New Mountain Finance Corp (NMFC) 2011 Q4 法說會逐字稿

Good day, and welcome to the New Mountain Finance Corporation fourth quarter 2011 conference call and webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Rob Hamwee, CEO. Mr. Hamwee, the floor is yours, sir.

Thank you, and good morning, everyone. With me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital and Adam Weinstein, CFO of NMFC. Steve is going to make some introductory remarks, but before he does, I would like to ask Adam to make some important statements regarding today's call.

Thank you, Rob. I'd like to advise everyone that today's call and webcast is being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release.

I would also like to call your attention to the customary Safe Harbor disclosure in our March 7, 2012 press release and on page 2 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake to update our forward-looking statements or projections unless required by law. Any references to New Mountain Capital or New Mountain are referring to New Mountain Capital LLC or its affiliates and may be referring to our investment advisor, New Mountain Finance Advisors BDC LLC where appropriate. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com or call us at 212.720.0300. At this time, I would like to turn the call over to Steve Klinsky, the Chairman of New Mountain Finance Corporation, who will give some highlights beginning on page 4 of the slide presentation. Steve?

Thanks, everybody. Before turning the call back over to Rob and Adam, I wanted to welcome you all to New Mountain Finance Corporation's fourth quarter earnings call. Rob and Adam will go through the details, but I am pleased to report that New Mountain Finance continues to meet or exceed the expectations we laid out for investors in our initial public offering. New Mountain Finance's adjusted net investment income for the quarter ended December 31, 2011 is $0.30 per share, consistent with our previously announced Q4 dividend of $0.30 per share. The Company's book value on December 31 was $13.60 per share, primarily reflecting a rebound in the marks for our holdings based on general strength in credit markets in the fourth quarter. In addition, we are able to announce our dividend for the current quarter ending March 31, 2012. It will be $0.32 per share, continuing ramp upward from the December level.

The credit quality of New Mountain Finance's loan portfolio continues to be better than our guidance. As a reminder, we built our models based on a 3% assumed annual default rate and a 1% annual loss assumption from the date of the IPO. In fact, we have only had one default, and it represented just 0.6% of the cost basis of our existing portfolio, and less than 0.4% of the cumulative investments made to date. New Mountain Finance's pace of new investments continues to be robust. The Company invested $56 million net of repayments in Q4 as we continue to operate with our equity capital and credit facilities largely deployed. Targeted yields on new investments are consistent with, or better than, our previously communicated expectations. Our portfolio companies -- our portfolio continues to be positioned in recession resistant acyclical industries pursuant to New Mountain's overall strength and strategy.

Just to remind everyone, we as management were very significant buyers of shares personally in the IPO, and we have continued to add to our position since the offering. We are pleased with the progress of New Mountain Finance to date, and we are pleased to address you as fellow shareholders, as well as management. With that, let me turn the call over to Rob Hamwee, New Mountain Finance Corporation's Chief Executive Officer.

Thank you Steve. As always, I'd like to start with a brief review of NMFC and our strategy. As outlined on page 5 of our presentation, NMFC is externally managed by New Mountain Capital, a leading private equity firm with approximately $9 billion of assets under management and over 90 staff members. NMFC takes New Mountain's approach to private equity and applies it to corporate credit with a consistent focus on defensive growth business models and extensive fundamental research. Some of the key hallmarks of defensive growth business models include acyclicality, sustainable secular growth drivers, high barriers to competitive entry, niche market dominance, repetitive revenue, variable cost structures and strong free cash flow. With this historically successful business model-focused approach in mind, our mandate since the inception of New Mountain's debt investment program in 2008 has been to target high quality businesses that demonstrate most or all of the defensive growth attributes that are important to us and do so within industries that are already well researched by New Mountain. Or more simply put, we invest in recession-resistant businesses that his we really know and that we really like. We believe this approach results in a differentiated and sustainable model that will allow us to generate attractive risk adjusted rates of return across changing cycles and market conditions.

To achieve our mandate, we utilized the existing New Mountain investment team as our primary underwriting resource. In addition, we also draw upon the general industry knowledge and experience of a wide range of additional resources, including private equity portfolio company executives and directors. As outlined on page 6, over the last three months, we have seen a market strengthening of credit markets and decreasing volatility. This has been largely driven by the perception of a growing US economy, coupled with decreasing concerns around Europe's fiscal problems as the ECB has effectively provided monetary support through its LTRO program. Further underpinning the strength of credit markets has been meaningful fund flows into credit funds, particularly high yield. Recent history has shown that market conditions can change quickly, so I would like to reemphasize that New Mountain Capital and accordingly, NMFC, have always been proactively focused on defensive acyclical business models and that our financing is turned out and not subject to additional mark to market margin costs.

Our single highest priority continues to be our focus on risk control and credit performance, which we believe over time is the single biggest differentiator of total return in the BDC space. If you refer to page 7, we once again lay out the cost basis of our investments, both the current 12/31/11 portfolio and our cumulative investments since the inception of our credit business in 2008 and then show what, if anything, has migrated down the performance ladder. The first step would be if we need to put anything on our internal watch list, downgrading assets to a three or a four. The next step would be moving an asset to nonaccrual, and the final development would be an actual crystallization of a loss through our restructuring or impaired sale.

As you can see, while we have had our first nonaccrual since inception this quarter, its impact on the portfolio is de minimus. This position of cost is approximately 0.6% of our total portfolio and 0.1 of fair market value. Importantly, we have had no other negative credit migration this quarter, so the rest of the portfolio, representing nearly 99.9% of fair market value, is currently rated one or two on our internal scale. I think you can see this empirically by looking at pages 8 and 9 which show for the operating company and SLF respectively, leverage multiples for all of our material holdings when we entered an investment and leverage levels for the same investment as of the end of the current quarter. While not a perfect metric, the asset by asset trend and leverage multiple is a good snapshot of credit performance and helps provide some degree of empirical fundamental support for our internal ratings and marks. As you can see by looking at the two tables, leverage multiples are in almost all cases trending in the right direction, and even more importantly, no single company on either page has had a material increase in leverage multiple that would indicate the enterprise value cushion we originally underwrote has deteriorated in a meaningful way. The weighted average variances have been consistent with last quarter, at positive 0.3 for OpCo and positive 0.4 for the SLF.

Moving on to portfolio activity, Q4 originations continued to demonstrate our strong sourcing capabilities. Specifically, as seen on page 10, in Q4 we invested or committed to invest four new material portfolio companies and had total gross originations of $89 million, repayments totaled $33 million, and opportunistic sales were $17 million. All of the investments, in keeping with our strategy, are in industries and businesses that are well-known to us through our historical private equity activities. For example, Renaissance Learning, a provider of computer-based educational tools to the K through 12 education market, was a business we performed extensive acquisition diligence on for our private equity fund, utilizing our broad network of education resources prior to its ultimate acquisition by the current sponsor. Similarly, Triple Point and OpenLink are two leading players in the commodity management software solutions industry, an area we have studied as part of our core effort in enterprise management software.

Moving on to page 12, originations in the first quarter to date of $77 million demonstrate our ability to opportunistically source attractive investment opportunities, even in a rapidly improving credit market. Given our fully invested position, Q1 investment activity has been largely funded by a combination of anticipated repayments and opportunistic sales of predominantly lower yielding securities. Our debt to equity is in our target range at approximately 0.7 to 1. From this fully ramped position, we expect to drive future earnings and dividend growth by continuing to opportunistically rotate out of generally lower yielding first lien assets into both higher yielding first lien assets and more junior assets. We continue to explore options to raise additional equity capital in a manner that will not be dilutive to our existing stockholders, although we cannot assure you when or if any such transaction will be consummated. We will only raise additional equity capital if it can be done on a shareholder friendly basis, and in the interim, we will continue to fund our future originations, primarily by monetizing existing lower yielding assets and redeploying proceeds from repayments.

In terms of the portfolio review on page 13, the implementation of our strategy of gradually rotating into higher yielding assets is reflected in the rising YTM at cost of the portfolio, which as you can see has increased from 9.7% to 10.3% over the last six months. Other key takeaways are similar to last quarter. We continue to emphasize the middle markets as 7% of our portfolio companies are under $100 million of EBITDA and 82% of our portfolio investments are in facilities under $300 million in size, and we maintain a portfolio comprised of companies in the defensive growth industries like healthcare, services and software, that we believe will outperform in an uncertain economic environment. Finally, as illustrated on page 14, we have a broadly diversified portfolio with our largest investment at 4.7% of fair value in the top 15 investments accounting for 51% of fair value, down from 54% in Q3. With that, I will now turn it over to our CFO, Adam Weinstein, to discuss the financial statements and key financial metrics. Adam?

Thank you, Rob. For more details on our financial results and commentary, please refer to the form 10-K that was filed last evening with the SEC. Before we turn to slide 15, I wanted to mention that we have included a structure chart as appendix A in the presentation, and so similar to our last call, I will only spend a minute reviewing our structure as a brief refresher. Our structure was set up similar to an up read structure whereby the public company, PubCo, has no direct operations of its own and its sole asset is our units of our operating business, OpCo. Today, the other units of OpCo are held by a private BDC, AIV Holdings. Our structure a master feeder whereby the financial statements for OpCo flow to PubCo and AIV Holdings pro rata, based on their respective ownership. All discussions throughout this call and presentation, our investments, performance, et cetera, is focused on OpCo and its operations. Additionally, OpCo owns the equity of a nonrecourse vehicle, SLF. This vehicle originates lower yielding first lien loans, but with greater leverage at two to one. For GAAP and asset coverage purposes, we consolidate this SLF vehicle into the operations of OpCo.

Now, I would like to turn your attention to slide 15. On the left side, we show the unconsolidated view of OpCo and the SLF to give you a sense of how we manage our business. We think of returns from the SLF as dividends back to OpCo, and so we separately measure our yield on our SLF equity. The OpCo portfolio has approximately $446.5 million in investments, and its equity of the SLF is about $91.1 million. We have approximately $15.3 million of cash and cash equivalents and about $11.8 million of other assets which includes approximately $7.3 million of interest receivable, much of which was paid in early January, and $3.7 million of deferred credit facility costs that get amortized over the life of our credit facilities. We did have a small increase in the capitalized base of these costs in the fourth quarter related to legal costs associated with a few amendments that were administrative in nature for our credit facilities, and $0.8 million of other assets which is made up of a receivable from affiliates relating to the amounts owed back to the BDC from the investment advisor as we exceeded our expense cap for the quarter, And some prepaid expenses, mainly insurance and board fees.

We had about $129 million of debt outstanding under the OpCo credit facility, which has $160 million of capacity. The OpCo credit facility allows us advance rates of 25%, 45% or 67%, depending on the type of the underlying asset. We have about $15.1 million of other liabilities, which is made up of about $7.6 million of outstanding commitments on two investments, $4.5 million of payables to affiliates for management and incentive fees, $1.7 million of interest payable and $1.3 million of vendor payables for various expenses. This all gets us to a net asset value of $420.5 million, or $13.60 per share versus $13.32 per share at September 30 and $13.98 per share at June 30. The increase in our NAV of $0.28 per share in the fourth quarter is driven largely by regaining part of the $0.65 of unrealized losses from the third quarter as there was a partial rebound in the mark to market of our assets since September 30, and also some realized gains.

Since the end of the fourth quarter, as Rob described earlier, we have continued to see price improvement and a further rebound of our marks generally and estimate that our NAV at February 29 has further increased by approximately $0.25 to $0.30 per share. These figures have not been approved by our board, are subject to change, and are not intended to provide forward-looking guidance. If you think of the portfolio completely consolidated as it is reflected in our GAAP financial statements, at December 31, we have $703.5 million in 55 portfolio companies, approximately $257 million of those are SLF investments, and total debt of $295 million, approximately $166 million of which is SLF debt. Our consolidated debt to equity ratio at 12/31 is 0.70 to 1. This is roughly our target debt to equity ratio, and so we will have limited additional borrowings until such time as we expand our equity base.

On slide 16, we show our consolidated income statement for the full quarter at the OpCo level. As we have discussed in the past, the main reason for the creation of our up BDC structure was to make sure that the built-in gains that were in the portfolio at the time of the of the IPO were only allocated to AIV Holdings, therefore not burdening the public shareholders with any of those taxable gains or increased amortization on the predecessor investments over time. Since we were not able to step up the assets for GAAP, our income statement will generally show greater accretion than if a step up had occurred until the predecessor assets are sold, mature or are repaid. Therefore, on this slide, we show the actual income statement in the left column and then adjust the income statement to reflect it as if all the assets were stepped up to fair value at the IPO in the right column. We used the adjusted income statement to judge our performance of the portfolio during the period, and is also the basis for calculating our dividend and incentive fees.

We had $16.7 million of interest income, which breaks out as follows. Cash interest income of $15.3 million, pick income of about $833,000 and net amortization of purchase premiums and discounts and origination fees of about $542,000. Other income of $200,000 was made up mainly of fees received, delayed comp, commitment revolver and [consentment] amendment fees. Our interest expense of $2.3 million is broken out to represent about $1.9 million of actual interest expense in our borrowings, $130,000 of non-usage and custodian fees and about $245,000 of amortization of our upfront borrowing costs. Our management fee is approximately $2.2 million and is higher than last quarter mainly due to the increased ramp of our portfolio. Our incentive fees were approximately $2.3 million also reflecting higher adjusted pre-incentive NII than the previous quarter. To be clear, the incentive fees are only calculated based on the adjusted NII, and so the public shareholders are now paying incentive fees on any of the built-in gains or related accretion.

We have capped our expenses in the first year at $3 million, and so our combined amount of professional fees, administration expense and other expenses are $750,000 for the quarter. These amounts relate to legal costs, audit and tax, board costs, other expenses and indirect expenses reimbursable under our administration agreement. The bottom line for the third quarter is adjusted net investment income of $9.3 million, or $0.30 per share. This ties to the dividend paid on December 31, 2011 for the fourth quarter. The adjusted unrealized appreciation, or in some cases, the reversal of the unrealized depreciation, we experienced in the third quarter of $7.5 million represents a recovery of market prices for our portfolio and credit markets generally. As we discussed in the third quarter earnings call, we do not believe any of the unrealized depreciation experienced in the third quarter was performance related, with the exception of the one $4.4 million asset that is currently on nonaccrual. We had adjusted realized gains of $1.1 million as a result of refinancings and sales at prices above our adjusted cost basis. In total, for the quarter ended December 31, we had a net increase in capital resulting from operations of $17.9 million.

I want to point you to appendix B, which I will not go through here, but it takes OpCo 's income statement for the quarter and bridges it to PubCo's piece of those earnings. PubCo owns approximately 34.6% of OpCo, and the remained is owned by AIV Holdings. On slide 17, we show how we derive our Q1 dividend of $0.32 per share, which will be paid on March 30, 2012 for holders of record on March 15. As we discussed on our Q3 earnings call, we believed that for the fourth quarter we would be somewhere from the range of $11.4 million and $11.8 million of preincentive adjusted NII, and we came right in at the middle of that range at $11.6 million.

For the first quarter, we believe we will wind up in the range of $12.2 million and $12.6 million of preincentive adjusted NII, although this is simply an estimate and could materially change. This range would imply approximately a 5.1% to 8.4% increase over our fourth quarter amount. This increase comes mainly from optimization of our assets. After incentive fees, we believe our adjusted NII will be somewhere between $9.7 million and $10 million for the first quarter and therefore, we have declared a Q1 dividend of $0.32 per share.

Lastly, our expense cap of $3 million was in place for the first year and will expire on March 31. We have decided to continue to subsidize the expenses of the BDC for the next year by imposing a cap of $3.5 million on direct and indirect expenses. We are very committed to the BDC and believe that supporting the expense burden, based on our size, is prudent. At this time, I would like to turn the call back over to Rob.

Thanks, Adam. Well, once again, we do not plan to give explicit forward guidance, with our ongoing asset optimization efforts. While we cannot commit to growing the dividend every quarter from here on out, we would expect continued modest NII and dividend growth in the next few quarters. In closing, I would just like to say that we continue to be extremely pleased with our performance to date. Most importantly, from a credit perspective, our portfolio continues to be very healthy. Once again, we'd like to thank you for your support and interest, and at this point, turn things back to the operator to begin Q & A. Operator?

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) The first question we have comes from Jonathan Bock of Wells Fargo. Please go ahead.

Good morning. Rob, one question. I know you touched and stated that there were potential plans related to raising capital. And I wondered if you could give us some color on the options that you are considering today?

Sure. I mean, the there are two core options. One is if the stock were to trade at the appropriate premium to book value such that we could do a regular way offering, that would obviously be of interest to us. And then secondly, we have had some meaningful reverse inquiry from people who are interested in getting more exposure on a direct basis, and we would consider a private placement where we would obviously do that at book value, but wouldn't have the extent -- the more extensive -- [see] burden associated with that so the stock wouldn't need to be quite so high, and then we would look to register those shares immediately.

Okay, and so in this proxy I'm sure that is going to be coming out, it's not your intention to request to issue the shares below book value?

No, we have no intention, as we said all along, that is just not part of our game plan, nor will it ever be.

Is there a potential to have the external manager make an investment alongside a potential equity offering in order to get the share raise at NAV? Is that an option that's also being considered?

I'm sorry, I just lost you at the very end there.

Yes, sure. Is the -- is it possible that we might see the external manager also make an investment in New Mountain Finance alongside another equity offering in order to basically get the share price at NAV? So, let's say you are at book today, you have a potential to raise, it's likely going to raise it, let's say 96. Would New Mountain Capital be willing to supplement those 4 points in order to get an equity issuance at NAV?

Nothing is off the table at this point. I'm not in a position to commit to that, but nor would I rule that out.

Okay great.

And just to be clear, these options are only considerations at this point and not guaranteed to occur, so just want to make sure.

Understood, and appreciate the color. Now, turning to the repayments that you have had this quarter, what yields are coming off the book in both sales and repayments? I see what you have invested at, what is the average yield of what's coming off the book?

Yes, when we think about those two -- we have really two buckets right? We have our sales, which are almost exclusively at lower yield, call them in the 7% to 7.5%, and those are coming out of the SLF, and that was really the bulk of the activity for Q4. And then we had two take outs, one was a relatively high returning piece of paper, the PODS HoldCo. And then one was also a lower yielding and more like a 7.5% piece of paper, the MLM Holdings. On balance, we are talking in the 8% to 9% range, coming off the book, and that was in the fourth quarter. And then if you look at the first quarter to date, it is very similar, it's probably even more because you don't have the pods, it is even more heavily skewed toward lower yielding assets with really everything in the 7% to call it 9% range, in terms of assets coming off the book.

Okay, great. Thank you. And any meaningful prepayment fees expected in 1Q '12 or 2Q '12 with maybe some of that visible -- some of those visible repayments that are coming to market?

Yes. We did have, we have already booked for Q1 '12 a couple of, I don't want to call them -- depends on your operational definition of meaningful, but they were a couple of points on $ 5 million to $10 million, so we have already booked a few. And it is always difficult to look much past the next month or so. We don't see anything, necessarily, for the rest of this quarter. In the second quarter, I would suspect there would be some, but I'm not -- I don't want to promise that at this point.

Okay. And then just a last question in the overall market. We are seeing meaningful spread compression, particularly in your more liquid credits in that we understand. But we are also seeing some significant competition on those businesses that bring a real strong bid. More of your acyclical defensive growth type of bonds. And so can you give us a sense of the competition you're seeing? Is it tightening dramatically, or are you still getting decent looks to deploy new capital?

I think the bottom line is we are getting decent looks, but I think where the focus has been reemphasized is at the lower end of the middle market, right? Because the dramatic tightening, such as it is, has occurred in the larger, more liquid end of the marketplace. And so when you get into sub $200 million TEV type companies who can't avail themselves of either a red hot high yield market or a hot broadly syndicated market, and are looking at doing bilateral $25 million [mezz] tranches or clubbed up second liens or stretch seniors, that market has not -- while it is competitive, those spreads haven't moved very much at all.

Okay guys, thank you so much.

Our pleasure, Jonathan, thank you.

The next question we have comes from Bernie Picchi of Palisade Capital. Please go ahead.

Hi, good morning, guys. Just a nitty kind of question for you on the operating expense caps. In the first year, you capped it at $3 million and thus, the charge in the fourth quarter is $750,000. And you are going to limit -- you're going to also have a cap on this year's expenses of $3.5 million at the OpCo level. Could you give us an idea of what the actual expenses would be? What you are actually absorbing or subsidizing?

Sure.

And how will that be picked up in later years?

Sure. Part of it is a bit hard to measure, because some of it was first time costs associated with going public and legal costs. But we have been running, right now, at about, in our mind, kind of a run rate basis, $2 million over the $3 million cap, so at about $5 million of expenses when we kind of normalize it. Again, part of that is some of the SOX work we are going to be doing and have been doing and other things that go along with just first time public companies. But when you normalize it, that is where we are running out. We have committed to subsidize it for the next year and will continue to evaluate it over time.

Just strategically, the way we think about that ongoing subsidization is really, and Adam touched on this in his prepared remarks, is really a function of our size, right? We don't want to overburden, we think almost on a per share basis, if you think about the subsidy. So, if we are fortunate enough to be able to access additional equity capital, that subsidy would run off gradually. But we do it in a way where, upon a per share basis, the expense ratio would be consistent with what it is.

And just a follow-up. Is that subsidy being accrued, and will that be reversed at some point and come back to the OpCo?

No, it is a permanent subsidy that we are absorbing ourselves for the benefit of the public shareholders.

It's going to money heaven, right?

Exactly.

Okay, and if -- just a question too, just on the opportunities you may be seeing in Europe right now. We understand that there, understandably, because of all the volatility in Europe, there could be some good opportunities. Can you talk about that as it relates to your own charter?

Yes, I have to say, we are not really focused on the European market. I mean, there may be some businesses opportunistically that come our way that fit within our existing knowledge domain. If you remember, our whole thesis is predicated on investing in things we know. We are a US-oriented private equity firm. We obviously invest in businesses that have very significant operations around the world, but for the most part, they are companies that are domiciled here in the US. So I wouldn't say never say never, but we are not proactively looking at Europe. And I would also say while I am -- and the other senior folks here are incredibly comfortable with the legal jurisdiction surrounding creditor rights in the US, that starts to get less comfortable as you move outside of the US and particularly onto continental Europe. So, that is another overlay that is important.

Talk to Greek bondholders about that, right?

Yes, exactly. Or French corporate bondholders, so.

And just one final question. When you look at the one portfolio holdings that did go on nonaccrual in the quarter, does that hold any lessons for the rest of the portfolio? Was it kind of lessons learned on that one nonaccrual?

Yes, I think it is a good question. I think -- that's obviously ATI, which is a for profit post secondary education company, and we all know that there has been a lot of headlines in the last 12 to 18 months about various regulatory changes in that marketplace. And ATI did get meaningfully hurt, based on a number of regulatory accusations, frankly, more than actual convictions, if you will. We -- it reemphasizes the lesson that -- one, even with the acyclical defensive growth areas, one needs to be hyperconscious in this day and age of the impact that a very activist federal government and even state government can have on a business.

I will say that it, as you go back to the history of ATI, and our initial investment there predated the IPO, but we actually, we initially invested in both the mezza -- and this is all publicly disclosed in our original filings -- in both the mezzanine and the senior that we currently own to a larger extent. We, through our education practice here, got uncomfortable within months of closing that deal, based on some things we learned about practices going on there. We actually got completely out of our mezzanine at consistent with our purchase price, and we cut our senior position from roughly 10 to 5. I think that the lesson learned there is we held onto the $4.4 million that we currently own to really have a look -- to keep a look inside the company. Frankly, we didn't think it was going to get as bad as it got, but I think the lesson learned there is when you head for the hills, just head completely.

(Laughter) Total retreat, right.

Exactly.

Okay. Thanks a lot.

Yes, pleasure.

Thank you.

(Operator Instructions) The next question we have comes from JT Rogers of Janney Capital Markets.

Hello, JT.

Hello, good morning, thanks for taking my question. Based on the portfolio as you are looking at it right now, what portion of that do you think would you classify as lower yielding and sort of available to be rotated into higher yielding investments?

I would say there's between $100 million and $150 million in that category. And then there is obviously another probably, and this is a little harder to estimate, but $30 million to $75 million of next 12 months likely repayment. So, that's kind of the pool from which we would continue to fund the new originations, absent our AAA meeting term equity rates.

Great. That is really helpful. Do you all have any outlook as toward where you think spreads may be heading? Obviously, there is some pressure in the more liquid market. But wondering if you all are seeing potential benefit in the back half of the year from the some of the issues other people have talked about like the ending of the CLO reinvestment period and some of the capital that is on the sidelines for the private equity firms.

Yes, I do think, and it is always very risky to try to predict market -- broad market trends, but I do think we feel that consistent, frankly, with last year, there is a lot of pent-up demand for paper in the first quarter. We have seen that play out. We have seen the fund flows into high yield. But at some point, the absolute yield becomes a barrier on further spread compression.

And then, like you say, we are seeing more private equity activity as people look to work through the existing committed funds and like you say, I think there continues to be that great CLO hole in the marketplace that is probably going to get worse before it gets better. We see spreads stabilizing in the near term and obviously, we think the risk from there is toward widening as opposed to narrowing to the extent we have another macroeconomic hiccup like we've seen the last two or three years. Something always seems to come up out of the woodwork.

Great. Thanks a lot.

You are welcome.

(Operator Instructions) Well, it appears that we have no further questions at this time. We will go ahead and conclude our question and answer session. I would now like to turn the conference back over to Mr. Rob Hamwee for any closing remarks. Sir?

Thank you. Yes, so just want to thank everyone for their time today and support, and we look forward to talking to everyone next quarter.

And we thank you, sir, and to the rest of Management for your time. The conference has now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and have a good day.