PhenixFIN Corp (PFX) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Medley Capital Corporation's second-quarter fiscal 2014 financial results conference call. Today's call is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator Instructions). This conference call may contain statements that, to the extent they are not representations of historical facts, 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 second-quarter 2014 investor presentation is available in the Investor Relations section of the Company's website, www.medleycapitalcorp.com.

I would now turn the call over to the Company's Chief Executive Officer, Mr. Brook Taube. Please proceed, sir.

Thank you very much, and welcome, everybody, to the Medley Capital Corporation's quarterly earnings call. We appreciate you taking the time to join us this morning.

As usual, a quick agenda. First, we will talk about our recently declared $0.37 dividend for the quarter ending March 31. Second, we will provide an update on originations in the portfolio, including a review of the activity for the quarter and our current outlook. Third, we will provide an update on our SBIC activity, and discuss liquidity and capital availability for new investments. And finally, we will review the financial results for the quarter ending in March.

On the dividend on May 1, the Board of Directors declared a dividend of $0.37 per share for the quarter ending 3/31. The dividend will be payable on June 13 to shareholders of record of May 28th. 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 are able to deploy capital as planned.

On the origination front this quarter, we originated $170 million in eight new investments and six existing investments, and we received amortizations and repayments of $29.8 million, resulting in net portfolio growth of $140.9 million. We are very pleased with the volume this quarter, and I would like to acknowledge the entire medley investment team for their efforts. These origination results are the largest quarterly gross and net originations since our IPO.

Pricing on nonsponsored investments remains stable, and we continue to find attractive risk-adjusted returns in the market. Our deal flow remains strong, and we expect to deploy the recent equity capital raised in a steady and consistent manner. Our portfolio, which consists primarily of senior secured loans, remains stable and well-diversified. We currently have 69 portfolio companies across 26 industries. Our expectation is that we will continue to diversify as we grow the overall size of the portfolio. And, as I've mentioned on our prior call, we intend to increase the floating rate portion of the portfolio.

During the past quarter, 72% of our origination volume was floating rate and we expect to increase that as the portfolio grows in the quarters ahead. As of the March 31 break, the percentage of the portfolio that was invested in floating and fixed rate assets were 63% and 37%, respectively. And overall, the credit quality of the portfolio remains stable.

Turning now to the SBIC. As of March 31, the subsidiary had $87 million invested in eight portfolio companies, with an average size of $10.9 million and $44 million of SBIC leverage drawn. A large portion of the pipeline qualifies for the SBIC. And we continue to draw -- or expect to continue to draw further SBIC leverage in the quarters ahead. As I have communicated on prior calls, we may, in the future, increase our regulatory capital at the SBIC subsidiary to a total of $75 million -- that's an increase of $25 million. That would allow us to borrow an incremental $50 million, bringing total leverage to $150 million for the SBIC subsidiary.

As of today, our liquidity for new investments, including the proceeds from our recent equity offerings, is approximately $220 million. And this includes $56 million of undrawn SBIC leverage.

I'd like now to turn the call over to Rick Allorto, our Chief Financial Officer, to review the results for the quarter.

Thank you, Brook. For the three months ended March 31, the Company's net investment income and net income were $16.6 million and $12.4 million, or $0.38 per share and $0.28 per share, respectively. The net asset value per share was $12.69 at March 31, compared to $12.68 at December 31. For the quarter, total investment income was $31.4 million, and was comprised of $26 million of interest income and $5.4 million of fee income.

Total operating expenses were $14.8 million, and consisted of $8.2 million in base and incentive management fees; $4.6 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 appreciation of $4.1 million and a net realized gain from investment of $28,000.

As of March 31, the Company's total debt outstanding equaled $404 million, including $136 million outstanding on the revolving credit facility; $120 million term loan payable; $103.5 million in notes payable; and $44 million of SBA debentures. The Company's debt to equity ratio, excluding the SBIC debt, was 0.6 times. As of today, our liquidity for new investments, including the proceeds from our recent equity offering, is approximately $220 million. And this includes $56 million of undrawn SBIC leverage.

That concludes my financial review. I will now turn the call back over to Brook.

Thanks, Rick. Again, we are very pleased with the performance in our second quarter for fiscal 2014. The team remains 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. I'd like to thank all the shareholders for their continued support. And we can now open the call for questions.

(Operator Instructions). Mickey Schleien, Ladenburg.

Good morning, Brook. I wanted to start with Revstone Aero. I noticed that you lowered the interest rate on that loan and it matured last November. Could you give us an update on the status of that loan?

Sure. We -- the business is stable. We are supporting the company in an active sale process, and we'll have more to report in the quarters ahead.

Okay. You had, as you mentioned, record net portfolio growth, driven by very significant originations. Were they relatively even distributed over the quarter?

Sorry, Mickey. I'm not sure I understand the question.

Were your originations relatively evenly distributed over the quarter?

In terms of timing and when we were --? I actually can't comment on that.

Okay.

I don't have the information. I'll get back to you.

That's fine. I noticed you have a high weighting now in the oil and gas industry, almost a 10% weighting. Can you tell me what the investment thesis is underlying that allocation?

Sure. That hasn't changed. We've been active in the sector. There's a lot of activity; I would characterize 10% as a target for any given sector. The capital needs are high. We are seeing solid deal flow, and the investment opportunities are attractive.

Okay. A couple more questions. Can you tell me what types of rates that merchant cash in capital charges their customers? And what levels of loan losses do you assume for their loan portfolio in your investment thesis for that company?

I can't comment on theirs specific. Our loans -- obviously, we are making a senior loan to the company, so we are advanced as a -- advanced rate structure against their receivables. The company has had very consistent and stable growth, and stable performance on their underlying portfolio.

Okay. I calculated a weighted average yield on your new investments of 11.3%, which is quite a bit below the portfolio's total weigh. Could you talk about the quality of the deal flow in the quarter with respect to the breakdown between refinancing, dividend recap, M&A, growth capital, et cetera?

I don't have it. There was no unique focus here. I would say the portfolio was consistently across the origination sources. This is direct sponsor as well as use of proceeds. I think 11.3% is the coupon that you've calculated, the effective yield, if you comp that to our kind of 13%-and-change portfolio yield, it would be consistent -- it's slightly below. So not significantly below, the stated portfolio yield to maturity, although your coupon -- I think your coupon is about right.

I will point out that 88% of the volume was first lien this quarter. And I think we've stated publicly that we intend to increase the floating rate, and there's an increase in the first lien exposure on the margin.

Okay, Brook. I understand. And lastly, just any update on Callaway and Exide?

Yes. On Callaway, we continue to monitor sample volume increases. The team is focused and we remain supportive of the company. Exide, as you know, is public; I don't have any particular color, although there's been some volatility, obviously, over the last few quarters regarding recent developments and the various announcements that the company has made publicly.

Thanks for your time this morning.

Thanks, Mickey.

Andrew Kerai, National Securities Corporation.

Good morning and thank you for taking my questions. Just wanted to, Brook, if I could, just chat about the SBIC debt, is my first question. So, you guys were at $44 million again, sort of quarter-over-quarter. I know that you had kind of guided previously utilizing about $25 million or so of the SBIC debt, kind of on a quarterly basis. Kind of with $56 million left here, I mean, is there a reasonable expectation that you can probably draw that down within maybe the next two to three quarters, as 2014 kind of moves along here?

Sure. We did make an investment in the quarter for SBIC. We actually just received the paydown, which was a good result. We continue to invest in the subsidiary this quarter. I think if you looked at an average production for us over the calendar year, I don't expect us to be off on a rolling basis any specific quarter with a paydown or the timing of a closed deal. I wouldn't read too much into it. We expect to use the facility and we will continue on that pace.

Great. No. Thank you. That's certainly helpful. And then if we could just kind of go back to sort of where you're seeing the relative value in the sponsor versus the direct originations, I certainly appreciate the color that you're seeing -- you know, stable yields kind of within the nonsponsored market.

As you guys kind of think about growing the book here, are you still kind of thinking two-thirds nonsponsored kind of where you've been traditionally? Or has that changed at all, as 2014 has sort of moved along so far?

You know, it's difficult to predict, I think, what the future will hold. You should expect us to continue to focus on direct originations. 100% of our volume was direct this period. And I would characterize it to clarify that we are not participating in any loans. Those are all medley-originated deals. I don't have a specific sponsor/nonsponsor for the quarter, but sponsors at any given quarter might be more than 50% and sometimes they are less.

Interestingly, we've seen -- we still see yield compression in the market. I think we are seeing that across the board. We have been able to produce -- as I mentioned, the portfolio origination was at or near the portfolio average this quarter. So, nothing material, not a material change. I think most of that origination, the lower yield on the margin versus the average was related to the first lien mix this quarter.

So it will be interesting, I think, to watch here with some of the volatility in the markets as to whether this is the annual or every-18-month kind of risk off-market where we see yields come back to us. So, some of the market vol and the risk op that we see pretty frequently ends up driving higher yield. I'm not predicting that, but we are going to watch carefully here.

We raised capital and we feel very good about our pipeline that was right in front of us. And that's the reason we raised. So, I'd say as we look here today, it remains an attractive opportunity to be providing senior secured credit in the market.

Great. No. Thank you. That certainly makes sense. And then just a couple of loans that you guys wrote down a little bit in the quarter, a couple of your larger positions. In United Road Towing, looks like you took about $2 million or so of fair value marks on that one. And then the Water Capital as well, too -- about another $1 million of fair value write-downs.

Just was hoping, given that those are two of your larger positions, if you could just maybe provide a little bit more color on what you saw in the quarter, and why you decided to take down the fair value marks a little bit?

Sure. Well, as you know, all of our valuation enterprise values are done by third parties. So, there have been some general overall shift in yield matrix by the third-party valuation folks. As characterized -- modest marks has not -- it's no specific color. With respect to URT, there's been a stabilization of the business at lower levels, and we're working with the sponsor and the company closely. And I have no color on Water Capital at this point.

Okay. Great. No. Thank you for taking my questions. Certainly appreciate the color.

Thanks, Andrew.

Troy Ward, KBW.

Hey, Brook, following up a little bit on what Mickey was talking about earlier on, origination activities and yields and things like that -- can you just kind of talk about how you're seeing greater origination volume? I think in calendar year 2012, your average quarterly originations were $90 million, and then in 2013, $130 million. And now we are up to $170 million in just this first quarter. And you've raised equity. So, clearly, I think we're going to continue at a higher origination pace. How do we combine the thought process of what we see as a very competitive market to where your originations continue to increase quarter-over-quarter?

Sure. Well, thanks for the question, Troy. If we rewind in the IPO over three years ago, I think the message we delivered -- we are right on our plan every quarter. So if you marched on the expected ramp, this is the size we said. And I've said in prior quarters, we expect to double from here. So in terms of our plan, target size origination volume is exactly on the plan that we laid out and what we are executing.

I'm going to reiterate a point I believe I've made, which is, we have a private fund that was investing, that's come to the end of its investment period. So as that fund -- which we do co-invest with -- wound down, more volume became available to be invested at the BDC. So, obviously ramping a portfolio, you confront the issue of smaller deal sizes early for diversification. But we would've put a pin in 69 positions in this quarter, so it's very consistent.

If you look at the average portfolio of growth, and you graphed it, I think the only word you would see is consistency, although I do agree it has grown. We expect to continue on this steady and measured path. The market color I have is, if you stratified the market today by EBITDA, what you are witnessing and we are seeing is that the larger players -- these are people that are bigger than us -- have gotten bigger than us faster. So, in many ways, they are growing faster than we are growing, and they are going off a bigger base.

So, I think the migration up the market is leaving, in the wake, opportunities that we continue to find attractive. So, we've offered that we're going to raise capital when we are fully levered, and we're going to raise capital when we see an opportunity in the market. And we've met all of those measures over the last three years.

At what point does the competitive nature of the market, though, impact your anticipated growth trajectory? Right? I mean, if when you started the IPO, did you expect the yield to continue to come in? And at what point does that, as a lender, do you say, gosh, given where the market is and where yields are, I'm not going to grow as fast, because this isn't maybe the best time; I'm actually going to slow my growth in this environment, and maybe re-ramp it later on?

Yes, I think that's a good question. If and when we feel that's the time, I will communicate that to you. As we sit here today with mid-single-digit revenue and mid-single-digit EBITDA growth, and high-quality uses of capital, our observation in this market is that it's an attractive time to be deploying capital and earning returns.

Okay. And then one other one. You commented you expect to increase the mix of floating rate assets. And I think you said the current mix was 63% to 37% fixed to floating. Can you kind of give us where you expect that kind of mix to end up?

And then, secondarily, what channel do you typically source floating rate assets? And then, of course, I think it comes all back to yield again; do you think floating rate assets typically would have a lower overall yield than a fixed rate assets?

Yes. I think, on balance, we've seen -- we'll see slightly lower floating than fixed. We are seeing attractive opportunities today. I think we're going to increase it. It would be hard for us to get the whole book, at this point, to offloading. But as a steady margin, if I remember correctly, we are kind of adding 3 points, four points a quarter. So we'll keep that march up. Obviously, the percentage growth at a constant or a fixed origination volume, it gets harder to increase the percentage on the portfolio.

But I think you put a pin in over 70% as a target, and there's no particular difference in the sourcing for fixed or floating, meaning a sector or a specific type of deal. It's very idiosyncratic today in the market in terms of where the fixed rate requests are coming from.

Okay. And then one final one. Given the last capital raise, kind of the cost of that equity, which, of course, is the dividend yield, where do you think kind of the breakeven point is to be able to have to invest that capital with leverage, in order it to be accretive for shareholders?

I don't have the number for you. I mean, our view with our SBIC availability, as well as our broadening and expanding credit capacity that we will need to access, which we would expect, although can't commit to, we would expect that lower cost. But the capital is going to be positive for shareholders, both from a growth of the portfolio, diversification of the portfolio, and then ability to continue to grow the business and remain relevant in the market.

Great. Thanks, guys.

Thanks.

John Hecht, Stephens.

Thanks for taking my questions. First one -- I apologize; I think you did give some of this information in the call on the prepared notes, but I wasn't able to write fast enough. For the fee income, can you break down origination versus prepayment fees, or what the balance was?

Sure, John. The total fee was $5.3 million. The breakdown is detailed out in the footnotes on the Q -- the 10-Q, for you.

I will refer to that, then. Second question is -- and I know these are volatile, but prepayments slowed this quarter from the last two quarters. Brook, I'm wondering if you can characterize kind of your perspective on what's going on with respect to prepayment trends, if there is any change or if you just expect it to be volatile and uncertain?

And the second is, can you tell us what your scheduled amortization is in your portfolio?

Okay. I'll go in reverse order. As I said on the last call, prepayments are difficult to predict. I don't think you can -- it's not interface-sensitive and it doesn't typically trade with kind of overall levered loan volumes. Our business is direct-to-borrowers that tend to be smaller, obviously, than the broadly syndicated, so they are not as geared up to go back to the market to save 25 basis points.

So, I would say volatile is probably the right word but not a negative characterization. We put a pin in somewhere between 10% and 15% of kind of expected early prepayments on the portfolio basis, if you looked at kind of a static over-the-life pool. Obviously, it can be more and sometimes it's less. But it's not a big concern of ours, although, in any given quarter, we can get capital back.

In terms of the schedule prepayments, you mean -- for what window of time are you working on, John?

I guess just given the portfolio term, what would be the average amount of amortization in a quarter?

Yes. I mean, if you kind of look at a scheduled amortization, you're probably $25 million to $30 million, so call it $100 million. And in a portfolio of $1 billion, that's kind of 10%. It's usually a little bit more. So it kind of hops around. That's, I would say, on an average. I don't want to get too specific, because it will just be a little bit volatile. But we do look carefully, on a forward basis, that we don't have any specific quarters or even rolling periods that have amortizations that are stacked up significantly.

Okay, appreciate that. And final question. Fully understand the focus on adding floating rate instruments in the portfolio, given the interest rate cycle here. But with an SBIC, it gives you a little more flexibility. I mean, it's a long-term fixed rate debt. You can put second lien and mezzanine in there. I'm just wondering if you can comment on -- it creates some flexibility, and your pipeline right now is all floating rate. I'm just wondering if you could comment on how you -- if you intend to take advantage of that flexibility, if you're more just interested in balancing a floating fixed rate mix, and you don't -- because the SBIC is giving you that ability to change your pattern?

Sure. No, it's a good question. We don't look at the SBIC as a financing subsidiary. It's a specific vehicle that's criteria that we need to meet for the SBA. And we take that specific vehicle seriously. We expect to continue to work with the SBA in growing that relationship.

In terms of fixed rate liabilities, does it make sense to have them? I think our answer is yes. And you would expect, over time, to perhaps see us make obviously use of the fixed rate SBIC and consider alternatives on the fixed rate liability side.

Okay. Appreciate that.

Casey Alexander, Gilford Securities.

Thanks for taking my questions. I think you just touched -- just barely on one of my questions, which you've taken a real measured approach to the SBIC. And as you say, there are certain requirements for deals to go in there, and yet your pipeline is really strong. But given your recent capital raise, would you be thinking about taking advantage of securitizing more debt capital on the sort of other side of the balance sheet? And if so, is there a point in time where potentially acquiring an investment grade rating is important to Medley?

Sure. Well, I think I answered the -- would we look at more fixed rate debt? The answer is yes. There's no specific guidance, but obviously, that market is available and it's sensible to consider. In terms of our SBIC, we have a pipeline that's active. And I don't have any other color to say, other than a lot of our -- a significant portion of our pipeline does typically qualify.

And what was the other question, Casey?

Well, is, at some point in time, acquiring an investment grade rating for the debt capital that Medley issues, an important consideration for management?

Sure. It's a good question. You know, our observation is that you needed to have three-plus years of operating history under your belt. We've completed that. So we are kind of in a good position now to pursue that. I would expect that is important. We're going to consider it.

And I will make one observation that I don't believe that our fixed rate liabilities are significantly wide to where we would expect them to price, were we to have an investment grade rating. It would be some amount but not dramatic. But the short answer is yes, that is going to be important us.

Okay. And lastly, you had one portfolio company that had a maturity of just a few days ago, Dreamfinder. Did that extend? Did you -- or did it just pay off? What was the ultimate result of that certain position?

Yes, they paid off that maturity.

Okay. All right, great. Thank you for taking my questions.

Thanks, Casey.

Greg Nelson, Wells Fargo.

Thanks so much for taking my questions. Just looking at some of the originations you did during the quarter, you put some good-looking deals on the books, and first lien loans at attractive rates. I'm just looking for some color on how you guys are able to do this. Is it a function of direct originations to smaller borrowers? Or are you selling any positions ahead of you with higher priority? And maybe run us through an example of the loans you're making.

Sure. There's no material difference in how we do it. Our origination channels, I think, are not proprietary. We do focus on sponsors, and there are certain situations where we can add value and even be in the first lien for the sponsor.

The second is intermediaries. These are people in the market who are either sector-focused or smaller. They would be called investment banks if they were much larger. But they are sourcing interesting opportunities. Those are typically not related to a private equity sponsor -- so a high-quality borrower that's looking for growth capital that has decided that they don't necessarily want to sell a piece of their business to an equity sponsor.

And then the third is repeat and referral. These are either relationships we have, prior borrowers, or referrals from prior borrowers. There's been no shift in our approach, I don't have the breakdown by those three channels, but we touch them all every quarter from a volume perspective.

The broader wider yield -- and we've said consistently that going direct -- meaning doing the work on a direct loan, as opposed to being in an auction with a sponsor deal, generally provides at least a couple-hundred basis points of incremental yield. And our view remains that it's partially for the hard work, partially for the fact that there is no sponsor, partially for the fact that there is a perceived lack or less liquidity, if you will, in that business.

And that hard work, you know, you need to have a big team. Our team is now 63 people and growing. So, there is a premium for doing the work from start to finish on the direct loan side.

Yes. That's great. And then just on the fees this quarter. Obviously, I think fees were pretty heavily concentrated towards originations, and then a little bit of amendment fees. Obviously, the origination fees are enabled by being able to use liquidity and access to capital markets, with equity like you guys did in the quarter and earlier this quarter. Could you run us through a scenario where you guys aren't able to access capital in equity markets, and what that means for NOI and the dividend?

I'm not sure I understand the question. What does the future look like if what happens?

What I was kind of getting at is that the originations during the quarter drove higher origination fees while prepayment fees subsided. If you guys weren't -- aren't able to access the markets that trade below NAV, and you aren't able to issue equity to drive those origination fees, could you, like, run us through a scenario of what would happen with NOI and the dividend?

Yes. I mean, I'm not in a position to comment on what the Board policies in the future will be with respect to dividends. What I've stated publicly is that our strategy, our plan is to set a dividend policy that we expect to be able to meet or exceed with our NII. To the extent that there is origination volumes come down, and/or we are out on the market, it would have an effect on NII. If you look over the prior average quarters, obviously, our NII exceeds our dividend.

So our approach to the business -- which is not necessarily a science, it's more of a strategy of looking forward -- is to say we recommend to the Board a dividend policy that we expect to be able to meet, based upon the average production in the future. There are a couple things that, if the markets didn't give us access to capital, that we still have the opportunity to do -- one is, obviously, use capital from the SBIC. That's going to be valuable. As well, there's a portion of our portfolio that we've said that it's in, I would say, more liquid positions. And we are constantly looking at whether those can be rolled into, on balance, higher-yielding direct originations.

So, we look at it carefully. The future holds, too, that there is going to be continued -- we're looking at our credit and our liability side. So if you looked at cost structure, access to capital, and then the existing portfolio, combined with the natural roll of the portfolio that I described, with some amortization and prepay, our expectation is that we are going to be able to deliver on our target returns.

Great. Thanks very much for taking my questions.

Thank you.

Terry Ma, Barclays.

Hey, thanks for taking my questions. Can you just give us a sense of that spread differential between your sponsored and nonsponsored investments, and how that's evolved over the last year? Maybe what you expect in this environment going forward?

Sure. I would say on balance, there remains a spread. At different times, it can be wider. It's been -- we tracked it pretty closely, so at times it can be as wide as 250 to 300 basis points. Now this is, again, an average, not any specific deal. On balance, it's tightened a little bit. Some of that, obviously, is going to relate to a shift in our mix to the floating rate. So some of the yield give-up that we're talking about is a risk reduction on balance because of the increase in the first lien.

I would be -- it would be a surprise to me if there was compression dramatically below a couple-hundred basis points. So, we've always seen a wider spread. And that's a -- that's what we're looking to capture in terms of the direct channel.

The other point that I think bears commenting on is that our observation -- and again, it's a portfolio observation, not necessarily a deal-specific one -- is that if you go direct and you control the documentation process, what's not seen in the thing called yield or even the name called first lien is the actual structure of a document -- covenants, legal structure, et cetera. And our view is that you get, on balance, better documents and better structure as well, on top of that wider spread. So the combination of having control of the process, control of the document, control of the situation, when something gets complex, combined with the wider spread, is the same story and the same significant opportunity that remains.

And the final comment I'll make is -- typically, in environments where overall yields are lower, that excess return in many ways is more valuable, which is maybe a market we're in right now. The extra return, even if it's slightly lower than it was three years ago, maybe more valuable when the broadly syndicated or regular weight deals are actually significantly tighter or even tighter relatively than they were three years ago as well.

Does that answer the question, Terry?

Oh, yes. That's great color. And on my second question, just looking at your first lien investments, close to 70% in the countries, I guess, under margin over the last year, is this indicative of some sort of steady-state mix? Or how should we think about that going forward?

Yes. I don't think we are talking about a dramatic shift. We've concentrated on it; we've said it, so I think you'd continue to see first and second. I don't think a dramatic shift, although I wouldn't see it going lower.

Okay. Got you. And I may have missed this earlier, but just given the recent equity raise, how fast can we expect sort to deploy the remaining SBA debt that you have?

Well, what we said, this quarter, the net increase in the debt was we didn't, because we had a repayment and a deal. We continue to invest capital now this quarter in the SBIC. What we've offered is the idea that we've put up $25 million a quarter in the SBIC on average. And I think if you look over the course of the year, I would not expect to be -- to deviate if you look backwards in that zip Code.

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

Okay. Thanks, Terry.

Christopher Nolan, MLV & Co.

Thanks for taking my questions. Two questions on Callaway Laboratories. First, because of the all-pick nature of the coupon, does the interest from the pick capitalize back onto the cost basis of the investments?

Yes.

And since the cost basis hasn't really changed from between this quarter and the prior quarter, shouldn't it have changed, as reflecting the pick income?

Yes, I think that's fair. There was a modest adjustment to the mark value. So I think the mark changed down modestly, and that probably compensated for some of the portion of the pick that would have accrued to the balance.

Great. My follow-up question, also on Callaway Labs -- as the credit matures in September 2014, about six months from now, what's the plan with -- do you plan just to let it mature? Or refinance? Or any comments on that, please?

We have a team that's been focused on this position. The sponsor is active. We remain supportive of the Company. And we are obviously aware of the maturity. And we are looking at what the right solution is for the company. We're active with it and supportive.

Okay. Thank you for taking my questions.

Thanks, Chris.

We have no further questions. I would now turn the call back over to management for closing remarks. Please proceed.

Great. Thank you, all, again for the time. We are pleased to report continued steady and measured growth, and another successful quarter for Medley Capital. We appreciate the time. We look forward to speaking with you on the next call. Thanks again.

This concludes today's conference. You may now disconnect. Have a great day.