Main Street Capital Corp (MAIN) 2017 Q1 法說會逐字稿

Greetings, and welcome to the Main Street Capital Corporation's First Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Roberson of Dennard Lascar Associates. Thank you, Mr. Roberson. You may begin.

Thank you, Kevin, and good morning everyone. Thank you for joining us for Main Street Capital Corporation's First Quarter of 2017 Earnings Conference Call. Joining me on the call today are Chairman and CEO, Vince Foster; President and Chief Operating Officer, Dwayne Hyzak; and Chief Financial Officer, Brent Smith.

Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the Investor Relations section on the company's website at mainstreetcapital.com. A replay of today's call will be available beginning about an hour after the completion of the call and will remain available until May 12. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's home page. Please note that information reported on this call speaks only as of today, May 5, 2017. And therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay of listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of the 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 there are no guarantees of future performance.

Actual results may differ materially from the results expressed or implied on these statements as a 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 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 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'll turn the call over to Vince.

Thanks, Mark, 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, our CFO will cover our operating performance in more detail, and comment on our first quarter financial results, the recent originations and exits, recent announcements, our current liquidity position and certain key portfolio statistics and our operating expense ratio, after which we will take your questions.

We were generally pleased with our first quarter operating results. Our lower middle market portfolio, our primary areas of focus appreciated by $2.2 million on a net basis during the quarter, with 22 of our investments appreciating during the quarter and 15 depreciating. Our middle market loans, private loans and our other assets collectively remained flat during the quarter. We finished the quarter with a net asset value per share of $22.44, a sequential increase of $0.34 over the fourth quarter. Our lower middle market companies continue collectively to exhibit very conservative leverage ratios in a relative basis, which Dwayne will cover in greater detail. Earlier this week our board declared our third quarter 2017 regular monthly dividends of $0.185 a share for each of July, August and September, maintaining our second quarter payout rate. The ex-dates for these dividends are June 28, July 18 and August 17, respectively. Last month, our board declared our latest semiannual supplemental dividend to be paid in June in the amount of $0.275 a share. We have originated new lower middle market and private loan investment of roughly $145 million so far this year for our investment portfolio. We are on budget for the first 2 quarters at this pace, although our current mix is overweight private loans. As of today, I would characterize our lower middle market investment pipeline is about average to above average. We continue to seek and receive significant activity participation in our lower middle market investments and as of quarter end, we owned an average of a 37% fully diluted equity ownership position in the 99% of these investments in which we currently have equity exposure.

We are pleased to report that I-45 joint venture with Capital Southwest has switched from ramping to optimizing. The joint venture now has over $200 million in total assets, and based on its current equity capital, it's close to its long-term asset level. In addition, HMS recently closed its senior loan fund with ORIX with an initial equity -- with initial equity and leverage commitments of $50 million and $100 million respectively, contemplating an initial size of $150 million. Unlike the I-45 joint venture, we have not committed any capital to the HMS-ORIX on joint venture. Our officer/director group has continued to be regular purchasers of our shares, investing approximately $700,000 during the first quarter. With that, I'll like to turn the call over to Dwayne to cover our performance in more detail.

Thanks, Vince, good morning, everyone. We're pleased to report another quarter during which we grew both our total investment income and distributable net investment income and again generated distributable net income in excess for our monthly dividends. In addition, as a result of our unique focus on investments in both debt and equity in the lower middle market, during the first quarter, we were also able to generate over $27 million of additional net realized gains from our investment portfolio, primarily from the highly successful exit of our lower middle market investments in Daseke. We're also pleased with our most recent operating results, representing GAAP return on equity of 13.4% for the trailing 12-month period and 10.1% on an annualized basis for the first quarter. Returns that significantly exceed the dividend yield paid to our shareholders and represent the significant value that we are generating for our shareholders in excess of our dividends paid. We believe that these results illustrate the significant benefits of our unique investment strategy, which 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 by our shareholders, as a result of the historical growth in our dividends per share, our net asset value per 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 a 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. Without this primary focus on the lower middle market, it will be very difficult to produce these returns for our shareholders. Each quarter, we try to highlight key aspects of our differentiated investment strategy. This quarter, we'd like to revisit several reasons why we believe that our structure as a public traded BDC with the significant benefits of permanent capital, is a perfect match with our focus on investing debt, and equity in the lower middle market. First, we believe that our permanent capital structure allows us to be an ideal partner for owners of privately held businesses, that are seeking a liquidity event, as we can represent a permanent substitute partner for a retiring business partner or family member, eliminating the concerns typically associated with the limited holding periods required by traditional private equity fund structures. This flexibility allows us to complete the transactions based upon beneficial structure considerations as opposed to solely on price, generating what we believe are highly attractive investment opportunities. Second, our desired long-term holding period has generated a diversified portfolio of mature companies with reasonable leverage providing each company the ability to work through negative economic cycles and take advantage of opportunities as they arise. Our long-term of holding period also provides for less frequent portfolio turnover, resulting in improved portfolio diversity each quarter and providing opportunities for increased dividend income as the portfolio companies continues to mature. Our long-term approach is best demonstrated by the fact that we currently have 8 companies that have been in our portfolio for greater than a decade, and an additional 10 companies for greater than 8 years. Consistent with prior quarters, the contributions from our lower middle market portfolio continue to be well diversified, with 45 of our 73 lower middle market companies with equity investments having appreciation at quarter end and with 28 of these companies that are flow-through entities for tax purposes or approximately 60% of our investments in these types of 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 first quarter, we're pleased to report that our overall investment performance remains strong. Our investment activity in the first quarter included total investments on our lower middle market portfolio of approximately $58 million, including investments in 2 new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital, primarily from the exit of our investments in Daseke, resulted in a net increase in our lower middle market portfolio of approximately $10 million. We had a net decrease in our middle market portfolio of approximately $60 million and a net increase on our private loan portfolio of approximately $46 million. As a result, at March 31, we had investments in 191 portfolio companies, that are 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 4% of our total investment income for the last 12 months and approximately 3% of our total portfolio fair value, with a 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 73 companies, representing approximately $887 million of fair value, which is approximately 15% above our cost basis. At the lower middle market portfolio level, the portfolio's median net senior debt-to-EBITDA ratio was a conservative 2.8:1 or 3.2:1 including portfolio company debt, which is junior in priority to our debt position. As a complement to our lower middle market portfolio and our middle market portfolio, we had investments in 69 companies representing approximately $569 million of fair value. And in our private loan portfolio, we had investments in 49 companies representing approximately $384 million in fair value. The total investment portfolio at fair value at March 31 was approximately 105% of the related cost basis, and we had 5 investments on nonaccrual status, which comprised approximately 0.2% of the total investment portfolio at fair value and 2.7% 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 over 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 14% for the first quarter over the same period in 2016 to a total of $47.9 million, primarily driven by an increase in interest income of approximately $6.3 million. We estimate that the amount of income that is either less consistent on a recurring basis or nonrecurring was approximately $1.9 million or $0.03 per share. First quarter 2017 operating expenses, excluding noncash share-based compensation expense, increased by $1.2 million over the first quarter of the prior year to a total of $14.5 million. The increase is primarily related to a $0.6 million increase in compensation expense, a $0.5 million increase in general and administrative cost, which was primarily due to non-recurring professional fees and other expenses related to certain potential of new portfolio investment opportunities, which were terminated during the due diligence processes. And a $0.4 million increase in interest expense. These increases were partially offset by an increase of $0.4 million and costs reallocated to the External Investment Manager for services provided to it.

The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, which we believe is a key metric in evaluating our operating efficiency, was 1.6% on an annualized basis for the first quarter and 1.5% on a trailing 12-month basis. It continues to compare it very favorably to other BDCs, and other yield-oriented investment options. Excluding the nonrecurring professional fees and other expenses previously mentioned, our operating expense ratio for the first quarter was unchanged from the fourth quarter at 1.5%. Our increased total investment income and the continued leverage of our efficient operating structure resulted in a 16% increase in distributable net investment income for the first quarter of 2017 to a total of $33.4 million or $0.61 per share, which exceeded our recurring monthly dividends paid for the quarter by approximately 10%. Our external investment manager's relationship with the HMS Income Fund benefited our net investment income by approximately $2.2 million in the first quarter of 2017 through a $1.5 million reduction of our operating expenses for costs we allocated to the External Investment Manager for services we provided to it and $0.7 million of dividend income from the external investment manager.

We recorded a net realized gain of $22.3 million during the first quarter, primarily relating to a net realized gain on the exit of a lower middle market investment, and net realized gain relating to the exit of a private loan equity investment and realized gains from the other portfolio. Partially offset by a $5.2 million realized loss related to the prepayment of $25.2 million of existing SBIC debentures. We opportunistically prepaid these older debentures that were scheduled to mature over the next year to manage the maturity dates of these debentures and due to their higher interest rates, which were in excess of 6%. As a result of this prepayment, Main Street recognized the realized loss, which is effectively the reversal of the previously recognized bargain purchase gain, which resulted from electing to account for the debentures at fair value on the date of the acquisition of the SBIC entity, MSC II in 2010. The effect of the realized loss during the first quarter is offset by an accounting reversal of previously recognized unrealized depreciation, due to fair value adjustments since the date of the acquisition. But the net impact resulting in an increase to NAV of approximately $0.7 million during the quarter as the fair value of the debentures was above par prior to repayment. And as Vince discussed, we recorded net unrealized appreciation on the investment portfolio of $2.2 million in the first quarter, primarily relating to $2.2 million of net appreciation on our lower middle market portfolio, $2.4 million of net appreciation on our other portfolio and $2.9 million appreciation on our external investment manager. This net unrealized appreciation is partially offset by $2 million of net unrealized depreciation on our middle market portfolio and $3.3 million of net unrealized depreciation on our private loan portfolio. Additional details for the change on our net unrealized appreciation can be found in our earnings release.

Our operating results for the first quarter of 2017 resulted in a net increase in net assets of $31.5 million or $0.57 per share. On a capital resources front, our liquidity and overall capitalization, remains strong. At the end of the first quarter, we had $33.6 million of cash, $267 million of unused capacity under our credit facility and $109.8 million of incremental SBIC debentures available to us. Today, we have approximately $24 million of cash, $298 million of unused capacity under our credit facility and $109.8 million of incremental SBIC debentures available. We also continue to be pleased with the execution of ATM equity program. For the first quarter, we raised nearly $38 million in net proceeds, with an average sale price of $36.86 per share. As we look forward to the second quarter of 2017, we currently expect that we would generate distributable net investment income of $0.57 to $0.59 per share during the quarter. This estimate is $0.015 to $0.035 per share or 3% to 6% above our previously announced monthly dividends for the second quarter of $0.555 per share.

In addition, we want to provide guidance on the expected per share difference between our distributable net investment income and net investment income due to our noncash restricted stock expense. We currently expect the difference to be approximately $0.05 per share for the second quarter with the difference returning to approximately $0.04 per share for the third and fourth quarters. With that I will now turn the call back over to the operator, so we can take any questions.

(Operator Instructions) Our first question comes from the line of Bryce Rowe with Robert W. Baird.

Vince, first one is to ask about the comment you made about the private loan portfolio kind of being in an overweight position, but I guess the company still being on budget in terms of production originations for the year. So just curious, if you expect that overweight position to continue? And maybe discuss the benefits of private loan over the middle market right now and how you see those? And then I will have a follow-up after that.

Sure. Nick Meserve is with us, so he'll cover the second part of that question since he kind of runs both those for us. But yes, with respect to the first, we don't -- we have an annual budget and so when I look at the first 2 quarters, it's simply half the annual budget and we budget in buckets for middle market private loan and lower middle market. And when I said I thought we'd be on pace by the time we get to the end of the second quarter, I think we'd back in balance in terms of that budget. So there's really -- all that really happen is we ended up having some lower middle market deals push into later on the first half of the year and some middle market -- or some private loan opportunities arise and ended up a little bit out of balance there. But I expect to be back in balance as we progress through the year. And we have the ability to kind of control that to a degree, because we can kind of dial back the private loan exposure, to make room for lower middle market opportunities, et cetera. And Nick, I'll let you speak to that second part of the question.

Bryce, the main difference between middle market and private loans is really just a big size and the number of participants in the deal. The private loans are going to be just ourselves or 2 or 3 people involved, the middle market is going to be more of smaller syndicated risk. And the pressure you're seeing in the overall market, especially in the broader syndicated market, has been pressure of revised -- refinance needs. So you see that in middle market side as well where portfolio just shrank in the first quarter. The middle market -- the private loan's side has seen less of that, they are just less demanded to go with the price of a [loan stage] of your 75 basis points and with the sponsors there. You've seen a little bit of a longer tail there and at the end of the day, let's look at paper. It's going to pick up 50 to 75 basis points easily on a very similar in size and credit profile. And just one of the main reasons we like it. It matched up well with our more permanent capital versus the syndicated market.

Got it. That's helpful. And then wanted to also, I guess, ask about a situation that came up last night, obviously, the folks at Hercules have decided they wanted to try to externalize versus internalize and there was a question on their call last night about having an external manager within an internal manager and "The SEC not 100% necessarily being behind such of those initiatives, that were referenced at Main Street." I just wanted to make sure we have some clarity around that, that the SEC hasn't made any commentary to that effect?

Yes, thanks, for that question, Bryce. We were shocked when we started getting calls about that last night, and Dwayne has our official response here. He'll be more moderate than I would be.

So Bryce, what I would say as Vince just mentioned, since they had that call yesterday we had several people that either called or e-mailed us to ask about it. And not having listened to their conference call, we didn't really have any idea so we went and pulled the transcript after it was available this morning to find it out. And I'd say frankly, we're still really not sure that we understand what he was saying. So we can't really directly address it, but what we can do is that when you look at our structure at Main Street, it's not a new structure, it's been in place for a long time, it goes back to December of 2013, when we got the required relief from the SEC that allowed us to have the registered investment adviser within the internal managed structure as the portfolio of company at Main Street. Since that time, we've been consistent issuers of equity. It's had our shelf registration statement up, and it's obvious been reviewed many times by the SEC. And we're not aware of any issues that have come up throughout the dialogue, with the SEC as we've continued to do our public filings and maintain our shelf registration statement. And the last thing that I would add is that we just recently -- here in the last couple of weeks had over shelf registration statement declared effective again. So again, we're not aware any issues, we don't really know what he's referring to but everything that we do, as you've heard us talk about it in the past, is really focused on making sure that we're doing everything we can to generate value and benefits for the shareholder and then from a management team standpoint, trying to do anything we can do to maintain alignment of interest between our management team and the shareholders and we think that having the external manager inside of Main Street's portfolio, it's just another great way to where we can deliver that value to the shareholders.

Yes, I think (inaudible) Bryce, I guess the 500 -- the transcript made a reference that the structure was unique to us. That's not the case. We understand that at least 2 other internally managed BDCs have the same structure and receive the same pre-approval. So I think it's pretty standard, if you want to do this, our understanding is either it's an exempted relief or no [action letter], you can secure it pretty easily. And there's no issues at all with it.

Our next question comes from the line of Robert Dodd with Raymond James.

Two, I guess I've might as well follow-up to Bryce's question on that. First of all, the more obvious one. Do you have any intent to externalize?

Yes, well if I went to the board and expressed an intent to externalize, I think I would become externalized. I'd expect to be terminated and if the board let me, I would hope that the shareholders would terminate them.

Fair enough, thank you. On to the main point, the tax issues this year, in terms of tax policy being up in the air, a little bit and such a core piece of your business on the lower middle market side being essentially, for the lack of better term, estate and tax planning for the small companies you work with, is that adding any complexity or uncertainty to how that pipeline is developing this year?

No, I don't think so. We haven't seen it yet, because the House blueprint still have some ambiguities in it and then the Trump 1-pager just in a way is intelligible, really, in terms of what that really means. But I think anything that happens in general will be positive to the small business community and I can see a business owner, as we get towards the end of the year that business owner is looking to transact and sell his or her company and it looks like tax reform might go effective at the beginning of '18, rather than in late '17. I can see them wanting to defer the sale, to be able to benefit from whatever favorable provisions are in there for them. And that adds another words of capital gains or taxed at lower rate, et cetera. I could see that. We saw that in 2012, we saw a huge acceleration when rates went the other way, when capital gains rates went from 15% to 20% on 1/1/13. Our backlog spiked in December of 2012, and we had more than we could -- we almost ran out of money. You could see the opposite happening here and so you could see these business owners are very savvy and they want to maximize the after-tax proceeds if they get them selling their businesses. So we haven't seen it yet, but there's just too much uncertainty. But I would fully expect to see some postponement from '17 to '18 or acceleration from '18 into '17 depending upon various provisions and the effective date but we haven't seen it yet, but we're monitoring it closely.

Our next question comes from the line of Christopher Nolan with FBR & Company.

Vince, if corporate taxes do go down to 15% typically from pass-through vehicles, given your high equity position and so many of these little middle market companies, technically wouldn't that lead to an upward valuation of these names?

Absolutely. That would be a great outcome, because we hold most of our equity, as Dwayne said, consist of flow-through so we're forced to hold those investments in one or more C-corp blockers. We have a tax provision on the appreciation in those investments, that is booked at 35% or a little higher depending on the state. And that would come down to 15%, plus a little higher for the states and any ongoing appreciation would be subject to less than half of tax whereas that'd be extremely favorable for us. In the event we have a blocker with an NOL, the opposite is true because the NOL is worth less. But on balance we're -- we would be hugely benefited. I think the BDC community would have to kind of refit its 15% tax rate, rethink -- I'll tell you how tax reform comes out. Rethink the written election. We would be better off a C-Corps paying 15% tax and then converting our dividends to qualified dividends to our shareholders? Because there could be net-net savings there. So it's a lot of exciting possibilities there.

It's good stuff. Obviously you'll have a slider, 3 on this one or for the investor conference.

I'm working on it feverishly. We're going to (inaudible) off to a -- with a healthy letter.

Okay. And then Brent on the guidance that you had in the $0.05 adjustments to EPS. If I'm looking at it correctly, on the second quarter EPS, it's not likely to cover the dividend. Is that the right way to look at?

On second quarter, that's certainly possible, yes. If you take it -- it probably would not if you look at the higher end of our range, high end of our range was $0.59. DNII, so we take off the $0.05, you're at $0.54. So that is correct for the second quarter. Now obviously, if we exceed the range then there's a possibility for that, but for that 1 quarter, yes, that's correct based on the guidance we gave.

We don't expect, looking on an annual basis, we don't expect our NII to be less than our regular dividends. I think you could have an occasional penny or 2 during the year. We switched our restricted stock amortization awards from 4 to 3 years and so that's why you are having some interesting movement in geography, as well as periods burn off when we fully convert to 3-year amortization.

Our next question comes from the line of Doug Mewhirter with SunTrust.

This is actually Matya, on for Doug. As you mentioned, you issued some equity and had some good portfolio exits this quarter which made you delever quite a bit. So are you seeing attractive investment opportunities down the line? Or are you more comfortable at a lower leverage level at this point in time? Or is there something else going on?

I think Vince covered it in some of his comments. I think we're happy with where the backlog sits. It's not low, it's not really high, but it's kind of average to slightly above average, so we're pleased where we sit from a backlog standpoint. I'd say it's more of a timing issue. When we look at our capital, one of the things that we've always talked about is maintaining a very conservative capital position so that we're always in a position where we can be aggressive or be on the offensive when opportunities exist. So you continue to see us do that but outside of that continued conservative posture, this is more just -- more of a, where we're at in the cycle as it related to exiting Daseke in the first quarter. And it's a little bit of couple of the delay in the deformative lower middle market as we look at the second quarter.

Got it. And then we've been hearing quite a bit about competitive conditions in the middle market. Do you think, does that create more exit opportunities similar to Daseke for you?

I think when you look at it, I'd say for the last, I may not have the exact timing right, the last 15, 18 months, we've had elevated exit activities in the lower middle market and valuations that we found a very attractive and you can see that significant realized gains that we generated off those exits over that time periods. So I do think that there -- it has been some benefit from that broader middle market activity, but we don't really have anything today that is a near-term significant exit to the magnitude of what we've seen over the next 12 to 18 months.

Our next question is a follow-up question from Bryce Rowe with Robert W. Baird.

Wanted to ask about the comments you made on the I-45 joint venture and then the new HMS -- potential HMS opportunity. So I-45 sounds like it's optimized based on what Vince said. Brent, I was curious if you could quantify any impact to the income statement this past quarter from that joint venture?

Yes, sure. The dividend income obviously, the income we would derive from the joint venture is recorded as dividend income for us and the dividend income this last quarter was approximately $650,000 and that will vary a little bit quarter-to-quarter, obviously, depending on their exit activity, if they have accelerated gains and things of that nature. But it's been running in that $550,000 to kind of $650,000 range now per quarter.

Okay, that's helpful. And then on the HMS, the new funds there. You said you haven't committed any capital to it yet. Are you still considering that? And if so, what could it look like to Main shareholders if you opted in?

I will let Nick chime in on this too but my understanding is that HMS and Orix felt comfortable with the initial -- with funding the initial $50 million equity commitment that aligns up with their $100 million credit facilities, so there really isn't any need for our equity right now. We'd over equitize the structure. Nick, you are on the HMS portal. What conversations, if any, have happened about once they get ramped to $150 million, if we come in or not? Or are we even allowed to?

We're allowed to. I think generically that structure is really made for HMS. It's kind of their joint venture versus ours with I-45. We could add if we wanted to, but I think we're probably more likely to add to I-45 than anything versus joint venture. It's a little cleaner so have 2 parties versus having 3, from a structural perspective. But I would be surprised if we [get in that one] from our own capital.

Yes, that's right. You end up having kind of a 3-way unanimous requirement to buy a new asset, et cetera. And so it gets a little clunky. And I think that joint venture is going to have a higher quality lower yielding assets which fits HMS and/or it's better than if fits our strategy. But we'll still be very involved in as a sub-adviser.

What can join that will be -- when we do launch HMS 2.0, whatever vehicle that is, it can become a new investor in that structure as well. So that's part of the thinking there, is it started out $50 million of equity with the ability to grow that within the future HMS vehicles.

The good news is that, like we touched on earlier, being internally managed by -- giving that experience, it's just another way that we build our skill set, not that those structures are overly complicated or complex but it does give us the ability to see it first-hand, operating it, management and have that skill set and that knowledge base internally at Main Street.

And for the right asset opportunity, now we can come in and represent a $75 million tranche potentially between our balance sheet, I-45, potentially Capital Southwest that its [parents] HMS and now this joint venture fund. So it gives us the ability to punch above our weight class, which is nice.

Our next question is another follow-up question from the line of Christopher Nolan with FBR.

It wasn't clear to me. Was the unrealized depreciation expense related to, just a NAV true-up for Daseke. It wasn't clear to me from reading the press release.

I'd say there is a number of things that are included in there. Daseke actually -- the realized gain that we had in Q1, which has been pretty consistent for us historically. The realized gain was larger than the unrealized appreciation we had prior to the current quarter by a couple of million dollars. So it was actually, it would have represented additional appreciation in the quarter as opposed to depreciation. I would say that the depreciation was under a number of different names across the portfolio.

Yes, we have we've got to remark all these assets, generally based on TTM EBITDA movement and stuff like that and you've got. You have 22 up and 15 down and you got 37 components of it, but nothing really stands out.

And just to clarify if you look at our first (inaudible) table, we have in there the Daseke unrealized was obviously going to show up in the accounting reversal line. Because as Dwayne said, it was an exit and our realized gain was larger than unrealized appreciation we had taken through the exits. So it was a net benefit to NAV this quarter, but if you look at the total appreciation, obviously, it includes the accounting reversal which obviously most of that is Daseke.

Got you. My follow-up is assuming that the 15% corporate tax starts becoming -- looking more like a reality. Strategically, how do you guys start positioning yourself? Because it looks like you're going to have a lot more deal opportunities out there. And do you raise capital? Start hiring more people? Just getting ready for this thing? Or what are the thoughts there?

Yes, I mean that's pretty interesting. I really don't think that we would change the culture of our organization by bringing in super experienced outside people. That's a possibility. There's a couple of our executives that find that possibility kind of compelling, but I think on balance we like our organic growth, hiring fairly inexperienced people, all the way down to brand new undergrads off-campus. And I think we're just going to play with the bandwidth what we have and hopefully, and if there is a supply-demand imbalance created, be able to generate better deals rather than more deals.

Mr. Foster, there are no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Great. Well, again, thank you all for joining. And we'll see some of you in June at the Analyst Day. Otherwise, we'll talk to you again in August.

This concludes today's teleconference. You may disconnect your lines. Thank you, and have a wonderful day.