Gladstone Capital Corp (GLAD) 2013 Q4 法說會逐字稿

Good morning and welcome to the Gladstone Capital Corporation's fourth-quarter and year ended September 30, 2013 shareholders conference call. All participants will be in a listen-only mode. (Operator Instructions). Please note that this event is being recorded.

Now I would like to turn the conference over to David Gladstone. Mr. Gladstone, please go ahead.

All right, Keith. Thank you for that nice introduction and hello and good morning to all of you out there. This is David Gladstone, the Chairman, and this is the fourth quarter and fiscal year end earnings call for all shareholders and analysts of Gladstone Capital, common stock traded under the symbol GLAD, and we have some term preferred shares trading out there under GLADP for preferred. Both of them are on NASDAQ. And thank you for calling in.

We are always happy to talk to our shareholders and also the analysts and give updates on the Company and the portfolio and our business environment. Wish we could do this more often and invitations are always open to any of you out there to visit us here in the McLean, Virginia, office just outside of Washington DC. Please stop by and say hello. I think you'll see some of the finest people in the business.

Please take an opportunity to go to visit our website, www.gladstonecapital.com, sign up for email notifications. We don't send out junk mail. You can also find us on Facebook under the keyword The Gladstone Companies and you can follow us on Twitter under GladstoneComps. That is C-O-M-P-S at the end of Gladstone.

Now I need to read the statement regarding 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 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 such words such 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 and implied by these forward-looking statements including those factors listed under the caption Risk Factors in our 10-K filing and also in our registration statements that are filed with the Securities and Exchange Commission. All of that 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 this conference call except required by law. Now, please also note that past performance and market information is not guaranteed of any future results.

Well, that was a good quarter that we had. As we like to remind all listeners before we get started, Gladstone Capital's business is providing loans to small and mid-size businesses in the United States. We also sometimes pick up a little bit of equity in these companies and we define these companies as ones with about $20 million to $100 million in revenue and $3 million to 5 -- $15 million in earnings before interest taxes and depreciation.

We do provide capital lease companies for growth. Sometimes they just need a little money to grow faster. Sometimes it is an acquisition of another company and sometimes it is just to pay off some debt that is coming due. We make investments in private companies with profitable operations, good management teams, we use senior debt, junior subordinated debt and sometimes we buy a small amount of stock in the business at the same time.

Our originations during the fourth quarter, September 30, 2013, totaled $14.7 million in four new investments. We also invested about $4.6 million in existing portfolio companies through revolver draws. We did some follow-on investments and we did some equity investments in some of those as well. Unfortunately, we received about $41.1 million in scheduled and unscheduled principal payments. One of them I will mention in a minute; we were glad to get that one.

We invested $8.9 million in a company called Ashland Acquisitions. Through a combination of senior term debt and equity Ashland through its wholly owned subsidiary provides publishing services including digital and offset printing, warehouse distribution, content and marketing services. They have an incredible piece of machinery that can print one book or hundreds of books, depending on what is needed.

Additionally, we invested in three syndicated loans during the fourth quarter that met our criteria. And during the quarter ending September 30, 2013, we received a combination of $20.9 million in early payoffs at par by one proprietary and two syndicated investments. These payoffs resulted in a combined $150,000 in prepayment fees and $600,000 in what we call success fees that we received during the quarter. These additional fees equated to approximately $0.04 per share for the quarter ending September 30.

Additionally, I would like to mention we received $14.4 million in net proceeds from an early payoff at par of a debt investment in Lindmark acquisitions. That was one that was -- had a lot of difficulty over the years so we are very happy to get that one paid back. Our team at the Company were able to find a strategic buyer who purchased substantially all of Lindmark's assets. So our debt investments were paid in full at a time the loan was on nonaccrual.

Overall, due to the large amount of early payoffs and also two new deals slipping into 2014 that we thought were going to close last quarter, our portfolio only increased by one company during the quarter. We used the repayments during the quarter to pay down our $11.7 million on our credit facility which doesn't mature until January 2016. Of course, we have the ability to draw that back down and at this date of the call we have about $65 million available for new investments under that line of credit.

We are focused on using this available capital for new deals and new opportunities. We have a good backlog and hope over this quarter we can have a few more announcements as to what we are closing on. Subsequent to September 30, 2013, we invested $8 million in new syndicated loans and about $500,000 in revolver draws with those existing portfolio companies that we have. In addition, we have $3.7 million in scheduled and unscheduled loan prepayments and repayments, including an early payoff of a company called Profit Systems that was in our portfolio for $1.9 million.

After the quarter ended, we did invest $7 million in a company called [Allied] Die Castings through a combination of senior term debt and equity. Alloy is a manufacturer of high-quality finished aluminum and zinc castings for the aerospace, the defense, aftermarket, automobile, and industrial application. This was a coinvestment with Gladstone Investment Corporation. You are seeing that pop up a little more often now as we continue to work with them.

In addition, we are very close to funding a loan to a company that designs and sells some college and other athletic logo apparel. I thought that was going to close last quarter and it didn't. So if that loan closes we should have more to report to you once it hits the tape and hopefully you'll hear that in the next earnings call.

With these two proprietary deals, we feel we are off to a good start in 2014. And the quality of the portfolio today is getting better. As you can imagine, over time, we are able to fix some of these and all of the valuations are based on the value that we might reasonably expect to receive upon the current sale of the securities in an orderly transaction.

As you all know, we don't plan to do this. We don't have an orderly transaction that we are planning on any of these portfolio companies. But that is the valuation rules that are required for these valuations.

As of September 30, had accumulative unrealized depreciation of about $75 million compared to $98 million last quarter, a net change of about $23 million on the investments of a quarter versus quarter analysis. The primary decrease in our net unrealized depreciation for the quarter ending September 30 was the result of a reversal of depreciation of about $14 million from the full principal repayment of the debt on Lindmark and it was about $14.4 million which was valued at $[360,000] last quarter.

In addition, we had unrealized appreciation on several portfolio companies during the quarter due to incremental increases in financials and on operating performance and, to a lesser extent, the increase in certain comparable multiples used in our equity valuations. Our two nonaccrual investments at September 30 had a combined cost basis of about $39.5 million or about 12.6% of the cost basis of all our debt investments in the portfolio. And we had a combined fair value of about $5.8 million or about 2.4% of the fair value of the debt investments in the portfolio at quarter end.

We have not changed any of the accrual investments to nonaccrual status since January 2012. No investments made it in the last six years of our funding history have gone into nonaccrual. However, that does not mean that our loans can't go into nonaccrual. Obviously, in the future, we don't have a crystal ball and can't forecast that. While the cost basis of our nonaccrual investments is higher than we consider acceptable, we remain diligent in the focus on our management team working on a portfolio of companies and we will work to fix these remaining companies and recover a meaningful portion of our capital.

However, again, I want to mention it is always possible to add additional loans to the nonaccrual category.

In terms of quality of our portfolio, the income, we believe it has been consistently good and I think it is actually getting better. General limits on non-cash sources of income, specifically generated from paid in kind or PIK income, as we call it, or original issue discount or OID as people call it, all of these represent less than 1% of our net investment income over the last three years. So we are very careful about not accruing things that we think we can't collect or might not collect.

On the other hand, we have recognized a high level of income over the last couple of years which is primarily due on what we call success fees. And those are only paid when the loan is paid off or this company is sold. We had success fees totaling $1.7 million earned during the fiscal year ended 2013, a total of $4 million earned during the fiscal year ending 2012. All related to portfolio companies that exited from early payoff during those periods. We earned success fees of about $600,000 during the past quarter. Success fee accruals are not recorded on our income statement or balance sheet. We do not include success fees in our reported yields as they are inconsistent and would skew our actual current cash run rate.

Due to the contingent nature, there is no guarantee that we will ever be able to collect all or any of these success fees or know the timing of such collections. At September 30, approximately 45% of our interest-bearing debt instruments had success fees related to them. Our success fees have weighted average contract accrual interest rate of about 2.4% per annum on their accrued principal balance. As of September 30, we had current off-balance-sheet contractual success fees receivable of an aggregate of about $14.8 million on our accrued debt investments or about $0.71 per common share that would be owed to us if all of those came to fruition. Again, no guarantee that they are going to happen.

Unlike PIK income or PIK interest income, success fees are due upon the change of control of the portfolio company and generally through the sale and not recognized in our income statement until received in cash. Therefore this type of unpredictable income can produce very uneven but positive results.

Let's talk about the backlog now and looking at our future pipeline and new deals. We have continued to see an increase in competitive pressure in the marketplace for senior and syndicated -- and senior subordinated debt resulting in lower yields for increasingly riskier investments. It has pushed us out of the marketplace several times. Competition is generally coming from other public funds like ours and many smaller private funds.

In spite of all this increased competition, we have maintained our weighted average yield on the accruing investments of approximately 11.6% for the last several quarters, which doesn't include any of those success fees that I mentioned before.

While the investment climate has been difficult, we are still filling our pipeline up with solid quarterly deals. As noted earlier, we were able to close two new proprietary deals already in fiscal 2014. The ability to coinvest with our affiliate BDC Fund has broadened our options and our platform, and I think it will help us expand in overall backlog potential as time goes on. I know we have a couple of opportunities now that we are working on with Gladstone Capital.

The loan marketplace in general has experienced slower growth as a result of increased prepayment activity in the lower interest rate environment. In light of the uncertain investment climate, we still feel there is a good market opportunity for our team and our team is working to show our shareholders new quality deals. And I think you are going to see that as the quarter ends and as well as next quarter.

Our experienced portfolio management team has worked together through multiple economic downturns and has a solid track record of making good conservative investments. And again, I think the future is going to be quite (technical difficulty) for this Company now.

At this point let me stop and call on Melissa Morrison. She is our Chief Financial Officer. She will give some numbers with regard to the financials. Go ahead, Melissa.

Sure. Hello and good morning, everyone.

Yesterday we released our fourth quarter and year-end earnings press release and this morning filed our Form 10-K.

Starting with the income statement for our fourth quarter ended September 30, 2013, net investment income was $4.7 million or $0.22 per share as compared to the prior quarter ended June 30, of $4.4 million or $0.21 per share. Investment income increased by 9.4% in the three months ended September 30, 2013, as compared to the prior quarter, primarily due to $750,000 in combined success fees and prepayment fees received on early payoffs during the quarter. No success fees were received in the prior quarter.

Operating expenses increased by 12% during the current quarter as compared to the prior quarter, primarily due to an increase in the incentive fee and a reduction in incentive fee credits. This is due to additional investment income received.

For the 12 months ended September 30, 2013, net investment income was $18.4 million or $0.88 per share as compared to the prior year ended September 30, 2012, of $19 million or $0.91 per share. Investment income decreased by 10% due to a decrease in interest income on our interest-bearing investments, resulting from an increase in early payoffs and also due to a decrease in success fees received as compared to the prior year.

Operating expenses decreased by approximately 17% primarily due to a decrease in interest expense in our credit facility due to a lower amount of borrowings outstanding and also as a result of an amendment in January, 2013, that removed the LIBOR floor on advances. Additionally, incentive fees decreased year over year primarily due to an increase in fee waivers that were needed to ensure distributions to stockholders were covered entirely by net investment income. An incentive fee was earned by our investment advisor during the fourth quarter and year ended September 30, 2013. 100% of common and preferred stock distributions paid in the three and 12 months ended September 30, 2013, and over the last two years were covered by net investment income. This highlights our commitment to prudent growth and building shareholder value.

Next on our income statement are realized and unrealized changes in our portfolio. Realized gains and losses come from actual sales or disposals of investments. During the year ended September 30, 2013, we recorded a net realized loss of $5.2 million which mostly consisted of realized losses of $2.9 million related to the sale of Kansas Cable Holdings, $2.4 million related to the sale of Viapack, Inc. and $900,000 related to the writeoff of Access TV, all nonaccrual companies at that time.

Partially offsetting these realized losses were gains of approximately $1 million, which consisted of a combined receipt of escrow proceeds, and also unamortized discounts from several of our syndicate early payoffs during the year. Unrealized appreciation and depreciation results from our marketing investments to fair value on our balance sheet with a change in fair value from one period to the next recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event and is required by GAAP investment company rules.

From an un (technical difficulty) September 30, 2013 quarter end, we recorded net unrealized appreciation of investments in the aggregate amount of $23 million. Excluding reversals related to sales or payoffs totaling approximately $15 million, we had $7 million in net unrealized depreciation during the current quarter. For the year ended September 30, 2013, we recorded net unrealized appreciation of approximately $16 million as compared to net unrealized depreciation of approximately $11 million for the year ended September 30, 2012.

As David mentioned earlier, the reversal of the Lindmark unrealized depreciation of $14 million during the quarter accounted for the majority of the net unrealized appreciation during the quarter and the year end September 30, 2013. Our entire portfolio was fair valued at approximately 77% of cost as of September 30, 2013, as compared to approximately 75% as of September 30, 2012. The cumulative net unrealized appreciation on our investments is largely attributable to investments made in 2007 and prior.

We believe this depreciation is primarily due to the lingering effects of the 2008 recession and its effects on the performance of certain of our portfolio companies and also because we were invested in certain industries that were disproportionately impacted by the recession.

Our bottom line on our income statement is the change in net assets resulting from operations and is a combination of net investment income, net unrealized appreciation or depreciation, and net realized gains or losses. For the September 30, 2013 quarter end, the net increase in net assets resulting from operations was a positive $28.7 million or $1.36 per share versus a negative $2.1 million or $0.10 per share in the June 30 quarter end.

For the year ended September 30, 2013, the net increase in net assets resulting from operations was a positive $32.2 million or $1.53 per share as compared to a negative $8 million or $0.38 per share. The quarter-over-quarter and year-over-year change is primarily due to the aforementioned reversal of unrealized depreciation related to the full principal repayment on Lindmark's debt investments. In addition, there were $12.8 million in realized losses in the 2012 fiscal year versus the $5.2 million in 2013 as previously discussed.

Moving over to our balance sheet, as of September 30, 2013, we had approximately $295 million in total assets at fair value consisting of $257 million in investments at fair value and $38 million in cash and other assets. We had total liabilities of approximately $89 million consisting of $47 million in borrowings at cost outstanding on our line of credit which matures in January 2016; $38.5 million in term preferred stock, which has a mandatory redemption feature at the end of 2016; and $3 million in other liabilities.

In all for the quarter ended September 30, 2013, we had approximately $206 million in net assets as compared to $181 million in net assets as of June 30 and $189 million as of September 30, 2012.

This represents a NAV per common share of $9.81 as of September 30, 2013, as compared to $8.60 as of last quarter and $8.98 as of last year end. Excluding the Lindmark reversal of net depreciation in our fourth quarter, our NAV per common share would have been approximately $9.14 as of September 30, 2013, or a difference of $0.67 per share.

From a liquidity perspective, at the time of this call we have about $70 million in aggregate in cash and availability on our $137 million credit facility. As noted in last quarter's earnings call, in January 2013, we amended our line of credit to remove the LIBOR floor of 1.5% which reduces our cost of capital and allows us to be more competitive in the marketplace. In addition, we amended our line of credit in April 2013 to extend the maturity one year from January 2015 until January 2016. We have the ability to expand the credit facility to a maximum of $237 million through the addition of other lenders.

We believe our balance sheet is conservative and that our overall risk profile is low. We will continue to consider other financing sources as necessary if we feel we need more liquidity for future operational and investment activities. At this time we have the ability to deploy more capital for the right opportunities in line with our investment objectives and strategies.

Now let's review our portfolio statistics. Our primary focus in our portfolio has always been in debt investments which provide income to pay and over time grow our dividends. To a lesser extent, we may from time to time invest in equity investments, which we expect will appreciate and build shareholder value as well. Our targeted portfolio mix is 95% in debt securities and 5% in equity securities. And currently our portfolio is at a 94% to 6% mix of debt to equity at cost.

Our portfolio as of September 30, 2013, consisted of loans to 47 companies in 26 states and in 19 different industries. We believe we have a diversified portfolio by industry classification and by geographic region and are not too heavily invested in either one of these specifically, nor are we invested too significantly in any one particular portfolio company.

Our five largest investments at fair value as of September 30, 2013, totaled $96 million or 37% of our total investment portfolio as compared to the five largest investments at fair value as of September 30, 2012, which totaled $92 million or 34% of our total investment portfolio. We are constrained in certain concentration limits in our portfolio by our credit facility as well as our regulated investment company test under the IRS rules, all of which we have historically met and continue to meet as of September 30, 2013.

We manage interest-rate risks by targeting our portfolio to have approximately 10% of the debt investments at fixed rates with approximately 90% made at variable rates. Our portfolio has consistently had a high concentration of variable rate loans, approximately 89% as of September 30, 2013. These variable rate loans generally set to the one-month LIBOR usually have a minimum rate or floor so that the effects of declining interest rates as we have seen over the last number of years are mitigated, and when rates began to increase, we should see higher income.

The weighted average floor on our variable rate loans was 2.5% in relation to one-month LIBOR. These loans had a weighted average margin of 8.9%, resulting in an all-in weighted average rate of 11.4% on our interest-bearing debt investments, as compared to 11.5% as of last quarter. Our proprietary loans have an average all-in rate of 11% while our syndicates had an average all-in rate of 10.2%. The weighted average yield on interest-bearing debt investments in our portfolio has remained consistent over the last several quarters and was at 11.6% as of September 30, 2013, up from 11.3% a year ago.

In summary, we have an overall positive quarter, adding quality income-producing investments from monetizing the nonaccrual investment, Lindmark, and several other early payoffs that triggered additional prepayment fees and income. We realize we need to build a portfolio with new originations to replace the early payoff activity so we can achieve our objectives of growing net investment income and generating positive returns for our shareholders.

And now I will turn the call back to David.

Melissa, that was a great report. I hope all our listeners will read our press release as well as obtain a copy of our Annual Report, Form 10-K which has been filed with the SEC. You can access the press release and the 10-K on our website at www.gladstonecapital.com and also on the SEC website.

Just as a summary, Gladstone Capital this quarter was an okay production. Some of the deals that were trying to close fell over into the quarter ending December 31, 2013.

As you all know, this business will be uneven both on closings and on payoffs, but we experienced a larger number of prepayments than we thought as well as exits for $41 million.

Inclusive in this number is the $14 million received for the debt investment that was Lindmark. That was a great workout by our team here.

Our portfolio yields have remained the same. They are strong at about 11.6% quarter over quarter and subsequent to the quarter end had a new investment of $7 million and a new proprietary deal and close to funding $17 million in another. In addition, we have funded $8 million in several new syndicated loans that we think will have a good return.

As we have mentioned over and over, the biggest challenge today is to find new investments that we believe can survive the next recession or possibly forthcoming strong inflation. We also need to access long-term capital marketplaces which are more difficult even for us, as strong as we are. We have a line of credit with supportive lendering institutions and it is sufficient for the near term. However, in order to make a lot of new long-term investments we will need to raise additional long-term debt, long-term capital of some sort such as we -- our November 11 issuing of some term preferred stock.

And just our concerns again, I mention these each time. The government shutdown first time in 17 years was a stalemate in our Congressional versus our President and it just delayed the implementation of the Affordable Care Act. It's -- I suspect that there are many governments that wish the implications of the new health care act would have been deferred for 12 months. The federal deficit continues to decline.

So we still have a fairly dysfunctional federal government that really is unsustainable as far as the business community is concerned and continues to be uncertainty about the Federal Reserve. We don't know whether the stimulus is on or off and each time Federal Reserve people, I don't know, breathe, we seem to have some change in the marketplace out there.

Trade deficit with China is still very, very high and unsustainable. China continues to subsidize their industries and no one does anything about it. Oil prices could be a risk to the economy. I just wish the federal government would let the oil companies drill for more oil and natural gas as well as build a pipeline to carry all that oil and gas around so we could be a net exporter of a lot of gas and oil if that happened.

Taxes have continued to go up on all US workers. There has been much uncertainty around the new ObamaCare and impact on business, specifically through the increase of payroll taxes and much higher cost of the capital of healthcare. And the United States is the highest statutory corporate tax rate among advanced economies, 39.1%, higher than both Japan and the United Kingdom, and obviously much higher than many of the growing, high growing areas. High tax rate and the high cost of healthcare are some of the reasons that US companies leave this country and outsource their jobs and that brings us to unemployment which is still unsustainably high. More realistic than the government numbers, it is probably somewhere between 15% and 18%.

Overall, there is still a lack of available credit to most small businesses and we are doing our best to help them out. Many of the small businesses don't get the money that they need for growth.

All of these issues continue to affect the investment climate in which we operate. In spite of all those negatives, indicators have been more positive as time has gone on. We believe the economic recovery has been sluggish (technical difficulty) it is continuing to grow. Like most companies, some of our portfolio companies' revenue and backlogs were affected more by the recession than others, especially those that were dependent on advertising. However, some of the others are seeing good increases and a few are seeing tremendous increases. So we have got some good ones in the portfolio and I think some of the others will come out of their recession backlog that they have been in for quite some time.

Folks, it is just a very uneven economy and we feel there has been some improvements, but not nearly as much as we need in order to go forward and be very strong in this marketplace.

Distributions. Again, Gladstone Capital continues to make consistent monthly distributions to our stockholders and we are going to try to grow those over the next few years. We have a history of earning our dividend every quarter and have continued to make monthly distribution to our shareholders through these uncertain economic times.

In October 2013, our Board of Directors declared our monthly distribution to our common shareholders of $0.07 per common share for each of the months October, November, and December 2013. The Board will meet again in January to consider and vote upon the monthly distributions for January, February, and March 2014. Through the date of this call, we've made 121 sequential monthly cash distributions to our common shareholders and several quarterly distributions even before that.

Current distribution rate, rate on the common stock or the common stock price at about $9.44 yesterday. The yield on the distribution is high. It is about 8.9% and we are trading at about a 4% discount to the net asset value; but I would tell you that the net asset value is very hard for anyone to figure and we do our best with the help of all the people -- folks that come in on that.

Our monthly distribution of 7.125% for our term preferred stock, it is trading at about $25.53 so the yield is about 7%.

I want you to mark your calendars. We are having our upcoming annual meeting of stockholders on Thursday, February 13, 2014, 11 AM, Tysons Corner Hilton, located here in McLean, Virginia. We would like to see you all there. Resolutions to be voted upon will be released shortly. We are preparing the proxy. Hope to see you all there and please, please vote your shares as it is so hard to round those up every year.

So in summary, we are moving forward at a good pace. Hope to make continued progress in our new fiscal year that began on October 1 and will end on September 30, 2014.

We are still cautious about the economy. It is not recovering as fast as we would like. Our management team has successfully a track record of investing in small and midsize businesses and work together through multiple economic downturns, and we will continue to seek investments in perspective portfolio companies that have demonstrated the ability to withstand economic downturns. We always look at the downturn.

We believe Gladstone Capital is an attractive investment for investors seeking continuous monthly distributions, and, folks, we are going to stay the course and continue to be disciplined investors while focusing on making conservative investments in American businesses with stable growth and cash flows to ensure the delivery of shareholder value.

And now, Keith, if you will come on, I know we have some people that will want to ask us some questions. So, we will take questions now.

(Operator Instructions). Ryan Lynch, KBW.

Good morning. Thank you for taking my questions. I have a clarification question. I know you said in the December quarter one loan is already closed for $7 million. Did you say the second loan that you guys hope to close was for about $17 million?

Yes, that is correct.

Will that $17 million go completely to Gladstone Capital or will that be spread out between your funds?

It is all in capital.

All in capital. Okay, sticking with the December quarter, can you give us any more color on the kind of pipeline you guys are seeing? Are you guys seeing a big pickup in deal volume as the kind of calendar fourth quarter comes about, are you guys seeing any shift to more M&A transactions versus [free] financings?

I don't think there has been any change in the last six to nine months in that and I can't remember back further than that in sort of numerical. We see an awful lot of deals out there. We win some, we lose some. We are very attuned to the sponsor marketplace in which sponsors are doing buyouts. We hang around those folks. They usually bid those out to two or three people. Sometimes we like the senior lender and the senior lender will bring us in sometimes. Sometimes we bring in the senior lender.

Quite frankly it is a very uneven marketplace and competition is very steady out there these days. We all are hammering in at about the same rates. Unfortunately, there is no way of knowing when you are going to be picked up and when you are not.

But we have a good relationship with a number of smaller LBO funds that really call us up each time they are going to do something because we enjoy working together.

I wish I could give you a better answer than that, but that's about as good as I can do. I am sorry, Ryan.

Okay. I know this is lumpy, but have you guys had any repayments in the December quarter? And I know it is hard to see, but are there any that you can see in the near term coming forward (multiple speakers)?

Yes. We had about $2 million from one company and I don't know of anything special that's coming in right now. Nobody has notified us. Anybody notified us, you know?

Oh, yes, of course. Allen Edmonds. We don't know whether we are going to be in the next round of that or not. As you know, we bought that loan and that one is up for sale. It has been announced that Brentwood is going to be the buyer.

So, we will get a payoff on that and we may be in on the other side and we may not there. Brentwood has got a lot of people that want that piece of paper including some of their limited partners.

Okay, and then the $41 million of repayment you had in the September quarter. Were any of those sales of syndicated investments? And would you guys consider selling any portion of your syndicated portfolio considering the strength you have seen in the syndicated market lately?

Yes. We always look at those and think should we sell them to trigger some gains, but no reason to do that right now. We have got plenty of money to invest, and so it is better to hold those. We have got good returns on those over a pretty good long period of time now and we are doing almost all second lien transactions there. And the second lien marketplace is hot as a pistol right now. We have seen second liens go for 750 over LIBOR. We are not buying at that rate, but every now and then we have a relationship with a senior syndicated group that we are able to get pieces of, better deals than that.

So, again, that marketplace, as you probably read, has billions of dollars going in every week into that marketplace. So it is very competitive now and lots of funds are picking up those second liens as well as the first liens that are trading at 350 over LIBOR.

Then one final one. With your guys' ability now to now coinvest with your other funds, do you see any change in the size in EBITDA of the companies you guys are targeting? Do you guys expect that to grow at all since you can now do maybe bigger loans and spread that to all your different funds?

That is exactly right and that is why we have that ability now to invest with Gladstone Capital. We don't invest with either one of our real estate investment trusts. So Gladstone Investment and Gladstone Capital can coinvest together and we do look at that. We are seeing larger deals with larger investment opportunities. And so some of those are smaller deals and we split those anyway because it is -- the transaction is a transaction that will do a rollup, that is they will buy one company and then they plan to buy two or three more. And we know that they are going to need more money.

And so as a result, we figure we could probably go up to about $40 million between the two companies and feel relatively comfortable at that level. So that is what we are looking at is larger transactions and I think you'll see larger transactions as time goes on. And I think you'll see follow-on investments in which both funds are investing. So, there is a good opportunity for us to do larger transactions together.

Some of the transactions are very equity-oriented and we have tried to stay away from the very heavy equity-oriented deals in Gladstone Capital and left those two Gladstone investments. But I think there is a good opportunity for us to do larger transactions and we are bidding on and working on larger deals now.

Okay, thank you.

Okay, who's next?

(Operator Instructions). All right, there are no more questions at the present time, so I would like to turn the call back over to Mr. Gladstone for any closing remarks.

Well, thank you all for joining in and you can obviously listen to this. There is a replay that will come up and we appreciate you all for calling in. That's the end of this call.

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