Prospect Capital Corp (PSEC) 2010 Q4 法說會逐字稿

Good morning and welcome to the Prospect Capital fourth fiscal quarter and year-end earnings conference call. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the conference over to John Barry. Please go ahead.

Thank you, Amy. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer, and Brian Oswald, our Chief Financial Officer. 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 securities laws that are intended to be subject to Safe Harbor protection. Actual outcomes and results could differ materially from those forecast 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-K filed previously.

Now I will turn the call back over to John.

Thanks, Brian. For the year ended June 30, 2010, our net investment income was $66.5 million, an increase of 12.3% from the prior year on a dollars basis.

On a weighted average share basis, net interest income declined from $1.87 for the year ended June 2009 to $1.12 for the year ended June 2010. This decline was primarily the result of raising additional equity capital early in the year and in June 2010 in order to complete the acquisition of Patriot Capital in December 2009, as well as to make new investments in the fourth fiscal quarter.

Our net asset value per share on June 30, 2010, stood at $10.29 per share, an increase of $0.18 per share from March 31.

For the quarter ended June 30, 2010, our net investment income was $16.6 million, or $0.25 per weighted average number of shares for the quarter.

Several new investments that we had anticipated would close in the June 2010 quarter were deferred and closed in the current September 2010 quarter. We have closed more than $130 million of new investments in the current September 2010 quarter, and $250 million in the past four to five months.

We estimate that our net investment income for the current fiscal quarter ended September 30, 2010, will be $0.26 to $0.30 per share as we strive to put money to work in a resurgent deal economy. We are now seeing better deal flow than we have in some time for each of our leading business segments, including each of our syndicated loan, sponsor loan, direct loan, and buyout strategies.

In addition, we've revised upward our second quarter results to reflect the settlement of certain accrued liabilities assumed in connection with our acquisition of Patriot, which had been estimated on a tentative basis at the time of the acquisition of Patriot. The settlement of these accruals at less than the estimated cost resulted in an increase in our net investment income per share for the fiscal 2010 second quarter of $0.03, increasing from the previously reported $0.29 to $0.32.

We have previously announced upcoming cash distributions, our 24th, 25th, 26, and 27th consecutive cash distributions to shareholders for July, August, September, and October. We expect to announce the next three distributions in November. Thank you. I will now turn the call over to Grier.

Thanks, John. At June 30, 2010, our portfolio consisted of 58 long-term investments with a fair value of $748.5 million, compared to 55 long-term investments with a fair value of $697 million at March 31, 2010. This increase in invested capital resulted primarily from investments in Seaton, SkillSoft, Hoffmaster, and EXL during the quarter, as well as additional funding to existing portfolio companies.

On April 7, we purchased $12.3 million of second lien notes in Seaton, a human resources services company. On May 26, we purchased $15 million in senior notes issued by an affiliate of SkillSoft, a leading software-as-a-service provider of on-demand e-learning and performance support solutions. On June 2, we made a secured second lien debt investment of $20 million in Hoffmaster, which primarily serves the food service and consumer market segments. On June 28, we purchased $6.3 million of second lien notes in the leading provider of coating services for steel suppliers.

On June 24, we closed a $25.5 million senior secured credit facility for EXL, a leading manufacturer and marketer of consumable lab testing equipment and supplies.

During the three months ended June 30, 2010, we repriced our loans to EXL and to LHC. The revised terms were more favorable than the original terms and increased the present value of the future cash flows. In accordance with Accounting Standard 320-20-35, the cost bases of the new loans were recorded at par value, resulting in $1.2 million of accelerated original purchase discounts recognized as interest income.

In addition, Caleel + Hayden and Custom Direct repaid outstanding debt to us during the quarter ended June 30, resulting in the acceleration of purchase discount of $1.6 million.

The primary source of new investments earlier in the fiscal year ended June 30, 2010, occurred through the acquisition of Patriot in December 2009. In this acquisition, we acquired 28 investments with a fair value of $207.1 million, thereby expanding the scale, borrower diversity, industry diversity, and private equity sponsor reach of our business.

Since June 30, 2010, in the current quarter we have completed four new investments aggregating more than $130 million. On July 14, we closed a $37.4 million first lien senior secured credit facility to support the acquisition by H.I.G. Capital of a leading consumer credit enhancement services company. On July 23, we made a secured debt investment of $21 million in SonicWALL, a global leader in network security and data protection for small, midsize, and large enterprise organizations.

On July 30, we invested $52.4 million of combined debt and equity in the acquisition of AIRMALL, a leading infrastructure-like developer and manager of long-term contract airport retail operations. On July 30, we closed a $21.5 million senior secured credit facility for NMS, a leading dental practice management company in the southeast Florida market. The NMS investment is our 10th new investments over a four-month period with such investments aggregating approximately $250 million.

Our investment pipeline currently aggregates more than $1 billion of potential opportunities. Primary investment activity in the marketplace has increased in calendar year 2010, and we are currently evaluating a robust pipeline of potential investments, some of which have the potential to close in the current quarter. These investments are primarily secured investments with double-digit coupons, sometimes coupled with equity upsides through co-investments or warrants, and diversified across multiple sectors.

As we have throughout 2009 and 2010 year to date, we also continue to evaluate potential acquisitions of lending and other financial services platforms, portfolios, and assets, utilizing our significant liquidity and balance sheet strength to go on offense to drive shareholder value. We are pleased with the overall stability of the credit quality of our portfolio with many of our companies generating year-over-year and sequential growth in topline revenues and bottom-line profits. Overall in the past year, we have not seen an increase in additions to non-accruals, but rather a decrease in such additions.

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

Thanks, Grier. On June 11, 2010, we held the first closing of an extension expansion of our revolving credit facility with a syndicate of lenders.

The lenders currently have commitments of $210 million under the facility. The facility includes an accordion feature which allows an increase to up to $300 million of commitments without the need for re-approval from the existing lenders. We are currently scheduling a second closing of the facility for an additional $30 million of commitments with current and additional lenders.

We will seek to add additional lenders to the facility in order to reach the maximum size. While we are optimistic about these planned facility size increases, we cannot guarantee them.

As we make additional investments that are eligible to be pledged under the facility, we will generate additional ability -- availability to the extent such investments are eligible to be placed into the borrowing base. The revolving period of the facility extends through June 2012, with an additional one-year amortization period, with distributions allow during this period after the completion of the revolving period.

Interest on borrowings under the facility is one month LIBOR plus 325 basis points, subject to a minimum LIBOR floor of 100 basis points, representing a significant decrease in financing costs for us compared to our prior facility. The unused portion of the facility has a fee equal to either 75 basis points if at least half the facility is used, or 100 basis points if less than half of the facility is used.

The facility has been and we believe will continue to be used together with our equity capital to make additional long-term investments. The facility has an investment-grade Moody's rating of A2.

As of June 30, 2010, we had $100.3 million of borrowings under our facility, including cash and additional assets we are in the process of pledging to the facility and not including either our anticipated second closing of the facility or further leverageability of additional collateral that we could add to our facility from the existing unlevered investments and additional new transactions.

Our available liquidity as of today is currently in excess of $150 million, which can be used for new investments.

Our aftermarket stock distribution program has proven to be a cost-effective source of new equity capital to fund investment activity. On March 17, 2010, we established an aftermarket program through which we could sell up to 8 million shares of our common stock. Through this program, we issued about 5.25 million shares of our common stock at an average price of $11.50 per share, raising $60.4 million of gross proceeds from March 23 through June 30.

Continuing with the program during the period from July 1 to July 21, we completed the sales of approximately 2.75 million shares of our common stock at an average price of $9.75 per share and raised an additional $26.8 million of gross proceeds. During the period from July 22 to August 24, we initiated a new at the money -- or at the market program and issued an additional 3.8 million shares of our common stock at an average price of $9.71 per share and raised an additional $37.1 million in gross proceeds.

With a debt-to-equity ratio currently less than 15%, our modestly leveraged balance sheet is a source of significant strength. Our equitized balance sheet also gives us potential for future earnings upsides as we prudently look to grow our existing revolving credit facility, add additional secured facilities, and evaluate term debt solutions made more attractive by our investment-grade facility ratings at both the corporate and facility levels.

Now I will turn the call back to John.

Thank you, Brian. We are ready for questions.

(Operator Instructions). Greg Mason, Stifel Nicolaus.

I want to talk a little bit about the equity issuance and what is your kind of long-term plans for issuing equity, as well as kind of what levels do you think about when you -- you just gave the numbers there, I think $11.50 for last quarter, but now you're kind of issuing it at $9.75 so far this quarter. What are your plans for issuing equity and kind of what are your thoughts about the equity levels -- pricing levels?

Sure. Our thoughts on equity issuance is really driven by a couple of factors. One is opportunities that we are seeing in the marketplace -- can we deploy capital in an attractive fashion, and really a net accretive fashion? And secondly, a function of the share price.

We really slowed substantially our equity issuance in, for example, the month of May when there was a sharp drop in the marketplace, and we would be quite reluctant to issue if there were similar future drops in the share price. But we don't have specific targets or plans related to equity issuance.

What we do is look at it on a bottoms-up fashion. We run a liquidity forecast on a daily basis in our business, looking at new originations. And we have raised about $125 million of new equity in the last several months. But we've deployed twice that in new originations.

So we've actually been pulling on our credit facility at an equal rate with equity issuance, about a 50-50 ratio.

We also think about raising more equity from the standpoint of building, as an ancillary benefit, more scale and diversity in the business. As we've grown our balance sheet over the years, we've seen significant benefits in terms of diversity, risk management -- we now have 60 portfolio companies, which is more than twice where we were about a year ago. That's a positive for the shareholder base.

As our equity base has grown, we've got investment-grade ratings at both the top level as well as the facility level. That's a plus that gives us positive option value to drive down our cost of capital and access to capital at all, which many of our peers do not enjoy.

And it also gives us the liquidity to do transformative deals like the Patriot deal that we did in 2009. We have evaluated many similar opportunities. We have a disciplined screen on new originations, whether it's an individual deal or a portfolio with a conversion rate and book-to-look ratio of still around 1% or less. So there's many deals we work on that do not chin the bar, so to speak.

But having that available access to capital so we can capitalize on situations out there, whether they are distressed situations that are others are experiencing or some other catalyst, we get a good look at many, many opportunities because of our balance-sheet strength.

Okay, and to follow up a little bit on the leverage, we kind of looked back. Historically, you guys have been levered around 0.3 debt-to-equity. Based on your current $240 million -- if you close the additional $30 million, you would kind of be levered at the same rate. Is that an appropriate expectation going forward or what are you looking at in terms of leverage levels going forward?

We'd like to walk up our leverage closer to a 0.5 debt-to-equity over time. And we were reluctant to walk up to that leverage in the more recent history because, A, the cost of credit was too high. We had a much more expensive facility last year, and really it was a lender-friendly issuer, not friendly marketplace, for companies like ours doing extensions. You're really a price taker.

B, facilities were shorter and in tenor. It was more of a two-year market back then. Now, it's a three-year market. We really focused on getting our revolver extended, and succeeded in doing so in June.

And we didn't lose a single bank from our group, whereas peers -- some of our peers had downsizings and have continued to do so. And in fact, we are scheduling a second closing of that facility for the near future that will add an additional bank to the group and an upsizing from an existing lender.

So we are increasing the size of our revolving facility. That's where we want to focus first because that's our lowest cost of capital money. It's about 4.25% money.

And then, the next dilution we look at is the term market, which we've been evaluating very closely and very carefully, having many conversations with potential lenders, with potential agents to that marketplace. That market had been more robust in the spring, and then had gotten soft in the May and June timeframe, and then it rebounded a bit this summer, and we -- our intention is to explore that marketplace, leveraging off of our BBB investment-grade corporate rating at the parent level.

One more question, and then I'll hop back in the queue. Can you update us on the number you gave last quarter of the amount of realizable OID left in the PCAP investments? I believe it was $36 million last quarter?

It is $29.6 million.

Jasper Burch, Macquarie Research Equities.

Just following up on some of the previous questions. Firstly, on your leverage and so the availability of debt capital, could you give us any timing -- thank you for the commentary that you're looking at term debt, maybe additional facilities. Could you give us any timing on when you think those sorts of transactions might come to fruition, as well as any more concrete timing on when you expect the $30 million second closing?

I'll answer the second question first. The $30 million closing we are scheduling in the very near future, in the next few weeks.

The term debt issuance is something that we're looking at in more of a late summer/fall timeframe, and I would emphasize that we are not a taker of term debt on a no-matter-what basis. We've actually been offered term debt solutions in prior months and turned them down as not being attractive from a cost of capital and other term perspective.

So, we went to have term debt not for the sake of term debt, but the right covenant package, the right pricing, the right structure, in terms of -- and the right tenor as well. We'd like to push out our overall weighted average duration of our debt and assets in the range of five-year and maybe even seven-year notes, giving us a laddering to our liabilities beyond the -- really still what is very much a three-year bank revolving market today.

So, late summer, fall, it's already late summer, so that could be proximate. It's just a matter of getting it at the right moment?

That's right. You know, there's a lot happening in the yield curve, as you can see, and in spreads, and an uncertain market environment, and if we see the right window, our intention could be to move expeditiously to capitalize on that.

Okay. And then, your commentary on the two market issuance program was very helpful. I was just wondering, do you have any ROE targets when you are evaluating that, or any more color on any sort of concrete numbers you can give us? I know it's really based on your -- on what the markets are doing.

Yes, you know, our intention really is to -- right now, we have more than $150 million of liquidity. That doesn't include the second closing upsizing that we're doing on our secured facility. It doesn't include any of the term debt possibilities that I outlined.

So we have a fair amount of liquidity there that we'd like to deploy in attractive opportunities in front of us. We really don't have hard and fast targets.

Okay, that's helpful. And then, on the $150 million of liquidity, I guess, firstly, of the $130 million of closed investments, what portion of those are funded, and does the $150 million of liquidity include unfunded investments?

Those are -- sorry, the $130 million that we've funded are all -- those are all funded investments. We really have not in our history been in the unfunded revolver type of business and have steered clear from that. We think running a distribution business like ours as a [PDC] is really not an appropriate vehicle to load up on revolvers.

We did assume a few small revolvers in conjunction with the Patriot acquisition and have been working over time to whittle those down. They were small already and they're getting smaller with each amendment. And our preference is really for third-party banks, usually, that also hold deposits with portfolio companies to do the revolver. And then, your other question (multiple speakers)

That answers my (multiple speakers)

Chris Harris, Wells Fargo Securities.

I'd like to talk a little bit about the results here this quarter. Your revenue was a little bit softer than what we were looking for, and it looks like interest income declined just under $3 million on a sequential basis. I'm curious to get your thoughts as to what's driving that decline in revenue.

We had a delta in the accretion recognized in the third fiscal quarter versus the fourth fiscal quarter. We had a number of repricings in the March -- the third fiscal quarter, which were fairly significant and reflected, I think, how attractive our acquisition of Patriot was, and that aggregated about $6.7 million in that quarter.

And then in the June quarter, the fourth fiscal quarter, the number related to repricings and repayments that causes the recognition of the discount was about $2.8 million. So, that's a delta there of about $4 million, and then the range of $0.04 to $0.05 a share, that explains the NII delta.

The other factor, too, relating to our guidance in our earnings call in May, versus the actual result, is several of the deals that we ended up closing in July, we had anticipated back in May to close in the June quarter, and ended up being closed in July for individual bottoms-up factors. And of course, we're not going to close a deal or take imprudent risk until we're comfortable with every last aspect of that investment.

Okay, and then, I guess, shifting back to capital, I know there has already been a lot of questions on this, but I'm still perhaps a little bit confused. I know your existing revolver is $300 million in size, but I'm just curious, how much today, based on your existing portfolio, could you actually draw on that facility?

We could draw in excess of $150 million. But then, if you take the proceeds and you put them into borrowing base conforming assets, it's an iterative calculation, and you get a further borrow on the collateral that you put back into the pool and it increases from there.

So, I don't have -- it's awfully hard to give a specific, here is exactly what we could draw, because it really is an iterative calculation that depends upon where you deploy the capital and how that deployment stacks up in comparison with diversity baskets in the borrowing base that we manage towards related to size and industry and first lien versus second lien and rating of such assets, etc., and our finance department does a very nice job managing all those baskets.

Anything else you'd add to that, Brian?

I think just to clarify, right now we have enough collateral pledged and ready to go that we could borrow the full $210 million of commitments that are in place right now.

Which we are targeting an increase to $240 million very shortly here.

That makes sense. And then, again, on the equity raises, I know people have brought this up earlier, but are you currently limited to how much equity you could issue below NAV or are you kind of free to kind of issue capital below NAV as much as you'd need to, to grow?

We're limited in terms of our undertakings with our shelf registration statements pertaining to aggregate dilution before we need to go back and refresh a registration statement. We are nowhere close to that, in fact, on a net basis, have issued accretively over the last four to five months.

But bear in mind also that any time we issue below NAV, we need the approval of our independent directors. So, that's certainly a limit.

Henry Coffey, Sterne, Agee & Leach, Inc..

Good morning, everyone, and thanks for taking my call. Can you give me some sense of what the efficient issuance size on term debt would be, and I don't know, what did you say, Grier, it was a BB rating? What the likely -- what's current market on a BB stage three- or four-year term debt facility likely to look like?

Our corporate credit rating is actually BBB, Henry, not BB.

And we've looked at both the public bond market as well as the private placement market. In the public bond market, you would have incurrence covenants but not maintenance covenants. You would have both in the private placement market.

The public bond market typically would need two corporate ratings, and the private placement market would typically need one, which would satisfy an NAIC requirement.

So our existing corporate rating would satisfy the NAIC requirement. It might make doing, at least in terms of our first issuance -- because we're thinking about this -- trying to think about this strategically, Henry, as not just a one-and-done deal, but doing an issuance to set us up appropriately with that lender community of primarily insurance companies to do subsequent issuance, to have something that is efficient and scalable.

And in terms of the first deal, which is the first part of your question, in size, we are still evaluating that, Henry. I think part of it will be a function of price. If we come out a little bit higher, we might do a deal on the smaller side to build relationships with those lenders and to set us up for subsequent issuance at a lower price. There is obviously a limit to how much you might do that.

If we get a really, really attractive price and the yield curve is flattened and the insurance community is hungry for yield, as seems to be happening a bit out there, then we might do a larger issuance, paying attention, of course, to our capital needs at every step of the way because our pipeline, of course, changes on a daily basis.

But to give you a bracketed range and more specificity there, we've talked somewhere in the $100 million to $200 million range initially, Henry.

Then likely, let's not talk about your pricing, but likely pricing today for a BBB rated credit would be --

Well, BBB bonds are in the -- at 5% to 6% range. There might be a modest premium to that associated with being a financial services company and being a first-time term issuer that you would drive lower in subsequent issuances, and [loss] liquidity premium to that. We think some of that (multiple speakers)

(Multiple speakers) if you look at the VIT deal, would a 7% handle be undigestable for you all?

Well, that's a non-investment-grade issue.

I'm just asking the question. Would a 7% handle be unacceptable on a term debt deal?

We are still evaluating the pricing and running calculations, Henry. But that's a bit steeper than the BBB bogey, for sure.

Right, okay. So the second question is just a little more basic. This is the sixth quarter in a row where you haven't earned your dividend. It's, what, about a -- I guess we could call it a quote 30% -- $0.30 per quarter as a run rate. Is there a recovery back that's likely to happen soon or are we going to have another sort of successive period where the $0.30 bogey becomes kind of a difficult hurdle? I know it has been very difficult for you to earn that dividend for -- sort of at least the last 1.5 years.

You know, we really slowed new originations on a primary basis in calendar year 2009, and really didn't start ramping those up until we saw more market opportunity.

When does the benefit of the ramp show up?

The benefit of the ramp started showing up more, actually, in the current quarter because --

$0.25. Excuse me. So, when you weren't ramping and you weren't able to originate loans, you were earning $0.40, but now that you have the benefit of the ramp, you're earning $0.25?

No, no, what I was trying to say is the -- we are getting the benefit of the ramp in the current September quarter, and we (multiple speakers)

Okay, I'm sorry. (Multiple speakers). So those will be back to $0.40 or what would be the likely --

Well, we would have to add a lot more leverage to the balance sheet to get to those sorts of numbers, most likely, Henry, and we'd have to feel very, very comfortable with the tenor, the terms, the cost of capital of that type of (multiple speakers)

So with a $0.26 to $0.30 outlook, what is the Board's feeling about paying a dividend? Would it be -- are they going to go back to the $0.26 level or what is the thought process here?

Well, we were very careful in guiding for the existing quarter because of last quarter, there were some originations that slipped, and in guiding here, we were only including deals we've already actually booked and closed in the quarter to date here at the end of August. So, there's still another month to go in the quarter. We'll see where we end up.

So a $0.25 -- a $0.26 quarter would warrant a $0.30 run rate on the dividend or a revision to a $0.25 run rate on the dividend?

Henry, let me help you a little bit here. First, I think everybody knows we have some rules and regulations here. We can't be predicting dividends or providing advanced notice of things that are like that. But, we do have two beliefs. (Multiple speakers)

You can on this forum.

No, I know we can, but I don't want to then be putting out an 8-K, if you don't mind. But we do have articulated policies, Henry, that we've really tried to stick to.

One is a predictable growing dividend. That has been an objective of this Company since really when we went public, as you well know, and of course, we were not able to sustain that. And that's why we had to reduce the dividend.

So now we are at a new level. I can tell you that we are comfortable with that level and I can also tell you that if we had thought that that would be a level that we would then have to then cut again from, we would not have wanted to choose such a level, right? You don't want to be making a cut in your dividend except very, very rarely, if at all.

So, it's our objective to be increasing or, at the very least, stable off of the level that we have. When we look at it, our book of business, we realize we have to work hard to get to the point where we are underdistributing once again, which is also a third objective for us, but we have reason to believe that we will be able to get there.

As Grier was indicating to you, it's a function of deals. We have a very robust pipeline now. That's good. That wasn't the case six months ago. And also, the additional leverage that has now been made available to us through this [raba] facility, which is the cheapest cost debt financing available to us.

Lastly, let me point out on the term debt, I think 7% would not be something I would be personally interested in. Nor 6.5%, nor 6%. So that's my personal interest. I only have one vote, but that's my vote for what it's worth.

Now in terms of -- I know you've talked a lot about this in general terms, but I was hoping we could get very specific here. When you look at the kind of incremental per share contribution of quote lending a dollar -- you're going to make a, we'll call it, a $10 million loan or a $100 million loan, whichever number you prefer. So lending or investing in a pool of loans, and then raising -- doing $50 million worth of originations, borrowing $25 million and issuing $25 million of equity at this level, what is the incremental per share outcome of that?

What is the likely rate on the loans that you could originate in that, we'll call it, a $50 million bucket or whichever set of numbers you want to use, and what is the kind of bottom-line outcome of the total -- if you're going to lend a dollar, what's the per share contribution going to be?

Well, there's a lot of potential calculations there because it might be (multiple speakers)

They're not hard. I mean, it's all linear math. You're going to lend $50 million, you're going to issue $25 million of equity below book value, and you're going to borrow $25 million at -- under your debt facility.

Well, we have a 4.25% facility today with an advanced rate of 50% from a fresh start, but of course if you're drawing a facility without share issuance, then you have an interim return on the incremental capital.

I know, I'm not worried about -- I wish you would do that. But what you've been doing is issuing equity. So, let's assume a 50% equity issuance.

So, a 50-50 rate. We would be deploying on a return-on-asset basis, we've been in the, call it, 15% zip code.

Okay (multiple speakers) when you're saying 15% ROA, you mean a 15% yield?

Correct.

And then minus your management fees, right?

Right, and we've been getting other efficiencies in our business from scaling the balance sheet, too.

But the management fees are -- there is no efficiency there, so those are (multiple speakers)

Right, that's a variable cost.

What are those -- what would those equate to on that 15% yielding loan?

Well, you take the 15% and apply leverage to that and you get into the high teens in your math and subtract, and you're kind of in the low double-digit (multiple speakers)

But I would hope to do this with specific numbers. So with one-to-one leverage, the effective management fee is going to equal what?

Henry, what I would suggest is we -- there's a lot of calculations here, some other questions pending. And rather (multiple speakers)

We can do this off-line (multiple speakers)

Yes, I don't want to blurt something out too quickly without going through it carefully.

We'll give you a call after lunch. Thank you.

David Miyazaki, Confluence Investment Management LLC.

Just kind of looking at the amount of capital that you've been deploying here in recent months, in -- as I look at what is done with your purchases in the secondary markets, against the backdrop of the fact that your primary originations are inherently going to be lumpy, I would think you'd have a little bit better control in deciding when to purchase in the secondary market, right? I know you have to be opportunistic there as well, but I'm just wondering, what is it that is driving your decisions to put more capital to work with secondary purchases right now versus where you've been, say, a year ago?

Are you more optimistic about the economy or are the credits themselves getting that much better or are you finding more -- I can't imagine there is more distressed sellers now than there were a year ago.

Definitely some of the strongest catalysts with sellers of paper from a year ago primarily related to their own overleveraging, one reason why we're eternally cautious about leveraging our business.

That catalyst is a bit less, but there's still a fair amount of clean-up work to be done out there in the marketplace, David, that we're seeing with legacy facilities that others have, pressures in the system, repositioning of portfolios, rating centric changes with CCC baskets, a lot of different factors going on (multiple speakers)

What is it that you are seeing more recently that make you want to take advantage of those?

I would say it's not necessarily a recent uptick, but a continued group of platforms and assets and businesses out there in which liquidity is needed for those either lenders or business owners that would like to transition.

But on an individual asset basis as well, David, we have been purchasing secondary opportunities as well. In the last quarter, we made -- at least a couple of the purchases that we mentioned were actually secondary purchases, and they were made from a platform that -- a healthy, vibrant platform, but that needed to -- they wanted to reposition their portfolio out of the middle market into more of a flow name, leveraged loan kind of strategy.

And we, of course, our bread and butter is middle-market lending and we have the right capitalization to do those types of deals. It's more of a buy and hold to maturity approach as opposed to an inactive trading approach.

But we look at every deal and re-underwrite it, David, as if it's a primary deal. We don't really differentiate too much primary, secondary. We look at the opportunity set. The main aspect, of course, is usually, but not always -- usually you can't necessarily change the legal documents on a secondary basis. It kind of depends on whether or not there is a restructuring involved at the same time, which actually was the case in one of the two secondary deals that we did last quarter that I mentioned.

But we look at all those marketplaces. For sure, the secondary markets traded back significantly in the March and April timeframe, softened a bit in May/June, and have rallied a little bit. And that's kind of a backdrop against us. But because we're always out there in the prime origination markets as well, we are not dependent upon what might be happening with secondaries out there. Does that help, David?

I'm just trying to get my arms around a little bit why you decided to engage in the secondary markets (multiple speakers)

Let me add to that, and you may find my additional commentary helpful. There are definite returns to scale in this business, not only do we spread fixed costs over a larger asset base, but also on the asset-gathering side, there are more transactions that we can look at, more people think of us, more people send us things. We can do bigger deals.

And as a result, the opportunity set that we're able to access itself becomes larger. I believe that that is also a factor, in addition to the fact that there just is more deal activity in the secondary market as well as in the primary. Maybe really there's been more of an uptick in the secondary relative to the primary from what we've seen.

Would you expect that to that trend to remain in place as you look forward, as your pipeline -- would you expect it to be more balanced between the two of them or are you going to lean more toward the original prime (multiple speakers)

As you know, predictions are very difficult, especially about the future.

It's hard to say. There's a lot of primary drivers right now with buyout firms selling their companies, [needing to show] realizations to raise their next vehicle.

Other buyout firms putting money out because they're nearing the end of their fund life. Changes in tax policy in Washington with an increase in capital gains rate causing many to want to exit by the year end. We expect it could be a busy fall as a result of some of those drivers that I mentioned. But it is very hard to predict, and as you pointed out, David, it can be lumpy.

We don't see any reason to suggest that it's going to fall off.

Jasper Burch, Macquarie.

In response to one of Henry's questions, I think you said that your guidance only includes already closed deals, and I find that a little interesting because I would've thought that would've been probably the largest moving part in your $0.26 to $0.30 guidance for next quarter, and I was wondering if you would just give a little more color on what are the moving parts in there that could really drive that $0.04 difference.

It's a fair question. I guess I was referencing more kind of the bottom to midpoint of that. There is also realizations as well. There is expected repayments in the quarter. There's other things going on beyond just primary origination that's part of the mix. But we do give -- we do put out a range to account for those factors.

So kind of -- so, I guess, origination is in there. So it might be at the lower end without more origination volume and the higher end if you are pretty active.

Yes, that's a fair comment.

And then, also just one last thing. On Gas Solutions, I noticed that you guys put on some more puts, and obviously they are at a lower strike price than the old puts had been. Can you give us some color on what sort of reasonable dividend run rate would be there?

I think the current quarter dividend rate is probably sustainable.

And what exactly was the dividend in the quarter? From Gas Solutions specifically?

While Brian looks that up, just in general the puts provide downside protection, as you know, and to the extent propane should increase, we didn't sell off the upside from that.

Beyond the commodity aspect of it, our new Chief Executive Officer there has really driven -- continues to drive terrific growth, and we are hoping that that can cause an increase in distributions over time beyond what's happening with commodities.

$2.2 million was the distribution last quarter in June, Jasper.

[Ross Rubin], [Family Office].

I guess just, first, two comments, then a question. I guess the first comment is we do like the monthly dividend and encourage other BDCs to head in that direction.

Second comment, I guess we'd really like you to see you increase the amount of leverage you're using in slow -- or be more sensitive to the market price when you issue additional equity.

And the question is, are there any new portfolio issues with any of your investments, and then if you have any updates on some of the older issues that -- anything new happening with them, any progress on getting some of this old stuff resolved?

Sure. We agree wholeheartedly on the leverage point and have been actively focused on that, which is why we're adding to our secured revolving facility while we've got investment grade ratings in the past year, while why we are evaluating the term markets and continue to explore other options. So, agree completely. Are there any particular companies you were looking to discuss in the portfolio?

No, I just wanted to know if there were any new issues or problems (multiple speakers)

Any imminent bombshells? No. We're not aware of any. Our portfolio in general seems to have weathered the difficulties better than we had a right to expect.

We have two or three or four that I can think of right now that we spend -- still continue to spend time on. But they are not any worse than they were in the last quarter. And I think a couple of them are doing better, one markedly better.

Our non-accruals as a percent of value is sequentially down quarter over quarter. And we are seeing positive trends.

John Ellis, private shareholder.

If I just might make a comment on monthly or quarterly, it really doesn't make any difference to me. As somebody more quick than I pointed out, for every $1,000 invested, if you pay on a monthly basis, it's -- the opportunity costs us 6%. It's $5 per year. So I regard it as insignificant from my standpoint. So, do what you think is best.

Thank you.

Now in general, I've always looked at Prospect as being on my side of the table, and Mr. Barry, I am particularly speaking to you. You own a lot of shares, and I figure what you do is going to be in your interest naturally and it's going to be in mine. So, I have no -- maybe that's one of the main reasons I own Prospect (multiple speakers)

Pardon me, Mr. Ellis, this is the operator. Could you please move your cell phone away from the phone you're talking on now?

My cell phone, sure. It's on, but I'm not talking on the phone. Is that better?

Right, it's causing buzz. Thank you, sir.

Is it better now?

Yes, sir.

I threw it across the room. Okay. But Mr. Barry, particularly there is a big -- one big difference between you and me and a lot of others, but the biggest one as I see it is you're in your middle 50s and I'm over 80. So the thrust of my question is how are we doing on a timeline? I mean, obviously we'd all like to get back to the $0.41 level and we'd like to go further.

And my question -- and I've listened carefully to what you -- how you've answered the other -- the analysts. And I'm not -- I know it's not going to be quarters, it's going to be years. But how are we doing? Are we 10% from pain to pleasure or are they 20% -- am I looking at a 10-year timeline here? If we're looking at a 20-year timeline, I'm not so sure I'm going to see it even if I'm alive. So what's your gut feeling here?

John, first, on the monthly dividend, if you look at it on an IRR basis I think you would notice that the improvement is more material than what you just indicated on a dollars basis, and we would be happy, in addition to speaking to Henry Coffey off-line, sending him some numbers, we'll send you some numbers. I'm sure you are running an IRR portfolio as we here are.

So, you will see your IRR does go up. It may only be $5, but on a $100 investment, that's not so bad.

Number two, I think (multiple speakers). What?

I'm sorry, my calculation was on a $1,000 investment.

Oh, really? Well, I think that probably understates -- let me take a look.

At 6%. Not putting it back in Prospect.

Well, you got to reinvest. Anyway, John, let's go to the second point and that is, to quote Grier, we believe in the get rich slowly program. Slowly and steadily. I understand being 80, you might want us to step up the pace a bit. So let's talk about that.

What's happened is we had a time period when we were looking at significantly accretive transactions, including Patriot. We had a bank facility that was coming due. We had a foreign bank with foreign management that -- where North America was not their number one theater of operations. And we had to be prepared for the absolute worst, as the economy went into a government-induced tailspin.

So, we saved liquidity up, we issued shares at prices we were not terribly happy to issue the shares at, and we addressed the opportunities that were in front of us. We were disappointed to only close one of the three. Or four or five that we were looking at, and that was Patriot Capital. So to some extent, we overissued shares, looking at other opportunities.

We now have other opportunities in front of us that we are pursuing again. In fact, we are always pursuing these opportunities.

Whether and how quickly we can get back up to $0.40 is a function of cost controls here. We are very aggressive about those. Deploying capital in a robust and resurgent deal economy, even if the real economy is yet to really do much better. And number three, the more, what I call the larger, move-the-meter transactions that we do spend some time on.

As I said when Henry Coffey asked us before, if we didn't think that we could hold the line where we are now and increase from there, I don't think we would've chosen the particular level we're at. All of us here would like very much to get back to the former level, and as Grier indicated, it is a function of what I would call attractive, larger deals. We are looking at those, number one.

Number two, more leverage in the portfolio, and number three, day to day, one at a time deals. If I had to predict how long it would take to get back to $0.40, I'd like to tell you that I don't know exactly -- I can't even say if it would definitely happen. I believe it would happen. I don't just hope it will happen.

I believe it will happen because if you go through the quick numbers that Henry was wanting Grier to lay out and he was careful to not start doing mental math on the phone in the middle of a call, we earn anywhere from 15% to 18% net on investments, and even after our fees and expenses, that is accretive relative to our current dividend. So, if I had to -- why don't I tell you what our objective is? Okay? What would our objective be?

There we go, yes.

Our objective, two years? I'd like to do it in a lot faster than two years. I think it's reasonable -- Grier, what do you think? In a two-year period, is it reasonable to -- we're not -- by the way, we're not predicting, guaranteeing, assuring, but just telling John, is it possible, Grier, do you think it's possible? Brian, do you?

It's really a function of terms we would get on leverageability. It's very hard to forecast that.

Yes, it really is -- for example, John, on the term debt solution, if we were to lay in a nice layer of term debt at 5%, which is where I think it should be, and relend out, say, $200 million at 5% and earn a net 12% on it, right there you've got $14 million of new cash flow, which, if you apply against 66 million shares, what is it? It's -- gosh, I don't want to get dragged -- it's almost $0.40 a share, right? Let's see. No, how much would it be? Fourteen into 66 would be -- it's -- is it $0.20 a share? Yes.

So, you can see there are ways to move the meter here, John. By the way, the other thing we are cognizant of, being shareholders, is that if we can increase the dividend a little and maintain a perception of stability, so that our cost of capital is low and lower, then the share price appreciates, which I'm sure you would like to see happen. Right?

Yes, frankly I am as interested in the dividend as anything, but the share price is locked to the dividend, the way I read it.

Well, Grier's point is we can't be promising $0.40, and we are clearly not, but I will (multiple speakers) tell you, John, we are working hard to get back there because we remember these marks, 15 or whatever we got up to from the share price and in dividend. We know that we've many shareholders who depend on that dividend each month or each quarter, and we are very focused on it.

Right. Thank you, that was a, really -- that was a lot more answer than I expected. I'll make you gentlemen a deal. I'll live another two years, and then we'll talk.

We don't want you selling your shares, John, okay?

Naturally that's always in the background, but I can buy more too.

Go ahead. Be my guest.

But I -- and I'll bet you most of most shareholders do this. I bet most of your small shareholders like me are small guys who spend this money pay out. I spend it. I don't put it back in. If I want more, I put it back in it at my price, not the reinvestment price. But anyway, thank you for the full and as precise answers that you could give.

Jim Stone, PSK Advisors.

I'm trying to understand what really drives you folks.

Greed!

I'm sorry, I missed that.

Greed!

Oh, okay.

I'm just kidding. You know what drives us? The belief -- a very strong belief in free-market capitalism, and that a free market is the best path to prosperity for all of us.

And when we loan money to these companies and support entrepreneurs in their business plans, we know that we are contributing to the small business economy, which has created more than 150% of net jobs since 1980. And if we can make money doing that, that's good, too.

I am somewhat familiar with it. I had a grandfather that was intimately involved with CIT. So, I know a little bit about loaning to small companies. Question, though, is in terms of what you're doing, I gather there's very little focus on the actual book value and the price relative to book value. Could you talk a little bit about that?

No, there is a huge focus on that. And the reason there is a huge focus on that is because, number one, we have an independent, hopefully objective third-party company, Lincoln international, valuing our portfolio four times a year.

They value it, for our 10-Q and the 10-K that just came out, at a fair market value which represents the intrinsic value of the portfolio. If we sell shares at a discount to that, we are in effect diluting ourselves by selling shares for less than the intrinsic value of the portfolio underlying those shares.

So, we are very cautious in doing that. We need a very strong reasons to do it, and as Grier pointed out earlier as well, we need to jump through a bunch of hoops. We need to get the approval of our Board of Directors, independent directors. We need to comply with these SEC undertakings that we have made. We have limits as to how much of this we can do and how far off net asset value. So, that does take a significant amount of our time. I don't want you to believe otherwise -- I don't want you to believe that we are not very focused on that.

Except that I see you've been raising or issuing a lot of equity at below book value.

Well, correct. As I said, we are very focused on it. When we do issue the equity, of course we prefer to issue it above net asset value, and I believe that the vast bulk of the equity that we have issued in the last year, not only over the last month, the last two months, three months, six months, year, and since the Company went public in 2004, is above and, in many cases, well above net asset value.

Now having set the record straight there, let's talk about the times that we have issued shares at below asset value. Those have been in situations where we felt there were very good reasons to do that, some of which I covered earlier. If you have a bank facility in the -- in early 2008 that is coming up for renewal, you want to be all ready to just pay it off. People we competed with were not all ready to pay theirs off. Some of them are not in business anymore.

So, did we have to issue shares below NAV to get ready for that? Yes, we did. But we're glad that we did so. Did we issue some shares below NAV in order to be able to buy Patriot, which was farther -- way farther below NAV than we were? Yes, yes, we did do that.

So we believe that when we are issuing shares below NAV that there is a good reason. And by the way, it's got to be a good reason that is persuasive to our independent directors.

You talked a bit about having good visibility on the pipeline and you've given us the forecast for the next quarter. But I'm wondering if you can comment -- do you have enough visibility on what you see to have confidence that indeed the income will increase two quarters out?

Well, we just -- as I said, predictions are very hard, especially about the future. What we see is a strong deal pipeline, stronger than it has been really in many months, at least. And that is on -- in all four business segments.

So we see the opportunity to put assets on the books at attractive spreads relative to what we have been earning. We have opportunities -- larger multi-asset portfolios and platform opportunities that we are looking at very carefully and pursuing. And we are hopeful that something would come to fruition there.

And so, and then number three, we have significantly increased our ability to take on low-cost leverage. So, we've set the table. We are hopeful that what comes out of the kitchen is going to be a very attractive repast. But we can't really predict that because some of these factors are outside of our control.

We can have ourselves ready. We can be liquid. We can have a facility. We can see a very good pipeline. But we do need to close those things, and it does happen that we get close to the closing table on transactions, and this happens more than we would like, where we just are not comfortable adding the assets to our balance sheet. And when that happens, we can get behind.

But we believe that counteracting that will be times when we will be very productive, and put on a lot of assets, as we have in the last -- in this quarter, it's $130 million, and in the last four months and a week or two, it's $250 million. I think you will see the benefit of those asset acquisitions really in the quarter ending December 31, where they will have been on the books for the full quarter.

Can you comment on how much closings you think will occur this quarter?

No. We're really not comfortable putting that out there because deals can get delayed and they are not on a perfect conveyor belt. So, what we would rather do is say here is our aggregate opportunity set pipeline that's currently in excess of $1 billion of term sheets out, and tell you what we've closed quarter to date.

We have given earnings guidance for this quarter, right?

Right.

Having us make predict on a more granular level underneath that would, I'm sure, would be nice, but we feel the main thing that people like yourself and Mr. Ellis might be most interested in is what do we think is the net investment income going to be?

No question about that. Okay, thank you. Keep up the good work.

Greg Mason, Stifel Nicolaus.

One question I wanted to follow up on, you said you have new investments you're targeting 15% to 18% returns. If I look at what the investments you made last quarter, it looks like the average coupon was around 12%. I was just wondering how you get to that 15% to 18% or do you think those are kind of abnormally low coupons that we're not going to see going forward?

Yes, I think, just to help clarify that, Greg, it's at our weighted average around 15%. You get to the higher teens with leverage. So, you're not talking ROA anymore.

And to get to the 15, we're talking about more of an IRR base [luft], including upfront points, prepayment premiums, original issue discount, that sort of thing, to get you there, that isn't necessary reflected when you see just a raw coupon shown.

Okay, great. And then, people have been asking about equity issuance. It looks like through this second ATM program, you are about two-thirds of the way done. Are your thoughts to kind of stop after this or are you planning on issuing a third ATM program?

Beyond the 6 million share program?

Correct.

We don't know yet. It really depends on the opportunity set in front of us. We're not sure.

David Miyazaki, Confluence Investment Management.

This is a follow-up. We've seen a fair amount of evolution in the BDC industry here this year. Obviously, you guys are familiar with the Patriot and Allied going away.

Then more recently, we've seen THL and [dollop] come about, both of which brought fee structures that were lower than what the legacy BDCs carry, and I was just kind of thinking about how you had mentioned about how the management fees not -- it is a variable cost and isn't really a factor that is -- that declines as you widen out and broaden the size of your company.

Do you think that as an industry the fee structure or the legacy BDCs -- I think you are the fourth largest now -- is that something that your Board is considering revisiting? Because you would think there is some amount of scale that could be returned back to shareholders at some point.

Let me point out that our contract has to be renewed every year. And the fee structure is part of that review.

I would also point out that I'm not familiar with any company in America that is able to cut its revenue and profitability but continue to attract better and better people, which is what our objective is. This is a very demanding business. I suppose it is self-serving to say that, but nonetheless it's true.

We don't see that Goldman Sachs is looking to cut their fees and expenses. We don't see Morgan Stanley doing it. We don't see JPMorgan doing it, and we fear that if we were to do that we would be walking down a path that would limit our ability to attract the very best and the very brightest to this business.

Secondly, we compete with other companies that have not taken that particular path.

Thirdly, we don't know that the -- we haven't seen the driver of performance being -- other than to enable us to attract excellence -- being the level of fees. So, we're not promoting changes in our fee structure, and in fact we would not be welcoming that, which probably surprises you.

Yes, sure. The other side of the coin is that you could make the argument that you could have your equity cost of capital lowered if people attach a higher valuation to your stock because -- basically for the same level of risk -- let's say that you and another BDC with a higher fee structure owned the exact same credits, that you would be delivering a higher return to shareholders with a lower fee and your equity cost of capital may go down. And your dividend stream may be higher, and that may accrue more benefits to the management team that owns shares, and in the long run you may be able to utilize that more attractive equity profile in recruiting more talent and participating in greater upside.

I guess I can see why you don't run one of these BDCs. What do you think would happen to our Company if the Goldman Sachs or Morgan Stanley or Blackstone started to go after our top people?

Well, I'm not saying that you should eliminate it or cut it to the point where you become the Wal-Mart of BDCs or something like that.

Yes, let's just walk out on the slippery slope and see how far down we slide.

Well, I think there are two BDCs out there right now that do have very talented investment professionals out there, and they're operating (multiple speakers)

They are not outperforming us. (Multiple speakers). By the way, I don't think their investment professionals can hold a candle to ours.

It's a little bit early to be making that judgment, I think.

Really? I work in this business every day and I'm making the judgment. I know who works there. You don't think we are in the marketplace for talent every day? They don't send you their resumes because you are not running a competing operation.

John, I'm not trying to create an argument here. It's just a thought, right?

David, (multiple speakers) one thing that may help you, David, is that we have hired a lot of people in our management business. We're now approaching 50 people in the Company. And the shareholders get a direct benefit when you see a step up in origination. Part of that is based on a ramp-up in headcount too.

Okay.

You know, we want to be the premium service, the premium good. That's what we -- and we want to have premium people and be a premium operation, as we always have been. And I think that's what has gotten us to where we are, by the way. I don't know if you remember, but we were the absolute smallest BDC five years ago.

Another comment I would make, David, is that we are kind of a different category from other external advantaged businesses like ours in that Prospect Capital Corporation is that the only vehicle that our management company manages today.

And the other folks that you referenced manage many, many, many vehicles, and they are not 100% or anywhere close to it as management companies on their vehicle, and it's kind of on a pure incremental basis. There are potentially significant conflicts of interest associated, allocation of opportunities, what deals go where.

People don't have to worry about that with our Company because they know where the good deals are going that we see an opportunity set, they're going to Prospect Capital Corporation. And we would submit to you that is a pretty significant, favorable aspect of our Company.

I can tell you a lot of people would not work at a company with one of these discounted management contracts.

John, I'm not asking you to have substandard investment professionals. But when you reference having a larger organization and the fact that you've got scale, one way to translate that scale to shareholder benefits is by recognizing you have more scale and adjusting one of the variable costs of your business accordingly.

See, I just see -- candidly, I don't see that walking down that path as delivering shareholder value. I really don't.

You might say well, there's another self-serving statement from John Barry. But like the last one I made, it happens to be true. I think saying, well, boy, I guess we've run out of ideas for performing by adding assets and working 24/7 and driving people and looking under every rock and working as hard as we can. We've just run out of ways to provide value doing that, so now it's time to start having the people here at work for less.

I don't -- I just don't see that. I really don't. And this is an industry where -- you're in the business, right? People come into this business and make enormous personal sacrifices in the belief that they can build personal wealth. We have one of our people -- one of our persons here -- very, very important person, has a wife who works at a very demanding job. They can almost never take a vacation. They had a long-planned vacation and it had to be canceled. Okay?

We are running an operation with driven people with high expectations whose alternatives are to go work at places like Goldman or Morgan Stanley or, for that matter, JPMorgan. And I'm very cognizant of that. Because we can't do it without the most driven, determined, creative people. We just can't.

And once we start to cut our profitability, I think our ability to attract those people diminishes. And I know you'll find this next statement self-serving as well, but I ought to show you the resumes we get from the competition. Okay? It's not merely dozens. Okay? And, so what don't I just -- I ought to just leave it there, but obviously I have some strong views on the matter.

Okay, well I think on the shareholder side there are some strong views on it as well.

Well, you can always sell your shares and buy the shares in these other companies and let's see where you are a year from now. I think I know -- I think you will find it a money-losing proposition. But go ahead.

Well, that just gets to the point earlier, John, that you can -- you may over time see a different cost of equity if the shareholder structures deliver a greater proportion of -- or I should say share a greater portion of the economics, and over time you may find that making a more shareholder-friendly fee structure relative to the legacy BDCs that are out there may in fact create more wealth for your investment professionals than under the old structure.

I suppose, you know, pigs might fly, too. Anything can happen. We have to go with what has worked, is working, and what we believe will work, and I don't have any confidence in your prescription, but if you want to start a BDC to compete with us, that would be fine. I just don't -- I'm sorry that I don't have confidence in your prescription.

Okay, thanks.

James Bellessa, D.A. Davidson & Co..

After this call, and I don't know that you have to address it here, but I'd like you to check on that comment about the recent issuances of stock.

By my calculation, I am thinking you are coming in at about $9.50 net to you cost of share issuances for the current quarter. And if I'm wrong, please call me back and tell me that it's different. But that's what I'm coming up with.

And if it's $9.50, then it's below the net asset value and there is some dilution in the quarter from the addition of almost 10% of your share count has increased in 60 days.

Jim, I think that's right in the current quarter. But when you aggregate share issuance that we did in the [11s], etc., in the March/April timeframe, that number would be significantly higher overall.

Henry Coffey, Sterne, Agee & Leach, Inc..

I think a lot of -- just to throw in -- since I am about, like, 150 years old, which is why I'm so short term, a lot of the focus and the angst kind of being expressed is that we are watching kind of a flood of share issuance and we're watching our earnings go down.

I guess the offset is you've won the race because all the cars in front of you crashed, so we have to take some comfort from that. I was wondering if we could go over a couple of things, Grier, because -- or maybe we can do this off-line, but you were saying in this current quarter, what was the WAC on sort of new at-par issuance? Not the discounted paper that you bought?

New primary originations?

Yes.

What type of return on (multiple speakers)

Weighted average -- the contractual interest rate divided by the funds advanced.

Somewhere in the range of about 13%.

13%, and then (multiple speakers)

Yes, not including other pieces.

Yes, and then fees were of what ilk?

Of the range of 200 basis points to 300 basis points.

Okay, so 13%, not meaning like 12.5%, meaning 13%. And then 200 basis points to 300 basis points on fees, and then the effective yield of those securities was?

It's in the range of about 14% to 15%.

So -- because you're amortizing the fees over three years. You take three divided by three, and that's one plus 13 is 14. But sometimes it's 15?

Right, and there's also a prepayment premium. We (multiple speakers)

Right, but that only helps (multiple speakers)

(Multiple speakers) gets in a lot of that -- we get a lot of those (multiple speakers)

Right, so then you -- but your expected internal rate of return is more like 15% is what you're saying?

That's right. That's the build up.

And then, there was another question asked, and I think the caller just got off the call. If you could give us the dividend income this solution, and frankly if you have the data in front of you, or we can do it off-line when I call you after lunch for Gas Solutions, what was the contribution each quarter?

Yes, someone asked that before. It was $2.2 million (multiple speakers)

This quarter.

Dividend revenue in the June quarter.

$2.2 million, and what was in the March quarter?

It was $2.3 million.

$2.3 million. Do you have one more quarter in front of you?

In the December quarter, it was $4.2 million.

So, that $2.2 million is kind of more the likely run rate for the rest of the year or has that got some extraordinary costs in there that are likely to -- because, obviously, we don't have the EBITDA in Gas Solutions.

Yes, look, that's a -- we view that as a target floor distribution based solely on commodity prices, which we've hedged the downside of. Then the new CEO -- I don't know if you heard about my prior conversation -- the new CEO is driving volume growth in the business. We're looking at doing an add-on acquisition, for example, as well, on top of organic growth. And we're hoping to move that up in future quarters.

Great. Thank you very much. Hopefully that will translate into some sort of balance between revenue growth and more constrained share issuance hopefully will reverse some of the value loss we've seen over the last year or so.

Hey, Henry (multiple speakers)

John, I just think if you measure it on a per-share net investment income basis, I think we are focused more on the statistical stuff than the softer issues. That's because at my age, you probably only have about three days left -- at 100 years old, you don't have that much left to go.

Hey, Henry, I really like the race car analogy. But I'd phrase it just a little bit differently. We were driving very carefully the whole time.

Very good. We'll have to go watch Tom Cruise's movie together and have some good jokes about it.

Thanks, Henry. Stay healthy, too.

Yes, I will. Let me go get my cane.

John Ellis, shareholder.

Just briefly, I want to throw in my vote for higher fees -- I mean, high fees. I want you people well compensated to work for me, and particularly -- and this is -- I've held this attitude for a long time, I want you well-paid when things are going badly. I don't want you worrying about your income. I want you worrying about my income, and if I thought you would work harder by being paid less, that would mean you're not working harder right now. So the whole thing doesn't wash. I just want to throw in a vote. That's all.

You know, John, we work with the very, very best service providers. Skadden Arps, you know, and they will say you really can't afford us. We're just too expensive.

And I'd say to them, you know what, I've tried the lower-cost guys, but somehow I end up spending more because they don't solve all the problems in a half an hour or 15 minutes. They take more time to enlarge the problems.

And I'm just speaking as a lawyer. If you think -- like I tell people, if you think education is expensive, try the cost of ignorance. And so, it's like my father always told me when I was young. He said John, you always buy the best you can afford.

That is what we are trying to do here. It is true that we do compete with Goldman Sachs and we do compete with these other companies that David was talking about. And we want people to know that they will not be disadvantaged because, hey, they all go to the same cocktail parties. They all run into their friends and they want to know how this person is doing and that person is doing, and people feel pride working for an organization which is seen as a premium organization, not one that is trying to elbow its way into the business by fee cutting.

I always overpay people who work for me and I always get superior performance.

Right. Thank you, John. John, we want you on our next call.

Okay, whatever. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay, we don't have any, and we thank everybody for participating and hope everybody has a wonderful rest of the summer. Thanks so much.

Thanks, everybody.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.