Main Street Capital Corp (MAIN) 2016 Q3 法說會逐字稿

Greetings and welcome to the Main Street Capital Corporation third-quarter earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Ken Dennard, please go ahead.

Thanks, Rob. Good morning, everyone, and thanks for joining us for Main Street Capital Corporation's third-quarter 2016 earnings conference call. Joining me today on the call is Chairman and Chief Executive Officer, Vince Foster; President and Chief Operating Officer, Dwayne Hyzak; and Chief Financial Officer, Brent Smith.

Main Street issued a press release yesterday afternoon with the details of the Company's third-quarter 2016 financial and operating results. This document is available on the investor relations section of the Company's website at Mainstreetcapital.com.

A replay of today's call will be available beginning in about an hour after the completion of the call and will remain available until November 11th. Information on how to access the replay feature was included in yesterday's news release.

We also advise you that this conference call is being broadcast live through the Internet. So the webcast can be accessed through the Company's webcast page, and there is an archive there as well. Please note that information reported on this call speaks only as of today, November 4, 2016 and therefore, you are advised that time-sensitive information my no longer be accurate at the time of any replay listening or transcript reading.

Today's conference call will contain forward information -- forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. These statements are based on management's estimates, assumptions, and projections as of the date of this call and are not guarantees of future performance.

Actual results may differ materially from results expressed or implied in these statements as the result of risks, uncertainties, and other factors, including but not limited to, the factors set forth in the Company's filings with the Securities and Exchange Commission, which can also be found on the Company's website or at SEC.gov. Main Street assumes no obligation to update any of these statements unless required by law.

During today's call, management will discuss non-GAAP financial measures, including distributable net investment income. Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified.

And now, I'd like to turn the call over to Vince.

Thanks, Ken, and thank you all for joining us today. I will comment on the performance of our investment portfolio, discuss our recent dividend announcements, and conclude by commenting on our investment pipeline.

Following my comments, Dwayne Hyzak, our President; and Brent Smith, and CFO, will cover our operating performance in more detail and account for our third-quarter financial results, originations and exits, our recent announcements, our current liquidity position and key portfolio statistics, and our expense ratio, after which we will take your questions.

We were very pleased with our third-quarter operating results. Our lower middle market portfolio, our primary area of focus, was relatively stable in terms of net appreciation during the quarter, with 21 of our investments appreciating during the quarter and 18 depreciating. In addition, we realized a gain of roughly $18 million through the sale of our portfolio Company Travis Trailer.

Our middle-market loans appreciated by $6.7 million during the quarter on a net basis, and our private loans and other assets appreciated by $6.5 million during the quarter. We finished the quarter with a net asset value per share of $21.62, a sequential increase of $0.51 a share over Q2. Our lower middle-market companies collectively continue to exhibit very conservative leverage ratios on a relative basis, which Dwayne will cover in greater detail.

Earlier this week, our Board declared our first-quarter 2017 regular monthly dividends of $0.185 a share in each of January, February, and March, maintaining our fourth-quarter payout rate. The ex dates for these dividends are December 28th, January 18th, and February 17th, respectively. This past June, we paid a semiannual supplemental dividend of $0.275 a share, and several weeks ago, we declared a $0.275-per-share supplemental dividend, which will be paid in December.

2016 represents our fifth consecutive year of supplemental dividends beginning with the 2012 dividend declared in Q4 of that year. We currently expect to ask our Board to declare our next semiannual supplemental dividend to be paid in the second quarter of 2017 in the range of $0.27 to $0.30 a share.

Primarily as a result of our realized gains in the second and third quarters, we currently estimate that 100% of our third-quarter regular dividends and most of our October regular dividend will be taxed as or similar to long-term capital gains for federal income tax purposes to our individual shareholders.

I summarized our aftermarket, or ATM, equity offering activity at our last call. Since then, we have issued an additional half million shares through mid-October and netted proceeds of over $17 million. We continue to be pleased with the execution to date of the program and intend to continue utilizing the ATM alternative, assuming continued favorable execution.

As of today, I would characterize our investment pipeline as above-average, and we continue to expect a solid next 90 days from a lower middle-market origination perspective. We continue to seek and receive significant equity participation in our lower middle-market investments. And as of quarter end, we own an average of the 36% fully diluted equity ownership position in the 99% of these investments in which we currently have equity exposure. Our officer director group has continued to be regular purchasers of our shares, investing approximately $0.5 million during the third quarter.

With that, I'd like to turn the call over to Dwayne to cover our portfolio performance in more detail.

Thanks, Vince, and good morning, everyone.

We are pleased to report another quarter during which we grew both our total investment income and distributable net investment income, and again, generated distributable net investment income in excess of our recurring monthly dividends. We believe that our unique investment strategy, focused primarily on the underserved lower middle market, combined with our efficient operating structure, continue to provide a value proposition that differentiates Main Street from other yield-oriented investment options and generates the premium total returns realized as a result of the historical growth in our dividends per share, our net asset value share, and our stock price.

As we've discussed in prior quarters, we believe that the primary driver of our long-term success has been and continues to be our focus on the underserved lower middle market, and specifically, our investment strategy of investing in both debt and equity in the lower middle market and acting as a sponsor and a partner to the management teams of our lower middle market portfolio companies and not just the financing source.

A little over a year ago, we began providing some highlights on different aspects of our focus on the lower middle market to demonstrate the significant benefits of our unique investment strategy. Since that time, we have exited our investments in several lower middle-market companies, including the exit of our investments in Travis Trailer during the third quarter. So we wanted to provide an update on one of the aspects that we've previously highlighted.

The third quarter of 2016 represents the end of Main Street's ninth full year as a public Company. During this time period, we have exited 39 of our lower middle-market equity investments. Of these exits, 26 have resulted in realized gains, with these gains totaling approximately $140 million, while 13 have resulted in realized losses, with these losses totaling approximately $14 million.

In addition, when you compare our realized gains on these exits to our fair value marks two quarters and four quarters prior to exit, the actual value achieved on the exit of these equity investments exceeded a fair-value marks two quarters prior to exit by approximately 25%, and four quarters prior to exit by approximately 80%. Specifically, in the case of the exit of our investments in Travis Trailer during the third quarter, we generated a realized gain of approximately $18 million and a cumulative 42% internal rate of return, and a 2.9 times money investor return on our cumulative debt and equity investments, with the debt investments representing approximately 60% of our total invested capital.

In addition, our actual realized value from the exit of our equity investment was 23%, or $4.6 million, greater than our fair-value estimate at June 30th, and 77%, or $10.9 million, greater than our fair-value estimate a year prior to exit. We believe that our historical realized gains and the related comparison of these realized gains to our prior fair-value estimates are helpful when evaluating the benefits of our lower middle-market equity investment strategy, as well as when evaluating our current fair-value estimates for these investments and the opportunity for upside in the ultimate value that might be realized upon the exit of these investments.

Consistent with prior quarters, the contributions from our lower middle-market portfolio continue to be well diversified, with 43 of our 71 lower middle-market companies with equity investments having appreciation at September 30th, and with 27 of those companies that are flow-through entities for tax purposes, or approximately 60% of our total investments in flow-through entities, contributing to our dividend income over the last 12 months.

In addition, we also have several equity investments in non-flow-through entities which have contributed to our dividend income over the last 12 months. We believe that the diversity of our lower middle-market portfolio is very important when analyzing the benefits from our lower middle-market strategy, and we believe that this diversity provides visibility to the recurring nature of these benefits in the future.

Now turning specifically to our investment portfolio at quarter end and our investment activity in the third quarter, we are pleased to report that our overall portfolio performance remains strong. Our investment activity in the third quarter included total follow-in investments in our lower middle-market portfolio of approximately $8 million, which after aggregate repayments on debt investments and return of invested equity capital from several lower middle-market portfolio investments, resulted in a net decrease in our lower middle-market portfolio of approximately $26 million.

We had net increase in our middle-market portfolio of approximately $6 million and a net increase in our private loan portfolio of $30 million. As result, at September 30th, we had investments in 197 portfolio companies that are in more than 50 different industries across the lower middle market, middle market, and private loan components of our investment portfolio.

The largest portfolio company represents less than 5% of our total investment income for the last 12 months and less than 3% of our total portfolio fair value, with the majority of our portfolio investments representing less than 1% of our income and our assets. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday, but I'll touch on a few highlights.

Our lower middle market portfolio included investments in 71 companies, representing approximately $830 million of fair value, which is approximately 18% above our cost basis. At the lower middle-market portfolio level, the portfolio's median net senior debt to EBITDA ratio was a conservative 2.9 to 1, or 3.2 to 1, including portfolio Company debt, which is junior in priority to our debt position.

As a complement to our lower middle-market portfolio, in our middle-market portfolio, we had investments in 81 companies, representing approximately $628 million of fair value. In our private loan portfolio, we had investments in 45 companies, representing approximately $338 million in fair value. The total investment portfolio at fair value at September 20th was approximately106% of the related cost basis, and we had five investments on non-accrual status, which comprised approximately 0.4% of the total investment portfolio at fair value and 2.8% at cost.

In summary, Main Street's investment portfolio continues to perform at a high level and continues to deliver on our long-term goals. With that, I will turn the call to Brent to cover our financial results, capital structure and liquidity position.

Thanks, Dwayne.

We are pleased to report that our total investment income increased by 9% for the third quarter over the same period in 2015 to a total of $46.6 million. Interest income increased by approximately $1.4 million, dividend income increased by approximately $2.8 million, and fee income was flat when compared to the prior year. The amount of income that is less consistent on a recurring basis, or nonrecurring, was approximately $1.7 million, or $0.03 per share, relating to dividend income.

Third quarter of 2016 operating expenses, excluding noncash share-based compensation expense, increased by $0.8 million over the third quarter of the prior year to a total of $13.9 million. The increase was primarily related to a $0.6 million increase in compensation expense and a $0.3 million increase in interest expense. These increases were partially offset by a $0.1 million increase in the amount of cost allocated to our External Investment Manager.

The ratio of our total operating expenses, excluding interest expense, as a percentage of average total assets, which we believe is a key metric in evaluating our operating efficiency, was 1.5% on an annualized basis for the third quarter and continues to compare very favorably to other BDCs and other yield-oriented investment options. Our increased total investment income and the continued leverage of our efficient operating structure resulted in an 11% increase in distributable net investment income for the third quarter of 2016 to a total of $32.7 million, or $0.62 per share, exceeding our recurring monthly dividends paid for the quarter by nearly 15%.

Our External Investment Manager's relationship with the HMS Income Fund benefited our net investment income by approximately $2 million in the third quarter of 2016, through a $1.2 million reduction of our operating expenses for cost reallocated to the External Investment Manager for services we provided to it, and $0.8 million of dividend income from the External Investment Manager.

We recorded a net realized gain of $4.3 million during the third quarter, primarily relating to a net realized gain on the exit of three lower middle-market investments, partially offset by realized losses related to the exit of one private loan investment and the restructuring of one middle-market investment. And as Vince discussed, we recorded net unrealized appreciation on the investment portfolio of $9.9 million in the third quarter, primarily relating to $6.7 million of net appreciation on our middle-market portfolio, $3.2 million of net appreciation relating to our External Investment Manager, $2.8 million of net appreciation relating to our other portfolio, and $0.5 million of net appreciation relating to our private loan portfolio.

This net appreciation was partially offset by net depreciation relating to our lower middle-market portfolio of $3.3 million, excluding $4.6 million of appreciation generated during the quarter on our exit of Travis Trailer. Additional details for the change on our net unrealized appreciation can be found in our earnings release.

Looking forward to the fourth quarter of 2016 and consistent with the information provided on our last earnings conference call, we wanted to provide an update regarding the market movement relating to our middle-market portfolio. The overall market for middle-market debt investments has continued to improve during the fourth quarter. Based on our static middle-market portfolio as of September 30, 2016, not taking into account any new investments or sales or repayments during the fourth quarter, and based on quoted market prices for underlying middle-market debt investments, our middle-market portfolio has generated approximately $2 million to $3 million in net unrealized appreciation to this point in the fourth quarter.

Our operating results for the third quarter of 2016 resulted in a net increase to net assets of $43.2 million, or $0.82 per share. On the capital resources front, our liquidity and overall capitalization remains strong. At the end of the second quarter, we had $31.8 million of cash and $242 million of unused capacity under our credit facility. Today, we have approximately $28 million of cash and $243 million of unused capacity under the credit facility. In addition, we currently have $119 million of incremental SBIC debentures available to us under our third SBIC license.

We were also very pleased to have recently extended the maturing of our credit facility to September of 2021. As a result, our credit facility will continue to provide significant flexibility within our capital structure on what we believe to be beneficial terms and conditions for the next five years.

As we look forward to the fourth quarter of 2016, we currently expect that we would generate distributable net investment income of $0.59 to $0.61 per share during the quarter. This estimate is $0.035 to $0.055 per share, or 6% to 10% above our previously announced monthly dividends for the fourth quarter of $0.555 per share.

With that, I will now turn the call back over to the operator so we can take any questions.

Thank you, sir.

(Operator Instructions)

Our first question today comes from Bryce Rowe of Baird.

Thank you, good morning. I wanted to ask a question about the pipeline and then also question about capital structure and capital planning. On the pipeline and, specifically, the lower middle-market pipeline, you guys noted an above-average pipeline and potential for good activity over the next 90 days.

I was curious what you're seeing from a repayment perspective, understanding that you don't really control that process all the time. But with the level of activity that we've seen so far this year with the investment exits, was curious what you might see over the next quarter or so in terms of repayments?

I think we only have one company actively talking with, I think a member of our credit facility to refinance us, so it's really pretty light. Again, you can't predict it, but there's -- I don't see any real near-term material developments there. Do you, Dwayne?

Bryce, what I would add is that if we were on this same call a year ago, you would've heard our comments saying that we were expecting elevated activity. I would say that with the three large exits we've had over the last six to nine months that, that activity has largely run its course. So we would not expect to see that same level of activity over the next 12 months.

Just survivorship buys.

Got it. And then, in terms of the capital structure, you guys have clearly used the ATM program to your advantage this year. And then you also have had been approved for that third SBA license. So just curious how you weigh continued use of the ATM program, draws on the SBA, and then maybe any other form of capital issuance that you might be considering, notes, or some form of debt?

Sure. Obviously, we're very excited about getting the SBIC facility utilized. That's really just a function of originating and closing investments and qualified small businesses, so they're going to be somewhat smaller deals that are SBIC eligible. When we go out and originate, we are originating both, and it just -- it's somewhat arbitrary in terms of how much of the backlog is qualifying versus non-qualifying.

But clearly, that's a priority for us. It's not a priority to the extent we're only looking at qualifying companies. So if you have a company with significant non-US activity or certain industries that aren't SBIC eligible, then they can't go in there and we put them in the parent or we put them in the RIC. So that is just business as usual.

And then, of course, we have exits of SBIC investments that free up capital in the other two license entities, too. So I expect by this time next year, we'll be largely tapped out with respect to that facility. Once in a while, we see a private loan or middle-market loan that qualifies.

But I'd say in terms of balance sheet planning, in general, what would look at, Bryce, is how much we have on the revolver. And we want to use our revolver as a revolver, so it's roughly $550 million. We've got about [3.25] out. It's been pretty stable over the last several weeks.

We really are comfortable with getting the revolver all that much more drawn. So it's really a function of thinking about a large non-SBIC qualifying opportunity -- relatively large that comes up. Do we want to finance that thing off the revolver?

We do have -- would have some equity dribbling in, but it's not all that material when you think about 2 million shares over the last year. It doesn't move the needle that much. And so what we really think about is when does it make sense to term out some of that revolver? If and when we do that, it's going to be via issuing another investment-grade senior note.

As we learned from the first time, it needs to be $250 million. Ideally, we'd go to [$50 million] or [$100 million tranches], but you can't do that as a practical matter. So I would be looking at us to term out $250 million of that revolver probably sooner rather than later if we can get good execution and good pricing.

We're fortunate enough we can wait a year and we don't have to do it. But we don't want to be in a position where we feel like we need to do it and then we need to accept whatever the market is going to give us. The conditions are pretty good right now, and so we'll probably continue to monitor that very closely, particularly since we got our earnings release out and we can focus on that more diligently.

That's great color, Vince, thanks.

What have I missed? Anything, Brent?

No, I think that sums it up pretty well. I think as you basically said, we'll look to be opportunistic on the IG debt market if the opportunity presents itself, and that's something we'll continue to monitor, as you said.

Great, thanks, guys.

The next question comes from Christopher Nolan of FBR and Company.

Hi guys. The lower middle market, you guys had the Travis Trailer, $17.9 million gain. And then I believe there were two other smaller realized losses, if my math is correct. What were they?

On the lower middle-market side we had a $2.2 million loss on the exit of Radial Drilling, and we also had a $1.3 million loss on the exit MPS Denver. That was on the lower middle-market side.

Thanks, Brent. And then, on the change in non-accruals, how much of the non-accruals are energy related at this point?

Right now, we have three of the five are energy related.

Great, those were my two questions. Vince, by the way, if you want to give commentary on the energy market, feel free. Thanks, guys.

Thanks, Chris.

I think we're on the rebound.

The next question is from Robert Dodd of Raymond James.

Hi everybody. Two questions on dividend, one on the number this quarter and then one -- a bigger global. The [9.7] dividend income this quarter, that's a record high by $2 million, it's up from $2 million last quarter, $2.7 from last year. You pointed out in the text that some of that's nonrecurring. But yes, not consistent I should say.

Can you give us any color on how -- was there any one-time, abnormally one time in that number or should we see Q1, Q2 figures being more sustainable? Or has the groups that are paying you dividends expanded materially?

Robert, thanks for the question. When we look at the nonrecurring nature or the less recurring nature of that, it's really hard to determine what goes in that bucket. It's a fairly judgmental assessment.

When you look at this quarter, we did get a dividend from Travis Trailer prior to exit, which was the result of cash on the balance sheet and their earnings for the quarter prior to exit. So when you look at that, how do you categorize that? We obviously categorized a significant portion of that as nonrecurring.

But when you look at it, if you had a debt investment the gets paid off, what do you do with that interest income? Do you categorize that as non-recurring? So we really struggle with what portion of the dividend income is nonrecurring, just given the diverse nature of our portfolio and the number of companies that paying dividends to us.

I think we look forward to projections for Q4 and Q1 for dividend income. We do expect it to come down some, and that's what we were trying to signal with the highlighting of $1.7 million of that number being less recurring or nonrecurring. But we're very comfortable with the nature of the dividend income that we have when you look at the types of companies, both quality and diversity of company that are contributing each quarter to that dividend number. It's one that we've got a high level of comfort with.

Robert, the challenge for us, with respect to dividends, comes not such much with the flow-through entities, because they're contractually required to pay out dividends, if for no other reason than to cover the members' tax obligations. But it's with respect to the C-corps where it's tough, because they don't have to pay dividends. And we tell our lower middle-market teams that have significant C-corp exposure, we stress that while the company might be appreciating, it's a dead asset, Travis Trailer was an example, it's a dead asset from an NII perspective, unless you can pay dividends.

So you read about private equity firms doing dividend recaps periodically. Well, we have the identical -- those are typically C-corps. We have the identical issue with our companies. And we expect our managers, if these companies are not exiting, to figure out ways to generate some dividend activity as part of our evaluation of their performance.

What I hope and expect is we have regularly recurring -- nonrecurring dividends, maybe one per portfolio a couple of times a year. Because otherwise, we have that you can go several years with a debt asset there, but that's something we're trying to discourage.

I appreciate that. My follow-up question actually relates to something you said there. In terms of like, on the pass-through the S-corps or pass-through of whatever variety, you contractually obligate, or they're contractually obligated to pay a dividend sufficient to cover the taxes.

Now election year, right? I hate to throw politics and taxes in this, but there you go. We're coming up on election year. Some fairly radical differences between the two candidates on tax policy.

Right.

Do you had a view? Have you done any analysis right now? That if one candidate wins and taxation on pass-through entities drops to, I think it is 15%, how would that affect the potential for dividend income -- presuming that actually happened, how would that affect the dividend income?

I don't think it's been thought through very well, because you can tax pass-through income at a lower rate. But realistically then, you're talking about an individual on our size companies, if we weren't individual that give you pass-through all the way to the 1040 that could have several million dollars of income, that's going to put you in the upper 1% or 0.01%, and you're going to have surtaxes. So I don't think it's been really thought through.

I think what's going to happen is corporate rates, in general, are under pressure to be lowered. Foreign earnings are going to come back. They're under pressure to be repatriated, with some relief on their rates, small businesses. These are the trends that we are seeing, hearing about and predicting.

So C-corp rates going down, foreign earnings coming back, and small business incentives increasing to try to help small businesses and create job growth. And so we're both the beneficiaries of a lot of that and the victim of a lot of that. So we wouldn't anticipate any changes really at the federal level that are going to be material.

What's more interesting is what the states are doing. Because if we have a company in California or Wisconsin or Minnesota, you might see a 45% or 50% distribution rate that's contractual versus Texas where it might be 35%. So we spend more time worrying about the states where the companies operate, et cetera, in terms of trying to calibrate those distribution rates.

Got it, thank you.

The next question comes from Doug Mewhirter of SunTrust.

Good morning. My first question, I noticed your fee offset or expenditure reimbursements from your externally managed fund dropped sequentially. I know you'd actually been telegraphing that a little bit with the pressures from the DOL rule and all of that.

Have you seen outflows -- or net outflows from the HMS Income Fund? I saw that they recently did a tender offer, I didn't know how that went. What's your view now that the dust has settled on the DOL rule, how you think that will progress?

Just to clarify, HMS Income Fund has continued to raise capital all year. What we're seeing is sequentially lower capital raises, but the total assets with respect to which our 1% fee is based on, are continuing to increase.

So our management fees are going up quarter over quarter, and we expect that to continue. But it's going to moderate and be less material until they -- they've announced they're quit -- cease fundraising on April 1. And then at that point, things should be pretty stable, we wouldn't expect the assets to change.

With respect to the tender offer, all that is, is the requirement that they take any dividend reinvestment proceeds that they receive and offer liquidity to people that want to get out of the stock, because the stock is not listed. But that's not material at all and that happens, what, Nick, four times a year. So that's -- it's not the kind of tender offer you and I used to seeing for commercial industrial companies. And then with respect to how you allocate fees, I will give that to Brett, since that ones kind of --

Sure, you're always going to see some variability in the expense allocated to the External Investment Manager. That is in large part driven by the level of originations that they co-invest with us and during a particular quarter. So as you can see, and as we talked about at length, the third quarter was not heavy on lower middle-market originations, so that had some impact.

Even regardless of the growth in total HMS assets, a lot of it will depend on whether it is lower middle market or middle market. And we have a very detailed allocation method that we apply here that goes by person, by deal team, et cetera, on time spent versus originations versus monitoring. So you're always going to have some level of volatility in that number.

That's very helpful, thanks. My second question may be more a philosophical question, I have heard from other -- from maybe more traditional BDC managers that the market for these traditional, syndicated loans, middle market and large cap syndicated loans, is getting much tougher in terms of terms and conditions, are getting looser, leverage is going up, coverage ratios going down.

Does that affect your appetite for using the middle-market bucket as a parking spot? Or is there a point beyond which you actually think it's better just to just to stick it in cash rather than trying to allocate to these traded middle-market loans?

It's a good question. Again, we are operating in the bottom 3% to 5% of the syndicated universe when we do transact there, and we really haven't had much growth with respect to our portfolio there, either on an absolute basis or on a relative basis for some time.

We have a base, so that the quote, unquote syndicated loans that we're really looking at and occasionally participating in are really referred to as middle-market loans. Because they really don't trade very much, there's relatively very few owners of those, and it's almost maybe more akin to a private placement. These are the smaller loans.

And we are a significant player in the bottom end of that market, because we are not concerned about CLO eligibility and don't have force guidelines in terms of what we can invest and what we can't. So it makes us an attractive investor for price discovery, for helping structure the deals. And these smaller deals tend to have better structures, higher spreads, more attractive risk-adjusted returns.

We're able, Doug, to deploy what the leverage capacity we have much more easily. Our lenders would much rather be secured by those types of loans than our lower middle-market loans, depending on the lender. Goldman Sachs is in our credit facility, and they're much more interested or comfortable in those loans than they are trying to diligence lower middle-market loans, smaller-type businesses around the country.

So it's a win-win deal, because our leverage returns, our ROE on those assets can be attractive and we've carved out a niche there. In addition, we would not have been selected and we couldn't have done the job that we did with HMS, had we not been a player, if you will, or a participant in that space. Because that's what we put the HMS assets in, when their capital rates ramped up.

Again, they have leverage, too and their lenders are probably, Nick, correct me if I'm wrong, even more interested in those assets than they are. In terms of the market conditions with respect to what you're looking at, why don't you make a couple comments?

From the middle-market side, obviously, the market conditions are tighter today than were, call it, nine to 12 months ago. It was a very wide open market I'd say in fourth quarter last year, first quarter this year. And we made a lot of purchases at a nice discount that now we're reaping some gains on.

The market has gotten tighter, but at the same time, EBITDA across the board has generically grown. Leverage is about the same as where it was 12 to 18 months ago. In terms, while they got much looser over the last 12 months, they're not that bad.

But you need to pick and choose your options. I think it's been said, we do play that smaller market of the syndicated book. So it allows us too have more covenants and a little tighter thresholds there.

Great, thanks. That's all my questions.

There are no further questions at this time. I would like to turn the floor back over to Management for closing remarks.

Great, well thanks for participating and we will talk to you next year. Bye.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.