PhenixFIN Corp (PFX) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Medley Capital Corporation's fourth-quarter fiscal 2012 financial results conference call. Today's call is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions)

This conference call may contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements. Actual outcomes and results could differ materially from those forecast, due to the impact of many factors. The Company does not undertake to update its forward-looking statements, unless required by law. The fourth-quarter 2012 investor presentation is available in the investor relations section of the Company's website, www.MedleyCapitalCorp.com. I would now like to turn the call over to the Company's Chief Executive Officer, Mr. Brook Taube. Please proceed, Mr. Taube.

Thank you very much, and welcome to Medley Capital Corporation's quarterly earnings conference call. We appreciate your time today, and on behalf of the entire Medley team, I'd like to wish everyone a happy holiday season. A lot has happened in the four months since our last call, so as a quick agenda on this call, we're going to discuss the following. First origination, including a review of activity for the September quarter, and an update on activity and targets for the current December quarter. We will also discuss our liquidity and capital availability for new investments, as we head into 2013. Second, we will discuss the recently declared $0.36 dividend, and our outlook for the dividend in the next several quarters. Third, we will provide an update on our recently amended and expanded credit facility, and finally, an update on the status of our SBIC license.

First, on origination, during the quarter ended September 30, we originated $81 million. This was six new investments and five follow-on investments. We received amortizations and repayments of $44 million, resulting in a net portfolio growth of $37 million. The majority of the amortizations were related to full par repayments, on our investments in Allied Cash Holdings and Applied Natural Gas Fuels. On balance, we saw an increase in deal flow, yet remain highly selective. For our first fiscal quarter, this December calendar quarter, our expectation is that we will meet or exceed the prior quarter origination volume. The pipeline is strong.

We have seen an increase in investments, targeted to close before year-end. This appears to be a combination of both typical year-end activity, combined with perhaps one-time volume related to likely tax changes, pending for 2013. With the completion of our equity raise that closed in December, and the additional expansion of our credit facility, we are well-positioned as we finish 2012 and enter 2013, in terms of capital availability. Overall, in the market we have observed more aggressive structures, and a tightening in pricing. However, our deal flow remains strong, and we expect to continue to deploy capital in the current market, at attractive risk-reward levels.

Turning now to the dividend, we are pleased to report that the Board of Directors has declared a dividend of $0.36 per share for the quarter ended September 30. The dividend will be payable on December 14 to shareholders of record on November 23. As of today, we have good visibility on the current December quarter net investment income, and as we stated similarly on our prior call, we expect net investment income to meet or exceed the current dividend as we look forward in this quarter and into 2013.

Turning now to the credit facility, in August, we amended and extended our revolver, and added a senior secured term loan to the ING-led facility. We entered into a $55 million senior secured term loan, with a five-year maturity, that had pricing of LIBOR plus 4%. Highlights of the changes to the resolver at that time include the following. We increased our borrowing capacity to $132.5 million, we extended the revolving period to August of 2015, and the final maturity to August of 2016. Third, we reduced the interest rate on the revolver. First from LIBOR plus 3.75% with a 1% floor, the initial pricing. It was revised to LIBOR plus 3.75% with no floor, and we added at that time, a step-down pricing, which would take it from LIBOR plus the 3.75% to LIBOR plus 3.25%, when our NAV exceeded $350 million.

With the issuance of shares in December, we have exceeded the NAV hurdle, so the revolver pricing is now LIBOR plus 3.25% with no floor. And finally, number four, we expanded the aggregate accordion feature on the combined revolving facility in term loan to a total of $300 million. Since August amendment, we have received $75 million of additional commitments from new and existing lenders in the bank group, and as of today, we have a total of $262.5 million committed, consisting of $80.5 million in the term loan and $182 million committed to our revolver. As you may have seen yesterday, we announced the addition of two additional banks to our bank group, and we're pleased to continue to add high-quality banks that are committed to help Medley grow our business through time.

Turning now to the SBIC, we continue with our license application process with SBA. In the past month, we have submitted paperwork to receive pre-licensing approval for our third investment. To reiterate, this approval allows an SBIC license candidate, that has received a green light letter, to get approval to contribute a closed investment to an SBIC when officially licensed. In a sense, it allows a head start on populating an SBIC portfolio. While we have no guidance on timing at this point, we remain optimistic and look forward to finalizing the process as soon as possible. I would like now to turn the call over to Rick Allorto, our Chief Financial Officer, to review fourth-quarter financial results.

Thank you, Brook. The Company's net income for the three months ended September 30 was $7.3 million or $0.37 per share. Net investment income was $7.1 million, or $0.36 per share, and the net realized and unrealized gain on investments was $200,000, or $0.01 per share. The net asset value per share was $12.52 at September 30, compared to $12.60 at June 30. For the quarter, total investment income was $14.1 million, and was comprised of $12.4 million of interest income and $1.7 million of other fee income. Total operating expenses were $7 million, and consisted of $1.7 million in base management fees, $1.8 million in incentive fees, $500,000 in professional fees, $500,000 in administrator expenses, $2.1 million in interest and financing expenses, $100,000 in directors' fees, and $300,000 in other and general administrative expenses.

For the quarter, the Company reported net unrealized appreciation of $373,000, and net realized losses from investments of $138,000. The Company's net income for the fiscal year ended September 30 was $22.4 million, or $1.25 per share. Net investment income was $23.5 million or $1.31 per share, and net realized and unrealized loss on investments was $1.1 million or $0.06 per share. For the fiscal year, total investment income was $44.5 million, and was comprised of $38.3 million of interest income and $6.2 million of other fee income. Total operating expenses, net of management fee waiver were $21 million, and consisted of $5.5 million in net base management fees, $5.9 million in incentive management fees, $5 million in interest and credit facility financing expenses, $1.6 million in professional fees, $1.5 million in administrator expenses, and $1.5 million in other and general administrative expenses. For the fiscal year, the Company reported net realized losses of $45,000, and net unrealized appreciation of $1.1 million.

During the September quarter-end, the Company invested $81 million in six new investments and five existing investments, and as of September 30, the investment portfolio consisted of 60% senior secured first lien investments, 39% in senior secured second lien investments, and less than 1% in equities and warrants. As of September 30, the Company had investments in 38 portfolio companies, across 21 industries, with an average portfolio investment of $11 million. The credit quality of the existing portfolio remains very strong, with no loans on non-accrual. The weighted average yield to maturity on the portfolio at September 30 was 14.3%, and the weighted average LTV, or loan-to-value ratio, was 52%. That concludes my financial review, I'll now turn the call back over to Brook.

Thanks, Rick. Overall, we are pleased with the continued progress our team has made throughout 2012. We continue to grow our portfolio, and expand the bank group. The team is focused on originating a portfolio of high-quality loans at attractive yields that will generate a stable and consistent dividend for our shareholders in the quarters ahead. We would like to thank all of the shareholders for their continued support, we wish you all the best in the holiday season, and we can open the call up now for questions.

(Operator instructions)

Greg Mason, Stifel Nicolaus.

Brook, could you talk a little bit about the recent equity raise? To be honest, we were little surprised with it. You were real disciplined with the first one, maxed out your leverage. And we get a second raise pretty close to it. Can you talk about why you did that capital raise after being so disappointed with the first one?

Look, I'd say the equity raise in December was consistent with our approach of focusing on return on equity in the business. It reflects the discipline that we have had since we came out, so we have raised two times in two years. There were four primary reasons we looked at doing this issue at the time we did. Our pipeline is strong, and it is growing. As I mentioned in my prepared remarks, year-end typically sees more volume, and there was clearly one-time tax driven deal flow here. But more importantly, we are seeing an increase as we look into 2013. We can talk a little bit more about that in terms of volumes as we look out in the future.

But another factor also is that, as we came into the market with MCC, we also had capital in our private funds. So as those vehicles are getting fully invested, we are having more of our Medley capacity is available for MCC. So that also is another factor driving the pipeline. There's clearly benefits to shareholders, by our growing. First of all, there is leverage on our fixed costs, just the costs of being a small company get amortized over a larger equity base. I think you all have that in your models.

Secondly, also the decline in the revolver pricing. So there are some specific cost benefits as we scaled through the $350 million of NAV. Although I don't have the numbers in front of me, I think the issuance was approximately 1% accretive to book value. So that is in favor, obviously, the ability to issue accretively. And as we looked out, we would need capital, at least some time by the end of the year or perhaps early January.

As we looked at the combination of our earnings call, the holiday season, and overall backdrop in Washington, it appears that the window to go get capital in December was relatively narrow. So it was a judgment call to take the capital early. It will have a modest effect, having taken it in early December, rather than later in December or the first month of January, but we thought about it carefully. I think, in the future, we will continue to focus the return on equity, and we will do our best to take leverage to the final day, like we did in August. But I don't think we can achieve that necessarily every time. I think on balance, we thought about it very carefully. It was accretive, it creates benefits on the cost side, and it prepares us to be armed as we head through December and into 2013 with ample liquidity. And that's it, thanks.

Okay, great. And then, on the SBIC with the three loans, if this one is approved, how much would you have in regulatory capital committed with the three loans?

Let me do some quick math. I think it is in the approximately low $30 million. It might be in the mid-$30 million combined. Another thing, you hit on the question about issuance. We are prepared obviously to be able to fund additional capital and cash down into the SBIC. So we have stated previously our intention was to put approximately $30 million of capital into the SBIC. I think at this point in time, our expectation would be to fund more than that, if we receive a license.

Okay, great. Do you have the flexibility to change? How much, do you have the flexibility to do the full $75 million, if you had the ability to do that?

Yes.

Okay. All right, and then finally, one last question, and I will hop back in the queue. Can you talk about the small realized loss? It wasn't very meaningful, but just curious of what it was associated with, in the quarter.

Sure. Basically that related to pre-payments or pay-downs on some legacy positions. If you rewind to the formation transaction in particular, I will give you an example, Allied. We had a full realization. When that came over, the fair market value was at a slight premium to PAR, because of the high-quality structure, and the yield at the time. So basically, it's the amortization of a premium. Nothing else material.

Great, thank you.

Your next question comes from the line of Jonathan Bock of Wells Fargo Securities. Please proceed.

Brook, one item, as it relates to originations, and perhaps your characterization of the deal flow today. We have heard a number of items relating to originations, as this is more of a binary event, meaning that if a deal is going to occur, it must occur before 12-31 for tax reasons. I'm curious, one, if you have run into those situations? And two, maybe if you could give us a sense of the type or the percentage of deals that meet that criteria of your $104 million in the hopper?

Sure. Look, I think it is hard to know, because it would require us reading the minds, I think, of the sponsor or the borrower. My best guess is that about one in four, say 25% of the deals are on a short fuse, which I think increases the timing and the likelihood of closing. None of the deals that we're looking at have a binary event at the operating company. That is to say, there is not a cliff in terms of liquidity.

So I would expect that the deals that are in the queue are expected to close. If there's a structural or other reason why they don't, they would likely still be around to finance. I don't think people would do all of this work at the very last minute, and then if it doesn't get closed, we have not heard that it has to close, it's an urgent matter. There are a couple that we think will and should close. But again, knowing what happens on these deals, if they end up pivoting into January, whether or not someone would change their mind, it's tough to tell. I think we feel confident that we're going to be able to meet or exceed our origination targets the prior quarter anyway, regardless of this year-end volume, that is related to the tax question.

Great, thank you. In the subsequent events section in the K, you mentioned there was a partial repayment of $2.3 million in Insight Pharma, and that there would be a pre-payment fee associated with that. Can you give us a little bit more color on this transaction, and really, maybe in general, what we should look at in terms of prepayment fees and portfolio velocity heading into this quarter, as well as the next?

Insight was a big Swander Pace deal. Ontario Teachers is in that deal, too. There was nothing particularly unique about the pre-payment, it was just a normal course of business pay-down for them. I think the position is performing fine. In terms of repayment, the flip side of the tax-driven deal flow is that we might experience some pre-payments. We have none currently as we sit here, where we are expecting it, with certainty. There is one or two positions where there has been some discussion.

It really depends on the idiosyncrasies of the deal. We generally have pre-payment penalties. I'd be reluctant to tell you we expect those to hit, but if they do, they would be additions to the December quarter, because, again, if it's tax-related, it's going to come in December, and we would get the prepayment amount. So I think from an overall planning perspective, we don't have any plans for a prepayment fee to hit, but it wouldn't surprise me if on this call in the quarter, we were talking about a deal that came back to us that had a fee associated with it.

Okay, great. And maybe an item as it relates to your second lien exposure. Could you give us a sense of perhaps the amount of senior debt ahead of you in your second lien investments, in terms of EBITDA? Roughly half a turn of senior debt ahead of you, or two turns? Maybe a general sense as to where the leverage risk in the second lien sits today?

Sure. From an asset mix perspective, there was not a significant change this quarter. I think if you look at the numbers, our senior first lien went from 55% to I think it was just under 60% of the overall book, so just under a 10% increase in the amount that was first lien senior. As we said in our prior call, you'll see an increase in our first lien mix. That's a target, although it won't be dramatic, and I think, if I remember correctly, our floating rate went up 2% or 3% as well. So that slow shift mix to first lien and more floating is on the margin happening.

In terms of second lien, again, it's deal-specific, but you should expect, if I gave you some generic numbers, and I may come back to you later on with more specifics, but our portfolio on average is approximately 3.5 times EBITDA, and just below 60% loan-to-value. It is not a rule per deal, but the average sticks there. I think if you thought conceptually about how much first lien was ahead of it, where we are second lien, I would say it is approaching, or around two times. So our second lien bucket is probably averaging the same mid-three times on average, where there would be a couple of turns of first lien behind it, but we would have to go deal by deal to get more granular. That has been the shift on the margin in the portfolio, but nothing material on the first lien side, underneath our second. No major shift at this point.

Okay, that's great color, thanks. And then just one last data point question, tagging along Mr. Mason's question related to the equity raise. Maybe you could give us a sense, where you were, on perhaps an available debt capacity basis prior to raising the equity capital, I believe this December? Just an idea of maybe raw numbers of what you were looking at in terms of capacity, before the equity deal was completed?

Sure. I am not going to comment on mid-quarter numbers. That is not something we're going to get into. What I can tell you, just to give you a flavor of the decision-making, if we had met the origination volume targets that we have for Q -- our first fiscal, which was this calendar quarter, December. If we had done at or above the range, we would be running out of liquidity as we pivoted through year-end, as I said on the call. So we phased a, being out of capital within a month, from when the issue closed in early December, and that was informing our decision. If some of the volume that had been pipelined, as I said, that is related to tax, that has a potential to close, although we don't assign a high probability to all of it, you could have seen a situation where we would have run out of liquidity in this calendar quarter, and that is what informed our decision to raise when we did.

That's helpful. Thank you very much.

Your next question comes from the line of Casey Alexander of Gilford Securities. Please proceed.

A lot of my questions have been answered, and I may have even asked this before. You have a couple of deals that are maturing here in a few weeks. One is Geneva, and one is Water Capital, and Water Capital is your biggest position as of the end of this quarter. Geneva is, at the end of the quarter, marked it down $560,000 below PAR on a $7 million loan, and it's due in three weeks. Can we get some color in terms of the status and repayment of that?

Sure. Water Cap is one of our favorite positions, they've been a borrower for a long time, they requested to extend and we did that. I am going to get the new final maturity, but that is a positive for the Company. I think it was two years. But let me track that down. Geneva, we expect a partial pay-down and then a partial extension. It's actually in discussions to receive financing, for what will amount to more than 50% of the position. There will be some news there, and I expect we will retain a portion of that position, as we enter 2013.

Okay. Secondly, if I read the K correctly, as the portfolio is currently structured, the first 100 basis points of rate rise would actually tag your net investment income pretty good. By the second 100 basis point of rate rise, you'd be back above the water line. But the first 100 basis points of rate rise would be pretty difficult, as it is currently structured. How important is it to get this SBA through, so that you can take some of the liability side of your balance sheet and fix that rate off at an attractive rate?

There is a number of questions there. Let me start -- let me try to answer them in sequence. At full leverage, the LIBOR rise will have an impact on us. If we look at it on a quarterly basis versus the expected natural rolling of the book, and let's assume we're fully levered and we have no access to capital, so there is no origination volume at all and we are fully levered, it would have a marginal impact. I think our NII at that point is going to be higher than our current dividend. So if you take the state of nature, which would be a win for us, fully levered, no volume, higher NII, I'm not sure that it is a big hit. It would be less than it would otherwise be if LIBOR stayed flat.

I think I concede that point, but in terms of our capacity to drive NII, as you walk back into what is a more likely scenario, where we are not fully levered, and/or there's either pre-payment penalties, a natural rolling of the book, which we expect as we populate it, amendment fees and other, I think the likelihood is that the incremental first 100 basis point move is not going to be a meaningful impact, although it is not completely within our control. I think it is fair to say we'll have it in the front windshield, and we're watching it. I think the other color I would give on it, Casey, is that a rising LIBOR in most likelihood is probably an economy that is returning to some normal or trend growth rate, which I think on balance is probably favorable. So as we migrate and pivot through here to a return to a normal LIBOR, which we have no opinion on, you might, but we don't, I think you'd have to think, and our view is it's probably correlating with a pick-up in the economy which I think is going to be net-net favorable on the credit side. So it is a multi-variable equation clearly, it's on our radar, and I think you'll watch us be able to manage that transition pretty effectively.

Great, thank you.

Your next question comes from the line of John Hecht of Stephens. Please proceed.

First question is, looking at the backlog summary on page 9. Just eyeing it, it looks like the yields in the current quarter are somewhat consistent for new deals, relative to the prior quarters. I'm just wondering, is that a correct statement, or do you have any commentary on new issue yields in the marketplace?

I think the comment on this quarter is that it appears that yields are probably 50 to 100 basis points tighter. It is really difficult to know, as you're in the closing phase. [Our vault] -- And I think, with an emphasis on sponsor-related stuff being tighter. And that has to do, I think, with availability in the market, as well as sponsors, as normal, pushing a more auction process for their credit. As it relates to any given quarter, we feel comfortable today in the yields, as you mentioned, in the overall mix, and I think, on balance, it's going to have, if we start seeing lower yields, as we commented on, it's going to be moving the overall portfolio yield 10 to 20 basis points, but not more.

So I think we felt pretty good, if the volume is related to a stabilizing economy and some stability, then that is fine with us. We would make that trade. If we see more challenges in 2013, we would expect on-balance yields to probably migrate back to our level we are targeting now. So I think we're pretty comfortable in the mix. And again, we are only going to do six to seven or eight, maybe nine deals in a quarter. We have the ability to remain selective in the pipeline that we are seeing.

Okay. And then, just thinking about credit quality, I wondered, can you make any commentary on the revenue and EBITDA trends at the portfolio companies over the past few months?

We look at this carefully, it is hard to make a general comment, because you have to look at deal specifics. I think if we had to characterize it, our view remains that the economy is muddling along. That is probably in the 2% growth. We are cautiously optimistic, we have said that, in terms of the performance. So we don't see some of the headline risks on the enterprise level that you might read. That is a good backdrop to lend, because the yields stay relatively high, without the perception that capital is going to come pouring in.

On the revenue side, I think we have seen modest growth, that's single-digit. I would say mid-single digit if you had to average, and EBITDA slightly less than that, so you're talking single-digit flattish to single-digit, which would reflect a similar trend. It is probably below the total mid- to high-single digits you need to support small companies generally. I don't know where you have the Russell and some of these indices have implicit revenue and EBITDA growth. So we're probably muddling in a flattish to up mid-single digits. That is the overall color I can give.

Okay. And final question, notwithstanding the end of the year uptick in origination activity, related to potential tax law changes, I'm just wondering, as you talk to the sponsors you interact with and the borrowers, 2012 was a good year for you and your sector, in terms of the opportunity to grow a loan portfolio. Do you have any thoughts for how 2013 might shake out, based on what you have heard recently, I guess and the exclusion of some sort of curve ball thrown at the economy?

Just to clarify, do you mean for Medley or broadly as [in] a sector (inaudible)?

For as much Medley as the sector, given that you participate. What is your sense for origination or deal activity as you enter 2013 on the calendar side?

Sure. So as we came through the last three quarters, we had pretty stable volume. It was in -- I think we were at about $1.3 billion of volume over the transom, each of the prior two quarters, and it was maybe $1.4 billion. The mix from our network, intermediary, and financial sponsor was constant. So we actually saw no material shift in volume or the mix of the source. Our average deal size was constant. As I mentioned, the first lien mix was up for us. That could also be just one deal. So I don't want to emphasize a major shift. But we screened just over 200 investments in each of the quarters.

So I think the comment on deal volume now is stable. It is tricky for us to prognosticate. We're not going to take capital if we don't see a pipeline. So the focus on return on equity and being disciplined is something we will continue to have. I would say as we look out, in terms of the lending environment, there have been a couple of competitive things we have noticed. Some of the people that we had been seeing consistently have been raising money faster than we have. So if anything, our expectation is that the bigger high-quality players are getting bigger faster, which is likely to mean deal sizes are bigger.

So I think, from a competitive standpoint we feel pretty good about people that we know in our space. The formation of capital doesn't look significant, whether that is from the private side or the public side. You may have a better perspective on that, but we don't see the formation of capital as a major competitive threat. As you sit here on a stable maybe 2% GDP environment, with competition migrating higher and new entrants slow, I think we feel very good about where we're positioned. And secondly, I think we cannot overstate it, this is a good time to lend money. In 2% GDP, with people focused on the economy, that is a good time. We can earn above-average yields and we feel good about being 3.5 times EBITDA in the debt stack. So I think it is a very good time for the sector. It is a good time for us in the sector, and we feel good about where we are positioned before we -- as we head into 2013.

Great thanks very much for the color.

Your next question comes from the line of Mickey Schleien of Ladenburg. Please proceed.

Brook, I think, based on what I've heard so far, that you are implying that the breakdown in the pipeline for the current calendar quarter, in terms of sponsored versus non-sponsored is still roughly the two-thirds one-third that you experienced in the past. But I wanted to confirm if that is still the case?

Yes.

Okay. And therefore -- looking a little bit more probably beyond the backlog and the broader pipeline, are you still seeing that same breakdown further out, going into 2013?

As we look at our pipeline, we watch these statistics and the sources very carefully. We've done that for 10 years. I wouldn't be able to predict a material shift. I really wouldn't. I think one comment I think we will make, which is something we can all watch for, is that the middle market and lower middle market did not have, and has not received the refinancing that the large cap deals have. So it might be that the source of deals from this pending 2013 to 2015 refinancing activity, which I think would be largely non-sponsored, but we will have to watch it carefully, that might increase as a source of deal flow. But I think it would be hard for us, and based upon our historical experience, I don't think we can predict, or wouldn't be comfortable predicting a significant shift. For Medley.

Thank you for your time this morning.

Your next question comes from the line of John Stilmar of JMP Securities. Please proceed.

Quickly, we have talked, and I appreciate the color on coupon, and talking about the average of 50 to 100 basis points. And I certainly recognize that it is deal-specific and maybe very episodic. Can you talk a little bit about credit terms, whether it being type of quality of company or whether it being leverage metrics, and not just necessarily coupon? Can you give me a flavor for where the market has been, probably over the past 90 to 120 days, and how much of a shift we've seen, at least in credit terms? Was it really just a pricing environment, as we sit here today?

I think it is a little bit of pricing. You see we're slightly more first, so you have to balance those two, I think. Because, as you said, it is episodic on a deal-by-deal basis. We're not doing 50 deals a quarter, so it's hard to get a portfolio gauge. I would tell you this. I believe that our credit terms are better, meaning, where we're able to negotiate, our terms and our documents are better.

If there's a slight shift on total credit, it is up a little bit. If it's like a deal goes from 3.5 to 3.75 times, but not a significant shift in the amount of credit risk we are taking per deal. I'd say the structure balances that, so we feel comfortable. And the pricing is the pricing. Again, we have to look, I think, over a number of quarters to have a trend set up here. But again, we feel pretty good about where we sit today. I think if you're fighting for big sponsor or big cap deals, then it's going to be tougher.

Perfect. And then just circling back on Water Capital USA, I just noticed that the LTV came down a little bit. Is that driven by multiple compression relative to equity? Or is there something going on in the business? Because I'm looking at the LTV move versus your comments about it being one of your favorite investments and the amend to extend a portion of the debt. I was wondering if you just provide a little color, given that it is such a big part of your portfolio?

I think this is just a mark-to-market changes. There is no material change that I'm aware of the credit. We have known them for a long time and the best thing you can do if you have a credit that you like and they want to extend is take that opportunity. It is simple mark-to-market adjustments, nothing more.

Got it. Just wanted to be sure. Thanks.

Your next question comes from the line of Greg Mason of Stifel Nicolaus. Please proceed.

One quick follow-up, just a modeling question. On the new $80 million of term debt that is outstanding, I know it's L plus 4%, but what is the effective yield if you include all of the fees and everything else, that we should be thinking about that, since that's the largest piece of your debt structure, today?

I am going to say --. Let me just think for a second. Probably 4.5%, maybe little bit north of that. We can come back to you with a little more specifics as well.

That's great. Thanks.

Your next question comes from the line of Douglas Harter of Credit Suisse. Please proceed.

Thanks. Brook, I was hoping you could touch on where you think your average hold size will go, given the recent capital raises, and the comments that you made about the Medley Private Funds?

Yes, I think we'll probably drift towards 20, maybe low 20s. That has been our historical average. So as we take up more, and maybe at any given time, are the only source of capital going into a transaction, I think. And again that is an average, so there will be a range above that. But it will be trending up into to the low 20s. I think north, a portfolio size over 25 is tricky for us to get, given what we originate. But that is the trend up, and you should see it happen in a relatively balanced way.

And just to clarify, going forward, even as you get bigger, 20 to 25 is the natural range where it winds up?

In terms of the average [per diem] -- average of the portfolio, yes I think that loan may be trending towards low 22 or 23.

Great, thank you.

I would now like to turn the conference back over to Mr. Taube for closing remarks.

Thank you all for the questions, we are always available for direct calls from investors and analysts. We wish everybody a happy holiday, and we appreciate the continued support. Thanks so much.

Thank you for your participation in today's conference call. We will look forward to speaking with you in the next quarter.