Prospect Capital Corp (PSEC) 2007 Q4 法說會逐字稿

Greetings and welcome to the Prospect Capital Corporation first fiscal quarter earnings release and conference call.

At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. John Barry, Chairman and CEO for Prospect Capital Corporation. Thank you, Mr. Barry, you may begin.

Thank you, Ryan. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer, and Bill Vastardis, our Chief Financial Officer. Before we begin, Bill will reveal a few legal matters.

Thanks, John. This call is the property of the Prospect Capital Corporation. Unauthorized broadcast is prohibited.

This call contains statements that constitute forward-looking statements within the meaning of the securities laws. All such statements are intended to be subject to Safe Harbor protection. Actual outcomes and results could differ materially from those forecast due to numerous factors. We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, please look to our earnings press release and our 10-Q, both of which we've previously filed.

Now, I will turn the call back over to John.

Thanks, Bill. Our net investment income for the first fiscal quarter, adjusted for non-recurring items, was $8.7 million or $0.44 per weighted average number of shares for the quarter, up approximately 153% and 26% from the prior year-over-year quarter on a dollars and per-share basis, respectively. At September 30, our net asset value per share was $15.08, up $0.04 from the prior quarter. We estimate our net investment income for the current second fiscal quarter ended December 31 will be $0.43 to $0.49 per share. We expect to announce our second fiscal quarter dividend in December.

Now, Grier Eliasek will comment on our investment activity.

Thanks, John. At September 30, the fair value of our portfolio was approximately $352 million across 27 portfolio companies. As of September 30, our portfolios generated a current yield of 15.9% across all of our long-term debt and equity investment, including dividend, net profits, interest, and royalty income.

Last quarter, we completed three new investments -- Wind River, Deep Down and Diamondback, as well as follow-on investments in the existing portfolio totaling approximately $40 million.

Additionally, on August 16, Arctic repaid its loan with a prepayment premium of approximately $460,000. Including the prepayment premium but excluding warrants that we continue to hold, we have realized a 20% cash internal rate of return on this investment, representing 1.25 times cash-on-cash return.

In the current second quarter of our fiscal year, we have closed on five new investments -- Resco Products, Maverick Healthcare, Shearer's Foods, Qualitest Pharmaceuticals, and an additional investment, and we've made a $3 million follow-on investment in NRG totaling all approximately $62 million. We currently have 32 portfolio companies aggregating approximately $410 million of assets calculated at our September 30 investment portfolio plus additional investments, net of repayment. These investments illustrate key components of our three-pronged investment strategy, which include sponsorless, sponsor, and buyout transaction types. The first component of our strategy which we've executed on a significantly to date, is a sponsorless transaction in which we purchase debt and receive an equity participation kicker from a company controlled by a non-sponsor shareholder group, often management instead of a financial institution. Our average realized annualized rate of return to date on these sponsorless financings is 59%. However, we do not earn these high absolute returns on every sponsorless transaction. While each previous write-down has occurred in a sponsor less transaction, we expect the sponsorless transaction business, in the aggregate, to continue to provide compelling net returns.

The second component of our strategy is a sponsor transaction in which Prospect receives -- provides financing to a leading private equity funds sponsor that risks significant junior capital underneath Prospect's debt, typically investing in a larger and more diversified company than would Prospect itself without a sponsor. While these sponsor financings infrequently offer the opportunity to earn a 59% IRR, we believe they provide significantly enhanced credit quality while adding valuable portfolio diversification. As we continue to adhere to our disciplined focus on accessible, leveraged multiples and coverage ratios, we see sponsor financings as attractive reward-to-risk propositions, and we have increased our business mix with this transaction type, as shown by several recent transactions.

The third component of our strategy is a buy-out transaction in which Prospect, in addition to having a debt instrument, has purchased controlling ownership and significant equity upside. To date, we have been successful in acquiring businesses at value-driven prices of three to five turns of EBITDA through disciplined screening. We expect to earn our highest absolute returns and have achieved our highest unrealized returns to date in this third component of our strategy.

As we build out an increasing diversified portfolio, we expect to continue to pursue all three types of transactions, both within the energy and industrial market as well as beyond, and are pleased with the robustness of our transaction flow. We have not reduced our strong interest in energy and industrial-related transactions and have several such promising transactions in our pipeline. Rather, we have expanded our focus to provide enhanced diversification and risk management benefits to the portfolio.

Thank you. I will now turn the call over to Bill.

Thanks, Grier.

At September 30, borrowings under our credit facilities stood at approximately $60 million. On October 11, we priced a public offering of 3.5 million shares of common stock at $16.34 per share, raising $57 million in gross proceeds. Our borrowings now aggregate approximately $88 million under our credit facility. We are currently in discussions to increase the size of our $200 million facility.

Now, I'll turn the call back over to John.

Thank you, Bill. Any questions?

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS). Jim Bellessa, DA Davidson & Company.

Good morning. The $1.1 million of non-recurring legal expenses -- would you go through that and an explanation of how that came forth? Was this built into your guidance, and so forth?

Jim, it's all in -- first, have you looked at -- there's a footnote in our 10-Q that -- a whole paragraph on this. Rather than repeat that, why don't I just tell you that we think that, as the paragraph states, that legal expense is largely behind us and it has been built into the guidance.

What is it for? Can you disclose that and explain how it came forth and --?

Well, I guess the first thing is have you read the disclosure in the Q?

Oh, yes.

Okay, what's unclear there?

It says it's an arbitration expense and I don't understand why you would have an arbitration, so --.

This is why. Occasionally, you have a borrower who is turned down for a loan, and this borrower was turned down for a loan. What they want to do is sue us to intimidate us into making the loan. We are not easily intimidated, so in this case, we took the threat of a lawsuit and did not make the loan. The borrower located a contingency fee attorney to prosecute a claim against us. As you can see from the disclosure, it's in arbitration and we are almost done with the arbitration.

Did you know about this before the quarter was over or did you know it after the quarter was over?

Well, the suit was initially -- it's a cross-claim in a lawsuit by the lawyer against his client, and we've known about it for some time. What we didn't anticipate was that the arbitration would go on as long as it has.

The guidance that you've given for the December quarter, I think $0.43 to $0.49, roughly what is the benefit of these five new investments in helping to drive that number?

Well, this projection includes the investments that we've made, investments that we think we will be making. It includes any legal expense that we think we will be incurring. Really, it includes every revenue and expense item that we think is reasonably predictable.

Jim, in some cases, we will see an immediate benefit from an investment through some type of transaction or structuring related fee. In other cases, those upfronts will be recognized over time in accordance with OID accounting, particularly where we are purchasing a pre-existing loan at a discount, which was the case in a couple of situations this quarter. So it depends, but it does reflect those transactions closed this quarter. Yes.

I think, when you enter a sponsor transaction, do you therefore do not get a structuring-related fee?

It depends. I would bifurcate it, Jim, into direct sponsor business, typically lower/middle market, smaller transactions where we will be more likely to have a structuring fee that will be recognized as income in the quarter, and then larger, typically syndicated transactions through both the first and second liens where it will typically be more than an OID situation recognized over the life of the loan.

Thank you very much.

Robert Dodd, Morgan Keegan.

First, I've got a question on the dividend income. Obviously, that stepped up significantly. Was all of that related to [gas] solutions or are you now collecting dividends from some of your other investments?

Yes, we have started to collect dividends on another portfolio investment in addition to gas solutions.

Okay, perfect. Then secondly obviously, can you give us an update on Advantage and [ESA]? I mean, I know, from the Q, you essentially I think own the assets of ESA; can you tell us what your plans are there?

Yes. The plans are, when we make these what I would call debt/equity [dequity] type of investments where we are looking for higher returns, of course some of them are not going to work out. We're going to have to write down the investment and then draw conclusions to whether or not we should liquidate the investment for our collateral or attempt to restructure the company.

In the case of ESA, we have decided to go forward and restructure the company. We've brought new management in there. We are carrying it at a significant write-down. We are hopeful that, if we can in fact restructure the company and get better management in there, that we can get back up to our original investment.

In the case of AOG, it is a similar situation. There, we have, in addition to frustration with the business plan and the management's execution, we have a macro issue there which is the Alberta gas market. But we have been meeting with additional managers. We have brought in a restructuring officer. We are hopeful that, with the additional resources and capital that we are prepared to bring to there, that we can be there for the rebound with the existing management and with some other people brought in to be helpful.

Okay, and one more if I can -- can you give us an idea of what the average median [aggrega], whichever way you want to look at it, EBITDA multiple is for your control investments between Gas Solutions and (inaudible), etc.? Do you have (multiple speakers)?

Robert, it's Grier. Our average acquisition multiple on our control deals, if you looked at it, say on a capital-weighted basis, would be about four times.

Okay, thank you.

[Drew Vowls], Gracie Development.

Good morning, guys. I had a question about ESA. A lot of the -- they have a lot of minority contractor status and taken and restructuring that company. Have some of the principles left, so that status has been lost?

Well, two of the principles have left but the status has not been lost because there are other principles there who benefit from these designations and certifications.

So that's an asset that stays with ESA? (multiple speakers)

Well, what you need to do is you need to have somebody else who, in the case there, is a disabled combat veteran, for example, just to pick one of the more valuable designations. It so happens that one of the senior managers who we have kept on has that designation.

I had one other question. The Cougar investment, you guys -- that was a nice investment for you guys but you continue to hold some warrants. I was wondering just how are those warrants valued? Just to get idea of what (multiple speakers).

Well, bear in mind it's a private company and they are not traded, so we're not able to just look at the market. So we (inaudible) them in costs.

Okay, that's it. Thank you.

(OPERATOR INSTRUCTIONS). Jim Bellessa.

Your portfolio has expanded out, as you've said, into sponsored related activities. Do you feel you're going further in this direction?

Yes, we are. We feel that pursuing all three strategies that Grier mentioned are the best thing we can do for the Company and its shareholders. We will continue to do the same volume or greater volume of the business that we've always done, but we will add to that more sponsor business and more participation in the syndicated loan market on a selective basis in each case.

Is it inherently true that they produce a lower return than perhaps the sponsorless strategy that you used?

Yes. I mean, I think, when you look at the sponsorless transactions, you're going to see transactions which in some cases have provided us above 100% rate of return, and in another cases, we've had to write down the investment. So the sponsorless transactions are much closer to equity-type transactions with equity-type returns, but also equity-type volatility. We would like to see that become a smaller part of our portfolio so that the NAV, the net investment income and the dividends become more and more predictable over time.

Now, the reduction in return that you earn on these sponsored transactions and on these syndicated loan transactions, on a risk-adjusted basis, is not that great. These are typically around 14%, 14.5% type gross return transactions. Where we coinvest, they can be larger. With fees and points, they can be somewhat higher. But as Grier said, you're not likely to be seeing 59% rates of return on those transactions. We also feel that you're not likely to be seeing write-downs in more than a small proportion of those transactions.

What we will also do -- Jim, to add to that -- is occasionally make an equity co-investment alongside the sponsor, not in every case but where we see attractive risk-adjusted return potential to the equity as well, which will enhance our returns by virtue of making that coinvestment.

Your line of credit, $200 million -- you currently say that you've tapped into (technical difficulty) $88 million. It seems like, as you approach the most recent quarter, the June quarter, and then had an offering in October, you were getting up to this level of borrowings, and that when you had your last conference call around the of October, you indicated that there were certain covenants and things like that that caused you to have to have a very diversified portfolio and that all investments that you were making were not being counted fully to take down your line of credit. Can you describe the likelihood of expanding your line of credit now, and if we're getting to $88 million and maybe your next deal would bring you to $100 million, are you having to therefore think about the equity market again?

Well, I think -- let me address these one at a time, Jim. First, the last equity transaction was helpful because it enabled us to build a more diversified portfolio and take more advantage of the various buckets that are in the [Raebo] facility, so we're glad for that. As a result, we have more availability under that facility right now than we would have otherwise.

Depending on the size of the transactions and how they fit or don't fit into various buckets, we can, on a theoretical basis, get to $200 million, but more likely we won't quite get to $200 million. So it's a dynamic analysis which time we make an investment, what bucket that filled up, which bucket is now filled, what's the capacity here. Interestingly, some investments, for example first lien investments, increase the capacity for other types of investments. So, it's our objective to use as much of that facility as possible and get us close as possible to $200 million. As I said, the last equity offering has been helpful for that.

At some point, we will have fully utilized what is available under the [Raebo] facility. Now, we are addressing that in two ways. One, we're looking to upsize the facility. We think that we have an excellent relationship with that bank, but we also have to be mindful that the credit markets right now are not the most hospitable credit markets for anyone, whether somebody borrowing money to buy a house, whether a AAA company issuing senior debt or in this case commercial paper in a conduit. So the pace at which we will be upsizing the facility may be slowed somewhat.

We have spoken to additional banks and they have indicated that they are interested, and that is moving forward. We're also looking to do a revolver, also with Raebo. So these things will enhance our flexibility as a matter of precedent.

When you look at the equity markets, of course I think the first thing I will say as a shareholder is selling stock in prices like this is not our number one objective in life. Therefore, even if the stock were higher though, we would still be looking to fully utilized the [Raebo] facility. However, I think everyone needs to recognize that, for a company like ours to continue to grow and continue to build a portfolio, we will be issuing stock from time to time to time. When we do, we are cognizant of the size of the offering, we are cognizant of the price, and we are not looking to dilute NAV, and we're not looking to dilute existing shareholders. However, these stock offerings do enable us to take more advantage of the [Raebo] facility. So from time to time, we will be issuing stock. We have nothing that we know we're going to do right now.

You've had a number of transactions in the last 60 days that you've announced, roughly 60 days. In this press release today, you did not characterize your pipeline of potential investments. Can you do that? Previously, you've said something like we have 12 deals that could amount to $200 million or something of that ilk. Can you say something like that today?

I would be happy to, Jim. Not mentioning it doesn't mean it slowed down by any means. Our pipeline of advanced transactions is in the vicinity of about $200 million. As we've closed transactions, new transactions have emerged to replace those, and that's a function of, A, our expanded focus and, B, having increased the size of the investment in portfolio team, we are able to run with parallel processes such that when certain members of the team are closing transactions, others are replenishing the pipeline behind them accordingly. So, we're very pleased with the pipeline, Jim, and as indicated, it is robust. We anticipate to be announcing other transactions in the future.

Jim, if you look at what we've been doing recently, I think you would observe that the pace of deal closings has increased and the average size of the transaction closed has increased. This is in part a result of diversifying the types of deals that we're doing. Obviously, if you triple the types of things you're looking at, you make eventually start to triple the pace of investing.

Having said all of that, if we're not happy with the risk/reward, we will not close the deal. We would rather sit on our hands and not swing at a pitch then to just put capital out for the sake of putting capital out. That will happen from time to time.

Right now, we think the markets are swinging back our way. As John mentioned, it's a lender's market out there. It's not of borrowers market as has been the case, say, in the first part of '07. So it's an excellent time to be finding attractive value in the marketplace.

Jim, as we discussed I think on the last call, the sponsor market and the syndicated loan market were priced at a particular level through the end of July this year. That was a level that we found generally to be less attractive than what we would have liked to have seen. Following August, we have seen both of those markets significantly reprice. We feel that we are fortunate compared to some of our competitors who already had significant portfolios and had to write-down their entire portfolio is as a result of the repricing. We did not have to do that, but we are able to participate in these markets now at these more attractive levels. We think that's going to be paying dividends to our shareholders.

Thank you very much.

[John Ellis], Private Investor.

Are you getting any feedback?

John, I'm fine.

Good. Can you give us a little more guidance on your dividend? When, what your considerations are, when you have to declare it in order to maintain your (inaudible) status (multiple speakers)?

Well, all right. The first thing for us is we are quite cognizant that people are buying the stock primarily for the dividend. Therefore, we spend a lot of time calculating the dividend and making sure that we can pay it out of earnings to the fullest extent possible. I think, historically, we may have paid a few pennies out of capital but by and large, we've paid this dividend out of earnings. We have growing it -- I guess at this point, I forget how many -- every quarter, 12 quarters consecutively since the company went public. It's a very important objective for us, and we don't see any reason, right now, why that objective will not remain in place and why we will not be able to achieve it. Typically, we would have announced the dividend in mid-December, I think, right, Grier?

That's correct. John, just so you are aware, as a development company to maintain [RIC] status, we need to pay out at least 90% of our all-income and short-term capital gains on the course of our tax year, and on a spill-back basis shortly thereafter 98% to avoid any excise taxes that might come into play. That's over the course of a tax year.

As a practical matter, we have been paying a quarterly dividend and intent upon doing so. In fact, our goal, our long-term goal is to continue to steadily increase the dividend as John had mentioned. So we're not going to give specific numbers today as to our expectations for December. We arrive at those deliberations as a board carefully, after very thoughtful analysis on the portfolio, the trajectory, etc., and do so and then announce shortly thereafter. So some time in December, we will, as is typical with us, be reporting that.

John, to help you, maybe you didn't hear the beginning of the call or maybe because it was spoken, maybe you were distracted, but as I said at the beginning, we estimate our net investment income for the current (technical difficulty) quarter, $0.43 to $0.49, so I think you can make some inferences when you know that we have to distribute 98% of that.

I'm doing that. Thanks! Just as a matter of information, when do you have to pay out? Do you have some leeway? Can you go into next year to finalize or figure it in order to maintain your status?

We have to declare the dividend prior to December 31, and the record date and [X] date has traditionally been in December. Depending on our cash needs, we could have the pay date actually be in January, but we haven't made that decision yet.

But you have to declare in the calendar year?

Well, actually, we are on an August tax year for the 90% tax. For the excise tax, it's a calendar year of 98%, just to confuse people further. Needless to say, there's an entire team focused on managing tax efficiency and dividend compliance, regulatory compliance on behalf of the shareholders.

Okay, thanks a lot.

[Robert Miller], private investor.

I was just wondering. How would the prices of various commodities -- well, I'm thinking specifically coal, natural gas and oil -- on the market affect your portfolio? Or will it have any effect?

Why don't I say a few words? First, as a general matter, we are hedged. We require, in our investment documents for these companies, that they hedge significant portions of their commodities (inaudible). Grier will talk more about that, particularly in the oil and gas area, and also as to gas solutions, where we've hedged out the next I think it's 18 months to 2 years.

In the coal sector, we are delighted to report that the wind is turning to our back. Coal prices have been climbing and Appalachian coal prices in particular have been climbing. A contract that we have with a particular buyer that we have long thought was quite advantageous is expiring and it looks like prices are (technical difficulty) higher where that contract was. So in coal, it's very difficult to hedge. In a way, it's fortunate that (technical difficulty) not hedge because we will soon, we believe, be able to benefit from higher pricing across Appalachia. Grier?

Robert, as you know, in some of our portfolio companies, we control, some of our portfolio companies we provide loans to and in the oil and gas arena. In all of those cases we have additional equity-like interest by virtue of overriding royalties, net profit interest in the like. In all cases, hedging is required under our loan documentation for those E&P companies.

The borrowers, the companies have a number of options available to them. They can hedge with a physical hedge with typically a transportation provider, let's say a pipeline provider that buys, on a fixed forward basis, a certain percentage. They can hedge financially by virtue of typically puts, collars and swaps, the latter two, collars and swaps, having credit costs to be mindful of. Puts are the cleanest there. They require an out-of-pocket premium to be paid but there is no residual credit to be posted or mark-to-market with counterparties, and the upside is not sold. Most of the hedging has been along the lines of purchasing puts for both control and noncontrol deals for those credit reasons. For example, in Gas Solutions that John just mentioned, we have purchased the downside protection, the so-called insurance, by virtue of buying propane puts but we didn't sell the upside. So that means the significant run-up in commodity prices has benefited our equity interest in that case, just as it has benefited where we have royalties and net profit interest in our noncontrolled deals.

I hope that helpful, Robert.

Actually it is because I just wanted to -- I mean it's like there might be more of a perceived risk by the Street and your stock with commodities go down but the actual risk is actually a lot less because of the way you guys hedge yourself -- require other people to hedge.

Right. Our first priority is to hedge principal, next to protect our debt income. Then we look to upside as the proverbial icing on the cake from there. Yes, we are trying to build a lower beta portfolio as opposed to a long WTI crude index type portfolio. There's far more efficient ways for investors to speculate on commodity prices.

We're looking for situations that are not speculations but rather areas where we think we can achieve true alpha by virtue of backing management teams that perform within what's in their control. The price of the commodity is not within their control.

Drew Vowls, Gracie Development.

I tuned in a few minutes late to the call, so excuse me if you've already addressed this. Going forward, the focus of the portfolio is -- is it going to stay 50% energy and 50% outside of energy? What do you all foresee there? I know you are diversified outside of energy but in a year or two, is it going to be half and half or (multiple speakers)?

Drew, this is Grier. Thank you for your question.

Our installed base of core energy and industrial-related investments is in the range of 85%-plus today. Where will it be a year from now? It's very difficult to have a precise prediction. I think the energy industrial percentage mix will decline in the installed base as we add some diversified investments to the mix, but it's very difficult. That's mainly because we look at transactions not on a top-down basis but rather bottoms-up with every investment needing to stand alone on a risk/reward basis. Even for example amidst our increased sponsor focus that we talked about in our prepared remarks and in Q&A here, there are transactions that are energy and industrial related there as well. So hard to come up with a specific number, but I know the 85% will decrease in the coming months and year.

(OPERATOR INSTRUCTIONS). [Chris Dussey], [Dussey] Asset Management.

Congratulations on the quarter. You guys may have already addressed this, these questions, but I got on the call late. Could you guys give an update on your ESA investment and your Advantage investment?

Yes, we can. I already gave one update but I will give another one.

The first update is that those investments are what we call sponsorless investments, investments in companies led by management teams where we take on more risk in pursuit of hopefully higher returns. Needless to say, when you pursue higher returns, sometimes you're not going to get them; sometimes you're going to get a write-down. But these equity investments that we make that are paired with debt investments, I think the calculation in the press release is that these have produced a 49%, 59% internal rate of return.

We'd like to see these type of investments. Although they are high-returning, they also have greater risk than we think we can manage as the portfolio becomes larger. So we'd like to see this component of our overall investment strategy decline.

With respect to ESA and AOG, both of them have been marked down significantly. Each one has been marked down by more than half.

In the case of AOG, the difficulty is primarily the difficulty in the southern Alberta gas market, which is no fault of the managements. The management has worked hard, but they have walked into a storm. Rather than abandoning the situation, we have looked for ways in which we can provide additional resources, capital and managerial resources to a young management team to help them make it across the chasm to the time when the market there is stronger. People are projecting a stronger market in early 2008 and especially in late 2008, so we feel this is not a good time to be throwing in the towel with Advantage. While we carry it at a level which we understand approximates the liquidation value of the assets, we are interested in moving forward with that management team. We have brought in a fellow named Mike Steele to be helpful. The manager there, Chris Brunes, is happy to work with Mike. We have some other people that we've talked to who we would be sending up to talk to Chris, who feel that now is a wonderful opportunity to be investing in that space. So that's Advantage.

In the case of ESA, we had a significant disagreement with the management of that company, as did other counterparties, and the two most senior managers have moved on. We have elevated one of the existing managers at the Company who has the 9-A certifications, disabled Vietnam War vet and the like to take over the Company and to run that. We're optimistic, guardedly optimistic that we can get the value to be increased from the significant write-down where we are carrying it. (multiple speakers) I will just mention the last thing -- THS, which is a subsidiary of ESA, continues to do quite well.

To follow up on your comment about the write-downs, you wrote down your coinvestments in (inaudible) unity in Genesis, I think, and to 50% or 60% of the original value, and now that coal prices have seen some -- have gotten some legs, do you think you guys will write those back up a bit or --?

Well, we are very wary of making predictions for things to turn around and become great again, but we have observed a couple of things. One, [Wymore] is making money on a month-over-Month basis at the mine mouth, which is good.

Genesis is still developing their mine and is still getting the kinks out, but we think that the improvement in Appalachian coal prices is quite substantial, and it's enhancing our otherwise-normally optimistic attitude towards those companies. How's that for a hedged answer?

We basically want to wait to see it happen!

No, I understand. And I know you guys are very quick to write something down and not very quick to write it back up, so --. What percentage of the portfolio are coal investments now?

I think it's pretty small. I think that --.

Maybe 5%, Chris or less than on a fair valuation basis (multiple speakers).

One of the things that you should be whereof is that, when we provide more money to these companies because we believe in their future, if they're being carried at 60% of book, if we give them another $1, we write off an immediate $0.40. So we are not anxious to be automatically writing down new money, which we're not even sure makes sense, but the feeling is that we need to support companies that we think have a future. We're looking forward to the day when we can tell people on this call that we are very happy that we stuck with the companies that ran into difficulty, because they are now significant introduce to the portfolio once again.

The percentage you had asked about is about under 4% (multiple speakers) where we are carrying the investments versus what we've invested as of today in the current quarter, net of repayments compared to fair value at 9-30.

Thanks, guys. Have a great quarter.

(OPERATOR INSTRUCTIONS). As there are no further questions, I'd like to turn the call back to management for any concluding remarks.

That's it for us! Thank you, everyone.

Thanks, all.

Ladies and gentlemen, this concludes today's teleconference. Thank you all for your participation.