PhenixFIN Corp (PFX) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Medley Capital Corporation's Fourth Quarter and Fiscal End 2013 Financial Results Conference Call. Today's call is being recorded for replay purposes. All participants are in listen-only mode.

(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 2013 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, and welcome everybody to Medley Capital Corporation's quarterly earnings conference call. We appreciate everyone taking the time to join us this morning. As usual, a quick agenda. First we are going to discuss the dividend for the quarter ended September 30. Second, we'll provide an update on originations and the overall portfolio, including a review of the origination activity for this quarter and our outlook going forward.

Third, we'll provide an update on our SBIC activity, and also discuss liquidity and capital availability for new investments. Finally, a quick review of the financial results for the quarter and the fiscal year ended September 30.

Before we start today, I would like to acknowledge all of the shareholders for their continued support. On behalf of the entire team here at Medley, we would like to thank you. Our team worked so hard to produce the results for the shareholders.

I'd also like to take a moment to acknowledge our team here at Medley, from the very strong and our growing investment team, to our experienced and conscientious asset management team, and to an ever-vigilant finance and operations team. You all have delivered extraordinary effort and results over many years, but in particular this fiscal year ending 2013 for Medley Capital Corporation.

We completed the fiscal 2013 year having delivered net investment income of $1.53 per share, and dividends totaling $1.46 over the same time period. Our portfolio increased 86% in 2013 to $749 million, and 57 borrowers. The team at Medley is now 60 people.

Our effort remains on investing in high quality and growing borrowers, providing a diversified portfolio of senior secured loans, and delivering steady and consistent net investment income; and as a result, dividends to the shareholders. We're off to a very strong start in this calendar 12/31 quarter, and we look forward to similar results in our fiscal 2014.

Now, turning to the dividend on October 30, the Board of Directors declared a dividend of $0.37 per share for the quarter ended 9/30. The dividend will be payable on December 13 to shareholders of record on November 22. As we've stated in the past, we expect net investment income will meet or exceed the current dividend as we look forward, assuming we're able to deploy capital as planned.

On origination during the quarter ended September 30, we originated $106 million in five new investments and four existing investments. We received amortization and repayments totaling $47.5 million, resulting in net portfolio growth of $58.5 million over the quarter. We're pleased with the overall volume, and our pipeline remains strong.

A quick note on pricing. Our direct investment opportunities and non-sponsored opportunities remain stable, and we continue to find attractive risk-adjusted returns in the market. The deal flow remains strong, and we expect to continue to deploy capital in a steady and consistent manner.

Now turning to the portfolio, the portfolio consists primarily of senior secured loans. It remains stable and well diversified, with 57 portfolio companies across 24 industries, and an average position size of $13.1 million. Our expectation is that we will continue to diversify as we grow the overall size of the book.

As I mentioned on our prior call, we intended to increase the floating-rate portion of the portfolio. During this past quarter, 97% of our new origination volume was floating rate. We expect to increase the overall floating-rate portion of the portfolio in the quarters ahead. Overall, the credit quality of the portfolio remains stable, with no new loans on non-accrual. Over this past quarter, we increased NAV per share to $12.70.

Turning now to the SBIC, during the September 30 quarter we drew down an additional $25 million of SBIC leverage, to end the quarter with a total of $30 million drawn. This was consistent with our guidance last quarter. A large portion of the current investment pipeline qualifies for the SBIC, and we expect to continue to draw the leverage in a consistent and measured manner throughout 2014.

In November, we received a commitment letter from the SBA for an additional $50 million of SBIC leverage. This is referred to as the second turn of leverage. Based upon our existing $50 million of regulatory capital at the subsidiary, we now have a total of $100 million, or the full two turns of leverage available.

We may, in the future, increase the regulatory capital at the SBIC subsidiary to a total of $75 million, an increase of $25 million in the regulatory capital, which would give us access to an incremental $50 million from the SBA, bringing the total leverage potential to $150 million for the subsidiary.

In addition to the SBIC financing capacity, during the quarter we increased our commitments on the revolver and term credit facilities by $20 million, bringing the total commitments on the combined revolver and term facility to $365 million.

As of September 30, we had drawn only $2.5 million on the revolving credit line. The combination of the lower-cost revolver and the SBIC term financing provides us with low-cost financing capacity for our future investments as we grow the portfolio. I'd now like to turn the call over to Rick Allorto, our Chief Financial Officer, to review the third-quarter financial results.

Thank you, Brook. For the three months ended September 30, the Company's net investment income and net income were $14.4 million and $15.1 million, or $0.41 per share and $0.43 per share, respectively.

The net asset value per share was $12.70 at September 30, compared to $12.65 at June 30. For the quarter, total investment income was $27.5 million, and was comprised of $21.7 million of interest income, and $5.8 million of fee income.

Total operating expenses were $13.1 million, and consisted of $6.9 million in base and incentive management fees, $4.2 million in interest and financing expenses, and $2 million in professional fees, administrator expenses and general and administrative expenses.

For the quarter, the Company reported net unrealized depreciation of $700,000, and a net realized gain from investments of $23,000.

The Company's net investment income for the fiscal year ended September 30, 2013, was $46.4 million, or $1.53 per share. Net income was $39.4 million, or $1.30 per share. For the fiscal year, total investment income was $89 million, and was comprised of $73.2 million of interest income, and $15.8 million other fee income.

Total operating expenses for the year were $42.6 million, and consisted of $22.5 million in base and incentive management fees, $13.4 million in interest and financing expenses, and $6.7 million in professional fees, administrator expenses, and general and administrative expenses.

For the fiscal year, the Company reported net unrealized depreciation of $7.2 million, and a net realized gain of $300,000. As of September 30, the Company's total outstanding debt equaled $256 million, including $2.5 million outstanding on a revolving credit facility.

The Company's debt-to-equity ratio, excluding SBIC debt, was 0.44 times. As of September 30, we had approximately $262 million of available capital under the revolving credit facility and in the SBIC subsidiary. That concludes my financial review, I'll now turn the call back over to Brook.

Thank you very much, Rick. Again, we're very pleased with the performance for our fiscal year ending 2013. This quarter and our fiscal 2014 are already off to a strong start. I'd again like to thank all of the shareholders for their continued support, and we can now open the call for questions.

(Operator Instructions)

Jonathan Bock, Wells Fargo Securities.

Good morning, and thank you for taking my questions. Brook, a few overall market questions first. Would you give us a sense of perhaps repayment activity in the fourth quarter to date, and whether you'd determine that to be elevated in areas of the lower middle market or not, considering you've got a pretty good view, now that we're only two or three weeks away?

I'm not going to comment specifically, but I feel comfortable saying that the quarter's off to a strong start, and we expect to continue to grow the portfolio at or above our average portfolio growth.

Okay. Now, how about a sense of both sponsored versus non-sponsored transactions, and which one you see to be one, the most active; and two, in terms of relative attractiveness, the one that generates the better risk-adjusted return?

Sure. During the quarter, we saw actually a significant increase in volume in deals in general. Our production was consistent with our prior quarters in terms of the nature, the source, and the yield. But as we canvass, we track very carefully the total volume that comes over the Medley platform, and volumes were up substantially. The increased volume generally related to the sponsor channel, so I think that is clearly a reflection of their activity.

But the dollar volume that was lost on price, both Medley participating and walking away at too low yield, other's I'm sure did it. That was one component that was up during the quarter. We also had a significant increase in the number of sponsors that they themselves lost on their purchase indications.

So that would tell you that most of the incremental volume versus our baseline volume was related to sponsors. It continues to be a competitive market, both on the credit-providing side, as well as I believe, for the sponsors themselves, as they look to secure high-quality investments.

In terms of pricing, we've seen stable yields over the quarter. If you look carefully at a yield matrix, we look at this both in terms of our volume, as well as that provided by our third-party valuation people and other market sources. The yields in the private middle market are stable to up. I think if you looked at any benchmark using high-yield or any other proxy, that obviously compressed during the period.

I will say I believe as you look at the market opportunity today, a team of 60 people with deep capacity to originate is a very differentiated platform versus those that are participating in syndicated or sponsor-only origination.

I couldn't agree more, and thank you for the color. Just a few more. I noticed a slight shift towards the first lien category or classification of loan, as opposed to what we've maybe seen in second lien or subordinated debt. Could you talk about that mix shift? Was it deliberate, or was it largely a function of what is being provided in the deal pipeline? How much of that is considered last-out financing?

None of that is considered last-out. These are true first lien. When we say first lien, we actually have a first lien. Second comment is, I would not read too much into the shift. Our first lien and floating rate was a very high percentage of this quarter's origination volume.

If we go back several quarters, we have indicated a desire to increase floating, and a target to increase first lien. It's substantially coming in the direct channel versus the sponsor channel. We intend to continue to increase the floating rate exposure, and we intend to continue to work hard to generate first-lien opportunities.

Maybe switching gears to a question that's extremely important to investors in the wake of spread compression, you mentioned the NII will cover the dividend. I noticed a little additional commentary -- please forgive me if I'm mischaracterized -- but in the event that originations effectively go according to plan, or something to that effect.

As I look at historical dividend coverage, particularly from cash flows, because there's a PIK component here, which no one's going to disagree with; because there's a PIK component here, as well as a substantive amount of fee income, walk us through what happens to the dividend in the event that originations subside, or fees decline.

I'll try to answer as many of those as I can, and we can circle back if I missed it. Our percentage of our portfolio that was PIK is down 100 basis points. We've told people that's declining. Our percentage of our income that is PIK, as I said, as a percent of total income is below -- at or below industry standards. There's nothing specific to the Medley portfolio, and our PIK interest is declining.

It's a consistent part of the portfolio. PIK is a first-lien obligation where we have a first lien. It's not a fee. It's not hard to get, we've done it for years. It's just additional yield that you're seeing in our enhanced return on equity. I would say it's declining, it's under control, it's part of our business, and we're below average in terms of the industry.

Now the color on origination for the quarter is -- I believe I said the same thing as I've said the last few quarters. Clearly we have to execute to drive the growth of the portfolio. We have done that over three full years now, and we intend to continue to do that. I don't see any reason why we'll not be able to.

The fee piece this quarter was higher-than-expected pre-payment. If you look carefully at the pre-payment fees, they were about 32% of our fee income. That's high. It's expected. We have a natural role. We make loans to good companies, they prepay you. You've done hard work, you have fees, they give it to you, and you redeploy the capital. It's a natural business role.

If you look today at this quarter, you took the interest plus normal origination fees, we cover the dividend. What happens if we have no pre-payment fees, and hence we were still -- we had a lower NII this quarter. We have a higher yield, because the portfolio assets would actually be working for us.

As you get assets back, you must re-deploy them. This is the natural ebb and flow. We expect it to be additive but idiosyncratic as we go forward. The good news is you get capital to be able to re-deploy, and we see very high quality opportunities in our pipeline today. Did I miss anything?

No, you got it, and I can always circle back. Then the last industry -- or Company-specific relates to URT, or United Road Towing. I noticed you put an additional $5 million in, and there was perhaps an increase in a small amount of PIK, which we understand.

Can you walk us through the reason -- one, put more money into that, as well as your first lien, I'd imagine -- or at least I have to go back and look. What's ahead of you in the event that there is a problem with that specific credit?

Sure, I commented on URT. Over the period, the mark increased 4.5%. That's a reflection of a couple of things: one, de-leveraging at the Company, they're selling non-core assets and de-levering; and stable performance, 2013 EBITDA approximately at $10 million. This is a stable Company that had, as we talked about in a prior call, a shortfall in performance. But it has stabilized.

As part of the effort, the sponsor and Medley combined put capital in. We provided liquidity and support. We received a fee. Part of that increase in the effectively back-end payment for us was an additional fee.

Here's an example of having boots on the ground, complete control of a credit that's now stabilized, driving excess fees in return for shareholders. We expect a resolution on this sometime in the first half or in the middle of 2014. Does that answer the question, Jonathan?

That does. Guys, thank you very much.

Thank you.

Mickey Schleien, Lindbergh.

Good morning, Brook and Rick. Thanks for taking my question. Jonathan asked most of the questions that I had in mind, but I just wanted to follow up on return of capital. There was $2.9 million per the 10-K for fiscal 2013. Is that due to different tax treatment for PIK, or is something else going on there?

Sure, thanks. Mickey, that's really a function of the issuances during the year, and some of those new shares participating in that respective quarterly dividend.

Okay. My second question is do you see any scope to reduce the credit facility's interest rate or commitment fee, given the growth in the asset base?

It's a very good question. It's on our mind, and if you'd like to call the credit providers with me, I'd be happy to have your support.

No problem. I'd be happy to do it.

Thanks, Mickey.

Thank you.

Greg Mason, KBW.

Great, thank you. One quick modeling question. On the fee income, was a big driver. I think your comments were that pre-payment fees were about 32% of the income. Then you also mentioned you had a fee from the URT re-working. Can you talk about how much that was, just so we can kind of get a base fee-income number versus the one-time items?

Let me get back to you. I don't have the exact numbers in front of me, but a large portion -- if I remember correctly, it was about $400,000 that was a fee, and then approximately $1 million is a deferred fee that is back-ended.

We didn't fund it, but it's owed to us at maturity. We expect, at this point in this, I think you can tell from the mark on the position, there's a very reasonable expectation that fee is now collectible, with a target of 2014.

Great. Then all of your new investments this quarter were floating rate. What is the average LIBOR floor that you're seeing on those new investments, and just new investments in the pipeline in general?

It still remains in our market. This is now giving you some color. I can come back to you with a specific number, but it's approximately 1% to 1.5% in some cases. We're still seeing floors, and certainly no less than 1%.

Great. On the SBIC, to put in the additional $25 million of regulatory capital, can you do that at any time, or do you have to wait until you utilize the full $100 million you have approval for, and then do that?

We can do it at any time. I do just want to just reiterate that we have a plan to deploy that SBIC capital in aggregate on a steady and consistent manner. There's two reasons. One, I'm trying to source and select the appropriate assets from our origination pipeline.

Two, we, like all SBIC managers, have to indicate -- I wouldn't say stick to, but did have the intention to stick to a multi-year plan that has been laid out in the advance to the SBA.

I would expect to continue to see us deliver that -- deploy that capital, and then you could model an injection of equity capital that would go in at about the time it was needed. Does that make sense?

Yes, great. Then one additional question. To the extent that you can talk about Exide, I believe it is in bankruptcy right now. The mark went up pretty nicely though in the quarter. Can you give us any updates there?

Sure. Give me one second, and I'll give you my -- during the period I think the mark went up to 72. It's trading higher right now. The mark on that position is quoted in the market.

Okay.

What happened over the quarter, a couple of things, in our estimation. They settled an existing settlement on the clean-up was less than expected in California, and there was a significantly lower draw on the dip.

If you look at the economics of the Company, the sales are tracking, and we're looking at a budget north of $100 million of EBITDA for fiscal 2014. Our estimate for recoveries was mid, perhaps mid-to-high $80 millions. Even at today's mark, that position still looks to generate a 20% IRR for us.

Great. I appreciate it.

Casey Alexander, Gilford Securities.

Hi, good morning, and thanks for taking my question. I'm a little curious about the originations, and sort of the way they are presented in the presentation materials. I mean, they're floating-rate but with yields that average in the mid-13%s.

There's a line in there that these are yields to maturity, utilizing industry-standard forward LIBOR curve assumptions. What's the difference between the yield to maturity, and sort of the out-of-the-box yield on these deals?

I think what we've said as you see in the footnotes; we're using the current forward curve for LIBOR. At some point, if you look at yield to maturity, either look at the swapped fixed-rate equivalent for floating-rate assets, or use the forward curve. It happens to be a mathematical axiom that the forwards on accumulative basis equal the swap rate.

So I think if you use that as the swap rate equivalent, or the forward curve, it would give you a snapshot today of what the total return for the position would be if LIBOR followed the forward curve. I will say our observation is that it typically does not. We just don't know which way it's going to not follow it.

Okay. Secondly, within your peer group, Medley seems to have pretty much the lowest percentage of equity participation of any BDC out there. What's -- what do you get back for taking such minimal equity representation in the deals that you doing?

Stability and consistency. I think the other comment I'll make is we're debt guys. We're not equity guys. We get -- we do get upside, we get participation features, we take them; but we really view ourselves as credit providers. The whole team goes to work every day with the objective of to invest $1 and try to get back $1.50 or $1.60 over the life of a three-to-four-year asset.

So the mindset is tuned towards deploying capital safely, getting it back in a consistent manner. That's not consistent with having an opinion on the equity upside of a situation. So I think you should expect to continue to see that. If people want a pure play on senior credit in the middle market, we're happy to provide that.

Okay, great. Thanks for taking my questions.

Thanks, Casey.

Chris York, JMP Securities.

Good morning. Most of my questions have been asked, but I did want to follow up on Jonathan's question. Could you quantify the split between sponsored investments and non-sponsored investments during the quarter? What was the yield differences between those two types of credits?

I'm not going to quantify the difference. I will tell you that we've observed consistently now in the past year, 200 basis points or greater differential in deals that are direct to borrowers.

Okay, so you're just not going to release that information?

That's right.

Okay. Fair enough. All right, thanks.

Andrew Kerai, National Securities.

Hi, good morning. Thank you for taking my question, and congrats on a good quarter. Again, most of mine have also been asked and answered. Just had a quick question here from a capital planning standpoint.

You're sitting currently with your debt-to-equity ex the SBA borrowings of about 0.44 X. You just did the capital raise obviously in September. You'd have $120 million or so roughly of dry powder if you get to $75 million of regulatory capital in the SBIC sub.

Can we -- is it fair to assume probably an equity raise is probably something that would be relatively low in your means of funding until you get closer to that 0.6, 0.65 targeted debt-to-equity range?

Sorry, Andrew I'm not sure I understand the question. Could you just ask that again?

Yes. Basically, just kind of looking at where your leverage is now, and the fact that you have so much in dry powder in the SBIC sub. Is an equity raise something we can consider more or less off the table until you get to that 0.6 to 0.65 X or so targeted debt-to-equity level?

I see. I think I understand the question. Let me answer it in two parts. First, we're not going to comment on issuance. We've told folks generally, and we intend to stick with it, that we're going to fully lever in the balance sheet, drive return on equity, and not issue below book. We're not changing our tack on any of these measures.

Sure.

In terms of capital availability, you had the numbers correct. We ended the quarter at 0.44 times. As we invest capital, that goes up. We expect it to drive that back up to 0.6 to 0.7, for sure.

The SBI subsidiary, as I mentioned to Greg during his comment, it would be appropriate to model a steady and consistent take-down of both the debt and then the injection of the equity.

The two factors there are originating the correct asset, as well as meeting our plan that we laid out, and I believe is appropriate for all SBIC managers. That is to say, invest the capital, like we do at the whole business, in a very steady and consistent manner over time.

Certainly. Thank you for the color. I think you had given guidance previously at about 70% of or so of your originations are SBIC-funding eligible. Is that number still approximately correct?

Yes.

Okay, great. Thanks for the color, guys, and congrats again on the good quarter.

Thanks very much.

Douglas Harter, Credit Suisse.

Thanks. Just following up on an earlier question, can you view how you view the trade-off of the lower day-one yield from the floating rate, versus the potential benefits, if and when rates rise?

Sure. Doug, are you asking could we get higher yields if we were fixed-rate versus floating, today?

Yes. That, and how you would view the trade-off, and what that differential would need to be for you to find the floating rate more attractive like you are today?

Sure. Well, our overall comment is that our sector, and I think specifically Medley Capital Corp. should not be viewed as an interest-rate play. We're balanced in terms of our portfolio fixed floating.

If you rewind to the beginning of 2011, we were a little lonely in suggesting that being fixed-rate made sense, given our view on the economy deflation. We said over a year ago that we saw performance increasing in the economy. That also was a lonely view 12 to 18 months ago.

We continue to feel like the economy is stable. We're seeing mid-single-digit revenue and EBITDA in our middle-market sector. That's trending obviously above GDP. Our view is the economy was stabilizing, and then doing okay, and that's been a view we've held for a year.

The intention to go to floating rate is that our view, like most, is the asymmetry that favors rising rates versus falling is starting to become more favorable. So I think you should expect migration. I believe we went from about 45% floating to 53%, or maybe my numbers are wrong. The portfolio percentage is growing, but it's not jumping off the page.

We're also focused on over time, as we've said, terming out the liabilities. That combination of the baby bonds, as well as the SBIC, which will be fixed rate, terming the liabilities out. So the portfolio is positioned relatively balanced manner. If anything, slight positive to the LIBOR reset. That some indication is in the K, that gives you a framework for the effect on net investment income.

The final comment, coming back to interest-rate sensitivity. If you look at a portfolio like ours, which has an average life of say 3.5 years. These assets are not terribly sensitive to rates, and the role in the book would effectively allow us over a very reasonable period of time to re-deploy capital at higher yields.

So this is not a significant issue, fixed versus floating. It's not going to have a dramatic effect on NII, we don't believe. But we are positioning it for a sort of short- to medium-term reasonable expectation of the fed taking the curve back. Did that answer the question?

It does, thank you.

Okay, thanks.

J.P. Rogers, Janney Capital Markets.

Thanks for taking my question. Brook, I saw a slight up-tick in three- and four-rated credits. Is this due to credit migration, or is it just a function of fair-value marks on pre-existing three- and four-rated credits?

I think it really -- it's just fair-value marks. I mean, the big part of that four was Exide. I don't think -- there's been no change. If anything, I'd say the portfolio is stable, and the slight increase is NAV reflects a flat to slightly positive overall credit.

Okay, great. More generally, I was wondering if you could talk about where you think we are in the credit cycle, maybe the broader economic cycle. It seems like, at least with new investments we can pull out of your scheduled investments, it seems like they appear to be more pro-cyclical. I want to get a sense of what kind of risks you guys are looking to take, and think are reasonable at this point in the credit cycle?

Sure. Our view is that we're in middle innings, and it's a very favorable environment to provide credit. There's a couple of factors. Asset valuations are still coming back to the pre-Great Recession levels. Our loan-to-value, our advance rates, are consistent.

I think it's fair to say that yields were higher and risk was lower two years ago. But in the context of high yield and other very liquid credit indices tightening to historical tights, we still have excess return here, and we think taking very sensible risks.

As I mentioned, we canvass not only our portfolio but also our pipeline, and the financials of the borrowers we're looking at. Revenue and EBITDA tracking ahead of GDP is a positive sign.

Anecdotally, we do feel confident in obviously all of the borrowers we're committing capital to. We're also seeing activity in terms of deploying capital, adding plant and equipment, and doing acquisition on the small scale, which would, we hope, indicate an increase in confidence. At some point the GDP will reflect that, we believe.

We -- if you look at the availability of cash, the high-quality balance sheets we have in the US borrowing community, and the overall level of returns, we feel like it's really a very good time to be a capital provider on the credit side.

Thanks. On new investments, what is generally the LTV -- maybe not any specific investments you made in the quarter, but just wondering what market is right now?

I don't have the exact number, but we are sticking to our historical average of lending at or below 60% loan-to-value. If you looked at a hard asset valuation, one of the deals comes to mind was 57% loan-to-value.

I think from a lending capacity, if you put a pin in 3.5 to 4 times EBITDA through Medley debt, that same 60% loan-to-value, you would have to be persuaded that the market was trading at 6, 6.5 times EBITDA or higher.

At the going-in purchase price on the average acquisition we're seeing today, as well as third-party independent firm-value valuations, which we see every quarter on many companies, the going-in debt-to-EBITDA would also be consistent with an at-or-below 60% loan-to-value, at a going-in number. Does that make sense?

Yes. I think you're saying the 6 to 6.5 times purchase number, but it seems like middle-market purchases, at least from the anecdotal evidence we see, is that it's more in the eight to nine times?

Sure. Well, I'd say you'd have to be persuaded that enterprise values were at least 6 to 6.5 if you're looking at a 60% loan-to-value. I agree with your statement that today as we sit here, the average multiple clearly is higher.

So if we're at four times and the multiples are eight, we're at a 50% loan-to-value, which again gets back to my point. We're at or below 60% loan-to-value, and that's consistent with our historical multi-year origination track.

Yours is somewhere in the four to five times debt to EBITDA?

No, I'd say somewhere four or below, three and a half to four.

Okay.

Just because multiples go up to eight times doesn't mean you have to lend five times. We're going to stick with our -- there's an absolute level of debt to EBITDA, and then there's also the percentage of the enterprise value.

If anything, ironically, we would try to pull back, and we might see lower loan-to-values, even though multiples are expanding. That's a reflection of holding debt to EBITDA at -- with some sense of a cap from a portfolio perspective.

Okay. These are on new investments, or the existing portfolio?

New investments.

Okay, great.

Jonathan Bock, Wells Fargo Securities.

Hi. One last follow-up, and thank you. The percentage of sponsored deals perhaps is elevated. Brook, can you give us a sense of the percentage, or the general break-down of what you would consider sole-sourced syndicated credit, versus your participation amongst a club of other smaller, middle-market lenders?

Sure. I think on a portfolio basis today it's still 60%, 65% direct. We have seen elevated volumes, and I'll give you an example. Over the last quarter, as I mentioned, our historical -- between $1 billion and $1.3 billion of total volume that we review, this past quarter it was $1.9 billion. If you look at the total volumes, you would clearly see an increase in sponsor activity.

We're still driving a core pipeline of opportunities in our market, so that $1 billion to $1.3 billion would be consistent when the excess volume comes, we believe, from the sponsor. It's too early to predict a secular shift, although I think everyone is aware that the active sponsors have been active. We'll see if that continues through this quarter. We have seen them active this quarter and into 2014.

It's too early to call a shift, but I will comment only that we're still seeing high-quality borrowers that are growing, not all of whom want to sell their company to a sponsor. That's our target, is the high-quality company that sees Medley as a viable alternative to selling their company. That volume will continue to be part of our new origination, as well as the existing portfolio.

Thank you very much.

This concludes our question-and-answer session. I will now turn the call back to Mr. Brook Taube for final remarks.

Well, thank you again everybody for your continued support. From the entire team at Medley, I would like to wish everybody a happy and healthy holiday season. We'll talk to you in February. Have a good holiday.

This concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day.