MidCap Financial Investment Corp (MFIC) 2014 Q4 法說會逐字稿

Good morning and welcome to Apollo Investment Corporation's Earnings conference call for the period ending March 31, 2014.

(Operator Instructions)

I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Thank you, Operator.

And thank you, everyone, for joining us today. With me today are Jim Zelter, Chief Executive Officer; Ted Goldthorpe, President and Chief Investment Officer; and Greg Hunt, Chief Financial Officer.

I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited.

Information about the audio replay of the call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements.

Forward-looking statements involve risks and uncertainties including, but not limited to, statements as to our future results; our business prospects; and the prospects of our portfolio companies. You should refer to our registration statement and shareholder report for risks that apply to our business and may adversely affect any forward-looking statements we make.

We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website which contains information about the portfolio, as well as the Company's financial performance.

At this time, I'd like to turn the call over to Jim Zelter.

Thank you, Elizabeth.

This morning, we issued our earnings release and filed our annual 10-K. I'll begin my remarks with some highlights for the quarter and for the fiscal year. Following my brief remarks, Ted will provide an overview of the market environment and review our portfolio and investment activity. Finally, Greg will discuss our financial results in greater detail. We will then open the call to questions.

We are pleased to report strong results for the March quarter including solid earnings, an increase in net asset value, and a record level of asset deployment. Net income for the quarter -- net investment income was $0.22 per share, which we believe reflects both the strength and diversity of our earnings model.

Our net asset value was $8.67, an increase of 1.2% for the quarter and 4.8% for the year, exhibiting the stability we seek to achieve.

Let me now take a step back and spend a few minutes reviewing the past year. While the broadly-syndicated markets became increasingly competitive, risk adjusted returns in the middle market, while not immune, have generally remained attractive. Therefore, given the current landscape, we pursued opportunities provided to us from our differentiated sourcing model, maximizing the flexibility associated with our permanent capital.

For the year, we increased the size of our portfolio by 22% to $3.5 billion; earned $0.91 of net investment income per share, outpacing our dividend by 14%; increased the portfolio's allocation to secure debt to 56%, up from 44% a year ago; and we continued to expand our specialty verticals by investing a total of [$1.2 million] in oil and gas, aviation, and structured products.

I am very pleased that our investment team remained disciplined and continued to prudently underwrite capital structures, despite the frothy market. We also continued to benefit significantly from the broader Apollo platform. The Firm's scale and expertise across credit, private equity, and real estate provide us with significant competitive advantages, as well as investment opportunities and market insights.

In addition, on the funding side of the balance sheet, we improved our capital structure as we: one, extended the term and reduced the funding costs on a revolving credit facility; two, issued $150 million of long-term unsecured debt; and three, raised $286 million of common equity. All said, we believe we are well-positioned for the year, having derisked the portfolio with reduced issuer concentration, added more senior debt investments, and improved our interest coverage and attachment points.

Our intention is to remain disciplined in our approach and favor investments with strong asset coverage over simple incremental yield. While the environment remains challenging, we are optimistic regarding the opportunities for providers of flexible capital such as ourselves, particularly as the new bank regulations reduce or somewhat eliminate lending by banks to certain segments of the credit market.

In March, the Board of Directors reapproved the Investment Advisory and Management Agreement under the same terms and with the same waivers as last year. Additionally, the Board approved a $0.20 dividend for shareholders as of record June 20, 2014.

With that summary, I will turn the call over to Ted to discuss the current market environments and our investment portfolio.

Thank you, Jim.

Beginning with the market environment, the non-investment grade credit markets strengthened during the quarter on proven economic data and reduced interest rate volatility. Strong fund inflows supported new issue activity and drove spreads tighter. Since quarter end, the market has begun to differentiate between issuers with an increased focus on results. Although the primary CLO market has remained active, loan fund flows have dwindled and have snapped a 95-week inflow streak.

Moving to investment activity, we invested $986 million during the quarter with $398 million in 26 new and $588 million in 18 existing companies. This represented a record quarterly level of gross deployment. Our activity was driven by our specialty verticals, which represented 35% of the total, and sponsor driven refinancing, which represented 27% of the total, as well as spillover activity from the December quarter. Secured debt investments continue to represent the most attractive risk-adjusted return in today's market and represent 79% of assets deployed during the quarter.

In addition, 89% of our investments made during the quarter were sourced from primary transactions. We also sold $323 million of investments and received $404 million from repayments and revolver pay downs. Net investment activity was $259 million for the quarter.

From a yield standpoint, the weighted average yield on our debt portfolio at cost decreased by approximately 30 basis points to 11.1% at the end of March, down from 11.4% at the end of December. Our participation in the refinancing of our existing investment in Miller Energy accounted for 10 basis points of the decline, as our yield on this investment declined from 15.6% to 12.4%. The decline in the yield also reflects our continued rotation into secured debt. Looking forward, we do not anticipate additional yield compression.

We continue to increase our exposure to floating rate debt to better position us for an eventual rise in short-term rates. 42% of the portfolio is floating rate at the end of the quarter, compared to 39% at the end of the prior quarter. Next, I will discuss the specific investment activity for the quarter, beginning with our specialty verticals.

Starting with aviation, we invested $192.5 million in Merx Aviation, which was used along with cash generated internally at Merx to complete three transactions. The largest transaction was a purchase of a portfolio of aircraft from GECAS, similar in structure to the portfolio we purchased in January of 2013. The portfolio consists of 26 young, primarily narrow body aircraft with 17 different lessees and a weighted average remaining lease team of six years.

In addition, Merx completed a direct sale and leaseback with an airline on a new delivery and acquired a pool of aircraft spare parts used by two European flag carriers. These investments into Merx in the aggregate accounted for 20% of the assets deployed during the quarter. As of the end of March, aviation was 12.2% of the portfolio, up from 7.3% last quarter. Our overall allocation target for this vertical over time is 15% to 20%.

During the quarter, we invested $149 million, or 15% of gross activity, in our oil and gas vertical, much of which was in the existing portfolio companies, including Miller Energy. We also invested $31 million in three new oil and gas companies: Great Bear, American Energy, and Southern Pacific Resources. At the end of March, oil and gas was 11.8% of the portfolio, down from 12.9% last quarter. The decline was due to growth in the total portfolio.

Moving to our third specialty vertical, structured products accounted for 6% of the portfolio, down from 7% of the portfolio. The decline was due to the exit of our investment in the Westbrook CLO and the partial sale of our investment in our investment in the Jamestown CLO, as well as growth in the overall portfolio.

Moving to other investment activity, we made a $39 million follow-on investment to American Tire Distributors, to fund their acquisition of Hercules Tire. And we committed $60 million to My Alarm Center, a security alarm company, to support an acquisition and concurrent refinancing. Exits including both sales and repayments totaled $727 million for the quarter.

44% of the exits were sales, as we look to take advantage of the strength in the markets and monetize select assets. Sales included positions that appreciated during the quarter. And we chose to monetize to lock in gains, including our investments in Westbrook CLO, PG Lesco, Jamestown CLO, Magnetation, and Wind Acquisition.

Two, portions of investments made during the quarter that we chose to syndicate; and three, positions that we chose to sell for general portfolio management purposes. 56% of the assets were partial or complete repayments, which included our investments in Miller, Allied Security, First Data Sub Notes, Asurion, TransFirst, and Valerus. With respect to the portfolio's credit metrics, the weighted average net leverage of our investments was 5.5 times and the weighted average interest coverage was 2.3 times.

No investments were placed on nonaccrual status during the quarter. In addition, the weighted average risk rate on our portfolio at fair value remained at 2.1.

As of today, our pipeline is strong and consists mostly of proprietary opportunities, although there are no assurances that deals in the pipeline will ultimately close.

With that, I will now turn the call over to Greg who will discuss the financial performance for the quarter.

Thank you, Ted.

Beginning with operating results, total investment income for the March quarter was $96.4 million, up 2% from last quarter and up 14% from a year ago. The increase quarter over quarter was due to strong core earnings coupled with higher prepayment income, partially offset by a slight decline in dividend and fee income. The year-over-year increase was a result of an increase in the portfolio, which drove both core and dividend income.

Income for the March quarter included $4.1 million of pre-payment income compared to $1.8 million in the December quarter and $3 million for the year-ago quarter. In addition, interest income for the March quarter included approximately $1.4 million of accelerated OID versus $700,000 in the December quarter and $600,000 in the year-ago quarter.

Expenses for the March quarter totaled $46.8 million, compared to $44.9 million last quarter and $42.6 million for the year-ago quarter. The sequential increase was due to an increase in the portfolio, which was supported by higher leverage resulting in higher interest expense. Management fees and administrative expenses also increased as a result of not only the greater asset in earnings base, but the volume of activity over the period.

Net investment income was $49.6 million, or $0.22 per share, for the quarter. This compares to $49.7 million, or $0.22 per share, for the December quarter and $42.1 million, or $0.21 per share, for the year-ago quarter. For the quarter, the net gain on the portfolio totaled $20.3 million, or $0.09 per share, compared to a net gain of $56.1 million, or $0.25 per share, for the December quarter and a net gain of $23.8 million, or $0.12 per share, for the year-ago quarter.

The net gain in the March quarter was the result of the strength in the credit markets and a broad-based appreciation across the portfolio. In total, our quarterly operating results increased net assets by $69.9 million, or $0.31 per share, compared to an increase of $105.7 million, or $0.47 per share, for the December quarter and an increase of $65.8 million, or $0.32 per share, for the year-ago quarter.

On the liability side of the balance sheet, we had $1.37 billion of total debt outstanding at the end of the quarter, up from $1.26 billion at the end of December and $1.16 billion a year ago. The Company's debt to equity ratio was 0.67 at the end of March, up from 0.66 at the end of December. The net leverage ratio, which includes the impact of cash and unsettled transactions was 0.68 at the end of March, up from 0.65 at the end of December.

With that, Operator, please open the call to questions.

(Operator Instructions)

Troy Ward, KBW.

On slide 8 of the presentation, you provide the yields on the first lien, second lien, and the unsecured debt. It just seems a bit odd that over the past 12 months and even on slide 7 on the current quarter, the yields on the first lien are higher than the second lien or the unsecured debt. Can you just provide us a little bit of color that may explain this anomaly?

Yes, sure. I know it looks strange in the aggregate it, but when you disaggregate it, it looks better. I'd say it's two big things: one is Merx, which is the big acquisition this quarter, has a 12% yield on it and that's first lien, senior secured debt.

If you strip that out, the yield on second liens are actually a little bit higher. It's really driven by this large Merx loan that we did for 12%.

That makes sense. Okay. Ted, I believe you just crossed your two year anniversary as President at Apollo. As you look back now, what do you view as the most significant positive that you and your team have achieved since your arrival? What are areas that you think you still need to improve?

Yes, listen, obviously, it's a team effort. I think if we look back at where we kind of set out for investors and where we wanted to be, we feel we've kind of achieved all of our goals. We've really expanded the funnel, in terms of sourcing. We've invested a lot of money in head count, into building out, sourcing, and origination, which we think is the key of the business.

Number two is we've been able to maintain yields while moving up the capital structure. If you look at the amount of secured debt in our portfolio today versus where it was two years ago, obviously it's much higher.

Probably the most significant accomplishments are moving up the capital structure while maintaining yields, while covering the dividends, while investing in new businesses. Where we continue to improve?

We're always on the hunt for new businesses, new origination channels. Number two, and we've not found a great solution for this, if you compare the yield of our 30% bucket to our 70% assets, there's not as wide of a spread as some of our peers have. We've looked at all kinds of ways to increase yields on the 30% bucket and I'd say, as of today, that we just haven't found a way that we think is good for shareholders to optimize that basket.

But that's always an area where we spend a lot of time talking about it with our Board and management team about all these ways to increase yields on that portion of the book.

I believe in the Journal today, there was a pretty good article about the fund flows into retail bond funds and the ETFs that track those and the potential for fund outflows and the potential negative impact that could have on pricing in syndicated loan market. Could you just speak to two-fold, what that would potentially mean to your current book of business, the volatility that we could see there? Secondarily, as you look out longer term, how do you think the potential outflow into those funds would impact your business?

This is Jim. Let me take it first and then Ted can add a few points. Certainly, we saw the article and we certainly are concerned about the liquidity-driven vehicles, like some of the ETF's and the closed end funds. I think we certainly look at that, we probably have more concerns about liquidity in those vehicles than we have on the fundamental credit concerns.

You take that into consideration, in addition to what's going on with the bank balance sheets and secondary trading, there's going to be some more volatility. To your question before, I think how we've -- what Ted and the team have done is they've really navigated this portfolio to a lot more self-originated, better attachment points and we think are, to a great degree, impacted by the fundamentals of those companies, not market liquidity.

We would certainly, at some point in time, this liquidity issue is going to be a challenge, and how Ted has navigated the book, I think we will be opportunistic at that point in time, but I don't expect -- what is great about our book today is it's a lot of very idiosyncratic originally originated ideas. I think that's going to benefit to a great degree in the next cycle.

The other thing that I'd add is there's two types of volatility in the credit markets. One is credit volatility and one is flow volatility, I guess, it's not really a good term.

If default activity is picking up, clearly that would be a concern. I think as flows and bank loans, the snap of the 95-week inflow into bank debt funds, what that means for us is that any time it is harder for people to get new deals done in the market, that's good for us because we sell certainty of close.

We lose deals every day to the syndicated markets. It is actually our biggest competitor. When we offer somebody a unitranche solution with locked-in pricing, it's typically wider of where the investment banks are doing a best efforts deal.

When there's any volatility in the market, which usually happens in the credit markets for some reason, around this time of the year, we win a lot of deals just on certainty of execution. We're more expensive, but we'll close. I think sponsors value that a lot more in a choppy environment.

Great. Thanks for the color, guys. Very nice quarter.

Terry Ma, Barclays.

Can you just comment on the competitive environment you're seeing in some of your specialty verticals like aircraft? Several BDCs have made their way into the space and it also looks like there is a fair amount of pressure on lease rates, at least with some of the larger players in the space.

Yes, that's a great question. Obviously, you've seen four or five other BDCs enter the space. Less apparent is there's other hedge funds and other nontraditional sources entering the space, as well.

We've not seen the impacts today, but clearly, just given the risk/reward how favorable we think it is, obviously it's going to track new entrants and new capital. It's a big pond with lots of opportunities for lots of different people.

But yes, we have definitely seen new entrants in the space and a lot of announcements around the space. That's very perceptive of you.

In terms of just lease rates and everything else, we haven't really seen a lot of pressure today, where we're playing. But again, with new capital coming to the space and everything else and just the risk/reward, it seems inevitable that there will be pressure on lease rates.

Got it. Can you maybe just give some color on what you're seeing so far this quarter in terms of activity in repayments?

Yes, repayments have been surprisingly subdued, which is obviously good for our business. I'd say, on the activity side, it's continued.

What happened to us in the first calendar quarter was we had a lot of spillover activity from the December quarter. Typically, it's a seasonally slow quarter, you've heard our peers talk about it.

Last year, you had the big tax events, the tax changes, so you had a lot of sponsors trying to get stuff done for year end before the new rules went into place. This year you didn't have that.

A number of our deals we were working on in the fourth calendar quarter spilled over into the first quarter. I'd say our activity is not tracking as it was for the March quarter, but our pipeline is pretty robust and our activity levels have been pretty high this quarter, and we're pretty excited about our pipeline.

Got it. How much of the gain this quarter was driven more by mark-to-market rather than income from specific factors?

I think it is a combination of both. We can give you the breakdown between quoted and non-quoted.

From a realized side, about just under $0.02, realized and the rest was unrealized for the quarter.

Okay, got it. Thanks. That's it for me.

Chris York, JMP Securities.

As a response to leverage lending guidelines, it appears banks have been focusing more on cyclical businesses, which tend to carry more moderate leverage. Have you seen competition loosen in businesses with less cyclicality?

I don't think so. Ted can comment. I think that we're certainly seeing banks choose where they want to lend based on a whole host of issues; the relationship with the sponsor, the size of the company, their ability to impact and economically benefit from the overall relationship. But I'm not particularly seeing anything industry-wise, where you're seeing people participate in greater propensity than another one on an industry basis today. Ted?

I'd say, we think that this will be a big opportunity for us over the next couple of years. But to be honest with you, we just haven't seen a lot of benefits from it yet. But we do think it'll be an opportunity for us in the future.

The guys are really feeling the pressure of the large investment banks. Again, given where we play in the market, our competition is usually not one of those big investment banks on the syndicated side, it's usually more a smaller middle market company. Yes, all of these regulations, the leverage lending business is going to be challenged with a lot of these investment banks, so we are looking to partner with them in a whole bunch of different ways.

Got it. That's helpful. How much undistributed income was there at year end?

I'll get back to you on that, if you don't mind. It truly wasn't a material amount.

Greg, we'll follow up on that one, but in our view, it's not a material amount.

Got it. Thanks.

Matthew Howlett, UBS.

Ted, it's been two years, you've done a great job here repositioning the Company. I think the BDC space, as a whole, has been under a little bit of pressure with what's going on with the indices and of course the CBO's comments on shifting leverage.

I just want to hear your comments on the BDC structure, how you feel about it? You've been there two years and what you think the growth prospects are, if anything has changed with sort of the developments over the last several months?

I don't think so. If you think about where is the biggest opportunity in the market, there's a shortage of illiquid capital. When people talk about the high yield index and the loan index, there just are real big diversions between where liquid instruments trade and where illiquid instruments trade.

I think the sector in the space is extremely well-positioned and it only gets better because the new regulations are coming out every day. With the increasing regulatory environment, clearly, we think that is positive for our business.

In terms of stock trading levels and everything else, obviously this Russell index issue, we think, is a short-term issue. As we've always said, all the things in Washington and everything else, obviously, we view them very positively and we think they would be very good for our portfolio, but that being said, we don't run our business based on the bill passing.

I'm really excited about, and I think our whole management team is really excited about how we're positioned. I think we're really excited about the type of capital we have. I think the BDC space, I think it's poised for a really good next couple of years.

More on that front, in terms of the cost of capital, do you think it's sort of technical that the pressure in these stocks, you guys are below book, well below book, and do you think that's going to ease? With your leverage ratios where they are today, if you wanted to continue to grow at the rate you've been growing, you'd obviously like to see that stock price up or some other maneuvering. Can you just comment on that, how you're positioned currently where your leverage is, and do you feel, over time, the cost of capital will come down for the BDCs as this space continues to grow and becomes more mainstream?

I'd say a couple of things. One is I do believe that the cost of capital will come down for the space. I do think that BDC's offer good relative value versus a lot of other yield instruments out there. I've been very public about my views on that.

Right.

I think where our stock price trades, we can't control that and I don't like to comment on where our stock price is trading. Every Management team always thinks their stock price is cheap, but we don't like to comment on stuff like that.

The benefit that we have is 30% of our assets yield sub-10% and we still have a number of liquids instruments in our portfolio. The great benefit that we have is, we don't feel any pressure to grow.

You asked the question about growth, as we originate proprietary illiquid assets at the kind of yields we're doing it at, we have opportunities to exit lower yielding positions and create organic NII growth without having to issue equity or without having to do anything else. We feel really, really good about being able to grow our business organically without having to issue equity. Where our stock price is trading today is -- we don't really lose a lot of sleep about it.

Got you.

Matt, I've obviously been here quite some time and Ted and Greg are the new group that came in a couple of years ago. From a senior management and Apollo and Board perspective, we're extremely happy with the job this team has done and we don't feel in a rush right now. We don't want people to feel like this was a great quarter volume-wise, so we have this view that we have a pacing that's going to continue.

A lot of it was, as Ted said, calendar spillover. But I think in terms of the things, there's five or six items that we identified for Ted and the team to achieve, they've checked off a lot of them.

We feel really comfortable with our leverage right now. We feel comfortable with how our portfolio is positioned.

As Ted said, what is going on with the Russell and what's going on in DC, we can't control that, but we're just going to keep on methodically going. We're really committed to the BDC structure and we hope the industry, of which we're a big player, really benefits over time with what's going on between the financial services impact to Dodd Frank and other things.

I would agree with all those points. I just -- I was keeping some of stock for a while, bit of a surprise at the discount has been below NAV given the income stream, diversification, the senior leadership and I didn't know if there was plans to buy back stock here at these levels or something else to show the market that this valuation speaks for itself. I'm just surprised with the volatility of the stock. With the returns that you guys have delivered the last year, it just seems like the stock doesn't stay above book for that long and it goes back down and obviously, long term, could impact the growth rate.

We certainly concur. We believe we've executed what we can. It is unfortunate what's going on with the whole Russell impact and what that may be doing with flows of buying and selling and that and such. Certainly, over time, we look in a world where there is not a lot of absolute value, in a world where yield is of primary importance, we share your conclusion that the BDC stocks in general and we, in particular, are attractive.

But what we've learned is if we focus on our portfolio and we're really transparent about what we've done, which is another highlight that we've really not mentioned, but I think the transparency on our book is really industry-leading with our team, all good things will happen in the future for us.

I'd add one more thing. The strongest signal you can get is insider buy-in and there's been insider buy-in. It has been very public. We really believe in our business.

I think you guys are focused on returns and not just capital under management, which I think, unfortunately, there has been a stigma attached to most of the space, but it seems like you guys are really there to really turn it around. I congratulate you on that. Great job over the last two years, Ted and the team, I want to congratulate you guys.

I think we're also surprised where the 10-year yield is today. You guys have always been proponents of terming out your debt, going longer up the curve, is there anything that you think you could do while the yields stay this low or is it sort of just you're going to wait until 2015 and 2016?

We always are watching the equity and debt markets for periods of time that we think make sense for our shareholders and we're certainly focused on that right now. We're not putting things in the drawer until 2015 or 2016. We're constantly monitoring it.

Great. Thanks, guys.

Doug Mewhirter, SunTrust.

First, you talked about not being entirely happy with the yield on that 30% bucket. Could you remind me how big that bucket is as a percentage of your assets? Are you close or at that 30%?

While we get you the exact number, I think the answer is, we actually, unlike most of our peers, actually have a decent amount of liquidity in our 30% basket. We've done that strategically, just so we can reposition around great opportunities. But I think at the end of the quarter, Greg, you should give the number --

Yes, we were about 25% invested in 30% assets at that point. We had about 5% cushion.

Is Merx part of that 30% bucket?

No, it is not.

Okay. Second, more of a qualitative question on your oil and gas vertical, the companies, are they mostly small independent E&P companies or do you also do the service companies and the construction companies, energy construction companies? What are the relative merits of the different sub-segments within that vertical?

We have broadly been very selective about where we focused. It is really upstream oil. Construction services are very cyclical businesses and so we've tended not to focus there, we've tended mostly to focus on oil and upstream oil.

Most of the companies we deal with are pretty small, but we're lending against their production and we're making them hedge their oil price risk, so we don't feel like we're taking a lot of commodity risk. Typically they're using the money that we give them to go exploit additional acreage.

I think there is a bias on the management team against services and construction businesses. We just think they're too cyclical for the type of risk we're looking for.

Great. Thanks for your interest. That's all my questions.

Vernon Plack, BBT Capital.

A heavy quarter of equity investments a little over $70 million. Is that essentially all Merx?

Yes.

You made one comment and I want to make sure that I understand as it relates to, I think you said that you do not expect any additional yield compression. Is that a result of expected yields on new deals, portfolio rotation out of the sub 10% bucket, a combination of the two? Some color there would be helpful. Thanks.

Yes, I think what we saw, what we saw in the March quarter was a bunch of idiosyncratic events that affected the numbers. I wouldn't say it was a theme. We have a high yielding investment get taken out. We re-upped in two large investments were much lower yielding. Three investments could explain the vast majority of the yield compression.

This quarter's not over, but as we sit here today, we haven't seen additional yield compression on our book. As I said earlier, we haven't started harvesting some of our lower yield assets, but we still have some levers to do that as well.

As you sit here today, we haven't seen a continued decline in yields. I think the yield compression the first quarter really was explained around three big investments.

Okay. As far as expected yields on new investments, you think the market has leveled out here?

Every BDC, as I always say, is kind of like plays in a little bit of a different sandbox. Where we sit, we're not seeing as much pressure this quarter on sponsor yields. We think they've stabilized.

Away from that, in our specialty verticals, we also haven't seen continued pressure on yields. So I feel pretty good.

Given what I said earlier about, the loan market's becoming a little more discerning around credit, that's obviously helped for us. That's helped stabilize yields.

Okay. Thank you.

Robert Dodd, Raymond James.

If you can expand a little bit on the low yield liquid assets, obviously, that's a potential pool of liquidity for you to rotate. Given the color you gave that maybe CLO activity is starting to move the other way, retail funds flow into bank funds and such could start to shift the other way, that could obviously put pressure on valuation.

Is there an incentive for you guys right now to liquidate some of those liquid assets that you have that may be at near peak valuations, given where we are at the cycle, to accelerate the liquidation of those while valuations are attractive? Can you give us any more color on that?

Yes, it's a great question. The answer is, if you look at our activity in the March quarter and previous quarters, we've been doing that. We have re-underwrite our book.

I always have this expression, our liquid book gets re-underwritten every day. Every day, we look at our portfolio and if things have gotten a point where we think are not good value for our shareholders, we exit them.

We're not focused in holding everything to the last dollar. If we think things have kind of reached where we think are the appropriate level, we'll sell them.

We break out sales versus repayments, we had a pretty heavy sale activity in the March quarter and that's just driven by the fact that our management team just feels like there just continues to be a lot of asymmetric risk in the liquid credit markets and we've been pretty active about monetizing positions. I think to the extent that we see opportunities to monetize, continue to monetize positions that we don't think are good relative value, we'll definitely sell them.

Okay. I appreciate the color. Thanks, guys.

Thank you. I will now turn the call over to Jim Zelter for any additional or closing remarks.

Greg Hunt has one follow-up answer that he wanted to send out. Then I will close the call out.

Just based on our current tax estimate, and its noted in the 10-K in note 13, the undistributed earnings are about $11 million, following up on Terry's question.

Okay. In conclusion, thank you all for joining our call today. We're excited to be the stores of your capital and look forward to an ongoing dialogue in subsequent quarters. Thank you very much.

Thank you. That does conclude today's conference call. You may now disconnect.