Prospect Capital Corp (PSEC) 2010 Q1 法說會逐字稿

Good day, and welcome to the Prospect Capital first quarter conference call. (Operator instructions.) Please note this event is being recorded.

I would now like to turn the conference over to John Barry, Chairman and CEO. Mr. Barry, the floor is yours, sir.

Thank you, Mike. Joining me on the call today are Grier Eiliasek, our President and COO, and Brian Oswald, our CFO. Brian?

Thanks, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward-looking statements within the meaning of the Security laws that are intended to be subject to Safe Harbor protection. Actual outcomes and results could differ materially from those forecasted due to the impact of many factors.

We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, see our earnings press release and our 10-Q filed previously.

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

Thanks, Brian.

For the quarter ended September 30th our net investment income was $12.3 million or $0.25 per weighted average number of shares for the quarter. We estimate our net investment income for the current second fiscal quarter ended December 31st will be $0.22 to $0.30 per share. These temporary per share changes from prior quarters are primarily due to the issuance of additional shares to fund the acquisition of Patriot Capital. The full quarterly benefits of the Patriot acquisition are expected to be reflected in the March 31st quarterly financial results. We have also raised additional equity capital that can be deployed into other accretive investments beyond the Patriot acquisition.

We anticipate that the merger with Patriot will close on or about December 2nd. We expect the Patriot acquisition to be accretive to net investment income per quarter in an amount approximating $0.09 or more per share, which could be greater with early repayments before scheduled maturity dates, as well as with loan coupon increases as have occurred with multiple prior Patriot investments.

In addition, we are currently evaluating a pipeline of potential additional portfolio and individual investment opportunities, aggregating more than $4 billion of assets, for which we have cash and credit facility availability on hand.

We are negotiating to make a controlling investment in a sizable portfolio which we believe could be significantly accretive to our income, with a more than 20% internal rate of return on our investment anticipated. And we look forward to providing more details in the weeks to come.

We expect to announce our second fiscal quarter dividend in December.

Thank you. I'll now turn the call over to Grier.

Thanks, John. At September 30 the fair value of our portfolio of 29 long-term investments was approximately $510.8 million. During the quarter ended September 30 two additional investments, [Peerless] and C&J have been repaid, generating a 19% cash-on-cash internal rate of return in each case, not including a 40% equity stake which we continue to hold in C&J.

On August 3rd, we announced our entering into a definitive agreement to acquire Patriot, including assets with an amortized cost of approximately $311 million for a purchase price of approximately $197 million or 63% of amortized cost. We are purchasing Patriot with our common stock plus cash to repay all Patriot debt, anticipated to be approximately $110.5 million when the acquisition closes. At September 30 Patriot had reduced its debt balance to $112.7 million and will continue to amortize the loan balance through cash sweeps until the closing, which is anticipated on or about December 2nd.

The merger agreement calls for common shares to be exchanged at a ratio of approximately 0.3922 for each Patriot share for 8,606,467 shares of our common stock, for 21,584,251 Patriot shares, with such exchange ratio decrease for any tax distributions Patriot may declare before closing.

On November 3rd Patriot announced that it would be making a final dividend to Patriot shareholders equal to its undistributed net ordinary income and capital gains. Patriot has estimated this final dividend will be approximately $0.38 per Patriot share, with a final amount determined at closing.

In accordance with the recent IRS revenue procedure, the Patriot final dividend will be payable up to 10% in cash and at least 90% in newly issued shares of Patriot's common stock. If $0.038 of the dividend is distributed as cash the total number of shares to be issued by Prospect in the Patriot merger will be reduced to 8,534,611 shares.

The acquisition of Patriot is at a discount to the principal balance of the debt securities being acquired. We expect income accretion of this discount on a quarterly basis and anticipate a majority of this accretion to be income not subject to Prospect shareholder taxation due to the stock-for-stock nature of the transaction.

Our net investment income accretion assumptions assume no early repayments. Early repayments would accelerate the recognition of such accretion income. We have also not assumed repricings of any legacy Patriot loans with Patriot borrowers in our assumptions, and such upward repricings to current higher market pricing would also provide up side to our future income.

The Patriot acquisition reflects our previously articulated strategy of identifying and closing on opportunities created by the marketplace credit dislocation, including opportunities to acquire financial companies and portfolios with attractive assets but with liquidity issues created by lenders seeking reduced exposure and equity owners seeking exit opportunities, even at potentially steep discounts.

We are currently evaluating a number of other portfolios, both public and private, where our ability to provide liquidity has the potential for significant reward. In addition, the Patriot acquisition will approximately double our number of portfolio companies to approximately 59 companies, thereby expanding our diversification by company, by industry, by geography, and by business owner.

Approximately 70% of the acquired asset value is in companies where Patriot has a senior secured position. Our growth assets will also expand by more than 30%, providing anticipated scaling benefits as a consolidator in the industry.

Primary investment activity in the marketplace has increased substantially in recent weeks, and we are currently evaluating a significant number of potential investments, some of which have the potential to close before yearend. Such transactions are primarily senior secured investments with double-digit coupons, sometimes coupled with equity up side through co investments or warrants, and diversified by sector.

GAAP solutions continues to generate free cash flows with no third-party debt. We are discussing opportunities for potential monetization of our position.

Thank you, I'll now turn the call over to Brian.

Thanks, Grier.

On June 25th we completed a first closing on an expanded syndicated revolving credit facility. The facility includes an accordion feature which allows the facility to accept up to an aggregate total of $250 million of commitments. Since that initial closing with two lenders we have added three additional lenders to the facility and currently have commitments totaling $195 million.

We continue to solicit additional commitments from other lenders to fill out the facility and multiple lenders are performing due diligence towards committing to our facility. The facility has an investment grade Moody's rating of A2.

As of September 30th we had zero outstanding borrowings under our credit facility for which we had available credit of approximately $89 million based on the currently pledged assets, as well as cash equivalent instruments of approximately $92 million. Our credit availability will increase with the pledging of additional assets from the Patriot acquisition.

Our unleveraged balance sheet is a source of significant strength in comparison with many overleveraged competitors. Our equitized balance sheet also gives us the potential for future earnings up side as we prudently grow our revolving credit facility and evaluate term debt solutions driven by our facility's investment grade facility rating.

We are actively exploring both facility and corporate term debt solutions as the credit markets improve in both demand and pricing. We also continue to generate liquidity through stock offerings and the realization of portfolio investments. From March through September we have completed stock offerings aggregating approximately 24.4 million shares of our common stock, raising approximately $206 million in gross proceeds.

Two recent offerings were completed in an unregistered format, pending declaration of effectiveness of our latest amendment to our shelf registration statement, which includes disclosure for the Patriot acquisition and such effectiveness was granted yesterday.

In the second quarter of our last fiscal year we announced the authorization by the Board of Directors to repurchase up to $20 million of our outstanding stock. To date, we have not made any such repurchases but continue to maintain the flexibility to do so should we deem such purchases to be in the best interest of our shareholders.

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

Thanks, Brian. Q&A time.

All right. Thank you, sir. We will now begin the question and answer session. (Operator instructions.)

And the first question we have comes from Greg Mason of Stifel Nicolaus.

Good morning, gentlemen. Could you talk about what leverage you would like to target for your balance sheet? And then also talk about the environment that you're seeing for the term debt market that you said you'd like to access?

Hi, Greg, good morning. Our long-term target that we'd like to shoot for is approximately 0.5 debt to equity. And just as important as the leverage amount is running long-term if you're going to run that sort of leverage or above that for others in the marketplace is to achieve closer to match book funding.

What we're seeing is that the bank market is challenged towards achieving four to five-year plus types of [tenure] to match a typical maturity profile for any loan originations, but we are now in discussions with the other players in the term market including the insurance market, which given restructurings from some peer companies out there seems to be getting more positive. I wouldn't say it's the absolute best its ever been, but folks are willing to have a dialogue and seem to have an interest in having a discussion.

Because we have no debt today and even proforma for the Patriot deal, we'll have very little on a debt-to-equity basis and far below any of our peers. We anticipate we would have a significantly positive advantage versus others to tap into that market. And our additional scale and diversity that we've grown into through equity issuances over the past couple of years by virtue of the Patriot deal, other deals we're looking at also provide a plus.

We're also looking at potential credit rating solutions, as well, at the Corporate level above and beyond our term facility rating of A2, which could be an enabler. So stay tuned for more from us on that front.

Great. And then you talk about you're focusing on portfolio acquisitions, as well as individual transactions, what's kind of the breakdown of your focus right now between looking at whole portfolios versus individual company basis?

Say, Greg, it's John. I'll take that. Just to add, this segways into your -- this question. We believe in having cash and not being levered but having an unused facility and perhaps some day unused term debt, enables us to move opportunistically in a market that is cash constrained.

So I don't know that we're targeting 0.5, I think that once we get up to 0.5 we're looking to get that reduced at least in this marketplace so that we have the flexibility to take advantage of the opportunities that we see.

Now, to answer your second question, there's two types of opportunities. There are opportunities in the primary markets on a one-at-a-time basis, investing in the types of transactions we have over the past five years. The sponsor market is coming back. The direct lending market is coming back. The syndicated market is coming back. And we are also looking at control acquisitions in middle market companies.

But I feel that while we have a cadre of people working on those opportunities, we can move the meter more quickly when we purchase whole portfolios. And so let me take this opportunity to announce to everybody on this call that if you are aware of a liquidity stressed owner of a portfolio, whether it be a hedge fund or a private equity fund or a publicly trade company or a bank, a yield, ideally a yield portfolio, we want to see it.

At any given time we're looking at least a half dozen of those, and we pursue the ones that we feel provide the most value to our shareholders. So if we are successful, I would like to see of the next 300 million of assets that we put on, at least half be portfolio purchases because it enables us to apply maximum intelligence, maximum diligence, maximum effort to one wholesale transaction as opposed to many individual transactions.

So I'd like to ask everybody on this call to put your thinking cap on and bring to our attention the portfolios. There are many out there, and we would be quite appreciative and we're happy to pay people fees for that.

Greg, of the $4 billion portfolio, about, you know, and this fluctuates from moment to moment, but about 75% of that is secondary purchases and maybe 25% primary. But that's not meant to understate primary because the portfolio purchases are lumpy in nature and there's, you know, maybe about a dozen or so we're looking at from that front. Again, that number can change quickly. The primary side is really starting to heat-up again as activity is picking up in the marketplace, albeit it from a fairly dormant level earlier this year.

Great. Thank you, guys.

Thank you. One other comment, by the way, I'm sure many of you have observed this, but one good thing about a portfolio is typically the credits in there are seasoned, and we can look at how they have performed on a [webered] basis through the most recent recession. And we view that as a positive. Obviously, it's also a positive doing primary issuances in this market.

The next question we have comes from Jasper Birch with Fox-Pitt Kelton.

Good morning, gentlemen. Just to start off, in your Q you mentioned that you have one asset that is past due, but not a nonaccrual, what is that and what's going on there?

Explain it?

We have one asset called Iron Horse. It's a fracing company in Canada that is in a turnaround mode right now, and is about to turn the corner and be able to generate positive cash flow. They had been building out a second frac spread and that's been completed now and as they deploy that frac spread the -- their operating income will increase dramatically. So that is why that loan has stayed on accrual status, because we expect that the turnaround is imminent.

Let me just add a few things. The company has had difficulty over the last three years, beginning with the meltdown in the Alberta gas market, which caused the company's original business plan to be very challenging to achieve, and it was not achieved. What we've done is we've invested more capital in the company a year-and-a-half ago to build more modern fracing equipment. As everybody knows, the gas prices went up and they came back down. You have the thaw, you have the freezing, you have the major customer up there, [EnCana], ramping up their drilling, then not, then ramping it down.

When Brian says dramatic increase in the operating income, we certainly hope that happens. Off a low base it could happen. We're not guaranteeing anything, but we feel that the company has a defensible niche there and if they're -- especially if there's a return to more normal times in the gas market in Alberta, a company should be lifted with the rising tide. Even if that doesn't happen, if EnCana I guess beefs up their drilling program, that's helpful. And, number three, we have diversified our customer base some. It's a challenging situation, one that we believe will in the end turn out well for us, but we have to cross some slippery, mossy rocks in the middle of the stream.

Okay, excellent. Thank you for the color. It's very helpful. And you said you have about $89 million available in your facility, and then you'll get a lot more once you pledge more assets. When you pledge if you were to pledge, if you kept the portfolio under the facility, would that go close to the 195?

Close, and it'd go up by about -- there are certain assets in the Patriot portfolio that can be pledged and some that don't qualify to be pledged. We would pledge about 10 assets. I think it's about $100 million of the portfolio, and it would get us about somewhere between $65 million and $80 million of additional liquidity.

For the additional assets, one of the main reasons for non-qualification are not hitting a minimum spread of 400 over LIBOR or legacy positions. As those loans are paid-off and repriced then we'll have additional assets that we could pledge to the facility to enhance our borrow.

Excellent. Thank you. In terms of monetizing gas solution, can you give us any more color on where you are with that? Have you been receiving bids, are you actively shopping it?

We have received bids. We have been in discussions with bidders. We have gone down the road with more than one bidder. We look at that asset the way we would look at any asset, when it is available to be liquefied it's something we would prefer to monetize rather than not monetize it. But as an investor with an infinite time horizon we don't have to monetize something if we think the bid that we're getting or with the market conditions or the terms of trade are not optimal for our shareholders.

We put it on the market at a good time, we received attractive bids. The propane market, which is the best indicator of the value of that company, declines significantly, the bids declined. We slowed the process. Now the propane market is back up significantly. We have very interested people, but we don't like to signal our hand on an earnings call, when we're talking to these people, because they're listening.

I just think shareholders in our Company can go on the assumption that we understand this is a financial asset, it generates cash flow, it has a value to our shareholders, as part of the profit, capital portfolio. It also has a value should it be monetized. And so we consider all of these things on an ongoing basis.

Were we to -- I don't know that we would ever simply say, "Well, this is not for sale, don't put in any bids." I suppose that's possible, but we're not in that mode.

Great. Thank you very much. And then just really quickly, has PCAP announced its earnings release, when it's going to have its earnings release yet?

They have not announced it, but I believe they're targeting to file their Q tomorrow.

Oh, excellent. All right. Thank you, guys. Thank you very much, appreciate it.

The next question we have comes from Chris Harris of Wells Fargo.

Great, thank you. How you doing, guys?

Hi, Chris.

Hey, so getting back to the -- I guess the credit facility question that everyone is kind of bringing up, are we to assume then that Prospect really doesn't have any pledgeable assets for any sort of new facility that you're in discussions with banks right now? So is more of like a longer term goal, or are there other assets that you might be able to pledge, you just can't pledge to the current facility?

Well, we have about 30 PCAP assets moving over and, as Brian mentioned earlier, about 10 will go in facility right away. The other 20 are pledgeable for an additional facility and, or a potential corporate deal which we might envision if such a deal were to be secured in nature. Plus there are some excess concentration pieces that we can move out as part of ordinary course, borrowing base optimization from our existing facility. So, yes, we do have additional collateral.

Okay, and then the deals you guys are looking at, I think a lot of buyers have expressed frustration that there is a really wide bid, ask spread among buyers and sellers, and just curious to get your thoughts on whether sellers have kind of become more realistic to the current environment or whether that remains to be a challenge in closing new transactions?

Well, when you see values change significantly, you will see markets slow down, while one of the other side of the transaction becomes acclimated to the new market conditions. I think it is common for sellers of good businesses to continue to believe they ought to be able to get the price if they were offered and declined in 2007 or 2006, that can be houses, that can be art, that could be companies, that can be a lot of things. And what you see is the market slowly freeze-up as people realize the good old days are not returning soon and may not return ever or in any reasonable timeframe.

So what we saw was something of a freeze, I would say, at the end of last year and the beginning of this year. Now, we're seeing steadily increasing deal flow. I would say more of it has a distressed component, more of the companies we see now as a percentage of the overall basket have some type of a problem with the company and there's maybe some urgency to sell. The better companies I think will be slower coming onto the market. But the sponsor market is picking up. Bigger deals, smaller deals are picking up. The loan market is picking up. Every quarter it seems like there's a step forward.

I think when you have deflation occurring with companies' profitability, like was happening a year ago and the early part of 2009, people don't want to do anything. Lenders don't want to lend to the company, buyers don't want to overpay, sellers are worried they're not going to get full value.

So you need that stabilization and get away from that deflationary spiral in order for deals to happen. And that's starting to occur, really since Labor Day we've seen a pretty healthy pick-up in activity. The teams are very busy working on a lot of deals, putting out term sheets, and I wouldn't say the activity has rebounded to where it was two-and-a-half years ago, but it's much more active now than six and nine months ago.

In answer to -- going back to the pledge versus unpledged question, about -- proforma for Patriot is about half of our assets give or take will be pledged to the facility and half outside of it.

Okay, thanks, Grier.

Yes.

And the next question that we have comes from Robert Dodd with Morgan Keegan.

Hi, guys. One simple one I think, first, and then we'll come to the other one. The legal fees this quarter seem to, unless they've been buried in another line item, were zero. Have you resolved the various legal issues that are outstanding on Gas Solutions, et cetera, or was that just kind of a lucky quarter?

Well, the legal fees this quarter, there just weren't any, and we had a slight over accrual in the prior quarter which what little there were which was less than $30,000, that was able to take care of that. We actually were able to push some of the legal costs that we had accrued in the previous quarter down to get them reimbursed from our portfolio companies, which we try to do whenever we can. So that's why they were at -- John can probably talk better about the sort of situation at Gas Solutions, but I think we only have up side there.

Right, right. Years ago I remember that when I worked at [Davis Polk], Morgan Stanley had a policy which they may have changed, that they did not settle strike suits, they did not settle nuisance suits. They would make it clear to people that if you want to sue us you will lose and you will waste your time and you will waste your fees, and we will sanction your attorneys.

That's been our policy. It's worked very well. We've won every single lawsuit. We've gotten everything either dismissed or resolved at summary judgment. We are in the process of getting, of sanctioning attorneys who think they can take advantage of our Company and our shareholders. And we expect actually to recover some of the legal fees that we've spent in the past.

Secondly, we believe that our policy has deterred other people from trying these stunts. There is a class action case involving Patriot, which that's not on our watch, these things can be fairly typical, but at PSAC we have not had anybody try to shake us down in some time and we're -- we feel very fortunate for that. Now, at the portfolio companies you have garden variety employee type disputes and, as Brian mentioned, those are handled at the portfolio company level.

Okay, got it. Thank you. And this is the same question I ask every quarter, could you give us the latest on the nonaccrual assets, you know, [WECO], [Yates], exactly where they stand and if there's been any change on your strategy for those assets recently?

Sure. In the case of WECO, let's just say it's hard to imagine a more frustrating situation. I just reviewed that this morning. Since we invested in the company not only were there managerial problems, equipment problems, but the terms of trade have steadily moved against us, to the point where I'm not aware of any of the biomass plants in New England -- well, I believe none are running fulltime or on a steady basis. They're spot market participants waiting for spikes in the electricity price. It's a very frustrating situation for us because we have a significant investment there.

So we are not giving up, we don't give-up on things. We're looking at a couple of transactions involving a pellet plant, involving a restart of the facility, bringing in other partners. We'd like other people more capable at dealing with project finance, biomass issues, to manage that particular asset.

So I don't think it's ever going to be a winner. I don't think we'll ever recover our capital. We're not giving up on that, but at a certain point we have to recognize that it's very hard to light a match with a bar of soap.

In the case of the coal companies, we have -- again, we've had the terms of trade go against us, steadily. We've made money in some quarters on the coal companies, but we've had the terms of trade go against us. Now we have a new Administration in Washington that is I guess you could say everyone would agree is not friendly to the coal business and carbon emissions and the like. Coal prices are depressed, inventories are huge, so again that's been very challenging.

We are in the process of possibly contributing our coal companies to a larger transaction, taking equity in a larger transaction, having management other than ourselves manage those very difficult to manage assets. Should we succeed in closing that, we may discover that the equity that's returned to us and the debt that's returned to us in the transaction recover some of our capital, conceivably all of it. We're keeping our fingers crossed. We may, I expect we'd have more news on that at the next earnings call.

Thank you.

The next question we have comes from [Joan Rocky] of [Heidelrock].

Hi. I was calling in regard to the ratio, the [3992], it looked like in the prospectus that was determined by $4.00 divided by 10.02, and then that will be adjusted per any dividend that Patriot pays out. Is it going to be adjusted just by the cash portion of the dividend that Patriot pays out? And, if so, would that ratio then become 4 minus [0.038] divided by 10.02 as a rough estimate of what the ratio would be?

Good morning, Joan. If you look in the merger agreement that we filed in early August, I think it's Section 2, there are two parts of the calculation. What you're describing is the first part to adjust the exchange ratio. And then there's the second one which basically takes the stock portion of the dividend and adjusts thereafter. There's no change to the latter on the consideration of Prospect shares. The only thing that adjusts the number of Prospect shares being issued is the cash portion of the dividends.

Okay, so to get a rough idea of what the ratio would be you could use the 4 minus -- if you assume a 10% cash portion of the $0.38, it would be [0.038] and then divide that by 10.02 so the rough ratio would be [0.3954] if that dividend stays at the $0.38?

Well, you're talking about the ratio?

Yes.

You don't know the ending ratio because you don't know the valuation for the shares that would be issued. What I'm talking about is when the dust settles how many Prospect shares are issued. The only affect to the shares being issued is the cash portion. You were asking about the ratio.

I guess I'll have to call you because I don't quite understand what methodology you're using.

We don't -- the ratio is not known today, the ratio will not be known until closing because there's a stock dividend being done, an evaluation date that is in the future, not in the past.

But there should be a methodology that's listed out in the prospectus or something that we could get a rough idea assuming --

If you contact * but if you look at an 8-K that was filed I believe on or about August 5th on EDGAR, you'll see the merger agreement there, it's Section 2, it has letters one and two that spell out the two components of the ratio. You can see it right there.

Okay. Thank you.

Yes.

The next question we have comes from Jerry Parker, an investor.

Hi, good morning, guys. I'm a shareholder of the Company for about three years now, and I'm very satisfied at the way you've operated the Company. But I have one real macro question. I just have asked myself for like over a year and I just haven't been able to figure it out.

In recent years dividend amount has been increasing fractionally but essentially it's pretty stable, rising just ever so much, just so to the point where you can say it rises, and that's fine. But during the last few years you've also issued quite a number of secondary offerings, so the number of shares have constantly increased but yet the dividends essentially stay the same. And it's a very healthy dividend, 16% is terrific.

But I'm just trying to wonder that with the number of shares increasing substantially, the dividend amounts essentially staying stable to fractionally rising, and you're earning about 19%, 20% on your investments which is a great return on investments, but you're paying out 16% to your shareholders, what is the benefit to the shareholder of all of these additional shares?

I mean the way I see it is that the shareholders are being well treated but the real benefit of all these additional shares, the dilution of the Company is not enduring to the shareholders, it's really probably enduring to management, as they're able to extract higher compensation because they're dealing with a larger pot. I just -- trying -- just straighten me out on this?

Hey, Jerry, this is John Barry. I love the question. I'm really glad you asked it. If you hadn't, I'd have to plant the question, but we're not -- I wouldn't even know how to go about doing that.

The first thing you need to know is that the decline in the share price has cost management here millions and millions of dollars, so why would management do that? That sounds pretty nutty. The reason is, and the share price has declined in part, I believe, as a result of the issuance of new shares -- so why would people issue new shares in order to lose money? It's a good question.

But there are several reasons that a rational person looking out for the best interests of his shares, your shares, everybody else's shares, would prudently do that and stay ahead of the curve. The first reason is that we know, we've seen in past cycles he who has no cash has a big problem and may go out of business. As a matter of fact, we've seen a number of our competitors, we see their boats hit the rocks of no liquidity. Good companies, good management, good assets, no cash, out of business.

And if you go look at the stock prices of the other BDCs I think you will observe there's some very smart managers at those places. They have some very nice portfolios, some very good business models. They used to be bigger than we are, more resources, better known, but they did not manage their business for a rainy day. And when you don't do that and the rainy day comes, you can get pretty wet, to say the least.

Number two, the person with cash has an ability to spring forward and put the wallet on the table and buy things when other people can only make contingent offerings. Well, we'd like to buy it, too. For example, if you read the proxy, the PCAP proxy, there were more than -- there was more than one bidder and bid above us. And we were able to purchase the company because we had the cash, we had the unused credit. We were able to put our wallet on the table and say, "We're not the highest bidder, we're here, we're ready to go." That is immensely valuable when you're buying a house, a car, or a company.

The third point I would like to bring to your attention is that when you're able to do that not only are you staying in business when other people are struggling, not only are you able to buy assets at a price that we view as attractive, but you're able to consummate transactions that are antidilutive to existing shareholders.

And this is something I'm sure Grier is going to want to mention in just a second, which is that because we issued the shares, because we had the cash, because we had the unused bank facility, because we had a strong liquid balance sheet, we were able to buy Patriot on a basis that will enable us to earn more net income per share than would have been the case otherwise.

And we have other transactions that are, let's say they're on the drawing boards, which we believe will enable us to do that. So our view of the matter is that short-term pain, long-term gain. And as significant shareholders in the Company, that's what we would like to see happen. If you look forward and anticipate us closing with Patriot, I think you will see the net investment income per share on a proforma basis, it's in the proxy, will be increasing. Grier?

It's mainly a timing difference. We've issued shares but the Patriot deal is not closed, and as we discussed in our earnings release and prepared remarks just now, you'll start seeing the full quarter benefits of that in the March quarter. We think it's a good deal. The net discount paid is significantly greater than discounts on a below book weighted average basis for equity issuance this year, and also it gives us the scale and diversity to drive our long-term leverage over time. So we think that's the right win long term for the shareholder base.

Yes, there's no question that you guys are managing the money very well, in my opinion from what I could see, because your earning consistently in that 19%, 20% rate and but you're paying out 16%. So my point is that as you increase the number of shares if all of your new shareholders are also getting 16%, which apparently they are, obviously, on a different class of stock, and you're earning that continuing 19%, 20% rate on the money which you are earning consistently, then what I'm saying is that the benefit really is just that you're just smoothing it out over a larger shareholder base, but everybody continues to just earn that same 16% dividend plus of everything else being equal.

I'm saying there's not a marginal increase, it's not all of a sudden that you're earning 25% because you're able to get the money from the secondary offerings, you're not increasing your marginal rate. The rates are pretty much consistent from what I could tell.

I hear you, Jerry, and obviously there's a trading yield dynamic that you're quoting there. Perhaps the marketplace wants to see the Patriot deal, in fact, closed and some of the accretion come in. So we'll see obviously if we see an enhancement increased from here then that trading yield should go down.

Yes, and like I'm saying I'm very pleased with the way you guys run the Company, I'm very pleased at dividends. I mean, yes, I would -- you know, I did buy the stock years ago at a much higher rate, and I've bought it more recently, and I've just continued to average it out. So I think you guys are doing a great job, it's just that I'm just not really totally in agreement from my perspective as to all the secondary offerings because I just don't see it flowing downstream.

Hey, Jerry, it's John Barry. I'm not going to repeat what I said about the Company. I mean you might just look at the companies that did not do secondary offerings and where their stock is trading. I think if you take a look at the tape, that would be the corroboration of what I said.

But I wanted to mention another thing, and that is I believe when I look at our yield I say, "You know, there are people betting that we can't continue to do this or who are skeptical." And when people say that John and Grier are not going to be able to maintain this, they're not going to be able to buy things, they're not going to be able to protect and maintain this dividend, I'll take the bet, we're taking the bet, we view it as a challenge, and we continue to work here. We could have lowered this dividend in the past and we haven't. So I think in my opinion you've made a good buy, okay?

Yes, I guess what you're saying, John, is like what Ross Perot said, "Either you grow or you die."

It's not -- well, you know, the thing is there are markets where probably you should shrink, Jerry, but this is a market where the smartest people are going to take advantage of the difficulties and challenges that other people are running into, and I'm looking forward to the day, which I hope will come, I'm not guaranteeing anything to anybody, that people who bought this stock at a 14% yield are so happy that it's now yielding sometime in the future 6 or 7. That's where we want to get it to.

All right. Thanks, guys.

Thank you, Jerry.

The next question we have comes from Henry Coffey of Sterne Agee.

Good morning, everyone. A couple of things, details. It said in the Q if I'm getting this right, that Gas Solutions had a trailing 12-month EBITDA of about $26 million?

That's right, Henry.

And if we look at where we've been in the last couple of months or if we look at what's likely to happen once all your hedges come off, where does that kind of -- whether you think about it on an annualized or monthly basis, where does that end up?

Well, propane prices, which Gas Solutions has some part of its business a positive exposure to, and where propane puts have been quite advantageous as providing up side to cash flows, propane prices have increased substantially in the past few months, as basically the spread of roughly of crude oil to natural gas and crude oil has increased significantly, and natural gas has declined on a relative basis, thereby enhancing the spread. Propane prices are north of $1.00 per gallon now, again our hedges are in the range of $1.30 to $1.40 give or take, and run through about the middle part of next year.

I believe at current pricing the profitability of Gas Solutions is somewhere in the close to $20 million EBITDA range, but it's hard to characterize, Henry, because there's a number of projects the management team is working on with up side, with growth, there's initiatives and potential business development, joint ventures with third parties which could provide enhancement. So it's tough to characterize right now what things will look like a year from now or two years from now.

Oh, so even if the options, if those hedges which come off I believe in April, you could still keep EBITDA in the 20s on an annual basis?

With some growth projects, yes.

And without growth projects it would go below 20 in April?

Again, I hesitate to give precise numbers there, Henry, because there's a lot of dynamics going on with the business.

I listen to obviously to a lot of questions and comments about what you can pledge and what you can't pledge, and is it safe to say that you had the cash and the debt capacity required to buy PCAP without issuing additional shares beyond what--?

Correct, we do not need to raise any equity to close Patriot, and, in fact, have excess liquidity to pursue a number of other primary and secondary deals.

So this other shop that you alluded to in your press release, you could also fund without coming to market?

There's a lot of other stuff.

$4 billion, Henry, would be an awful lot.

It --

Yes, but what about if it were only 3.9, John?

Yes, there's a lot of deals embedded in there. I mean there's probably, you know, 30 deals on the primary side, Henry. So there's -- as you know, you've looked at a lot of these types of companies over the years, there's a probability, weighted aspect to it where some never come to fruition and some get consummated.

I guess the question that keeps coming up in different ways is the leveraging has been the salvation of the Company and you need to be applauded on that, but from an earnings point of view we're actually about four or five quarters ago you were earning in the 40s, and it sounds like if you close the Patriot deal based on the guidance you give, would be back into earnings around $0.40 to $0.42 a share.

And so it's been kind of a long round trip, and how do you balance the need to grow the business and keep leverage low with the need to eventually start earning your dividend and growing earnings at about $0.40 a share? And everybody seems to be asking the same question in lots of different ways, so I don't know if there's a better way to address it, but that's --

Right.

-- you know, you have the debt capacity, maybe some deals you have to forego. You certainly avoided -- the crisis is now behind you.

Sure.

The bar is $0.40, how do you keep over that bar?

Sure. Well, we have not been on a tear of closing a slew of new primary deals this year. We've been very selective and very careful to make sure we're getting outsized risk reward opportunities, and that continues with the growing pipeline.

On the leverage front, we're not so anti-leverage that we're going to run the business at zero leverage ad infinitum. As I said earlier, we like to grow the debt capacity. I put out an essential target of 0.5 debt to equity. Other companies are in the range of 0.75, 0.8. John commented on that by saying but we're going to be careful and protective of the business, as always.

My point is that loading up leverage with two-year bank debt is a very poor idea. Look at how many people did that and are out of business or have been gobbled up by other packmen in the marketplace. We are thoroughly uninterested in putting our head into third-party institutions' hands to control our Company.

And matchbook funding with a huge cushion on covenants is how you protect the Company, and that's how we're going to run our business going forward. And we do think the term debt, the term market is getting much more attractive, Henry. When you look at compression of spreads, you look at where investment grade securities, even noninvestment grade securities are trading in the marketplace. People are hungry for yields, and we think doing a term issuance could be a wonderful outcome for a company, and we're taking steps in that direction.

Thank you.

Henry, I have to add something else, too, and that is that I'm not a research person but when I look at the earnings of our competitors I notice that many have had to cut their -- have had their earnings collapse and have had to cut their dividend. We have had -- not cut our dividend, as we discussed with Jerry. Our earnings per share have declined as a result of new issuances, not as a result of bankruptcies and defaults in our portfolio, not to say that we don't have our own set of problems.

But to be able to look at an imminent event, like closing Patriot, and be able to anticipate that we will be earning on a per share basis what we were earning at the high point prior to the collapse and prior to the issuances of stock, to me is a very important milestone for us. We're looking at the shareholder vote is eight or nine days away. The closing is December 2nd.

Now, as you've said, that's the bar to get back into the low 40s. Once we're there we have other things that we have in mind that we're working on now. So we can at least tell you that we anticipate that we will be able to get past that bar with other accretive portfolio transactions, and that's been our plan all along.

Well, no, you're to be congratulated. It's just I think going forward the bar has been set and we're looking forward to you beating it.

Very good, Henry. Thank you.

the next question we have comes from James Bellessa of D.A. Davidson & Company.

Good morning.

Good morning, Jim.

My question is about the guidance range for the near quarter, $0.22 to $0.30 a share. In that guidance range does that include about $0.03 a share for the PCAP acquisition? You're saying it's accretive $0.09 a quarter, you're going to have only one month of accretion, is that roughly what's added into that guidance range, $0.03?

Yes, that's -- what we've done is we've assumed that the Patriot deal will close on December 2nd, in that guidance.

And then if you take the midpoint of that range, it would be $0.26 a share, and if you add another $0.06 for a full quarter of PCAP you're getting to $0.32. How can we envision that you're going to go up to this $0.40 barrier or above so that you cover your dividend?

There's a few different drivers, Jim. The first is related to PCAP in our guidance in that sort of $0.09 number. We're not assuming any early repayments nor repricings off of the 30 assets, both of which are drivers that we expect to happen. When you look at actual portfolio characteristics and a loan maturity schedule, it's a -- it would be quite exceptional if every borrower waited until the very last day to refinance or pay-off or what have you.

So early repayments have happened now that are pooled. There's some actually potentially pending as well which would accelerate that. And you have some deals there with legacy pricing that are just one lender signature requirement away from being repriced upwards. That's been the state of the market now for over a year, and if you got a legacy loan sitting there at L plus [3.75] earning say 4%, today's market, when senior debt is earning 10% and junior debt is earning 20%, and uni-tranche is earning mid-teens, there's a lot of up side embedded in that.

Beyond that, we have additional liquidity and credit to pursue other deals, both on a primary and secondary basis. And there are other Patriot type deals we are working on that have significant up side. We can't say too much about them on this call, but hope to have more to disclose in the weeks to come.

The range, itself, $0.22 to $0.30 is fairly wide. Can you explain why you've made it so wide, in past your guidance ranges may have been $0.05 and here's an $0.08 quarter, you're halfway through the quarter, you know how much you're going to get from PCAP in an accretion, why is it as wide as it is?

We're being carful related to the timing of the Patriot close. We had hoped originally when we announced the deal at the beginning of August that we would close two months later, at the beginning of October, and now there is more visibility. But just to be cautious, just to be careful, you know, you see lower end ranges there that don't assume a close. In actual effect, the vote is going well, and we expect to close on or about December 2nd.

And asking about an income statement item, your credit facility, you had amortization of deferred financing costs of $824,000 in the recent quarter. Is that an ongoing quarterly expense or is there an end to that?

That is an ongoing expense, and throughout the life of the credit facility.

And the credit facility is a two-year facility, is that what it was?

Correct.

Thank you very much.

Sure.

Thank you, Jim.

the next question we have comes from [Jim Presley] of [Guia Capital Management].

Good morning, Jim.

Hi, guys. Good morning, how are you? Your usual sunny selves. I've got a question. You've managed to get through this first act of deflation credit crunch pretty darn well with liquidity, where do you go with the next act? The next act may have higher rates and slightly higher inflation. How do you navigate that?

Well, the first thing we do is when we make our loans they're -- they go out at the higher of a fixed rate or a floating rate, so if you're concerned about 1979,1980s style inflation we feel that we're building a portfolio that will yield more should that happen.

We secondarily have a built-in spread against our bank facility on these loans, so as they -- as the interest rates move-up, the spread is protected because of the floating rates on the assets.

Secondarily, we have a portfolio with some exposure to commodities, including propane, which we discussed before. I think those are the two main things. What would you add to that, Grier?

Well, I think in this next act here, Jim, you have a marketplace very mindful of liquidity, and the marketplace to which we participate of middle market lending and selectively buyouts, there are very few competitors. And it's a wonderful time to be deploying capital, as I mentioned before, we can put out term sheets, senior secured debt with mid teens, with leverage, which is off of trough EBITDA as opposed to peak EBITDA, at low returns of leverage than in the past.

And we're not seeing a big competitive stampede back into the marketplace. The CLO market is in disarray. Commercial finance companies are trading at sharp discounts. CIT is bankrupt. There's no IPO market there. Hedge funds are moving into more liquid credit markets and being mindful of the investor redemption requests. Banks are still pulling back and are focusing much more on asset backed lending as opposed to cash flow lending. Some of our BDC brethren are out of business or being gobbled up, as I mentioned before. So there's just very few players in the marketplace.

One of the biggest challenges we have is if we have a deal that's on the larger size, and we want to syndicate it out because we don't want to hold too much risk on our balance sheet in any one place, simply finding people to take portions of deals is one of the biggest challenges we have. I call it a high quality problem to have.

I concur, that does seem like a really difficult problem. Just to make another comment on the issue of the call, the earnings and the dividend, I'm quite pleased, too, that you guys are still in business. I mean I'll start from that point, and it doesn't surprise me because basically going back to your football analogy, John, you're blocking and tackling. So I wouldn't expect you to go out there and just get any deal that you could.

I'm quite happy to even take a small dividend cut if we had to do that. So, for me, seeing your quarterly financials has -- I haven't been shocked or anything like that, and it's been a matter of maybe having a little bit of patience because deals take time to close. And so we're just waiting for this to close, and we'll see what the future brings. But so far as I can see, I don't have any great complaints, except, John, that you haven't bought a lot of stock in a long time. I'm just waiting for you to buy more, okay?

Yes, well, I'll tell you, there's -- I want to comment. We felt like Rosie Greer jumped on us, right? So we had to fight him off, and we've survived. We maintain liquidity throughout our system, when we're in stressed situations, and so I personally have to be careful, Grier does, Brian does, the Company does. And we appreciate your support, and we really do hope that we can beat the bar that Henry sets for us. The thing I've noticed about Henry, Grier, is that whatever bar he sets is always a little or a lot above where we are.

Great. Thanks, guys.

Thank you, Jim.

And the next question we have comes from [Alan Young] with [Regime Capital Management].

Yes, good morning. Just quickly talking about portfolio acquisitions, as you know, there are many, many BDCs out there publicly traded at material discounts to NAV, such that even after an acquisition premium is factored in you could still engineer an antidilutive acquisition. But these deals might, at least initially, be hostile to management, except the shareholders might welcome it, the business models are in essence broken. Management wants to continue to collect [2 and 20] for a company in maintenance mode, but shareholders might welcome something. What's your policy, if any, towards that kind of a deal?

Well, it's an interesting question. We have approached many such companies that you might envision would be candidates based on their discount. In some cases we have encountered folks interested in pursuing a liquidity pact for their shareholders. In many cases forced upon them by lenders.

Patriot would be an example of that, that obviously we are closing. And other cases there's greater reluctance and hold off associated with the factors that you've mentioned. Where we've encountered managerial resistance we have from time to time had discussions directly with the Board members to see if we can feel our way through the situation, but we haven't necessarily imposed ourselves in an aggressive fashion.

Would we ever consider making an unsolicited "hostile offer" for one of those companies? I wouldn't rule it out. It's not sort of anti DNA for us, so we do tend to march to the beat of our own drummer and follow our own path as opposed to the path of everybody else is doing it, so should we -- that latter portion is just not part of our culture.

But we do consider looking at a number of deals. I guess you would say we probability weight deals we're doing not only a returns basis, but also on the probability of getting something done, and we're looking at both private deals as well as other public companies. In some cases it's a matter of patience, whereby you wait, you hang around the hoop, and value gets better, pricing gets better, and people that weren't willing in the past become more willing now. So we are hanging around the hoop of a number of just some of those situations you probably have in mind.

And the thing is we have plenty of friendly situations that we would rather pursue. If you try to do something unfriendly it's just, it's very difficult, and the likelihood of success is not as high, and so why would we need to do that. I would say that we have been frustrated, seeing the number of times that it appears to us that there are people that are jut milking these situations, exactly what you say.

Absolutely.

And we've talked to those people on a very friendly basis. We've offered them what we thought were very attractive opportunities with us, and from our point of view rationality does not always prevail.

The space is ripe for consolidation to a great extent and we are -- we do have concerns that some limitations on investor share ownership, activist invested ownership impaired, imposed by the 40 Act can limit some of that. I don't know if that's been an issue as far as you've seen, but?

Well, let's, you know, that would be a very long discussion. I would just say that we have seen a gradient of attention to fiduciary duty, and people may think it sounds self-serving but why shouldn't I go ahead. I think at the Patriot Board, if you look at our proxy, interviewed, what -- was it 112, 130 bidders for that company.

Yes, we've looked at the proxy.

Twelve people, I mean showed it out to 130 people, 12 people bid at the end. That is, to me, the standard. Don't ask me, please, if it's being emulated by other companies.

No. Thank you.

Thank you, Alan.

And the next question we have comes from [Howard Feingold], an investor.

Good morning, Howard.

Hi, guys. I'm an investor in the Company, and I think you guys have -- certainly you clearly outperformed your peer group, and I'm pretty happy about that. Just wanted to ask one question, as to how you think about the dividend considering the near-term resolution that you've had?

Well, Howard, the dividend is a long-term consideration, and we don't provide dividend projections nor guidance. We announce it on a quarterly basis, and we'll do so for this quarter in December.

There's a timing aspect related to share issuance earlier this year and the closing of the Patriot deal, as one of the several dividend drivers that we are working on, others including optimization of that same portfolio, other primary and secondary deals, and long-term attractively priced leverage. So we think about our long-term basis, it's a careful weight, deliberation, consideration by our Board each quarter, but it is determined each quarter on a standalone basis as opposed to projected out for long periods of time.

But Howard, I could add something about that that is very personal, at least to me, and I think to Grier. I remember as a child reading about this or that stock, and this stock had 160 consecutive dividend increases, and then that stock had 70 consecutive dividend increases.

And what I noticed was that these stocks became stores of value for people, people could accumulate these stocks and send their children to college and buy a house and pay-off the mortgage. I also noticed that the, importantly to me as a the CEO of the Company, that the cost of capital to those companies was reduced by the consistency of the dividend and the predictability of the dividend. And when we meet as a Board and discuss our dividend those principles are front of mind for me.

If you notice our dividend policy, we used to increase the dividend by more, when we thought we saw some storm clouds on the horizon, we slowed the increase but have maintained the increase. As we've gone through these issuances and we're waiting for Patriot and we hope other deals to close, we've continued to maintain forward progress on the dividend because we do believe that we will catch-up. We like the idea that our Company ultimately should have the lowest cost of equity capital of any BDC which will give us a long-term comparative advantage vis-a-vis all of our competitors.

Well, thank you very much for your thoughts, guys, and keep on keeping on.

Thank you, Howard.

And the next question we have comes from [Dana Alerts], Investor.

Hi, Dana.

Yes, good morning. Congratulations on what seems to be a good quarter. I -- one thing that I would like to know if it's possible is if you could provide a more detailed picture of the condition of the portfolio?

I know you addressed the nonperforming assets in the 10-Q, but do you provide or do you keep an aging of the portfolio? In other words, what percentage of the portfolio is current on its obligations of principal and interest and what have you? And then what percent is 30 days past due, what's 60 days past due, et cetera? Knowing that would help me to assess the current conditions and the affect of the economy on your portfolio.

It's Brian. I'm going to take a first stab at this one. I'm sure John and Grier will have color. The answer to that story is the only loans that are delinquent are the loans that are in non-accrual status and the one loan that I disclosed as being more than 90 days past due. Everything else is current as to its payment of principal and interest at this point.

So just on the portfolio generally, it's no secret I'm sure that the economic trends of the last two-and-a-half years have not been kind to our portfolio, have not enhanced the revenues and cash flows. However, I have been gratified to see that where we've been exposed, most exposed to the cycle, we seem to be less exposed than our competition.

These companies, [NRG], [Ajax], RV, that we own, they're still generating cash, they've had, for example, a company like Ajax that makes rings for ball bearings that go into derricks and Cat and Deere equipment, and [Timken] equipment, you can readily imagine that the order book would fall off and fall off significantly, which is what happened. But the order book is now rebuilding, the company has continued to meet all its obligations through the trough. That is an extreme example of a company exposed to a heavy industry capital goods cycle, which virtually came to a standstill.

So other companies are less exposed and seem to be doing anywhere from not great but okay, to in some ways exceeding our expectations. We believe that we do have an economically sensitive portfolio. We have some retail. We have basic industry. We have energy. So you can well expect that we will be sensitive to the cycle. As we come out of the cycle and especially if it's we hope we come out with some real growth, we will be beneficiaries.

So that would you say that aside from those that are in the nonperforming category that you're essentially confident that these companies will perform and meet their obligations on a go-forward basis?

Well, we have how many companies in the portfolio now?

29.

29, and I could sit here and go through the whole list. I'm sure some that are performing now will have one or more periods in the future when they won't be. Some that are not performing now may be performing in the future. What I would expect is on an average dollar weighted basis there should be more clear sailing ahead of us than behind us.

Well, thank you very much, gentlemen.

Thank you, Dan.

The next question we have comes from David Miyazaki of Confluence Investment Management.

Good afternoon, gentlemen.

Good morning, David.

How are you? Just, Grier, you talked a little bit about terming out the right side of your balance sheet, and I know I presume that you're early in that process. But I'm just kind of thinking about when you have these initial discussions, what sort of timing if you're going to handicap that would you expect that this is a 2010 event, and what sort of pricing are you kind of handicapping that? Because as you ramp-up the uses, the deployment of your equity and your debt, I'm just kind of trying to get my arms around how much spread you're going to capture on the debt side of that, strategically over the long term? And then, finally, how does that coexist with your credit facility?

Sure, David. Let me try to tackle all of those. We're having conversations now. We would not be able to handicap exactly when or if a term debt deal would close, if it would be before end of the year, or sometime in the first quarter of 2010, but we're actually exploring the marketplace now. Spreads have tightened quite a bit, as you know, in the credit markets, and people are hungry for yield, we have an A2 rating on our existing facility, and there are two aspects, there are at least two and maybe even three potential term deals to be discussed with counterparties.

One is taking our existing structure, existing facility, and terming out a portion of that and maybe bumping up the size from the 250 range to 300 to 350 range, we do continue to add banks to the revolver. We've gone from one bank to five banks, which we're very proud of. These are banks that want to be in the deal as opposed to a lot of lazy situations where banks are looking for ways to get out of whatever facility they're in. A very different situation. But terming out a portion is attractive from a [tenure] standpoint.

Then outside the facility, which could be ratings dependent, which is another process that's ongoing, you have the possibility of a secured deal or an unsecured deal. And proforma for the Patriot deal, about half of our $800 million or so of assets will be -- will not be pledged to the facility and could be available as additional collateral beyond that.

When you look at -- on the question of pricing, if, you know, it's hard to tell right now because we're in some fairly preliminary discussions. We like some of the more recent comps on deals being done, and sort of asset managers get lumped in with commercial finance companies and especially finance companies and BDCs and that, and that's sort of saying Blackstone and Fidelity, for example, did recent debt issuance at some pretty attractive pricing, I think in the range of 6% for their rated debt.

And do you know roughly what the maturity on that kind of debt was, is it five, 10-year kind of stuff?

I think five, 10-year money, and when we talk to -- that's the type of [tenure] we're talking to folks about in the marketplace today. If it's just two to three-year money, you might as well just go to the bank market.

Sure.

It just doesn't do much for you to have that short of a term deal, especially if there's breakage costs and prepayment premium and that sort of thing embedded in it. But if you look at spreads on single A's and BBB's, and even BB's now, they've come down a lot in the last three to six months, and so it becomes pretty interesting to explore that.

I would assume, though, that if you're going to be pledging collateral against a term loan outside of the facility that it probably would be subject to mark-to-market provisions?

Generally, well, it depends, I mean our existing facility or bank led revolver does have valuation tests, typically the lower of our purchase cost and the third-party valuation with other excess concentration, deducts that come into play. And we'll have those types of aspects potentially but not necessarily in a new term deal. We would hopefully envision something with a lot fewer covenants than what our bank deal has today in the existing facility, but we can work within that.

One of the things we've done, of course, to protect on mark-to-market risk is to insist upon having LIBOR floors in our deals, because we're a direct originator. Historically, the sponsor less as well as the sponsor market and occasionally sponsoring their own buyouts, we've structured deals to protect against that risk.

And now interest rates are very low so it's less a concern than in the past, but a lot of the mark-to-market pressure was because people didn't have floors. And that L plus 700 piece of paper that was yielding 12% when LIBOR was 500 basis points is now only yielding a hair over 7%, and they've taken a mark accordingly because the embedded risk of that, the pricing on that basket of risk is still in the range of 12%. And if they had leverage on top of that they took a further mark to the equity beyond the assets. So we try to pay attention to this macro risk to avoid against volatility.

And so and I think about the deployment of your, of the debt on your balance sheet, that your current facility of LIBOR should probably balance that cost versus something in a 6% with maybe a 1% structuring fee kind of for your term debt?

Look, if we were able to pencil out a term deal at the pricing that you just indicated, a five-year plus money, we would subject to the fine print, so to speak, we would hit that all day long. Being more cautious than probably others on the debt to equity ratio, as I've mentioned earlier, I like our regulatory limit is one-to-one but history has shown with others getting too close to that could be quite dangerous. And if that's the cliff we want to build our path as far away from that cliff as is reasonable while still providing attractive accretive leverage to our business. So 0.5 is a good balancing act between this.

Okay, thanks a lot.

Thanks, David.

And this concludes our question and answer session. I would like to turn the call back over to Management for any closing remarks.

Okay, we're all set. Time for lunch, everybody. Thanks.

Thanks, all.

And thank you, gentlemen. The conference is now concluded. Again, we thank you for attending today's presentation. You may disconnect.