PhenixFIN Corp (PFX) 2017 Q3 法說會逐字稿

Welcome, and thank you for joining the Medley Capital Corporation's Fiscal Third Quarter 2017 Conference Call. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Medley Capital Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited.

Audio replay of the call will be available by using the telephone numbers and PIN provided in the company's earnings press release. (Operator Instructions)

And now, I would like to introduce Sam Anderson, Medley's Head of Capital Markets and Risk Management, who will host this morning's conference call. Mr. Anderson, you may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us today for our Fiscal Third Quarter 2017 Earnings Conference Call. I'm joined today by Brook Taube, our CEO; Rick Allorto, our CFO; and Dean Crowe, our Head of Investing.

Before we begin, I want to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information.

Today's conference call may also include forward-looking statements and projections, which are subject to risks and uncertainties. Any statement other than any statement of historical fact may constitute a forward-looking statement. Please note that the company's actual results could differ materially from those expressed by any forward-looking statement for any reason such as those disclosed in our most recent filings with the SEC.

We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings and press release, please visit our website at www.medleycapitalcorp.com. In addition, our fiscal third quarter 2017 investor presentation is available in the Investor Relations section of the Events/Investor Presentation section of the company's website.

I would now like to turn the call over to Brook.

Thank you, Sam, and welcome, everyone, to Medley Capital Corporation's quarterly call. This morning we announced our financial results for the quarter ending June 30, and reported net investment income per share of $0.18 and net asset value per share of $8.84. As we announced in our press release, the Board of Directors approved a dividend of $0.16 per share for the quarter ended June 30, and this dividend will be paid on September 22 to shareholders of record on August 23.

Turning to the investing side of the business. During the period, we received net repayments of $43.6 million. This consisted of repayments on 6 direct loans and that was offset by origination of 4 new direct loans. We also deployed capital in support of existing portfolio investments.

We continue to focus our new origination on first lien floating rate loans in larger sponsor backed borrowers. Today, the loan portfolio remains diversified and consists of approximately 85% senior secured loans and that's across 60 portfolio companies and over 20 industries. In addition, we're well diversified geographically across the United States.

As of June 30, 7.7% of the portfolio was on non-accrual. We continue to work hard on our legacy positions that have been restructured, and over time, we have the opportunity to turn these investments into earning assets with potential equity appreciation. This may provide upside to both NII and NAV in the future.

Now I'd like to turn the call over to Rick Allorto, our Chief Financial Officer to quickly review the financial results.

Thank you, Brook. For the 3 months ended June 30, the company reported net investment income of $9.6 million or $0.18 per share and net income of $3 million or $0.06 per share. The net asset value per share was $8.84 at June 30 compared to $8.94 at March 31. For the quarter, total investment income was $23.7 million, and was comprised of $20.7 million of interest income, $1.9 million of fee income and $1.1 million of dividend income.

For the quarter, total operating expenses, net of management fee waivers, were $14.1 million, consisting of $4.4 million in net base management fees, $7.3 million in interest and financing expenses and $2.4 million in professional fees and administrative expenses.

For the quarter, the company reported net unrealized appreciation of $47.7 million and a net realized loss from investments of $55.1 million. As of June 30, the company's total debt outstanding equaled approximately $527 million, including $26 million outstanding on a revolving credit facility, $174 million of term loan payable, $177 million in notes payable and $150 million of SBA debentures. The company's debt-to-equity ratio, excluding SBIC debt, was 0.77x at June 30.

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

Thanks, Rick. We'd all like to thank you for your time today. We continue to make meaningful progress on our legacy portfolio names. The new origination is in high quality, senior secured floating rate loans that are backed by high-quality sponsors. The team remains hard at work on the portfolio and we're positioning the company for long-term success.

Operator, we can now open the line for questions.

(Operator Instructions) And we have a question from the line of Kyle Joseph with Jefferies.

On the investment activity in the quarter, I was just trying to get a little better sense for yields on the repayments as well as yields on new investments and kind of broader year outlook for the yield overall.

Kyle, it's Brook, sorry. Generally on the new investments, we're at first lien floating rate and these are trending towards larger borrowers. So you'd see these in the LIBOR plus 5%, 6%, 7%. We do still get floors in some cases although that's becoming more of a challenge along with other terms in deals. I'm going to quickly grab the information on the portfolio that rolled off, so I'm going to come back to you on the exact yield, but the expectation is that those were slightly higher. In terms of the market opportunity, what we're seeing I think would be consistent with what most people have said and are seeing, which is pressure due to competition on spread as well as increasingly -- increasing permissiveness on structure. At this point, we are still maintaining covenants in all of the deals, but at a high level, it's clearly becoming more aggressive in structure, and I think that's increasing as well even more so on the liquid side. I think as you're aware, our investment platform has expanded substantially. So we have a very significant view both on the smaller middle market, middle market and then broadly syndicated now. We're seeing a lot more tightening and permissiveness in the liquid markets than we are in the direct loans, but it is creeping in. I've just grabbed the number. It's about 11% all-in yield on the assets that repaid.

Got it. And then on the repayments, is that being driven mostly by refis, M&A or a combination of both?

A combination of both, Kyle.

Okay. And then just I haven't had time to go through the whole Q, but your non-accruals came down in the quarter. Can you kind of give us a sense for were some of those written off, were some of those sold, or are you seeing any recoveries in there?

Sure, Kyle. Our non-accruals decreased from 10 borrowers down to 6. This was a result of a restructuring in URT and the liquidation of Prestige and the write-off of Essex Crane.

And I'm showing no further questions at this time. So with that -- our next question comes from the line of Jonathan Bock with Wells Fargo Securities.

Brook, I know you talked about the size and scale of the Medley platform. I was just curious now with Sierra as well as the SMAs and others that you manage, what's total amount -- non-CLO, total amount non-CLO of AUM that you as an entity effectively manage?

When you say we have some exposure in part of our business to CLOs, I think you're referring to CLOs under management, is that correct?

Correct, yes.

Yes, okay. So we do not -- we are not a CLO manager. So that's correct as you know. Total AUM is approaching $5.5 billion at the firm.

Got it. That's it. Great. And so if you were going to count the number of senior deal originators excluding yourself and Seth and Chris, how many senior deal guys do you have effectively pounding the pavement for that $5 billion in capital?

At a high level today at the firm, Jonathan, there's over 40 investment professionals, that's generally focused on the origination and deal side of our business. A certain portion are allocated now to the more liquid, and total return strategies we have as well as the growing CLO opportunity business. But the whole firm is focused on partnering with corporate borrowers, and the number is in the mid-40s now.

Okay, so it's a total of 40, but not necessarily a breakout. I mean do you have a breakout between like senior MD and then support staff?

Yes. I'm not going to get into the detailed breakout other than to say, we would look just like any of the top-tier alt credit managers on the street. So we don't have a differentiation in terms of how we're approaching the market based upon our knowledge of the market.

Got it. Then the next question is if we look at the Medley incentive fee, with a deep amount of respect and appreciation for the fee waiver that was instituted as the means to put your shareholders first, I guess the question kind of begs, if portfolio realized -- or unrealized losses or portfolio performance remains fairly -- where it's been recently given the losses, you could arguably forecast out a very low incentive fee. And I'm curious, as the manager to compensate your folks as well as yourselves, how do you think about that incentive fee? And whether or not it's caused you to lose people or focus on other areas of your business to perhaps grow to offset that lost income?

I think I understand the question, Jonathan. Is it -- are we profitable enough as a firm to compensate our people at market or higher so that they remain interested in staying at Medley? Is that the question?

Yes. Let's start -- yes, that's fine.

Yes. The answer is yes. We are adding talent. I think if you looked on the press releases, we're adding senior people from other large credit shops. I think the attractiveness of our platform that's expanding both size and focus, and as well as the long-term opportunity in the market that we see, I'd say the data or the -- the only relevant data point is that high-quality folks are joining the platform. I would say that's my measure of success and it's measurable, it's public, and we're pleased with the expansion of the investment capability and all of the human capital that's coming to the platform. So that is not a constraint, I don't see it being one. We're actively at work on the portfolio. We have the intention of those coming back on, can't predict exactly when, but they will come on and that will be attractive and valuable contribution to the profitability of the firm.

And I'm showing no further questions at this time. So with that, I'd like to turn the call back over to CEO, Brook Taube, for closing remarks.

Great. Thank you all very much for your time. Enjoy the rest of your summer and we look forward to speaking with you on a call in a few months this fall. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.