Gladstone Capital Corp (GLAD) 2014 Q1 法說會逐字稿

Good morning and welcome to the Gladstone Capital Corporation's first quarter ended December 31, 2013 shareholders conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note that this event is being recorded. Now, I would like to turn the call over to David Gladstone. Mr. Gladstone, please go ahead.

Well, good morning. Thank you, Keith, and good morning to all of you. This is David Gladstone, Chairman. This is the quarterly earnings conference call for the shareholders and analysts of Gladstone Capital's common stock traded at GLAD and the preferred stock is traded at GLAD with a P at the end for preferred. Again, thank you all for calling in. We are always happy to talk to our loyal shareholders and potential shareholders.

I'd like to give an update on our company and our portfolio and our business environment. I wish we could do this more often, but time just doesn't permit. An invitation is extended always. You have an open invitation to come visit us in our office in McLean, Virginia, which is outside Washington DC. Please stop by and say hello. I think you'll see some of the finest people in the business.

Please take the opportunity to visit our website, www.GladstoneCapital.com, and sign up for our email notification service. We don't send out any junk mail, just timely news about the company. You can also find us on Facebook under the keyword "the Gladstone Companies", and you can follow us on Twitter at GladstoneComps.

Now let me read the statement for forward-looking statements. 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 and we believe those plans to be reasonable. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and other 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 our registration statement as filed with the Securities and Exchange Commission, all of which can be found on our website at www.GladstoneCapital.com, 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 as required by law. Please also note that past performance or market information does not guarantee a future result.

Now let's get going. As many of you know, Gladstone Capital's business is to provide loans to small and medium-sized private businesses in the United States. We target companies that have $20 million to $100 million in revenues and $3 million to $5 million in earnings before interest, taxes, and depreciation. Providing capital to these companies allows them to grow; it also allows them to make acquisitions of other companies, or to pay off debt that is coming due.

We invest in private companies with profitable operations and good management teams. We are not doing turnarounds. We invest using senior debt, junior subordinated debt, and sometimes we buy a small amount of the stock of the business.

During our fiscal first quarter ending December 31, 2013, we invested a combined $44.1 million in eight new investments. We also invested a combined $800,000 in existing portfolio companies through, mostly through revolver draws and some follow-on investments.

During the quarter, we received a total of $21.5 million from two portfolio companies that paid off early at par. We received a combined $3.2 million from the existing portfolio of companies in scheduled and unscheduled principal payments.

Unfortunately, after years of trying to fix a company we call LocalTel, it's in the yellow page business, we sold it at a loss of $10.8 million. We felt this was the best alternative for the company after we had invested a lot of money and a lot of energy to try to turn it around over the years. To stay the course in that business would take millions more invested and the likely outcome was certainly not certain at all. So, we took our licks and sold that at $10.8 million loss.

Overall, the portfolio increased by five portfolio companies. This included four syndicated investments and three of the new investments that we co-invested with one of our affiliate funds, Gladstone Investment.

Here is a short list. We invested $7 million in debt and equity financing in Alloy Die Casting. This is a company that manufactures high-quality finished aluminum and zinc metal components for a diverse range of end markets. We also invested $5.5 million of debt and equity financing in Behrens Manufacturing. Behrens is a manufacturer of and top supplier of high-quality, really classic looking utility products and containers. We also invested $17 million of debt financing in J.America, a leading supplier of licensed logo apparel and head wear, mostly to colleges, but some to resorts, military markets, and they also do some wholesale distributions as well and some apparel decorations.

We invested $5.6 million in debt and equity financing in Meridian Rack and Pinion, a provider of aftermarket and OEM replacement automobile parts. They sell these through, mostly through the wholesale channel but they also sell a lot online. You may want to go by and see what they look like. It's www.buyautoparts.com, a very interesting company.

So as you can see, we are moving forward at a good pace. After the quarter end, December 31, 2013, we invested $500,000 in a follow-on investment to an existing portfolio companies. And after the quarter end, we received a total of $8 million in scheduled and unscheduled principal payments from existing portfolio companies. Most of that repayment came from early payoff of a company called Pop Radio, $7.8 million, and we received $100,000 in prepayment fees on that situation.

On the whole, I would say the portfolio of valuation was up for the quarter. As of December 31, 2013, we have a cumulative unrealized depreciation of $58.5 million. That's down by $16.9 million from the last quarter. And we recorded a net unrealized appreciation of the portfolio totaling $6.7 million.

Now, we have one remaining portfolio company called Sunshine on nonaccrual as of December 31, 2013, with a debt cost basis of about $29.2 million. It's a large investment for us. It's about 9.2% of the cost basis of all the debt investments in the portfolio. The loan is valued at $7.3 million, or about 2.8% of the fair value of all the debt investments in the portfolio. We remain diligent and focused on managing this nonaccrual investment to bring it back to profitability. We feel we have seen tremendous improvements over the prior year, but still have a ways to go to get it back to the point where it can pay interest on its debt.

We have not put any investments on nonaccrual since January of 2012 and no investment originated in the last six years, or the fund's history of going on nonaccrual. We just have to work off those before that period of time.

Recently, our team had some success in turning around a number of the nonaccruals and we reported those in our last meeting. However, just want you all to know this does not mean that we will be able to do this in the future or that loans cannot go on nonaccrual in the future. As you all know, it's always possible that we may have additional loans on nonaccrual in the nonaccrual category.

Speaking about the quality of income, portfolio income quality has consistently been good. I'm looking at new deal structures with generally limiting the amount of non-cash sources of income, so we are not very comparable with other BDCs because specifically we stay away from paid in kind income and original issue discounts. Those are non-cash income items. These have represented less than 1% of our total investment income over the last several years.

We have had a significant amount of other income over the last several years which -- primarily due to what we call the success fee. Success fees are typically due to us at the change of control of the company. We received success fees totaling $1.7 million during the fiscal year ending September 30, 2013 and for the December 2013 quarter end, we received about $200,000 all related to portfolio companies that had early payoffs of their loans. As of December 31, 2013, approximately 46.9% of the interest-bearing debt investments had success fees related to them. The weighted average or contractual approval interest rate of these success fees is about 2.3% per annum added to the accruing principal balance.

At quarter end, we had an off-balance-sheet contractual success fee receivable of approximately $15.3 million. And this is about $0.73 per common share. And that would be owed to us if they were paid. And due to the contingent nature of these, there is no guarantee that we will ever be able to collect them, but in the past, we have been able to collect some of these success fees.

We have continued to see increasing competition pressure in the leading marketplace for senior and senior subordinated debt. I think this has resulted in lower yields to many of the BDCs for increasingly riskier investments. Competition is generally coming from public funds like ours and many small private funds. In spite of this increasing competition, we have maintained our weighted average yield, accruing investments of approximately 11.6% over the last several quarters.

Our investment climate has been difficult. We are still filling our portfolio with solid quality deals that are providing good returns, which is why our overall yield on the funds is still strong.

Significantly to this fund and new deal origination and ongoing success, we've hired a new President, Bob Marcotte, who is here at the table with me now. He was appointed by the board in early January of this year. Bob has extensive experience investing in senior and subordinated debt and had been part of the management team of another BDC locally, one here in town. He is very qualified to be President of our company and we are extremely happy to have him on board.

Bob, maybe you'd take a minute to comment on what you're seeing in the current marketplace out there.

Thank you David. First, I'd like to reiterate what David had said about the funds. Since joining in January, I've had the privilege of working with all of the team and have been very impressed with the level of experience, personal commitment as well as the rigor of the firm's investment processes.

While January is traditionally a low point in deal flow, the level of inquiries are healthy and we are taking steps to better institutionalize our investment origination activities. We are also planning to more aggressively engage the private equity sponsor community in the coming quarters as they represent a substantial portion of the potential investment opportunities in the lower end of the middle market.

With respect to the marketplace and market conditions and outlook, I concur with David's earlier comments. Loan demand for both commercial banks and retail loan funds continue to outstrip new loan supply and are continuing to pressure deals. While much of the associated refinancing activities have occurred, the continued market pressures have resulted in some elevated leverage metrics which may exceed what the underlying cash flows business cyclicality or growth can support. These supply/demand imbalances are less pronounced in the lower end of the middle market where GLAD has traditionally focused, and we are closely monitoring the associated impacts.

Moreover, Gladstone's well-established reputation and investor oriented financing approach continues to be well received by the private equity and owner operators in the low end of the middle market. These constituents value the dedicated market focus, level of engagement needed to understand their business and generally welcome the opportunity to establish a long-term financial partnership. So despite the broader investing market pressures, we continue to be optimistic that GLAD is well-positioned to originate attractive quality deals that will generate solid asset growth and income growth over the coming quarters to enhance the bottom line for the benefit of our stockholders.

Now we will -- I would like to turn to our Chief Financial Officer, Melissa Morrison, who will report on the Fund's financials.

Hello and good morning everyone. I hope you have had a chance to review the Form 10-Q for the quarter ended December 31, 2013 that we filed yesterday with the SEC. Let's start by reviewing the financials of the Fund for the first fiscal quarter of 2014 ended December 31, 2013.

Net investment income, or NII, was $4.4 million, or $0.21 per share, as compared to the prior quarter ended September 30, 2013 of $4.7 million, or $0.22 per share.

Investment income decreased by 10.2% in the three months ended December 31 as compared to the prior quarter, primarily due to an increase in other income last quarter related to $600,000 in success fees and $150,000 in prepayment fees, both received on early payoffs at par.

During the December 2013 quarter end, we earned $200,000 in success fees from the Lindmark acquisition, which paid off at par last quarter. In addition, interest income decreased by $400,000 quarter-over-quarter as we had two early payoffs at par totaling $21.5 million of interest-earning debt investments early in the December quarter, and the majority of our new investments David discussed earlier was funded late in the December quarter.

Operating expenses decreased by 14.3% during the current quarter as compared to the prior quarter, primarily due to the waiver on incentive fees we paid to our investment advisor. There was no incentive fee credit needed last quarter. The credit this quarter was needed to ensure distributions to stockholders were covered entirely by net investment income.

100% of common and preferred stock distributions paid in over the last three years were covered by NII. This highlights our commitment to prudent growth.

Success fee accruals are not recorded in our income statement or balance sheet. We only record success fees when received in cash. We do not include success fees in our reported deals as they are inconsistent and would skew our actual current cash run rate.

Below net investment income on our income statement are realized and unrealized changes in the fair value of our portfolio. Realized gains and losses come from actual sales or disposal transactions of our investments.

During the quarter ended December 31, 2013, we recorded a net realized loss of $10.8 million related our sale of LocalTel, a nonaccrual company. There was minimal realized activity in the prior quarter.

When we mark investments to fair value on our balance sheet, the change in fair value quarter-over-quarter is recognized in our income statement as unrealized appreciation or depreciation. This is a non-cash event and is required by GAAP investment company rule.

For the quarter ended December 31, 2013, we recorded net unrealized appreciation of $16.9 million, which included the reversal of $10.2 million of cumulative unrealized depreciation related to the sale of LocalTel and $6.7 million of net unrealized appreciation which was primarily due to increased financial and operational performance in several of our portfolio companies, and to a lesser extent an increase in index multiples used in certain (inaudible) calculations.

Our entire portfolio was fair valued at approximately 83% of cost as of December 31 as compared to approximately 77% as of September 30, 2013. The cumulative net unrealized depreciation on our investments is comprised of approximately 74% of 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.

The bottom line on our income statement is the change in net assets resulting from operations and is a combination of NII, net unrealized appreciation or depreciation, and net realized gains or losses. For the December 31, 2013 quarter end, the net increase in net assets resulting from operations was $10.5 million or $0.50 per share versus $28.7 million or $1.37 per share in the September 30, 2013 quarter end. The quarter-over-quarter decrease is primarily driven by the large reversal of net unrealized depreciation in the prior quarter related to Lindmark paying off at par.

Now let's review the balance sheet of the fund. As of December 31, 2013, we had approximately $301 million in total assets at fair value consisting of $283 million in investments at fair value and $18 million in cash and other assets. Liabilities totaled approximately $89 million consisting of $47.7 million in borrowings at cost on our line of credit which has a revolving period ending 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 summary, for the quarter ended December 31, 2013, we had approximately $212 million in net assets as compared to $206 million in net assets as of September 30, 2013, and $193 million a year ago. This represents an NAV per common share of $10.10 as of December 31, 2013, $9.81 as of September 30, 2013, and $9.17 a year ago. Of note, 7% of the increase in NAV for last quarter ended September 30, 2013 was due to the pay down of debt at par of Lindmark, which had been on nonaccrual.

At the time of this call, we have about $67 million in aggregate and unrestricted cash and availability on our $137 million credit facility. So we have capital currently available that we can deploy for the right deals which will meet the fund's investment objectives and strategies. We also use our cash and availability to fund operating expenses and to make distributions to our stockholders.

We believe our balance sheet is conservative and that our overall risk profile is low. We will consider other financing sources over the next several quarters depending on our new deal originations and available capital.

Let's now review some statistics of our portfolio. Our primary focus in our portfolio continues to be in senior and senior subordinated debt investments, which provide income to pay and over time grow our dividends. To a lesser extent, we may invest in equity investments which we expect will appreciate and build shareholder value.

Our targeted portfolio mix is 95% allocated to debt securities and 5% in equity securities. And currently, our portfolio is at a 93 to 7% allocation of debt to equity at cost.

Our portfolio as of December 31, 2013 consisted of loans to 52 companies in 26 states and in 20 different industries. This is up a net five portfolio companies quarter-over-quarter. We have a very diversified portfolio by industry classification and by geographic region, and are not too significantly invested in any one particular portfolio company.

Our five largest investments in our portfolio at fair value as of December 31 totaled $97 million, or 34% of our total investment portfolio, which is consistent with last quarter. Our credit facility and regulations under the regulated investment company IRS rules both contain certain concentration limits, all of which we have met and continue to meet as of December 31, 2013.

We have historically targeted to have our portfolio with 90% of debt investments at variable rates and 10% at fixed rates. This helps us manage interest rate risk. Our 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've seen over the last number of years are mitigated, and when rates begin to increase, we should see higher income.

Currently, as of December 31, our debt portfolio is at an 86% of 14% variable to fixed rate allocation, resulting from some of our newer fixed-rate deals. The weighted average yield on interest-bearing debt investments in our portfolio has remained consistent over the last several quarters and with that 11.6% as of December 31, 2013.

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 9.1% which results in an all-in weighted average rate of 11.6% on our interest-bearing debt investments. Our proprietary loans had an average all-in rate of 11.4%, while our syndicates had an average all-in rate of 10.2%.

In summary, we had good origination activity this quarter, adding quality, income-producing investments while we were able to exit a nonaccrual loan. We realize we need to build a portfolio with new originations to replace the early payoff activity during this and recent quarters. This will be necessary quarter to grow our NII and show our shareholders accretive results in the future. And now I'll turn the call back to David.

All right, Melissa, that was a great report. I hope all our listeners are reading our press release that we issued yesterday, and also review our 10-Q for December 2013 quarter end. You can access all of that on our website at www.Gladstonecapital.com and also on the SEC website.

Just as a summary, the first fiscal quarter ending December 31, I think Gladstone Capital accomplished a number of items, had good production with $44.1 million, and fortunately only $21.5 million in early payoff. We exited the one nonaccrual investment that had our team tied up and now we are focused on marketing and putting new loans on the books. We are maintaining a strong portfolio yield at about 11.6%, and significantly, subsequent to quarter end, our board appointed a new President of the Fund, which we feel will have a very positive impact on the future.

Our biggest challenge, like most people in our business, will continue to be finding new investments that we believe can survive another possible recession and a possible forthcoming strong inflation that we believe is on the way. Availability of capital is also a concern. In the near future, we will utilize our credit facility and look for raising additional long-term debt and equity as time goes on.

Of course, we have other concerns with the ever-changing political and economic environment. Specifically there are uncertainties around the Federal Reserve and their monetary policies, and the impact on future interest rates. Fiscal crisis at the federal government level is still top of our minds as the federal deficit is now over $17 trillion and continues to climb as government spending is just unsustainable, bottom line of all of that.

Many private companies, like those in which we invest, feel that too much regulation around such things as healthcare, financial services, the energy area, emissions, is just hindering their performance and their expansion and their job growth. Nonetheless, all of these concerns affect the investment climate in which we operate and recent economic indicators have been a little more positive than they were last year this time. But the economic recovery still has -- is still very sluggish.

Despite the economic issues, our fund continues to make consistent (technical difficulty) dividends. We have a history of earning our dividends and have continued to make monthly distributions to our shareholders. In January, our Board of Directors declared a monthly distribution on our common stock of $0.07 per common share for each of the months January, February, and March 2014, and the board will meet in early April to consider and vote upon the monthly distributions for April, May, and June for 2014.

Through the date of this call, we've made 124 sequential monthly cash distributions to our common shareholders, and we did several quarterly distributions before that. We have, in my own estimation, a dividend paying piece of machinery.

At the current distribution rate, the common stock -- and with the common stock price being about $9.56 yesterday, the yield on the distribution is now very high at 8.8%. Our monthly distribution of 7.125% for the preferred stockholders translates into $1.78 on an annual basis, so this preferred stock had a closing market price yesterday of $25.51 under the ticker GLADP, which gives us a yield of just under 7%.

For all of you out there, please mark your calendars. We are having our upcoming annual shareholders meeting on Thursday, February 13, 2014 at 11 AM at the Tysons Corner Hilton, located here in McLean, Virginia, 7920 Jones Branch Drive. I hope to see all of you out there coming to the meeting.

And please, if you haven't voted your shares, call up 800-690-6903, vote your shares. You can also go online to proxyvote.com and vote your shares there too. And we would love to see many of you there and come to the shareholders meeting.

In summary, I think, moving forward at a good pace in 2014, although we are still cautious about the economy and the recovery, and the effects on our business, we are excited about Bob Marcotte coming on board, joining our team. We are expecting some good movement forward over the rest of the year. And as you know, our management team has a successful track record of investing in medium-size businesses and has worked together through multiple economic downturns. And so we go forward feeling very strong at this point in time.

We will continue to seek investments in prospective portfolio companies that have demonstrated ability to withstand economic downturns. We believe Gladstone Capital is attractive investment for investors seeking continuous monthly distributions, and we will continue to stay the course and continue our disciplined approach while focusing on conservative investments in American businesses.

And now we will turn the call back over to Keith, our operator, and take any questions from our shareholders. Keith?

(Operator Instructions). Troy Ward, KBW.

Good morning, and thanks for taking my question, David. Can you provide any color on -- obviously with you in DC there, the BDC legislative issues that -- potential for those, and kind of step back and how do you look at the potential for new laws that could affect the leverage at the BDC level?

My guess is, watching how the SEC weighed in on leverage, that it's highly unlikely that you're going to get a leverage increase from legislation, not impossible, but when the SEC weighs in so heavily against leverage, I think it's going to be a big uphill battle.

I think you'll get many of the other things that are in that bill that's currently before Congress. I just have limited faith that they're going to be letting BDCs leverage more than 1 to 1. That came out of the 1940 act, and 1940 is when they cleaned up the mutual fund industry of over-leveraging and all kind of gimmicks that were going on. And we will see. Mary Jo is tough to deal with over at the SEC, so we will see how she weighs in with Congress.

Okay. And then can you speak a little bit, kind of compare your two different buckets, your proprietary and your syndicated loan bucket? They are really not that different as we look at them. There's about 100 basis points of additional yield in your proprietary loans versus your syndicated loans. Just when we usually think about a syndicated loan, it's got a much lower yield. So, from a credit quality perspective, how do you view your syndicated portfolio and your proprietary portfolio?

Yes, it's very difficult to do the syndicated deals these days, even the second liens, because there's so much money in the high-yield marketplace, they pressed returns down to a very low level and they pretty much stripped all the conditions that would protect a lender out of many of the loans.

However, as you mentioned, we've gotten great returns on our syndicated loans when they pay off. We have usually purchased them at below par and there is usually a penalty for prepayment. So we have been averaging a very strong return compared to our existing portfolio. I don't think that's going to hold up going forward, simply because the marketplace is just so aggressive these days. And now that people are piling out of the common stocks and equity marketplace and piling back into the debt marketplace, I can imagine the pressures on syndicated loans will be even greater.

At this point in time, I would say we are doing very few syndicated loans only because the terms and conditions and the yields are I think -- they are really worse than they were before the last recession, and that was an extremely hot marketplace then. It's just as hot or hotter right now.

We could expect that your current available capital will be pointed at more proprietary opportunities?

I think so. Proprietary deals, we have good luck in our relationships with a lot of the LBO funds that are buying companies, and we are able to tagalong and provide the subordinated debt. We also have good luck in just dealing with smaller businesses that want to borrow money, generally for growth, sometimes to buy another company. So those tend to be the two best places for us right now. We look at all the syndicated loans that come out. (technical difficulty) over the last two or three months, it's been slim pickings.

And then one final one. Melissa, I think you talked about the portfolio appreciation was driven by both an increase in fundamentals and a change in the multiple kind of your assumptions in the waterfall analysis. Could you provide a little additional color on maybe what those changes and the assumptions were?

Yes, the assumptions or something we agonize over every quarter. And as you know, I've said many times it's very hard to come up a value that everyone can agree on. We of course use, for much of our debt instruments, Standard & Poor's; they help us come to valuations. Our board looks at what the S&P does and we have of course the different methodologies that are in the valuation world. And so we work through those and quite frankly they just change every quarter, and it adds volatility, both up and down, to our evaluation procedures. But we don't know of any other way of doing it. And so it's something I caution everybody about.

Yes, we have our valuation today of $10.10. If we had to liquidate today, yes, we can get $10.10 a share, but it really is more of a guess than a science, as you can probably imagine. Any private business trying to come up with a value, if you give it to 10 people, you would get 10 different values.

We do pride ourselves on spending a lot of time on this, and I think we are about as accurate as anybody can be. But people who are running around trading on BDCs and others in our industry based on net asset value would be better off looking at the quality of income and the growth in income than looking at net asset value.

Just to tag onto that and tag onto what David said, our valuation methodologies have remained consistent quarter-over-quarter, so there have been no changes in our waterfall calculations and our index multiples and using S&P, as David stated. So, the valuation methodologies were at the same, inconsistent.

Great. Appreciate that color. Thanks guys.

JT Rogers, Janney Capital Markets.

Good morning David. Thanks for taking my question. It looks like there's about $20 million of the portfolio coming due in March. Generally, these investments are marked at a pretty big discount to par. Do you have any visibility into whether these are going to be repaid, extended or moved to nonaccrual?

We have two smaller ones that are probably going to be paid. I'm not sure they are strong enough to know at this point in time whether we can give you any indication of which they are, even how much. These are both radio transactions, and as a result, they have gone into the Small Business Administration to get an SBA guaranteed loan. Whether they get approved, that it flows all the way through, really difficult to know, JT.

We are prepared to extend the loan. We are not in a foreclosure mode on those. We might ask them to do some things that we want them to do that they wouldn't have to do if they get an SBA guaranteed loan. So they have an incentive to get there. So as a result, I would say that $20 million has probability of some portion of it being paid and some portion of it being extended.

Okay. There are two other investments, I don't know if this is included in what you were just discussing. But BAS Broadcasting and Legend Communications, those are passed due, they are still accruing, but are marked at pretty big discounts to par. I was just wondering if you had any additional detail as to what's going on there?

Yes, we do have additional details. I'm sorry I can't talk about them because they are private companies, but both of them are in the radio business. There is another one, there's three of them that we work with that have gone through some very difficult times. They have come back some, but it's just difficult to say how far along they are going to be in repaying us at this point in time. Any comments on that?

No. The only comment I would add is they are all paying as -- they are all paying their insurance, and we are involved in some transactions. So probably over the next several quarters, we will see some either payoffs or extensions, as David mentioned.

When we talk to other people about radio stations and valuations, it's very difficult to get them on the same page that we are on. I've probably financed hundreds of radio stations over the years, and they usually come back.

This recession has been one in which radio stations, especially the smaller groups, have not come back as quickly, although they have come back some and continue to grow. It's just hard to know where that industry is going long-term at this point in time. Nonetheless, we are hopeful that some of these radio stations that have applied to SBA for SBA guaranteed loans will come through and get paid. I'm pretty sure one of them will come through. I'm just not willing to put my money down on which one right now.

And just sort of one last follow-up question on that. In terms of discussing the radio stations coming back, is this a recovery so that the equity investors are going to get some sort of return, or is this -- are you looking for them to bounce back so they can repay your loan?

I think this is more about repaying our loan and the equity investors continuing to work in that company and build it out. We are not the equity investors in those companies. So what they are doing is swapping out our debt for SBA guaranteed loan debt or some other debt from a bank. And this is a continuation, and they will continue to work it, and hopefully the equity will yield them something. Many times in this case, the equity is from the owner operator, and it's a lifelong desire for them to own a radio station. And we have just been part of the financing in past years. So, they're just moving from one lender to another.

Okay. Thanks a lot.

(Operator Instructions). 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 comments.

All right. Thank you Keith, and thanks, all of you, for calling in and the questions that you've asked. Hopefully, if you have other questions, you can come through our department here and get your questions answered. We appreciate all of you calling in, and 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. Have a nice day.