Oaktree Specialty Lending Corp (OCSL) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fifth Street Finance Corp. third-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Vice President of Investor Relations, Robyn Friedman. Please go ahead, ma'am.

Thank you, Mallory. Good morning and welcome to Fifth Street Finance Corp.'s third-quarter 2015 earnings call. I am joined this morning by Todd Owens, Chief Executive Officer; Ivelin Dimitrov, President and Chief Investment Officer; and Steven Noreika, Chief Financial Officer.

Before we begin I would like to note that this call is being recorded. Replay information is included in our July 9, 2015 press release and is posted on the investor relations section of Fifth Street Finance Corp.'s website which can be found at fsc.fifthstreetfinance.com.

Please note that this call is the property of Fifth Street Finance Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited.

Today's conference call may include forward-looking statements and projections that reflect the Company's current views with respect to among other things future events and financial performance. Words such as believes, expects, will, estimates, projects, anticipates and future or similar expressions are intended to identify forward-looking statements.

These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements.

New risks and uncertainties arise over time and it is not possible for the Company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements.

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 forward-looking statements and projections. To obtain copies of our latest SEC filings please visit our website or call investor relations at 203-681-3720. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

The format for today's call is as follows. Todd will provide an overview of our results and outlook and Steve will summarize the financials. Then we will open the line for Q&A. I will now turn the call over to our CEO Todd Owens.

Thank you, Robyn. Before we begin I'd like to introduce our investors and analysts to Steve Noreika, our new Chief Financial Officer.

Prior to his promotion Steve was Chief Accounting Officer of Fifth Street Asset Management and one of the senior members of Fifth Street's finance team. He has over 18 years of experience and has been with Fifth Street since September 2008.

During his Fifth Street tenure he has held various positions including Chief Financial Officer of Fifth Street Senior Floating Rate Corp. from November 2013 to July 2014. We believe that Steve's deep financial accounting and operational experience combined with his knowledge of the Fifth Street platform make him a natural fit for the position. In the coming months we look forward to introducing Steve to our analysts and investors.

For the quarter ended June 30, 2015 FSC generated $0.21 of net investment income per share. We're pleased that our net investment income per share has exceeded our quarterly dividend of $0.18 per share for the second straight quarter.

During the June quarter we continued to take steps to optimize performance at FSC. We completed the sale of Healthcare Finance Group, finalized the waiver to reduce management fees on future equity races and operated within our targeted leverage ratio. In addition as I will describe shortly we plan to begin buying back shares under our existing share repurchase program.

As I mentioned a few moments ago we made a strategic decision to exit Healthcare Finance Group, a healthcare asset-backed lender. Over the course of our strategic review we concluded that a focus on our core middle-market lending businesses, particularly middle-market sponsor-backed lending as well as technology lending and aircraft leasing, was a prudent approach for the Company. We expect solid opportunities in the middle-market and believe that FSC's capital can be used to generate higher risk adjusted returns in our core lending businesses.

As we stated in February, we've set our dividend at the level that we believe should consistently be covered by our sustainable net investment income. In articulating this dividend approach we expected that we would generate excess income that would improve our operating flexibility and could be used in a variety of ways. Given our current trading levels we're pleased to announce that we plan to use our excess earnings from this quarter to buy back shares on the open market under our existing share repurchase authorization.

Going forward each quarter depending on market conditions we intend to use earnings in excess of our dividend to buy back shares in the open market. We believe that buying back shares at these prices should provide a strong risk-adjusted return to our shareholders and increase our net asset value per share.

Due to repayments and exits that were in excess of origination levels during the June quarter we ended the quarter operating at a 0.62 times leverage which is at the low end of our targeted range of 0.6 to 0.8 times debt-to-equity. As a result we have fresh capital to selectively deploy into transactions with strong risk-adjusted returns.

In regard to our own portfolio we feel comfortable with the credit quality and believe that FSC maintains a strong and diversified portfolio of investments. We feel good about our portfolio's conservative positioning and we ended the June quarter invested in a diverse group of loans across 132 portfolio companies.

We're pleased to report that the credit profile of our portfolio was stable this quarter with no new loans placed on non-accrual. The three investments that are on non-accrual comprise only 1.5% of our total portfolio at fair value as of June 30, 2015.

Additionally investments in the energy sector accounted for only 2% of the total investments at fair value spread across three portfolio companies as of June 30, 2015. The initiatives discussed today are part of the broader plan initiated earlier this year to deliver improved returns to FSC shareholders over the long term. While we still have a lot of work ahead of us we're pleased with our overall performance during the June quarter as our net investment income per share beat our dividend by $0.03, we did not have any new credit issues and we continue to operate within our targeted leverage range.

I would now like to turn the call over to our Chief Financial Officer Steve Noreika to discuss our financials in more detail.

Thank you, Todd. FSC ended the third quarter of fiscal year 2015 with total assets of $2.6 billion, a decrease of $117 million from the prior quarter. Portfolio investments totaled $2.3 billion at fair value which was spread across 132 companies at June 30, 2015.

During the quarter ended June 30 we closed $227 million of investments in seven new and five existing portfolio companies. At the end of the June quarter we had $182 million of cash on our balance sheet. Net asset value per share was relatively stable at $9.13 at the end of the June quarter as compared to $9.18 at the end of the March quarter.

For the three months ended June 30, 2015 we generated total investment income of $70.2 million. The quality of our income continued to be high as net PIK, which is PIK accruals reported in excess of PIK payments received, represented only 3.9% of total investment income. Net investment income was $32.5 million for the quarter.

We believe we are conservatively positioned relative to our peers with 94% of the portfolio at fair value consisting of debt investments, 79% of the portfolio invested in senior secured loans, 76% of the debt portfolio consisting of floating-rate securities and no CLO equity at quarter-end. The credit profile of the investment portfolio continues to be solid as 98% of the portfolio at fair value was ranked in the highest 1 and 2 categories.

FSC's joint venture with an affiliate of Kemper Corporation continues to perform well, generating a 17.6% weighted average annualized return on FSC's investment during the quarter. As of June 30, 2015 the joint venture had $349 million of assets including investments in a range of one-stop and senior secured loans to 27 portfolio companies.

Subsequent to the June quarter the joint venture closed on $200 million of additional leverage sourced from Credit Suisse which should allow the joint venture to expand up to $600 million in assets. The weighted average yield on our debt investments has increased quarter over quarter from 10.7% to 10.9% including the joint venture return with the cash component of the yield making up 10.3%. At June 30, 2015 the average size of the portfolio debt investment was $21 million, the average portfolio Company EBITDA was $35.3 million and our top 10 portfolio Company investments represented only 27% of total assets.

Last week our Board of Directors declared monthly dividends of $0.06 per share for September, October and November consistent with the last two quarters. Going forward we expect our Board of Directors to continue to declare monthly dividends on a quarterly basis.

I will now turn it back over to Robyn.

Thank you for joining us on today's call. Mallory, please open the lines for questions.

(Operator Instructions) Terry Ma, Barclays.

Hey guys, I just wanted to get a sense of your appetite for share buybacks. I think the buyback program expires November which is a couple of months out. So can you just help us think about that?

Sure, hi Terry. Thanks for joining us.

As we just announced what we and consistent with what we said over the last couple of quarters we have created some flexibility around excess earnings which we are going to use now to buy back stock under the existing authorization and at these price levels. Once that authorization expires which is in November I would expect that the Board will reauthorize that program for the subsequent year.

Okay. So in terms of aggressiveness we shouldn't expect you guys to use the majority of that by November, it's just mainly excess earnings, right?

Correct. That's correct. We are buying under the existing $100 million authorization program but the amount that we intend to buy back is the excess earnings from this quarter.

Is there any reason why you wouldn't be more aggressive about it?

Look, as I just said we have and as we've talked about on each of our last two earnings calls our goal here is to improve profitability at FSC and we think that the right balance here is to use the excess capital, the excess earnings I should say from those decisions to buy back stock.

Okay, got it. And then on the senior loan fund can you maybe just give us a sense of what your asset growth expectations are for the rest of the year?

Ivelin, do you want to handle that?

Yes, hi, it is Ivelin Dimitrov. Our pipeline is fairly full.

It's a unique asset size that fits the senior loan fund mandate that we have to originate with a [VICO] and also need to get approved by our partners there from Kemper. So we tried to find the opportunities, we tried to maintain our discipline on credit and also on yields. But I feel fairly optimistic that in the next couple of quarters we'll make significant progress towards deploying the leverage which we just closed with CS.

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

Rick Shane, JPMorgan.

Thanks guys for taking my question. One of the things that you guys have really achieved over the last in the three quarters this year is taking down the leverage. And that was very important for a host of reasons and now you're sort of at the low end of your leverage target.

Given the current environment how aggressive do you think you will be? Do you think it makes sense to stay towards the low-end right now or do you think given risks to marks in the industry, what are you going to do here I guess is the question?

That's a good question. So it has been important for us as a management team to stay within our targeted range of 0.6 to 0.8 and we've done that now for several quarters in a row. Our objective is to stay within that range and implicit in that is that we have the capacity to increase the leverage in coming quarters and probably head more towards the middle of that range than either the bottom or the top end.

Obviously our business is impossible to perfectly predict and that's why we operate at a reasonably wide band on the leverage. But we would like to see the portfolio a little bit more levered than it is today over time, although we're happy to be within the stated target ranges.

Got it. It may have been a good question but it was inarticulately framed. Are you seeing opportunities with many of your peers near their leverage limits as well in the secondary markets and is that something that you'll consider as a way to deploy capital?

I'm not sure I follow the question. Are you asking do we see opportunities to buy assets on a secondary basis from our competitors?

Exactly.

No, I think look, we are a fundamental underwriter. We like to originate our own assets and invest in our own assets, source them, structure them, monitor them. We don't tend to play as aggressively as others in the secondary market.

I think if there are credits available out there that we like that we've invested in in the past or that might be in our portfolio that come available, certainly we would look for opportunities like that. But we're not going to look to increase our leverage levels by buying assets in the secondary market in a way different than what was done in the past.

Okay, great. Thank you very much.

Troy Ward, KBW.

Great, thank you and good morning guys. Todd, can we just go back to Terry's initial question on the buyback? Just a couple of points of clarification, when was the original buyback put in place?

Last November was the prior authorization.

So it's going to go for a year at a time. Then based on, Todd, your comments I mean I was surprised when we read the press release and you talked about a $100 million buyback, we thought it was going to be much more meaningful.

I just have to go back to the question of I'm assuming when you talk about your excess that's over NOI. So you earned about $5 million, $4.8 million in excess dividend NOI over dividend. Is that what you intend to be basically your buyback on this quarter?

That's what we intend for our buyback to be this quarter. That's correct.

And I'm sure it's a broken record for you but why? If you look -- I understand why some smaller BDCs would say a buyback, there's a lot of different things go into that decision based on your size and trying to be institutionally relevant and all this, but you're $1.4 billion of equity, why wouldn't you be buying back the stock at current valuation hand over fist?

You exited Healthcare Finance Group and that got to $100 million and now you're going to focus on the three areas that you're already focused on so your business really wouldn't have changed if you just would've used the proceeds for that as a buyback. So give us some more clarity around the decision to just buy back the minimal amount each quarter.

Yes, so again I'd like to play the tape back and just describe what we've set out to do a couple of quarters ago which is to level set the dividend, to allow us to meet or exceed the dividend with our NII which we've now done for a couple of quarters. And that excess capital or excess earnings I should say would give us the capacity to do a number of different things, give us a lot more operational flexibility. And the decision that we've taken now is to use that operational flexibility this quarter and in subsequent quarters to use our excess NII to repurchase stock.

That seems to be a good approach, a definable approach and the one that we want to move forward on. There are as we manage leverage levels up more toward the middle part of the range I know we'll feel good about that.

But coming back to the buyback we think that this is the right balance to use that excess again. And you're right on the math it's kind of approaching $5 million of share buyback to execute this quarter. We hope and expect that we will exceed our dividend in future quarters and if the stock price stays at this level we will continue to buy back stock with that excess.

Okay. How much have you bought back on the $100 million to date? So how much is actually left on the program?

No, we have not bought back any stock under the existing $100 million authorization. We will begin buying back stock as soon as we come out of blackout.

Great, thank you.

Doug Mewhirter, SunTrust.

Hi, good morning. On the portfolio activity it sounds like you will at least try if the opportunity is there to target a little bit of growth. What about the syndication market?

It looks like you've had some syndication activity again. Do you anticipate that continuing on the current path? I know you've been trying to build that business for a while.

Ivelin, do you want to address that?

Yes, this is Ivelin again. Yes the syndication business, we use it opportunistically, sometimes we originate a larger asset and then we bring it down to our target hold size and we make the skin in the meantime. And that's something we will continue to do.

I mean those opportunities are available to us. We selectively pursue those deals. In this market we find that everybody has capital, so you need to have a differentiation to your platform and we find the message resonating with certain clients and we will continue to support those guys.

All right. And just as a follow-up to that question, is there any -- obviously GE Capital has found a new home but there was a little bit of disruption, it looks like Golub might have taken advantage of a little bit of that vacuum.

Do you think there would be more syndication opportunities now that GE is sort of going its own way and the SSLP with Ares is winding down? Because I know Ares was directly talking about it. I just didn't know if you would see anything more like that coming your way.

I think that's right. We are seeing some of those opportunities. That being said, though, there's just a lot of people lining up to take advantage of it so it's difficult to predict how much will come our way.

We're competing directly with some of the people you mentioned on deals and we're clotting up with them on deals as well. That's how life works in the middle market.

We all usually end up liking the same credit and the same name with the same sponsor and we end up clotting up to get a deal done. So yes I expect to see more those going forward. I don't know if the GE process really made that much of a difference.

It seems like everybody was gearing up to take advantage of it and they were able to hold the book together for the most part. So it will be interesting to see how it develops in the coming quarters.

Okay, and just another financial question. Steven, in your portfolio yield which is definitely showing a nice trend, was there any kind of excess OID or call fees that maybe helped bump the yield up in the quarter? Was that mostly a nice organic trend that you've shown for the last sequentially over the last two quarters?

I think it's a little bit of both. I think it is a nice organic trend for us.

That said, in the June quarter we did experience a heightened level of repayments. And with those repayments we did generate some additional prepayment and exit fees. So I guess the answer is it is a little bit of both.

Okay, great. And my last question, another numbers question, what was the contribution to the realized loss or realized gain loss line from the HFG sale in the quarter?

It was about $4 million to the realized but net to the P&L about $2 million.

Okay, great, thanks. That's all my questions.

Robert Dodd, Raymond James.

Hi guys, I'm going to apologize in advance for my case of OCD. I see a dead horse, I have to beat it. So I'm going to go back to the buyback question if I can.

Correct me if I'm wrong here. For the act BDC buying back stock does not constitute a compliance with the dividend requirement. So buying back instead of paying out obviously is going to build your spillover, etc.

But that just means obviously that the amount of a buyback is really conceptually completely separate from the amount you're earning as I think of it. The buyback is a capital allocation.

Earnings, NII, dividend, that's an income consideration and the 1940 Act kind of forces them to be separate. So going back to that question if that's the case which I believe it is why the decision to tie the two together when intrinsically given your corporate structure as a BDC the two are unrelated?

Thanks for the question. You're correct in what you just said in terms of the 1940 Act and buyback in lieu of dividends which I'm paraphrasing of course is correct.

We have decided that the share buyback is in the excess is a good way of thinking about buyback, we think it's a good way of returning capital to the shareholders and it's a good way of taking advantage of the fact that our stock price is at low levels relative to our NAV. The expectation and intent if this share price remains at discount levels that are comparable to this is that we will continue to use excess earnings to buy back stock. So although those concepts from a corporate finance perspective are not immediately related we think that that will make use of those excess earnings.

Okay, got it. And if I can one more.

On the 19 of your portfolio companies obviously are investments in private equity funds, kind of emphasizing that partnership relationship you have with the guys you work with, is the dynamic is that changing, is there an increasing expectation maybe not requirement that you put money into those funds? Or is that a potential source of capital if you could exit those as well? Because obviously they are non-income-producing at this point.

That's a good question. There is not really any change in how we think about those investments. We have made those investments in the past in support of our private equity sponsor partners.

We would expect to make those investments in the future judiciously and we're not really changing our strategy around that. We have not seen increased pressure, I'm not sure exactly I can't remember the word you used, but we have not seen increased pressure to grow the size of those commitments. And we expect that to be a reasonably stable part of our business.

Okay, thank you.

Christopher Testa, National Securities.

Thanks for taking my questions, most of which have been answered but just a quick question on leverage, Todd. So I know you guys have delevered significantly over the past couple of quarters.

What are your thoughts on the range going forward assuming that you continue to take on more kind of first lien assets? And also we've seen a lot of BDCs who have really taken the CLO positions out of their portfolios believing they are weighing on valuation. Just wondering if there's any thoughts on becoming more first lien, maybe possibly just getting rid of those small CLO depositions? Just any color on that would be great.

Sure, yes, I'm happy to do it. Thanks for joining us. Again our stated range is 0.6 to 0.8.

We've been at the high end of that range for most of the recent quarters until now. We're now at the bottom end of that range as I said earlier and perhaps to be a little bit more explicit we'd like to be in the middle of that range and we would see actually quarter to quarter some ebb and flow around where we wind up. I think in this environment we as a management team do not want to be as highly levered as maybe we were last year or in prior quarters and are really aiming to manage that leverage ratio into the middle part of that range.

As it relates to the portfolio itself, we have for many quarters now been migrating into more senior secured, more first lien-type assets and we feel very, very good about that mix today. You're not going to see us become dramatically more conservative than where we are today but rather look to maintain a balance that's pretty consistent with where we are and frankly where we have been over the last quarter or two.

Okay, great. That's very helpful.

That's all for me. Thank you.

Jonathan Bock, Wells Fargo Securities.

Good morning and thank you for taking my questions. I'll start with just a couple of questions on the investment portfolio first. Obviously, we see JTC and the write-down quarter over quarter was significant.

Ivelin, just curious looking at that and Antares Corporation, both of which have taken some markdowns and I know you've talked about JTC in the past, but we're seeing two second lien or subordinate securities all receiving some various degree of markdown. Can you give us an update as to the performance of those particular credits?

Thanks for the question. I think that's worth highlighting, because JTC and Antares are both names that we're spending a lot of time with on a day-to-day basis. So working through the situations there and JT has been in our portfolio since 2009.

It was in a one-stop unit tranche equation and when we got refied out so we took a small mezzanine position. And the company went for a fairly dramatic operational, they had a number of operational issues and for an education business in the for-profit sector even if you have a good value proposition in the healthcare side it's just tough to recover when you make mistakes on that side of the business.

So we're in the process now of coming up with solutions. We're working with the sponsor who is still actively engaged here and there is a bank group ahead of us. So we're actively discussing with them a number of options but we felt in the interest of being transparent and I think that's something you have known about us over the years, we mark the book appropriately.

We do it every quarter. We don't play any games with that. Our Board is fully transparent with how we do it and we felt it's a good -- it's the right time to mark JTC at the level where we think we can get immediate recovery.

Now we're still working on the name and frankly my expectation is our recovery will be higher than that. But it's probably going to take some time to work through that process given that as a lender you have a little bit of restrictions from the things you can do in a regulated business.

Now Antares is a little bit of a different story. The company came out with numbers that surprised the investment community, even though in our diligence and Antares is a name we have across the platform and we're fairly familiar with the sponsor and the story there, so we knew what to expect. We knew there was going to be some volatility there.

Those are marks provided by the agent on the deal and if you ask me I don't know if we can buy those levels. We've tried, we haven't been able to, but this is where the loan is being marked in the community by the agent. We follow the name pretty closely.

We have a meeting with the management team coming up actually in the next couple of weeks. They are going to report earnings I believe towards the end of August and I think they will show a little bit better performance and I think those levels will improve. Because there's really no we don't believe there's any issues with the underlying business, it's more of a question of where the loan is trading.

I appreciate that. And maybe diving into a few more details on the $157 million and the ability to syndicate and sell down. So Ivelin, can you tell us what were the biggest drivers of syndication in terms of specific names that drive that $157 million amount and whom or who did you sell those assets to?

What is the $157 million you're referring to?

I believe so we have like $200 million, some odd of repayments, and then $157 million of maybe syndications, I call it selldowns, however you refer to it. Just what was the biggest driver of that $157 million number, if you could think of some individual names?

I think we've got a fair amount of repayments on the syndication side. We had some names that we have taken down on the balance sheet.

I think some of those sales as far as sales to the JV as well, so when we sell something to the JV with Kemper that shows up in the sales part of our reporting. So that's, Steve, I forget that's for a good portion --

Yes, absolutely.

Totally understand. I think I see $27 million of new investments, $10 million of which came from LegalZoom and I guess the question is is LegalZoom the name that was also owned by another BDC to the tone of $40 million? I see that you put an additional $20 million on or $18.5 million on your balance sheet.

The question is I'm wondering if you're including that $40 million that was taken by Solar Capital as a part of that unit tranche financing in your syndication effort, if that is the case or not?

Yes, yes. So in LegalZoom's situation we've been working with the sponsor for a while. We crafted the financing, we actually underwrote the whole deal and then we brought in Solar and SocGen for our partners in the deal now.

So they came in at different price than us, I believe. So that's part of our syndications there.

Okay, okay. I appreciate that. And then Todd just as more of a global 30,000 foot view, a number of folks have always talked to us about management and management for either two things, it's management for the shareholder or the external manager as it relates to the fees.

And certainly your choice to buy back stock is a step in the right direction but that step is also a function of the magnitude of its impact. So I guess the question is we're happy to see excess earnings become a part of the share buyback but to the extent that valuation is no longer going to bring you close to book value, is it your view that over time you can try to buy back a few million dollars worth of stock a quarter on the hope that eventually this gets above book? Or do you believe that over time more I'd say more drastic measures will need to be taken?

Because what we're seeing is even evidence today it's happy to see the stock up, just a certain degree of skepticism that I felt on this call with comments of beating dead horses, etc. that the market is not really going to bring you to the valuation you need allocating capital the way you're choosing to allocate it?

Jon, thanks for the question. Look, the way -- first of all we're not buying back stock in an effort to get us back to NAV or above NAV. We're buying back stock because we have excess earnings and besides we think it's a good use of that excess earnings.

So I think that our plan is as I've articulated earlier to continue doing that with our excess earnings. I think that we as a management team are always discussing a variety of things around how to operate this business including on the share buyback front we will continue to discuss that but as we sit here today this felt like the right way to get started on a share buyback program.

As I've said a couple of times earlier in the Q&A here if our -- if we continue to trade at a discount like this to net asset value, continue as we hope to generate excess earnings above our dividend, then it's our expectation that we will use that excess to buy back stock.

I appreciate that. I think that over time the market will continue to opine and as you allocate capital the market will give you the premium or the discount that is warranted.

So I appreciate you taking the time. Thank you.

Douglas Harter, Credit Suisse.

Hi, this is actually Sam Choe filling in for Doug Harter. Our questions have been asked and answered. Thank you.

Christopher Nolan, MLV & Co.

Hi guys. What's the spillover income, excuse me, the spillover income you currently have?

So the spillover, you mean, so we earned $0.21 -- I'm sorry, you're asking a different question. Steve, do you want to --

For the quarter, Chris it was about $4.5 million of spillover of excess --

And that's the accumulated?

Just for the quarter, yes.

Do you have any undistributed accumulated taxable income beyond that or is it only that?

No.

Great. And then also the decrease in investment assets on the balance sheet seems to be $100 million off from the new investments versus the repayments. Is that the sale of Healthcare Finance Group?

That's just a function of gross originations versus funded. In a lot of cases we'll originate a new asset but a portion of that facility is an unfunded commitment and therefore it doesn't affect our balance sheet. But it is a gross origination for us.

Final question, what is the gating factor for you guys to grow assets in the SLF going forward? I mean do you have the financing in place and it does not appear you guys have put more equity into the SLF this quarter. Just trying to get an understanding in terms of is it the size of deals, type of deals, what's the gating factor?

This is Ivelin again. Hi Chris.

It's the right type of deal. The facility has certain requirements as far as the type of deals we can originate for that vehicle.

And frankly Kemper is our partner as you know has veto rights and they have approval rights on every asset. So really we need to get ourselves on board for the asset and then we need to get Kemper on board as well and that just takes time.

Got you. Is the incremental growth in SLF assets this quarter what we should expect going forward on a quarterly basis?

I think I mentioned earlier we believe in the next couple quarters we will make significant progress towards deploying the leverage. We expect to be fully deployed hopefully by the end of the year, perhaps by March.

Okay, thanks Ivelin.

Robert Dodd, Raymond James.

Hi guys, just a follow-up, can you give us a bit of color on how the buyback and the waiver will interact? Hypothetically if you buy back over the next couple of quarters 2 million shares then the stock does trade up to the point that you would issue equity and then reissued those 2 million shares. Would the waiver apply to that or would it only apply to new shares issued over and above the current share count and you'd get the full base fee on any reissued previously repurchased shares?

Thanks for the question. To answer your question the waiver would take effect above the amounts that we've bought back. So if we were to buy back stock, or as we buy back stock, and then if we were in a position where we would be issuing equity which is the context in which the waiver would take effect, the waiver would take effect for capital above the buyback amount.

Okay, got it. Thank you.

Jonathan Bock, Wells Fargo Securities.

Again thank you for taking my question and I appreciate the answers. So effectively there would be even if you bought back stock and eventually issued no fee impact to the external manager over time, which again the market can opine but whether this falls into management for an externally managed fee or for shareholders is something that I guess is TBD.

My question is if you are very focused on flows to the asset manager itself at FSAM, there is another opportunity to demonstrate shareholder alignment without having to buy back shares that also over time can lead to premiums. And so Todd the question is have you thought about aligning your credit performance i.e., NAV and capital gains and losses with the NOI incentive fee in your fee structure? Because that gets alignment but it doesn't also lower fees to your external manager.

Yes, Jonathan, thanks for the question. We have talked as I said I think maybe when you were asking questions a few minutes ago we've considered a number of things. We've considered our fee structure, we've considered share buyback, we've considered the absolute level of fees and we continue to discuss those things but we acknowledge the question.

Thank you.

I am showing no further questions at this time. I would now like to turn the call back to management for any closing remarks.

We appreciate everybody's interest and we appreciate the questions and stay tuned. We're optimistic for the coming quarters. Thanks very much.

Thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.