty good rate at this time at about 11.5% given the interest rate environment. Also, noted on the earlier call is the quarter-end, we are able to amend our line of credit and remove the LIBOR floor. So all of those were nice big events for us this quarter.

Still the biggest challenge today is accessing long-term capital marketplace for debt and equity. We have a line of credit in support of lenders on the line of credit, but we also make long-term loans and investments. So we need long-term debt and long-term equity.

In order to make those new long-term loans and long-term debt, we will have to look into -- we will have to look into raising long-term capital as such as our November 20 -- November 11 issuance of term preferred stock.

For our portfolio of companies, we worry too that they are not going to be able to get long-term senior loans as they needed from some of the banks out there. There is a fair number of regional banks that are making new loans based primarily on the assets of the business. These asset-based lenders are more plentiful than they have been in a long, long time, but still our portfolio of companies need long-term senior debt as well. I think the banks are getting much better and I think they will be much better in the coming years.

We still have concerns about the economy. We certainly are not going in the right direction. We are a little better than Japan and Europe, but still we are not out of the woods yet. Oil prices continue to tick up and that is a big risk for the economy because needing the gas for cars and trucks, it hurts every business that has to ship anything around and we don't need oil prices to go up any further than they are today.

I think we all know inflation is on the way if the government keeps spending money. The only reason we have not seen it is because the turmoil in the global marketplace and people all over the world are buying bonds and that just keeps the US rolling a long printing more bonds. Spending by the federal government is unsustainable as we keep hearing it said over and over again. The federal deficit is $16 trillion today. The federal government is now borrowing over 40%. We are at 46% by one of the commentators yesterday of every dollar that they spend and I don't know the remainder of 2013 we may get to as much as 50%.

The amount of money being spent on the war in Afghanistan continues, although we are told it is going to end in 2014 and we certainly hope so. We would like to see all of our troops come home. We have seen taxes go up on all US workers due to the Congress's passing the laws that they just passed. There is a desire in some of the government people to increase taxes even more. We hear on the talk shows that they are going to increase taxes even further on all of our US citizens.

Trade deficit with China and certain other nations is extremely high and that is unsustainable. China continues to subsidize their industries to the disadvantage of our businesses. They subsidize their oil prices significantly and this means that US companies just can't compete with them and jobs then leave the US and go to Asia. Outsourcing with jobs is because our taxes are too high as well. A lot of companies that would come here and start businesses are going elsewhere because our taxes are too high.

The continued stagnation of the housing industry and the related disaster in the home mortgage default area is just another example of why the economy isn't taking off and that was the main reason for the recession and lack of a quick recovery is being thwarted by the same thing and the economy is not taking off because the housing market is not.

The European debt crisis doesn't hurt our companies because we don't have a lot of companies that are selling in Europe, but it certainly hurts others in the US and unemployment in the US is still far too high. The numbers used by the government don't include all those who are working part-time, but seeking full-time and we have heard a lot of smaller businesses are now putting people on part-time work simply because they don't want to pay the very high expense of buying health insurance. I think a more realistic unemployment rate number today is probably around 15%.

In spite of these negatives, some parts of the industry base in the US today are not a disaster. The lingering recession is having an impact on our portfolio of companies, but not a disastrous one. Like most companies, some of our portfolio companies have not seen an increase in revenue or backlogs. However, some others are seeing good increases and a few are really seeing outstanding increases. So this recession is still very uneven and we are hoping that it will even out during this year or next year.

We believe that the downturn that began in late 2007 has improved. Obviously, I think it is probably going to be better as this year goes on. In January 2013, our Board of Directors declared the monthly distribution to stockholders at $0.07 per common share for each of the months, January, February and March 2013, and the Board will meet again in April to consider and vote upon the monthly distribution for April, May and June 2013.

Through the date of this call, we've made about 111 sequential monthly cash distributions to our common stockholders and several quarterly distributions before that. This is an important purpose there for the Gladstone Capital fund to distribute our net investment income to our shareholders monthly and consistently. We believe this differentiates us from other BDCs and stocks in general and we are going to try to keep up -- our goal is to keep that going forever and a day.

At the current distribution rate, the common stock with a common stock price of about $9.18 yesterday, the yield is still very, very high at 9.2%. I think that is a solid dividend and solidly in place. Our monthly distribution of 7.125% for our term preferred stockholders translates into $1.78 per year. The term preferred stock is trading in that $25.50, $25.70 range, ticker symbol GLADP.

Again, our annual shareholders meeting will be held Thursday, February 14 at 11 a.m. Eastern Standard Time. It's at Tysons Corner Hilton located in McLean, Virginia, 7920 Jones Branch Drive. Please vote your shares before that meeting or come to the meeting and vote your shares. The proposals are all outlined in the proxy statement and we really appreciate seeing some of you there at the meeting. We don't get much of a turnout, but we would love to have a big turnout and have a big discussion.

Please go to our website at www.GladstoneCapital.com and sign up for an e-mail notification service. Again, we don't send out junk mail, just news about the Company. We are also on Facebook, the key word is Gladstone Companies and you can follow us on Twitter at Gladstone Comps.

In summary, I think we are moving forward at a good pace. We hope to make continued progress in this 2013 new year. We are stewards of your money and we will stay the course and continue to be conservative in our disciplined approach to investing and we strive to deliver shareholder value as we continue to invest your money in our businesses.

So let's open it up now to the lines for analysts and loyal shareholders who want to ask a question.

(Operator Instructions). Greg Mason, Stifel Nicolaus.

Great, good morning. Thank you, David. Can you talk a little bit about the Viapack? I was impressed by -- I believe you had it marked at around $1.6 million last quarter. Sold it for $5.9 million, as you mentioned, $4 million above where you had it marked. Could you talk about that process? Did somebody come in and bid much more than you were thinking it was worth last on September 30? Can you just talk about that (inaudible)?

Sure. This is a problem of valuation as opposed to sort of realistic values and it is very hard to say on the one hand that our evaluation process wasn't correct. I think it was correct at the time. We started looking into this and found that our biggest problem was the purchase of raw materials. Raw materials were a very large percent of the cost basis of getting the product to marketplace and we ended up selling the company to someone that uses huge amounts of the resins that are used in the process and they have a much lower cost base because they are buying in huge volume. So the value to them was much greater than the value it would be to someone like us in a small business situation. And that was really the difference of being able to add that to the profit of the company based on the lower cost and it is an in-place company producing and for those people who want to buy something that is a good little company with a problem with cost basis, it was just a good fit. So that was a big difference.

And then can you talk about -- I know, for the industry, there was kind of a flurry of year-end activity due to potential tax considerations. You said you have closed $6 million so far this year. Can you talk about the pipeline that you're seeing now for deal activity, as well as the potential for repayment activity as you are seeing it today?

Sure. This is Chip. We are seeing a wider pipeline than we saw coming into the fourth calendar quarter, but not measurably lighter. So we still feel pretty good about the ability to both new investments going forward. The prepayment activity we just typically don't know. A number of the ones that sold in the fourth quarter we sort of get a call on it Thursday and by Monday, it has been repaid. We don't see that level of prepayments, so we have also said that before. So, at this point, we feel pretty good about both repayments and new investment activity.

But you just don't know and it has been lumpy and I will tell you that most of what we closed, almost everything we closed in this past quarter was not really tax-related. And so we will see what happens going forward.

Great, thank you. And then one final question, yesterday, on GAIN's conference call, you talked about GAIN issuing equity and you don't like to do that below book. Can you talk about, from GLAD's standpoint, how you are viewing the acuity issuance here and is that something on the table for GLAD as well?

We don't have any dire need for it. We were a little bit against the wall in GAIN, but not much and we just needed some equity. We really don't need a lot of equity here and surprise, we are trading at net asset value. So we sort of moved up and feel comfortable with that. But, again, there is no plan, no immediate plan to sell stock. I am sure someplace down the road, we will need to sell stock as we grow it because we pay out, as you know, all of our net investment income.

Great, thank you, David and Chip.

Bob Brown, Private Investor.

Yes, thank you. Just long-term investor. Thanks, guys. Just three quick questions. First of all, Chip, you mentioned -- I thought you said that after the post-January 1, you have a contract that is still -- I thought you said a non-accrual company that hopefully will close in the second quarter. Assuming it goes through as, for whatever in terms of the contract, do you have a sense of where it is relative to the marks that we have been carrying it at?

Yes, I really can't address that at this point. We think it is a fair price for the asset and it is within the realm of where it is marked, but at this point, I don't have any clarity that it is even going to close. We think it is going to close. I really can't comment on that at this point.

Okay. Second question, just wondering if you could give us a sense in terms of on some of the equity that we have, because I remember, I think it was either the April or July quarter last year, you had talked about one in particular company where you thought we had a pretty sizable appreciation in there and obviously didn't know when it would be realized, but just wondering if you could give us a sense of some of what we have.

It varies dramatically by company. I mean we have some assets that we get regular calls on that are strategic, much like the one that David discussed and that we think would sell substantially higher than where we may have it marked. We don't have any contracts to sell those companies. We have another company or two that we have owned the equity for a while, that the equity may move up and down, but we feel like we are in the money on that equity and that, at some point, when it is the right time to sell it, we will make a return, a nice return on our equity investment there. But it varies dramatically.

Okay. And a last question, any sense in terms of this year being the year where we might see an increase in the dividend?

Oh, we get that question just about every day and I just can't comment on it. The goal obviously is to build up the net investment income and if you do that, you have to pay it out. So I can just say we are working hard toward that goal.

Thank you.

Next question please.

Casey Alexander, Gilford Securities.

Hi, good morning. Two questions. One, I couldn't find in the Q the ratio of fixed rate investments to floating rate investments in the portfolio. Do you have that number?

We do. Do you have another question while we look it up?

Yes, the second question is, according to your schedule of investments, it looks like $91 million or a third of your portfolio is going to invest this year. Can you kind of discuss the challenges of getting that money back to work given the fact that you said that the deals that you are seeing are of a more risky nature with tighter spreads now? What is the challenge of getting that money back to work?

I think you are talking about contractual repayments of which we typically will obviously report those. In a number of those situations, we are already in discussions and especially in the ones that we have enjoyed a good relationship, profitable for both parties, to extend those. So I don't personally foresee that everything that's maturing is going to be repaid, so we will have some extensions and we will have some renewals within that.

We are seeing increased competition. We said that last quarter too and we are still able to put out $50 million. So it is very likely that we just have to work hard to find good investments that we think meet our objectives and provide a good return within a pretty competitive marketplace. The year of 2012 was not the banner year of deals that I think most of our industry expected. so for all we know, '13 could be a better year for everyone, but we are cautiously optimistic that even the contractual payments that do come back to us and the companies that are sold that we will be able to put that to work.

This is David. The fixed rate versus hurdle rate is located in the back of the 10-Q in Item 3. We have got about 11% of our portfolio in fixed rate and then we have the remainder in variable rates and of the ones that are in variable rates, approximately 84% of them have floors associated with them.

Okay, great. Thank you very much.

(Operator Instructions). And showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gladstone for any closing remarks.

Well, thank you all for calling in and we will look for your next quarter. That is the end of this conference call.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.