New Mountain Finance Corp (NMFC) 2016 Q1 法說會逐字稿

Good morning, and welcome to the New Mountain Finance Corporation First Quarter 2016 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to NMFC's CEO, Rob Hamwee. Please go ahead, Mr. Hamwee.

Great, thank you, and good morning, everyone, and welcome to New Mountain Finance Corporation's first quarter earnings call for 2016. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; John Kline, COO of NMFC; and Shiraz Kajee, CFO of NMFC. Steve Klinsky is now going to make some introductory remarks, but before he does, I'd like to ask Shiraz to make some important statements regarding today's call.

Thanks, Rob. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are 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 May 4, 2016 earnings press release. I would also like to call your attention to the customary Safe Harbor disclosure in our 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 those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. Any reference 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 Advisers 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. At this time, I would like to turn the call over to Steve Klinsky, NMFC's chairman, who will give some highlights beginning on page 4 and 5 of the slide presentation. Steve?

Rob, John and Shiraz will go through the details in a moment, but let me start by presenting the highlights of another solid quarter for New Mountain Finance. New Mountain Finance's adjusted net investment income for the quarter ended March 31, 2016 was $0.34 per share, in the middle of our guidance of $0.33 to $0.35 per share, and once again covering our Q1 dividend of $0.34 per share.

The Company's book value on March 31 was $12.87 per share, a decrease of $0.21 from last quarter. We are also able to announce our regular dividend for the current quarter, which will again be $0.34 per share, an annualized yield of nearly 11% based on Monday's close. The Company invested $28 million in gross originations in Q1, and had $24 million of repayments in the quarter, maintaining a fully invested balance sheet.

The overall credit quality of the Company's loan portfolio continues to be strong. As for the fourth consecutive quarter no new loans were placed on non-accrual. Since the inception of our debt effort in 2008, we have had only two issues with a realized default loss, representing less than 0.2% of cumulative investments made to date. I am also pleased to announce that we have established our second senior loan program to pursue attractive first lien lending opportunities to the highest quality companies in the defensive growth industries on which we focus.

In summary, we are pleased with NMFC's continued performance and progress. With that, let me turn the call back over to Rob Hamwee, NMFC's CEO.

Thank you, Steve. Before diving into the details of the quarter, as always, I'd like to give everyone a brief review of NMFC and our strategy. As outlined on page 6 of our presentation, NMFC is externally managed by New Mountain Capital, a leading private equity firm with over $15 billion of assets under management and 100 staff members, including over 60 investment professionals. Since the inception of our debt investment program in 2008, we have taken New Mountain's approach to private equity and applied it to corporate credit, with a consistent focus on defensive growth business model and extensive fundamental research with industries that are already well known to New Mountain. Or, more simply put, we invest in recession-resistant businesses that we really know and that we really like. We believe this approach results in a differentiated and sustainable model that allows 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 a primary underwriting resource.

Turning to page 7, you can see our total return performance of our IPO in May 2011 through May 2, 2016. In the five years since our IPO, we have generated a compounded annual return to our initial public investors of 8.8%, meaningfully higher than our peers and a high yield index, and an annualized cash-on-cash return to our initial public investors of 10.6%. Page 8 goes into a little more detail around relative performance against our peer set, benchmarking against the 10 largest externally managed BDCs that have been public at least as long as we have.

Page 9 shows return attribution. Total cumulative return continues to be driven almost entirely by our cash dividend, which in turn has been more than 100% covered by NII. We attribute our success to, one, our differentiated underwriting platform; two, our ability to consistently generate the vast majority of our NII from stable cash interest income in an amount that covers our dividend; three, our focus on running the business with an efficient balance sheet and always fully utilizing inexpensive, appropriately structured leverage before accepting more expensive equity; and four, our alignment of shareholder and management interests. Our 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 10, we once again lay out the cost basis of our investment both with the current portfolio and our cumulative investments since the inception of our credit business in 2008, and then show what has migrated down the performance ladder. Since inception, we have made investments of $3.7 billion in 174 portfolio companies, of which only four, representing just $36 million of cost, have migrated to nonaccrual, and only two, representing $6 million of cost, have thus far resulted in realized default losses. Approximately 97% of our portfolio at fair market value is currently rated 1 or 2 on our internal scale.

Page 11 shows leverage multiple for all of our holdings above $7.5 million when we entered in investment, and leverage multiples for the same investment as of the end of the current quarter. While not a perfect metric, the asset-by-asset trend in 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 table, leverage multiples are roughly flat or trending in the right direction, with only a few exceptions.

Of the four loans that show negative migration of 2.5 turns or more, all are rated 3 on our internal scale. One is to a business that is currently in a sale process, expected to pay off the loan in full. Two others are first lien loans to energy service businesses that, while cyclically challenged, continue to have substantial liquidity. These two loans are carried at meaningful discounts to par, reflecting significant degradation in earnings and prospects, although both are expected to pay their upcoming semiannual coupon and are therefore not near-term, nonaccrual candidates. A fourth loan to a company called Transtar is new to our internal watch list and will be discussed a bit later by John.

The chart on page 12 helps track the Company's overall economic performance since its IPO. At the top of the page we show how the regular quarterly dividend is being covered out of net investment income. As you can see, we continue to more than cover 100% of our cumulative regular dividend out of NII. On the bottom of the page, we focus on below-the-line items. First, we look at realized gains and realized credit and other losses. As you can see, looking at the row highlighted in green, we have had success generating real economic gains every year through a combination of equity gains, portfolio company dividends, and trading profits. Conversely, realized losses, including default losses, highlighted in orange, have been significantly smaller and less frequent, and show that we are typically not avoiding nonaccruals by selling poor credits at a material loss prior to actual default. The net cumulative impact of this success to date is highlighted in blue, which shows cumulative net realized gains of $43.9 million since our IPO.

Next, we look at unrealized appreciation and depreciation. As you see highlighted in gray, we have $99 million of cumulative net depreciation. As further detailed on page 13, this depreciation can be broken down into two broad categories -- credit-specific and broad market. The credit-specific amount of $64 million can be further broken down into the four pieces shown on page 13. We believe a meaningful portion of this unrealized depreciation is recoverable, and we expect to see the significant majority of the $35 million unrealized depreciation associated with general market conditions reverse over time.

To put these numbers into perspective, even if we did believe that the full $99 million of unrealized depreciation was not recoverable, our annualized return to shareholders over the five years that we have been public would still be nearly 9%, or approximately 400 basis points over the high yield index over the same time frame. This speaks to the fundamental strength of the value proposition inherent in a well-managed BDC. That is, when one is generating asset level spreads nearly 1,000 basis points over the risk-free rate, primarily floating rate assets, there is a lot of excess bread to cover occasional, inevitable credit mechanics. The key is always just to keep losses modest, which we continue to do. I will now turn the call over to John Kline, NMFC's COO, to discuss market conditions and portfolio activity. John?

Thanks, Rob. As outlined on page 14, since our last call on March 1, we have witnessed an improvement in the credit market from the February lows. This has been due to a variety of factors, including improved commodity prices, abating concern about emerging markets, and positive fund flows into leveraged credit. However, the environment still remains uncertain, which is why we continue to pursue our strategy of investing in defensive acyclical businesses.

As described on page 15, since our last conference call, NMFC did have one material negative credit migration related to a second lien position in Transtar holdings, a national distributor of aftermarket automotive transmission parts. The Company reported a very weak Q4, as a result breached its financial covenants. We believe that the weak results were not related to fundamental changes in the industry environment or Transtar's long-term prospects, but were due to several operational missteps that are one time in nature. Transtar paid our interest on March 31, and is operating in a forbearance period granted by lenders. We are currently in active negotiations with the company and the sponsor regarding a longer term amendment. We look forward to updating you on the results of this negotiation on our next conference call.

Turning to page 16, we are pleased to announce a new $375 million senior loan fund that is structured as a joint venture with SkyKnight Income LLC, an entity associated with a California-based investment firm. SLP2 is a follow-up to our first senior loan fund, which has operated very successfully over the past two years. Like SLP1, SLP2 seeks to invest in first lien senior secured loans issued by high-quality companies that are well known to New Mountain. The JV will be capitalized with $100 million of equity capital, $79 million from NMFC, and $21 from SkyKnight. Additionally, SLP2 has entered into a $275 million five-year credit facility with Wells Fargo. We believe that the fund will be fully ramped over the next three months. Once fully ramped, we expect to achieve a mid-teens leverage return on equity.

As page 17 shows, NMFC is well positioned in the event of future rate increases as 84% of our portfolio is invested in floating rate debt. Therefore, even in the face of material rise in interest rates, assuming a consistently shaped yield curve, we would not expect to see a significant change in our book value. Furthermore, as the table at the bottom of the page demonstrates, a meaningful rise in short-term rates will generally increase our NII per share with the only exception being a modest rise, having a slightly negative impact as the cost of the majority of our borrowings rise while our interest income does not initially go up, given the presence of the LIBOR floors on our assets.

Moving on to portfolio activity, as seen on pages 18 and 19, total originations were muted in Q1, as NMFC maintained a fully invested portfolio throughout the quarter. Total originations were $27.6 million offset by $24.4 million of repayments and $15.8 million of sale proceeds, yielding a net source of cash of $12.6 million. Many of our originations consisted of small add-on originations to support growth of our portfolio companies. Given the limited amount of investment and repayment activity in Q1, our weighted average portfolio yield remains stable at 10.4%. Since the end of the quarter we have seen our repayment activity pick up, which has allowed us to make some attractive new investments in April. We have seen total originations in April of $51.4 million, offset by $81.7 million in repayments, and $8.6 million of sales, yielding a $38.9 million source of cash. We expect to use this cash and future sale proceeds to fund new portfolio investments in the quarter.

Page 20 shows that the portfolio composition remains very consistent with last quarter. The asset mix is currently composed of 44% first lien, 48% second lien and unsecured debt, and 8% preferred equity, common equity, and other. As always, we maintain a portfolio comprised of companies in defensive growth industries, like software, business services and education, that we believe will outperform in an uncertain economic environment.

Finally, as illustrated on page 21, we have a broadly diversified portfolio with our largest investment at 3.5% of fair value and the top 15 investments accounting for 37% of fair value. With that, I will now turn it over to our CFO, Shiraz Kajee, to discuss the financial statements and key financial metrics. Shiraz?

Thanks, John. For more details on the financial results in today's commentary, please refer to the Form 10-Q that was filed last evening with the SEC. Now, I'd like to turn your attention to slide 22. The portfolio had $1.52 billion in investments at fair value at March 31, 2016, and total assets of just over $1.57 billion. We had total liabilities of $750.4 million, of which total statutory debt outstanding was $609 million, excluding $117.7 million of drawn SBA-guaranteed debentures. Net asset value of $821.8 million, or $12.87 per share, was down $0.21 from the prior quarter. As of March 31, our statutory debt-to-equity ratio was 0.74-to-1.

On slide 23, we showed the historical NAV per share and leverage ratios, which are broadly consistent with our current target statutory leverage of between 0.7 and 0.821. We also show the NAV adjusted for the cumulative impact of special dividends, which portrays a more accurate reflection of true economic value creation.

On slide 24 we show our quarterly income statement results. We believe that our adjusted NII is the most appropriate measure of our quarterly performance. This slide highlights that while realizations and unrealized appreciation/depreciation can be volatile below the line, we continue to generate stable net investment income above the line. Focusing on the quarter ended March 31, 2016, we earned total investment income of approximately $40.9 million. This represents a decrease of $1.1 million, or 2.6% from the prior quarter, largely attributable to a decrease in other income. Total net expenses of $19.4 million are slightly down from the prior quarter. As mentioned on prior calls, due to the merger of our Wells Fargo credit facilities and consistent with the methodology since IPO, the investment advisor will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF credit facility. This results in an effective management fee of 1.4% for the quarter, which is in line with prior quarters. It is expected, based on our current portfolio construct that the 2016 effective management fee will be broadly consistent with the prior years, and it is important to note that the investment advisor cannot recoup management fees previously waived.

In total, this results in first quarter adjusted NII of $21.5 million, or $0.34 per weighted average share, which is in line with guidance and covers our Q1 regular dividend of $0.34 per share. In total for the quarter ended March 31, 2016, we had an increase in net assets resulting from operations of $8.1 million.

As slide 25 demonstrates, our total investment income is recurring in nature and predominantly paid in cash. As you can see, 97% of total investment income is recurrent and cash income remains strong at 94% this quarter. We believe this consistency shows the stability and predictability of our investment income.

Turning to slide 26, as briefly discussed earlier, our adjusted NII for the first quarter covered our Q1 dividend. Given our belief that our Q2 adjusted NII will fall within our guidance of $0.33 to $0.35 per share, our board of directors has declared a Q2 dividend of $0.34 per share, in line with the past 16 quarters. The Q2 quarterly dividend of $0.34 per share will be paid on June 30, 2016 to holders of record on June 16, 2016.

Finally, on slide 27, we highlight our various financing sources. Taking into account SBA-guaranteed debentures and the upsides of our NMFC credit facility from $95 million to $110 million, we had $870 million of total borrowing capacity at March 31, 2016. On May 4, 2016, we closed on our further upsides in our NMFC credit facility from $110 million to $122.5 million. On that date we also entered into agreement for the private placement of $50 million of five-year senior unsecured notes at a fixed rate of 5.313%. We believe that this deal is a positive step for NMFC as we diversify our financing profile at an attractive rate, enhances our liquidity, and provides a new source of stable capital with no borrowing base requirements. These additions bring our current borrowing capacity to $932.5 million. As a reminder, our Wells Fargo credit facility's covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time. At this time I would like to turn the call back over to Rob.

Thanks, Shiraz. It continues to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters so long as the adjusted NII covers the dividend in line with our current expectations. In closing, I would just like to say that we continue to be pleased with our performance to date. Most importantly, from a credit perspective our portfolio overall continues to be very healthy. Once again, we would like to thank you for your support and interest, and at this point turn things back to the operator to begin Q&A. Operator?

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Jonathan Bock with Wells Fargo. Mr. Bock?

One item I want to start with is the new JV. Congrats. Those are obviously very, very advantageous for shareholders and clearly you're on the route to ramp that significantly. The question we'd have is just, you mentioned the speed of ramp in a quarter or two, which is quick; and, two, when we think about what this is, it's an effective CLL. Not as much leverage and certainly it's something that you have an ability with your JV partner on a 50/50 basis to manage. But with rising LIBOR, right, already taking a bit out of the return in cash distributions that have gone to some CLL equity holders, how do you mitigate the risk that you deploy? You deploy quickly, LIBOR goes up again, the facility likely would not have a floor, but some of your first lien assets that you put in this would. Because, look, all things equal, people prefer to have it, they're advantageous, but wondering in terms of the speed of development as well as the risk of rising LIBOR, could that lower your mid-teens returned assumption.

Yes, it's a good question, Jonathan. When you model it out, with LIBOR approaching 50 today, and that's obviously in our assumptions, the floors are typically going to be 100, a few at 75. So, you're talking about maximum pain point in the event that LIBOR went from 50 to 100 and just stop there. You're talking about 50 BPS with the 3-to-1 leverage, so you're talking about a couple hundred basis points and we think there is plenty of access return to cover that. And I think in the real world it's unlikely that LIBOR goes exactly to 100 and stops. Obviously, as it goes beyond 100, we are matched in that sense. So, it's something we keep an eye on, but I don't think it has a material impact on the economic value of the underlying [equity].

Okay. And so if we -- maybe take a jump to portfolio activity. So, clearly portfolio activity was light in the quarter, but you've already originated $51 million. You'd see maybe $2 million in repayments, and a lot of those repayments, you know, Pittsburgh Glass, etc., will come with some big fees. Here's the thing -- if the portfolio shrinks a bit, we've seen cash flow coverage of the dividends that's just cash ex-fee, etc., it's still very, very well positioned relative to peers at 80%, but slowly trickling down a bit. As we think of just a more constrained liquidity in growth environment, how should we look at the potential for limited growth, more repayments, and perhaps maybe a little bit more cash drag than expected and how that affects the stable cash coverage of a dividend? Because it's always great to get your money back, but what we've seen when some BBCs get a lot of their money back all at once, that can really create a negative drag that can, in some cases, harm earnings and at times even harm the dividend.

Yes. I mean, of the many things I lose sleep at night, that is pretty far down the list. Just to put it into context, Q1, we could have originated hundreds of millions of dollars. We were completely constrained by our entering the quarter, as we like to do, being fully leveraged. And you know we kind of manage to that mid-sevens statutory leverage point. So, our -- we do not have any issues, even if the markets evolve through April with deploying capital, I think we're in a great position to continue to generate attractive deployment, and I feel good about our ability to stay fully invested. Beyond that, I think some of the levers we have to continue to make sure that we more than cover the dividend, which we historically always have, is to continue to ramp up the SBA facility, which as you know is very high ROE deployment. Again, we don't go out looking for those opportunities; we look, as always, for the businesses that we know really well from our private equity business. But naturally there are things that over the year will likely slot into that category. Certainly, the JV will help with the ROE. And as you point out, if you look at this quarter, we had virtually no fee income, and we still covered our dividend. And so in most quarters, if you just look historically, we typically do generate some material fee income; certainly this quarter we will. So, I'm comfortable we have a lot of leverage and we've always been fairly religious about (a) staying fully invested and (b) with comfortably covering the dividend, and that's one thing I do not expect to be a challenge for us as the year unfolds.

Appreciate that. And so let's just ask about the SBA deployment. So, about $117 million on our way to $150 million. How would you describe that ramp, one; and two, have you considered -- well, you've obviously considered it -- have you started the process by which to increase the license to $225 million, or to the second license?

Yes, second question first. Yes, we are in dialogue to get to that second license, and ultimately, obviously, we're even looking beyond that to the new statute that allows a third license. So, we think we are very well positioned with the SBA to over time fully maximize the proceeds from the program.

And the first question, the ramp, it's very tough to predict, because it's so idiosyncratic. We'll have -- you've seen last year we had a couple of quarters where we had two or three SBA-eligible investments, and then you have a couple of quarters where you have none. And, again, that's because we're not out specifically looking for SBA-eligible investments. The whole logic back to a few years ago, when we got the original SBA license, was when we back-tested our cumulative origination, a meaningful minority of those would fit. So, we felt comfortable that going forward that it would look similar and we'd be able to deploy the proceeds. However, in any one quarter it's just hard to know if we're going to get zero or two or three. I think just looking at history as a little bit of a guide, I'd expect over the course of this year to complete the deployment of the first license and hopefully be into the second license towards the end of the year.

Got it, got it, great. Thank you for taking my questions.

(Operator Instructions) Our next question is from Jeff Greenblatt with Monarch. Mr. Greenblatt?

Yes, thank you. Good morning. Actually, I have a totally different perspective than the last questioner, which I'm somewhat perplexed by his question, but maybe I'm missing something. If you do still have an open buy-back program, correct?

We do.

Yes, so why would excess cash be a big problem to the extent you just bought in stock at a discount to your NAV, which would reduce your overall gross dividend obligations so you could maintain your dividend. I mean, that's your ultimate use of cash, I guess, if you don't find attractive opportunities. Am I missing something there?

No, that is very much on the table. We obviously, when the market was particularly out of whack in February, we were able to do a little bit of that. We were meaningful capital constrained and the window didn't last very long, but certainly if the stock starts trading again at a meaningful discount to par and/or we have, to your point, excess capital, that's a very obvious use of that.

Okay. Well, then I want to make sure -- I want to look at your page 13 in your presentation for a second. And I just want to, again, make sure I'm looking at it the correct way. You had -- and, by the way, I understand this is as of March 31.

Yes.

And I have reason to believe the credit markets have improved since -- you've said that, they've improved since then. The high yield market is up, I think, 3% and other credit indices are. If I look at that $64 million of specific credit deterioration, and I believe you said the energy loans were first liens, so that's your number two category; correct?

Yes.

And you said another company is for sale that you hope to get repaid potentially at par. Which one is that?

That's in bucket 4, so it's a small position with only a modest discount to par, given that the market is quite aware of the sale process.

Right, okay, that's what I assumed. Okay, so if I look at your -- if I take a step back and say, well, you've taken basically $1 out of your NAV for this specific credit deterioration, about $64 million, so I think that's roughly your shares outstanding. To the extent that your underwriting is successful, and I'm starting with the premise that in the past you have said that you look at loan-to-value as no greater than 50% both on a sponsor purchase price and your own valuation. So, I take that as meaning that there is a decent chance that your marks ere are just that, marks, and you have substantial recovery. I think the broad market movements, the $35 million is probably moving a little bit in your direction this quarter and over time should be proven out to be par. You basically have over $1.50 of, quote, NAV, markdown just on these items. So, am I looking at that correctly, that if you were successful in recovering this credit deterioration and as over time these broad market movements brought your share back to par, that your NAV hypothetically as of today would be more like $14.40, not the $12.87? Is that the right way to look at it or am I missing something?

No, that's a very reasonable way to look at it.

Okay. So, with that in mind, and going back to my further comment, since quarter end, notwithstanding the appreciation in all the capital markets, including the credit markets, our stock has gone down, effectively. It's gone from, I think $12.65 at quarter end to $12.40, so I look at $12.40 against $14.40, I can't imagine why a new origination would be more desirable than buying that discount through your stock today, particularly in light of your excess cash. Now, I know previously you had a short window and I think -- I don't know where your price range was, but you only bought 100,000 shares, and I think your authorization is much greater. So, why aren't we more aggressively looking at the stock at this kind of discount now, not just the discount to the NAV, but a discount to what you guys perceive based upon your analysis as the true value, which could be above $14? I mean, is that the analysis you're doing or not? And if not, what analysis are you doing in terms of doing the buyback?

Well, it's part of it. The NOI, the $14.40 I think is sort of the right side of the goalpost, right? I mean, --

Yes.

-- that is saying 100% recovery across-the-board, which is probably not in the cards. I do think we feel quite good about the 99 being some number meaningfully lower than 99, right? So, it's somewhere in the middle. One analysis we look at is what if we hold everything in par and look at just the credit impaired assets at the current mark and that gets you to $13.77, so that's another way to sort of triangulate. So, look, as we get into the window period where we can have control over buybacks, so I think because prior to getting the earnings out we were in a programmatic period, which we had to set up before the window closed some time ago, and that does not allow us to control the buybacks. I think you can very well see the stock continues to not trade in line what we believe to be true economic value, you know, meaningful stock buybacks.

Okay. Then one other question if I could. The $50 million debt raise that you did, I think it was 5% to five-year debt raise, I think it was, what, 5% and change; is that correct?

Yes, 5.3%.

What's your thought process? I mean, obviously -- I shouldn't say obviously, but I'm assuming that the expansion of your bank line is a lower cost of money albeit floating; correct?

Yes, of course. I mean, it's a trade, right? It's two things -- (a) it's more expensive on one hand; on the other side of the ledger it's fixed, not floating, and who knows what's going to happen to rates. So, it speaks to our general conservativism around having a sort of hedged capital structure.

Although your portfolio, as you show, will appreciate if the rates move up to that level on the LIBOR anyway, so you are going to make it up on the other side through your asset appreciation.

Well, not really. Because these are floating assets so they don't truly appreciate.

Excuse me. I thought you said the pickup, you had a table that shows like 100 or 200 basis points move up in rates.

Yes, the yield increases, right, but the asset price tends not to increase.

Yes, okay, okay. But the yield increase will offset the cost of money increase --

Yes.

-- structured already. So, in other words, are you buying a second, a double layer of insurance by locking in the $50 million? That's really what I'm asking you.

Yes. As part of --

That structure, you had already structured for that.

There is part of that, and then the other part is it's very flexible. It's unsecured debt, right? So, there is no borrowing base constraints on unsecured debt as opposed to the Wells facility, which is --

Oh, okay.

-- [massive buyout] leverage. And third, it does serve a benefit, which is diversifying our leverage profile, which is important as we continue to aspire to ultimately investment grade rating, that is something the agencies look at. So, really serves lots of purposes, and in the spectrum of a $900 million capacity of debt, it's still pretty small. So, we're constantly evaluating the tradeoffs between cost and flexibility and other pros and cons. We're not just doing this willy-nilly, but we thought it was a smart thing to do. Maybe a slightly deleterious impact, I mean, it does, right, just mathematically on this quarter's earnings, but it positions us best for the long term, in our judgment.

No, no, no, I wasn't focused on the borrowing base versus the unsecured nature, so I get it, okay? I mean, I'm glad you pointed that out. So, are those funds basically -- is that offering closed or is that additional funds that are going to come in above and beyond what we're seeing in this presentation?

Yes, that deal was literally signed yesterday and the T plus 2 or 3 of the funds will come in Friday or Monday.

Okay. So, that's probably going to bring your cash up north of $100 million right now, right?

Yes. Again, we've got transactions in near term.

Okay. Well, as a very long-term shareholder, I just want to restate sort of counter the concern of your prior caller, I have no problem with you using excess cash to buy at discount a portfolio. You likely know better than what you may put money out into new. So, I'm very supportive of it and hopefully you guys will continue to do that, and thanks for all your good work this quarter.

Great Thank you very much.

(Operator Instructions) All right, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rob Hamwee for any closing remarks. Mr. Hamwee?

Great. Yes, thanks, Operator, and thanks, everyone, for your time and interest, and we look forward to speaking next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.