Prospect Capital Corp (PSEC) 2011 Q4 法說會逐字稿

Good morning and welcome to the Prospect Capital earnings conference call. All participants will be in listen-only mode (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Mr. John Barry, Chairman and CEO. Please go ahead, sir.

Thank you, Jill. Joining me today on the call 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 previously filed.

I will now turn the call back over to John.

Thank you, Brian. For the 2011 fiscal year, our net investment income was $94.2 million, an increase of 40.2% from the prior year on a dollars basis. On a weighted average share basis, net investment income declined from $1.13 for the 2010 fiscal year to $1.10 for the 2011 fiscal year.

Our net asset value per share on June 30, 2011 stood at $10.36 per share, an increase of $0.06 per share from June 30, 2010 and an increase of $0.03 per share from March 31, 2011.

For the June 2011 quarter, our net investment income was $30.2 million or $0.31 per weighted average number of shares for the quarter. Two loans acquired with the prior acquisition of Patriot Capital repaid during the quarter generating $10.75 million of accelerated accretion. Offsetting this additional income was the income impact relating to placing H&M on non-accrual status, which we hope to reverse in the future with a potential sale of our position. We estimate that our net investment income for the current September 2011 quarter will be $0.25 to $0.30 per share.

Last week we declared our 38th -- 39th consecutive cash distributions to shareholders. We expect to announce the next three distributions in November.

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

Thanks, John. Our origination efforts during the 2011 fiscal year have focused primarily on secured lending including a higher percentage of first lien loans than in previous years so we also continue to close selected junior debt and equity investments.

Our investment portfolio consisted of 54.5% first lien loans and 85.2% total secured loans at June 30, 2011, up from 39.1% first lien and 81% total secured loans at June 30, 2010.

In addition to targeting investments senior and corporate capital structures with our new originations, we have also increased our new investments in third-party private equity sponsor-owned companies, which tend to have more third-party equity capital supporting our debt investments than in non-sponsored transactions, while still maintaining flexibly to pursue attractive non-sponsor lending, one-stop buyouts and secondary acquisitions.

With our scale team of more than 40 professionals, one of the largest dedicated middle-market credit groups in the industry and focused on Prospect Capital Corporation, we are well positioned to select in a disciplined manner a small number of investments out of thousands of investment opportunities sourced per annum.

As a result of these credit risk management initiatives, our portfolio's annualized current stood at 12.8% across all long-term debt and certain equity investments as of June 30, 2011. Nonrecurring distributions of other equity positions that we hold are not included in this yield calculation. In many of our portfolio companies, we hold equity positions ranging from minority interest to majority stakes, which we expect over time to contribute to our investment returns.

At June 30, 2011, our portfolio consisted of 72 long-term investments with a fair value of $1.463 billion compared to 64 long-term investments with a fair value of $1.214 billion at March 31, 2011 and compared to 58 long-term investments with a fair value of $748.5 million at June 30, 2010.

Our asset base has continued to grow and diversify over the past year. Our cyclical energy-related industry mix of gas gathering and processing, oil and gas production and oilfield fabrication businesses declined as a percentage of the investment portfolio to 13.1% at June 30, 2011 from 27% at June 30, 2010, reflecting a significant increase in our industry diversity as part of our strategy to control risk.

In the June 2011 fiscal year, we completed new and follow-on investments aggregating $953.3 million, a significant increase from $364.8 million in the June 2010 fiscal year. Our repayments in the June 2011 fiscal year were $269.4 million compared to $136.2 million in the June 2010 fiscal year. As a result, our investments net of repayments were $683.9 million in the June 2011 fiscal year compared to $228.6 million in the June 2010 fiscal year.

During the June 2011 quarter, we completed new and follow-on investments aggregating approximately $312.3 million, sold one investment and received repayment on three other investments. Our repayment in the June 2011 quarter were $62.4 million resulting in $249.9 million of investments net of repayments.

On April 18, we made a $13 million secured debt investment to support the acquisition of Meatco, a leading food distributor by Annex Capital. On April 18, Unitek repaid our $11.5 million loan. On April 26, we made a senior secure follow-on investment of a $11 million in ICON. On May 2, we sold our membership interest in Fischbein, realizing a gain of $9.9 million on the sale and Fischbein repaid our loan. We subsequently made a $3.3 million secured loan and invested $0.9 million in the common equity of Fischbein with the new ownership group.

On May 3, we made a secured debt investment of $25 million to support the acquisition of J.D. Byrider, a leading used auto sales and finance business by Altamont Capital.

On May 6, we made a $34.5 million investment in re.fuel, an advertising media buying business of which $31.8 million was funded at closing, $24.3 million is structured as senior secured debt, $2.8 million is subordinated debt and $4.4 million as controlling equity.

On May 6, we provided $15 million in secured acquisition financing for Mood Media, a company in the in-store media industry. On May 6, we provided $15 million in secured financing for the recapitalization of Potters, a leading company in the engineered glass materials industry.

On May 25, we provided $24 million in secured first lien financing to Targus, the leading global supplier of notebook carrying cases and accessories. On May 31, we provided $35 million in secured financing to Springs Window Fashions, a leading designer and manufacturer of high-quality window treatments.

On May 31, Label Corp repaid our $5.8 million loan. On June 3, Prince Mineral repaid our $23.5 million loan and we recognized $10.5 million of accelerated purchase discount accretion. On June 16, we made a senior secured debt investment of $26.5 million to support the acquisition of ST Products, a leading North American producer of precision redrawn, small diameter, thin wall copper and specialty alloy tubes.

On June 21, we provided $25 million in secured financing for the recapitalization of U.S. HealthWorks, a leading company in the occupational medical services industry. On June 30, we made a secured -- senior secured first lien debt investment of $82.5 million in CRT, a market-leading specialty media buying business of which $75 million was funded at closing.

On June 30, we provided $5 million in secured financing for the acquisition of Pre-Paid Legal, a top company in professional services subscription market. Since June 30 and the current September 2011 quarter, we have completed three new investments and two add-on investments aggregating more than $92 million.

On July 1, we made a senior secured follow-on investment of $2.5 million in Boxercraft to support the acquisition of Jones & Mitchell. On July 8, we made a secured investment of $39 million to support the recapitalization of Totes Isotoner. On August 5, we made a senior secured follow-on investment of $3.9 million in ROM to support the acquisition of Havis Lighting Solutions.

On August 9, we provided a $15 million term loan to support the acquisition of Nobel Learning. On August 9, we made an investment of $32.1 million to purchase 66% of the subordinated notes in Babson CLO 2011-1.

Our advanced investment pipeline aggregates nearly $300 million of potential opportunities. Primary investment activity in the marketplace increased during the second half of calendar year 2010 and has continued to be robust in calendar year 2011. These investments are primarily secured investments with double-digit coupons, sometimes coupled with equity upside through additional investments and diversified across multiple sectors.

We are pleased with the overall credit quality of our portfolio with many of our companies generating year-over-year and sequential growth in topline revenues and bottom-line profits.

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

Thanks, Grier. Our modestly leveraged balance sheet is a source of significant strength. Our debt to equity ratio stood at 36% at June 30, 2011. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to utilize and grow our existing revolving credit facility and add additional secured and unsecured term facilities, made more attractive by our investment-grade ratings at corporate, revolving facility, and term debt levels.

In addition, our repeat issuance in the past year in the five-year and greater unsecured term debt market has extended our liability duration thereby better matching our assets and liabilities for balance sheet risk management.

We also have significantly diversified our counterparty risk. We currently have 11 institutional lenders in our revolving facility, up from five lenders at June 30, 2010, two lenders in 2009, and one lender at June 30, 2008.

On December 21, 2010, we issued $150 million of five-year unsecured 6.25% senior convertible notes due December 2015. These 2015 notes are convertible at a conversion price of approximately $11.35 per share subject to certain adjustments.

On February 18, (technical difficulty) $12.76 per share. The 2015 and 2016 notes are general unsecured obligations of Prospect with no financial covenants, no technical cross default provisions and no payment cross default provisions with respect to our revolving credit facility.

The 2015 and 2016 notes have no restrictions related to the type and security of assets in which Prospect might invest. The issuance of these notes has allowed us to grow our investment program in calendar year 2011 and commit to loans with maturities longer than our existing revolving credit facility maturity. These 2015 and 2016 notes have an investment grade rating from S&P of BBB.

On June 11, 2010, we held a first closing of an extension and expansion of our revolving credit facility with a syndicate of lenders who extended commitments of $210 million under the facility. The facility includes an accordion feature which with the amendment completed on January 13, 2011, allows commitments to increase up to $400 million without need for reapproval from the existing lenders. The amendment signed in January also allows for larger loans to be pledged to the facility and provides a mechanism for pledging loans on an expedited basis.

Since June 30, 2010, we have closed an additional $165 million of commitments with two existing and four additional new lenders, raising the total commitments under the credit facility to $375 million. We are currently scheduling a $25 million upsizing in the facility to reach our $400 million accordion target with (technical difficulty).

Pardon me, we seem to be experiencing some trouble with the main host line. We are working to correct that problem.

-- revolving period of the facility extends through June 2012 with an additional one year amortization period with distributions allowed 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. The unused portion of the facility has a fee equal to either 75 basis points or 100 basis points if less than half of the facility is used. The facility has an investment grade Moody's rating of A2.

We are currently in discussions with our facility agent regarding an extension of the facility to a five-year term comprised of three years for the revolving period followed by two years for the amortization period during which distributions will be allowed. We anticipate but cannot guarantee an increase of the facility size to at least $500 million with new and existing lenders, a reduction in our spread on the borrowings, an increase in our advance rate and an improvement in covenants.

(technical difficulty) for 10 million shares of our common stock at $10.15 per share raising $100.2 million of net proceeds. On July 18, 2011, the underwriter exercised its option to purchase an additional 1.5 million shares of our common stock raising an additional $15.1 million of net proceeds.

With the issuance of the 2015 and 2016 notes in December and February, we repaid the revolving balance on the facility in full. We have deployed all of the proceeds from the notes and equity issuances and currently have borrowed $125 million under our facility. Assuming sufficient assets are pledged to the facility and we are in compliance with all terms, we would have $250 million of new investment capacity based on a $375 million facility size, $275 million of new investment capacity based on a $400 million facility size, and $375 million of new investment capacity based on a $500 million facility size.

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

Thank you, Brian. Now is a good time for questions.

(Operator Instructions). Jasper Burch, Macquarie.

You guys were cutting out a little bit so I might have missed part of this. But when you were talking about the debt, I think Grier said that you expect spread compression on your borrowing rate. I was wondering if you could elaborate on that, I mean what is driving that especially given the recent blow in cost of funds that we're seeing in the market environment and the selloff in the LSTA? And just also beyond the facilities, sort of what you are looking at in terms of raising your debt capital and where you may be seeking it out?

Grier, why don't you answer that question.

Okay, thank you, Jasper. I apologize for the cutting out. Hopefully it is working better now. So our pricing on our existing facility dates back to an extension that we did in June of 2010. And this is a highly rated A2 high-investment grade facility. So it has been our intention for a while on the next extension to reduce the (technical difficulty).

Pardon me, this is the operator. The host line has dropped again temporarily. Please stand by.

-- expect or we hoped it would not be much of a change with our current plans to push forward. First in upsizing under the existing $25 million, as Brian mentioned, which we are working on to complete, we hope but can't promise in the very near future.

And then secondly longer-term over the next few weeks and months, a longer-term extension with a more attractive cost of funds. Brian, anything you would add to that?

I think that is it. We are looking to bring the rate down and get rid of the floor. So we have some indications that our facility leaders at least are willing to entertain that.

Okay. You guys -- it was a little choppy again but that was kind of helpful just that you expect your long-term trends for this market, okay. So I'm moving on. I guess just another question. Looking at -- how insulated is your portfolio against the current dislocation and change in the public market values? Is that going to flow through into your portfolio or do you see other driving factors whereas your portfolio should hold up a little better?

I will let Grier address that one.

The question, Jasper, as I understand it is, public company just general equity values have declined and how does that impact our portfolio? Is that your question?

Not just equity but also sort of on the debt site. You know, LSTA is down to what -- $0.87 on the dollar now and obviously the debt markets are sold off too. So just the change in the markets in general and how insulated your portfolio versus -- where public markets have been moving?

Got you. Okay I think I understand your question better. So we focus on the middle market as you know which is a less efficient marketplace and allows us to we think -- we think the results demonstrate that over time to capture excess spread as well as put in place customized structures that are a lot tighter than what you would see in the broader syndicated markets in terms of having security. All of our loans are -- the vast bulk of them anyways are secured loans. Many of our loans have cash sweep triggers, cash sweep mechanisms. We work very hard to have significant protections in place with our legal documents.

So because we focus on the middle market, we think we do have some insulation but we are not totally immune to what is going on in the broad backdrop. And I would say in general that risk has been repriced a bit in the past month and that is enabling a little bit more opportunities on the pricing front for new originations.

We closed just under $100 million of new originations in the quarter to date. It slowed a little bit here in August and there has been some discussion with counterparties about the pricing of risk, could create an opportunity for some additional spread in the weeks and months to come with new originations.

John, is there anything you would add to that?

Well, the only thing I would add, Jasper, and I appreciate the question, is that as the portfolio grows, we try to focus more and more on risk controls and we are keeping our fingers crossed here. But we have not and we do not believe we've put out a bad asset since 2007, we've walked away from a lots of deals. So in addition to the diversification that Grier mentioned, we have been very careful on a credit-by-credit basis and we have walked away from some deals that other people went ahead and did. It slows the growth of the portfolio but it allows us to worry less about what is in there individually.

So I would say the most important thing for us we find is that in the middle market if you are very credit and risk focused, you have more ability to avoid stepping on landmines than might be the case in the public markets where everybody has the same information. Back to Grier.

Did we answer your question, Jasper?

Yes, no, that is definitely helpful. Thank you guys for your time. I will hop back in the queue now.

Thank you.

Mickey Schleien, Ladenburg Thalmann.

(inaudible) my call. I wanted to understand -- I wanted to reconcile two things. You characterize the market as still robust but the pipeline declined dramatically from $1 billion in the third fiscal quarter to roughly one-third of that in the fourth fiscal quarter. Is that just a function of closing -- closing more quickly then discovering new opportunities or is there something else going on there that we should be aware of?

Thanks for your question, Mickey. Let me clarify and we probably can put a finer point on this in the future. We characterize our pipeline in two categories, Category A, Category, B that sum to our total pipeline. Category A pipeline, which we described as an advanced pipeline in prior disclosure are deals with higher certainty attached to them although they are not 100% certainty by any means until close. Deals that are under term sheet where we have an overlap on terms with counterparties.

Category B being deals where you put term sheets out and which you may or may not advance to Category A status. The $1 billion-ish figure refers to the total pipeline and that continues to be in that vicinity so we continue to look at actively a large number of transactions. We also track incoming originations per month from multiple channels and we really have not seen a -- any sort of significant drop-off in the last month or two.

So that -- I'm sorry, the $300 million that you mentioned in your earnings announcement, that is the Category A portion in the fourth quarter?

Correct. That is Category A and we continue to find new opportunities that we have to add to that category over time.

Okay. And could you give us any color on the pace of exits so far in the quarter? I mean you have been very good at -- I mean your portfolio has benefited from a manageable level of exits compared to some of your peers. And also any comment you can make on spreads and covenants that you are seeing recently in the marketplace.

Sure. As a general matter in the June quarter just looking at the numbers now, right, growth originations were $312 million, repayment $62 million, resulting in about $250 million net. So we had about $62 million of repayments. One reason I think you are seeing with us -- there tends to be pick up in repayments when activity rebounds in the marketplace for sure. Some of the legacy positions are on a smaller and for example positions we picked up in the acquisition of Patriot Capital at the end of 2009, tended to be somewhat smaller deals.

So we have had repayments but they tended to be on the smaller end and originations have been a little bit on -- larger than that, which is one reason why we have had a net increase. Hopefully that helps with the repayment picture.

In terms of the quarter to date, Brian, have we had any repayments in July and August? I am not sure we have --

We haven't had any repayments yet this quarter.

None yet this quarter. And then your other question was -- sorry about spreads?

Yes, spreads and covenants, trends that you are seeing in the marketplace. It was loosening earlier in the year and then obviously everything slowed down. I'm just curious what you are seeing more recently.

We are seeing an increase in spreads maybe 100 basis points or so for first-lien debt and a couple hundred basis points wide on junior debt. Covenants continue to be strong. We are rigorous about covenants and don't relax those regardless of what period we are in.

All right, and my last question is regarding the sale of H&M position. Is that something that is well along or you are just starting in the process of selling those -- selling that?

That is in process. We have a lot of interested parties and we'll have more to say about that investment in the weeks to come.

Okay, thanks for your time this morning.

Thank you.

Dean Choksi, UBS.

Good morning, thanks for taking the call. To follow up on H&M, was there any interest income from the March quarter that was reversed in the June quarter?

Let me ask Brian to answer that.

Yes, there was about $2.5 million of income from the first quarter that was reversed in the June quarter from H&M.

Can you just talk about what happened with the business? I know it has been kind of bouncing from past due to performing in the past quarters. Kind of what changed with the outlook and where the confidence is coming from in being able to sell it?

Grier will take that one.

Well, this is a primarily a crude producer in West Texas and crude oil prices have continued to be robust and there has been quite a lot of M&A activity in the Permian Basin in West Texas where this business and asset is situated. So that M&A activity gives a lot of different exit options to various buyers.

And what happened with the business that it became nonperforming or non-accruing this quarter?

Yes, there were some operational aspects of the business related to re-completing some additional wells. There was an issue with a service provider that took some of the wells off line and caused a temporary interruption in cash flow. And those are starting to come on line. We are having discussions about the right capital structure for the business going forward and our continued role.

Thank you and can you just talk about the CLO sub note, that investment that you made that seems to be I guess -- is that a new asset class for you -- kind of what the yields are on that? Or you expect that IRR and how you look at CLO investments going forward?

Sure. We are looking at that asset class very selectively, strategically and with a partnering mentality in mind with third parties. We spent a lot of time earlier in the year looking at within a BDC structure, what we could do both at the BDC upstairs as well at the portfolio company level particularly with financial services companies, finance cos and the like. Received feedback that certain structures at the portfolio company level if controlled by and managed by Prospect Capital Corporation would present potential consolidation risk, which potentially creates issues for others in the industry that have those types of self-managed sort of off balance sheet levered structures.

So we decided instead to very selectively in a disciplined fashion look at opportunities to partner with a small number of third parties. We like the direction that liability spreads were heading down particularly AAAs and saw an attractive opportunity to partner on a selected basis and did so with Babson just in the last couple of months.

This will be a small portion of our book going forward but one which will selectively and opportunistically look to do things from time to time. Yields you mentioned -- midteens.

Can I just touch on the buyback. It is a large announcement kind of -- is there a certain price level or kind of a discount (inaudible) book that the IRRs would kind of make sense to buy back stock?

Well, we feel that having the option for a buyback is a good thing to have in place when you have sharp dislocations in the marketplace like what just occurred in the last few weeks and saw some very attractive sort of value driven opportunities there. So we wanted to announce that and we need to send out a mailing to shareholders which we will be doing in conjunction with our annual proxy going out in the next few weeks.

And John may have more to say on the share buyback.

Well, just like with the H&M thing where we have the asset for sale, we look at every action that we take as an investment or a disinvestment, a buy or a hold, we measure the IRR, we measure our alternatives, is this the best use for our capital, the best use for the shareholder's capital? Sometimes the best use is keeping it in the treasury, sometimes the best use is -- sometimes the best use is selling something.

So for example, in the case of H&M, we had a buyer and the buyer thought that oh well, I can now start to dicker around with the price and the terms here at the last minute and these guys will have no place to go. Wrong. So that is one of the reasons we still hold that asset and we are still talking to that buyer and others.

Similarly with the share buyback, I think everyone on this call knows that we have a cost of equity capital and a cost of debt capital. We have an NAV that we try to protect and net investment income and a dividend and when the shares dropped precipitously as they did a couple of weeks ago, we wished we had in place both the ability of the Company to buy shares and management and he employees and none of the three were possible because of regulatory restrictions. And enabling the Company to be able to buy its shares back at a moment's notice requires us to do the mailing that Grier mentioned.

Now you may ask, well at what price, at what yield would the Company buy shares back? Well it certainly depends on the situation on that day if the world is coming to an end the very next second, maybe we are not going to do that. Of course we don't believe the world is coming to an end.

But when it looks that way to other people, that is a great time for us to be buying back shares. I think the shares got down into the 8s and at that point what we observed was an unusual opportunity for us to aggregate and enhance net asset value just by buying back shares.

So the next time that happens, we certainly want to be able to do that. The size that we would spend would be a function of the opportunity. Obviously if the shares were to collapse in some panic well within the 8s, we would be buying more. If they don't get down to that low again, we are less likely to buy much if any.

Thank you for that thoughtful answer. My final question will be you kind of mentioned the cost of equity and the cost of debt. As you look forward on how to fund the pipeline, I mean historically a lot of the growth has been funded with a high percentage of new equity. Given kind of where the dividend yield is, where the stock is trading to book, I mean is it fair to assume that the pipeline over the next one to two quarters will be financed by the debt facility?

Let me go first and then hand this back to Grier. But what I hope people will appreciate on these calls is that we're in a long run business and we have a five-year, 10- and 15-year plan. And what that plan requires us to put in place is an infrastructure, a management team, a sponsored coverage team, a syndicated loan team, a buyout team, a direct lending team, portfolio management and so forth. And what you find is that you need to keep the Company moving forward at all times. You can't say, oops, the cost of capital just went up. Everybody stop working, we are going to throw out everybody. You are not going to have a successful company doing that.

It is true that you can press a little harder on the gas pedal in good markets and lighten up in frothy markets, which we have done. You can redirect your energies towards areas of investment that are out of favor, which we also do. But we do need to keep refilling the tank periodically in order for the car to continue driving across the country.

Now what we try to do is fill the tank mostly with debt capital and Grier has addressed the fact and Brian as well that the first place we go is the existing facility, which we are endeavoring to or in the process of upsizing just the existing facility. And the next step is to start the process of a new and significantly larger facility with better pricing. And people that are familiar with our sources of debt capital know that especially when fully drawn that (inaudible) facility is our absolute cheapest cost of capital depending on how much is drawn and how quickly the fee is amortized you are looking at 3.25 or less.

So there is a nice spread over that. We have had it substantially drawn in the last few months. We are now hoping to run I think as Grier said on an earlier pipeline call -- earlier earnings call up to about 0.8. We think one to one might -- we would rather have the cushion for the last 0.2 even though on a regulatory basis, we could go there. That is our first and most preferred source of capital for responding to the pipeline that we have.

And by the way I might add that when we used to talk about a billion-dollar pipeline, we still have that. But we have decided now on these reports to additionally specify how much is in Category A and that is the $300 million which we -- where there are term sheets and at least one signed document which might be just a term sheet and a proposal letter or a work letter.

So the $300 million is a harder number than the $1 billion just to clarify that point.

But when we have completed as much as we can with the [Rabo facility], then we look to unsecured -- well, maybe secured debt possibly, maybe unsecured debt, not at a special-purpose company, maybe at Prospect Capital Corporation. We examine these possibilities, we talk to sources of capital. We don't have anything at the moment that is moving along, but that is our second most desirable source of capital because debt capital for our Company is much cheaper than equity capital, especially in these times.

So -- that is the program. We don't have any current plans to be issuing stock at these prices; we'd rather be buying it back, frankly. Yet we also have to balance the fact of the need to keep the Company moving forward.

So we're balancing three things -- keeping the Company moving forward; keeping the people in the deal business; keeping the pipelines moving forward. And by the way, there's a benefit to that because in really rough markets we can get significantly better pricing, better deals, better credits and better covenants as Grier indicated.

So there is a reason to keep moving forward to the maximum extent possible with debt capital before we would issue any additional equity capital it would be stop, look and listen. We don't need to do it at these prices. We can wait. Certainly in the fall I think people expect regression to the mean in the equity markets. If that doesn't happen, it is still stop, look and listen, what are our best alternatives. Grier?

Sure. From a philosophical standpoint, we are not believers of running a mismatch book, the borrowing short and lending long game which we think creates significant risk and transfers control of our business -- potential control to third parties and exposes the overall business. And we would rather run with more equity than run with a mismatch book. Others in the industry in the past have chosen a different path with -- in our opinion predictable poor results.

So we started to expand the leverage of the business from virtually zero around nine months ago when we were the first Company in our industry to open up the institutional term debt market in the convertible format in December, which was followed another offering in February. So pushing out our liabilities 5 to 5 1/2 years with those offerings we thought was a big plus, expanding our existing revolver and pushing that out five years will be a big plus as well.

And we think our track record this year shows a discipline and orientation towards pursuing matchbook funding debt at appropriate levels including cost levels.

In the past nine months, we have issued $325 million of bonds. We've increased our revolving capacity by $90 million and we expect to give the revolver another $25 million bump; that's $440 million in the aggregate. By comparison, we have raised only about half of that in equity, which is appropriate because we were arguably under levered when we started that process but I think it shows an orientation towards attractive, accretive growth capital.

One final comment, as John had referenced a 0.8 level, that would be a maximum -- emphasize a maximum level not what we would want to run at in an ordinary course basis. We have messaged somewhere between the 0.5 and 0.8 on an ongoing basis. Right now we are at about just under 0.4 debt to equity and so we will slowly walk that up in conjunction with a matchbook philosophy.

Thank you for the answer. And, John, I hope you are right that the fall is better.

Yes, on the 0.8, the old model used to be that okay, you issue equity, you buy investments then you run up the leverage to one to one. And as you close in on one-to-one, you plan an equity offering. And since the markets are always open, no problem. Well I think everyone has learned that that model does not work because the markets are not always open, when you've reached one-to-one you are in default and can create a cascade of problems.

So for us before we even get to 0.8, which would be as Grier says, the outer limit, I don't think we would approach that without knowing that if we added that additional amount of debt that we had coming along confidence that we would have a means of reducing that back down closer to 0.5. Is that an overstatement of carefulness, Grier?

Well, we are very risk diverse as folks know so I don't think you can overstate carefulness. One other piece I would add is cross defaults, we pay careful, careful, careful attention to those on debt facilities and we are pleased that our two bond issuances have not only no technical covenants, no financial covenants but no cross default provisions.

One mistake especially finance companies make is they have the domino effect where one trips and then eight other facilities trip. And we have taken proactive steps to reduce and minimize that risk at our Company. All set, Dean?

Yes, thank you.

Okay, thank you.

Robert Dodd, Morgan Keegan.

Moving back to that cost of capital question. I mean if we look at your last equity raise with a dividend yield of about 12%, the average cost of funds so far this year have run about 8% with unutilized fees. I mean points that are -- a cost of capital that is a bit north of 10 given over the last 12 months you have used about 50-50 in terms of actual utilization debt and equity. And your most recent deal since the end of the quarter seemed to be done at 10% to 11% coupons. And that is ignoring obviously ignoring fees on both sides base and incentive. And I understand there is a need for Prospect Management to keep the car moving forward with long-term plans there. But right now it looks like with a capital structure with the dividend yield where it is and the actual access to debt, there doesn't seem to be a good way to catch up in terms of NII to the dividend.

So what is the plan to catch that up and make sure shareholders aren't getting paid a dividend from their own capital?

Sure. We are very focused on accretive growth, obviously utilizing existing facility and drawing that to close originations has significant accretion attached to it since that cost of funds is only a just over 300 basis point spread, which we hope to reduce as we talked about earlier.

We are seeing spread widening at both first lien and second lien levels. But we also have upside in our business and business model with certain equity positions. As well we've closed a couple of one-stop buyouts in the past year or so at we think attractive levels and those deals are paying off nicely for us.

And we have a couple of positions in the existing book where a monetization at attractive levels could also result in the future in not only a book value increase but also enhancement in NII growth as we take the proceeds and reinvest it in a diversified array of income accruing deals.

So we recognize that we need to keep focusing on walking up at a prudent level the leverage base of the Company. We recognize we want to drive down that cost of debt. We have turned down many debt deals as well that were at unattractive levels and we want to make sure we are getting good deals done on the left-hand side of the balance sheet while monetizing positions to also drive further growth.

So we need to -- I guess the answer is we need to do all of those things as we move the car forward not just move the car forward, Robert. You are absolutely right.

Thank you. One housekeeping one. I think on the dividend income this quarter, obviously it was up quite substantially sequentially. Is that back to -- is that gas solutions or is it broad-based and how sustainable is it at this level?

It is not just gas solutions. We have another portfolio company called NRG Manufacturing which is doing quite well.

Mud tank guys, right?

They do more than mud tanks. That is one of the products, good memory, Robert, that they do manufacture. But the management team has really done a stellar job there of growing the business, pursuing diversified subverticals within energy services and that is one of the companies I mentioned that could be a potential monetization in the coming months. We will see if we get a price we like, that could make sense. If we don't, we will continue to hold it and continue to capture attractive dividends which we expect should continue this quarter as well.

Great, thank you.

Greg Mason, Stifel Nicolaus.

Great. Grier, your follow-on investment in Boxercraft that you mentioned, is that going to result in any acceleration of the OID accretion? I believe there is probably a couple million dollars of OID accretion left from that legacy P cap deal?

Let me let Brian answer that.

No, there won't be any accretion from that deal. That deal is pretty stable.

Okay, great. And can you quantify how much OID accretion is left from legacy PCAP deals?

It is disclosed in footnote four of the K of the financial statements but it is $8.6 million of which we expect $837,000 to amortize in the September quarter.

Okay, great. Can you talk about the other income and the structuring fees that are in that? It kind of appears as the originations have ramped up that other income has ramped up. Are you taking structuring fees all up front? And if so, how does this potential kind of slow down in the pipeline or limited available capital ability -- because where the stock is at -- how could that impact that going forward?

Yes, on the structuring fees, we do recognize all of the income from those immediately. As Grier said, we have $300 million in the Category A pipeline right now so we expect to have structuring fees on a majority of those deals going forward. So that is part of the -- part of the strategy is to continue to recognize those structuring fees. And I will throw it back to Grier to add to that.

Right. Right now, Greg, we have drawn about $125 million on our facility. That gives us about $250 million on the existing facility size of $375 million. We are working on an increase to another $25 million. So that takes us to $275 million. And then a further upsizing obviously would expand beyond that. So we have plenty of capacity to continue booking deals without worrying about capital markets.

Okay, great. And then Grier, could you talk about -- kind of give us some comfort as we look at so far this year, you guys have originated $671 million of new loans so that is about 45% of your portfolio today has been originated so far in 2011. Can you give us some comfort or should we be concerned with this heightened level of activity with your ability to monitor a greater number of portfolios, greater number of assets? How are you managing this rapid growth?

Sure. Well I would describe our growth as prudent, rational growth, not necessarily rapid growth. The number of names in our book has grown at a more modest level then the dollars. So we grew from 58 long-term investments at 6/30 to 72 -- 6/30/2011 12 months later. That is quite a manageable level.

Our team is a scale team. It is one of the largest in the industry and as a result, we've got the ability to cover all of our bases not only for new originations but also the existing book. We have expanded our headcount year to date. We have added senior level talent in the portfolio management arena, in the legal arena, in the finance arena and at the deal team level across our three strategies, primary strategies and subcommittees of sponsored finance, nonsponsored direct lending and controlled buyouts.

So we continue to broaden and deepen the bench. We feel very comparable with the infrastructure, the institutional quality infrastructure that we have built out and grown and developed in our business. It gets vetted day in and day out by new lenders that come in, do due diligence on us and join our facility and other constituents. And we think we are well positioned to grow if there are attractive opportunities. If there aren't attractive opportunities, we won't book deals. And our history shows a discipline to do just that.

Back in 2009, for example, I think we closed very few primary originations and the main deal that we closed was the acquisition of Patriot Capital, just over $0.60 on the dollar for the assets.

So we are not going to grow for growth sake. We are going to grow we think at a prudent level based on opportunities we are seeing at the marketplace on a risk-adjusted basis. And we feel very comfortable with how the book has grown.

We also feel very comfortable because we have increased the first lien mix as we mentioned. We've expanded name diversity as we mentioned. We've increased industry diversity as we've mentioned. And our incentive is to underwrite transactions with leveragability in mind for our credit facility, which means to keep the leverage manageable. Their collateral is rated within our credit facility. That means we have to have prudent structures on top of what we would already be underwriting as prudent. And all of these act as important helpful risk controls for our business.

John, is there anything you would add to that?

Well, one thing, Greg, if we sent you the timesheet that showed how much time we spend on individual credits monitoring, managing, advising, fixing, what you would notice is an inverse correlation between the size of the transaction and the amount of time that we spend on it.

So we, Prospect has not put on any difficult assets that have become difficult since 2007. And as those run down, the amount of time we need to devote to those headaches has diminished steadily and considerably. When we purchased Patriot, of course, we did pick up a number of companies (inaudible) being two that come to mind, that are reasonably time intensive yet they are very small investments.

These larger investments as I'm sure you know -- everyone on the call knows -- they come typically with far more substantial equity capital, more substantial management teams, better reporting. And as a result, the amount of babysitting that is required does go down. So it actually turns out that the originations that we have put on the books this year to date -- and you might say, well, obviously every new origination requires very little time after you close. That actually isn't true. It is very common that right after you close, you discover all the things you wished had been disclosed to you or should have been disclosed to you before you closed.

So I would say that with small-company investments, with a weak credits, with companies suffering from some type of a credit defect, right after you close you are going to be discovering problems, then they are going to grow and they are going to take a large amount of time. We have not seen that with the very much larger or larger -- I would say steadily larger asset acquisitions as each year goes by. And that as a result, enables us to be more efficient.

It also enables us to attract people with much more experience and expertise in the business, which we also do on a steady basis, which Grier has mentioned. So while someone might think, boy, at this pace of originations, these people are going to be losing track of what they are doing. In fact, it turns out we are better able to manage than years ago when we had many smaller investments, which frankly for a lot of people are good training to learn how difficult it is to fix a company whose revenue is declining. There's typically not really that much you can do. Back to Grier.

All right, did we answer your question?

Yes, that's it. Thanks, guys.

[Rick Elkin], private investor.

Thank you very much. First of all, can you say on the May 26, 2010 $20 million share repurchase plan, how many shares you bought back under that plan?

We did not repurchase any shares under the prior $20 million plan.

Okay. And question just on the dividends, given that the total investment advisory fee rose to $14,820,000 in the current fourth quarter from $8,126,000 in the year ago fourth quarter and that the income incentive fee portion of the total investment advisory fee rose to $7,546,000 in the current fourth quarter from $4,158,000 in the year ago quarter. And that the base management fee portion of the total investment advisory fee rose to $7,273,000 in the current fourth quarter from $3,968,000 in the year ago quarter, is there a way that -- yes, is there a way that we can better align those fees particularly the incentive fee with increases in a dividend per common share?

Well, I think alignment comes about through not just thinking about the dividend but also the overall stock. And we as a management team have purchased a fair amount of stock over the years as part of that alignment. I think we hold collectively in excess of $20 million of stock, making us one of the largest combined shareholder quote unquote groups at our Company institutional or otherwise.

John, is there anything you would add to that?

Well, I guess the first thing -- I want to come back to the share buyback. But on the management contract that we have, we are not able as much as we might like to take out a clean sheet of paper and write up a new contract and go to people and say, hey, wouldn't you think this would work better?

The contract we have is the industry standard contract that the other externally managed companies have. And when we took the Company public that was the contract and that was the contract that Apollo had. I think frankly our contract is identical to -- if not -- probably not all -- in fact, I know not all of the externally managed BDCs brought to many and I believe most. And I think the vast preponderance to the contract we have is identical.

So it turns out changing these contracts is not a small matter and it requires a fairly long and involved process and creates -- one which creates uncertainty and therefore one where we wonder why the standard contract that other companies have used when they have gone public as we have gone public is something that we should change.

When we talk about incentives, the first incentive of course -- let's put it this way -- the first objective for shareholders which I am one, Grier is one, Brian is one, many of our officers direct -- I think all of our directors, I know all of our directors, officers are shareholders. So as shareholders, the first thing we want to see happen is we want capital -- capital to be preserved.

Now from our viewpoint, the number one way to do that is to protect the portfolio, protect the capital and the portfolio. We can't control the market, right. If there is an S&P downgrade of the United States' credit rating, if Greece goes into default, if the consumer confidence collapses, we can't control those things. And as Warren Buffet says, and he is not the only person, Mr. Market wakes up depressed some days and he wakes up ebullient other days. And you can't control that.

You can only control what you do. What we do is we have built a portfolio which we think has and will continue to stand the test of time. And when Robert Dodd asked, well how can you guys hope to keep -- to increase your net investment income to equal and surpass your dividend if all you do is hit singles? Well the answer is -- and people who have coached baseball teams know this -- if everybody on your team consistently hit singles, you are going to win a lot of games because every so often somebody is going to hit a single with the bases loaded. Or somebody is going to hit a double or a triple or a home run. And if you have very few strikeouts, then you are always are in the game and you're going to get enough runs to win a lot of games.

So that is our theory. It is risk control. It is protection of the capital in the portfolio and we know that Mr. Market will be [ebullient] some days, depressed on other days and when he is depressed, that is when we are buyers and that is why we want the ability to buy the stock. And I will come back to that.

So our first thing is to protect capital, preserve capital. If you, for example, if you have a dollar and you lose half of it, now you only have $.50. It is going to be real hard work to get back up just to the $1.00 where you were. So if you are very careful with your dollar, you don't swing for the fences and you keep hitting singles, you still have your dollar and then when the bright sunny days come of high return investing in the mezzanine business, you will have your entire dollar. So that is point one.

Point two is every day blocking, tackling, detail orientation, collecting interest, collecting dividend payments, monitoring these companies, speaking to the management, making sure we are getting our reporting and that is very dull and very boring but we do it every day and make sure that we get those interest and dividend payments.

Point three is that we do have positions in the portfolio which I would encourage anyone on this call to take a look at the equity positions, the financial information is there. You can calculate what those are worth and draw your own conclusions as to what they might be worth today or tomorrow given the performance of those companies, which by the way, we have been supervising some of them now for seven years.

And sometimes when you supervise a process for seven years such as with a fine wine or something, you might discover that you have something that is very valuable at the end of the process.

So those are the three things that we can do. Are we motivated to do those? Are our -- we can't control the stock market. We can't control what goes on in the general world markets. But we can do those three things.

So does our contract incentivize us to do that? I think it does because we are incentivized to maintain NAV. We are paid to protect NAV, to maximize interest income and dividend income both of which enable the Company to pay its dividend.

So when I slice through and parse through each aspect of that, I don't see any lack of incentive. But frankly, the most important incentive is we are proud of what we do. We all have reputations in this business. I have been in this business over 30 years. I'm not doing this just to make another dime or make another penny of net investment income or a dividend or see the stock go up by $0.50 as much I would like all of those things. I am in this business, Grier is in this business, Brian is in this business to be the best we can doing this.

We are competing against the best companies in the world doing this. We want to be as good or better than they are. When I last ran all the numbers over the last five years, we had outperformed a whole bunch of them and I'm happy to send you the charts over a five-year period. To manage a Company like this, we have to look at five-year periods, 10-year periods, 15-year periods.

Going back to the stock buyback, on the stock buyback, we believe the prudent management should be put in place the ability to buy the Company's stock back at a moment's notice. The ability of the management of the officers of the board of the employees to buy the stock when they see it undervalued.

Unfortunately there are significant -- let me underline significant -- regulatory obstacles, hurdles, forms, boxes to check, letters to send out that block that. So we are once again putting that into place. Unfortunately what tends to happen is by the time that is put in place, the stock is back up to a level where the attractiveness of a stock buyback is lessened.

And so nonetheless, we are putting that into place. It then provides optionality. The last time we put it into place, it took -- whatever it took, I forget, a month, six weeks. And by the time it was okay-ed by the government, we were up -- I forget another one dollar or two. We had a robust pipeline. A better use for our capital was to buy new assets and put them on the books as opposed to buying the stock. Will that happen again? I can't predict the future but it is not an unreasonable prognostication but it may not happen. We may in fact decide that we are going to really grow the NAV. If we grow the NAV, the data that we have shows that it does have an upward bias on the stock price.

However, the most important factor for the stock price is the net investment income and the dividend. Does that answer your question?

So it may be by the way, that we never buy a single share back but we have the optionality to do that. I think if you study announced share buybacks, you will discover less than 20% I think even less than 10%. Robert Dodd I'm sure could help us here actually lead to the corporation buying stock back.

If I could just ask, do you have any goals regarding growth of the dividend, any that are Company goals?

Yes. We believe that the dividend is the number one factor for the stock price and for shareholder satisfaction and contentment. And we are aware even though we don't believe that it is the most intelligent management to be trying to manage the stock price because we can't do it, right, we should not be spending our time trying to -- our time and effort trying to do something where we truly have nothing but a long-term effect on the variable. We are nonetheless aware that shareholders look at that stock price every day. I know a few people that do that. I discourage them from doing it.

They tend to obsess about it when it falls down and they think that oh I've lost all this much money. Well as long as you don't sell, you haven't lost any money. The company is the same company, the economy is the same economy, the business and industry really are the same. We are going to continue to plow ahead.

I saw at the beginning of this year, Warren Buffett Berkshire Hathaway was one of the 10 most to be avoided stocks according to all of the research people listed on Reuters. Okay. So when people come up to me and say well what about this and what about that? I say, well, do you think Warren Buffett is lying awake at night thinking, gosh, my stock is down. It is now one of the 10 most to be avoided stocks? I don't think so. I think he just goes about his daily business and look what just happened, he brought those shares in Bank of America at a bargain price seconds before they sold their position in the bank -- whatever it is the Bank of China, whatever that joint venture they have. He has already made 18% on his money. I mean he just -- just goes ahead.

I mean he bought the railroad, Norfolk Southern when it was down and out. And so that is how we have to run our business. We have to focus on the basics and just do the very best job we can. And we feel that if we do that over the long run, we will continue to outperform. And if someone is wondering how we have done it against our competitors and many rates -- right? You look at your competitors, right, it could be 50 yard dash or it could be a marathon. You are looking at your competitors.

You are determined to stay ahead of them and that is how we are wired. We are doing the very best we can. Some days are better than other days but we are mostly focused on the extreme long run.

Well I guess it looks to me like the growth of the dividend it went up during the good part of the business cycle then it went down. Now it's maybe starting to go back up again. I was just wondering, like I said, if you have any explicit goals for the Company for the growth of the dividend.

Let me tell you that what we would like and what we actually had prior to the economic financial, whatever you want to call it, downturn of 2007, '08 and '09, we wanted to be -- our objective, our aspiration is to raise our dividend every single quarter, and to do so for the next 100 quarters, until Grier and I retire. And then we are going to tell the next person, keep up the hitting streak, okay, like the Baltimore Orioles shortstop who played in so many consecutive games or Joe DiMaggio hitting so many consecutive games. Keep it up.

Well, what happened? What happened was we were unable to sustain that. It became imprudent. Everyone who has been on these calls knows how hard we tried. We were the last to give up the ghost on that. We just could not sustain ever increasing steady consecutive increases of the dividend when we had to issue a lot of stock to make acquisitions, some of which didn't happen.

Fortunately, Patriot did. Some of the others did not. We ended up issuing more stock to close acquisitions than in the end we really needed to do.

We also had to be prepared to pay off our bank on a second's notice. If you're not able to pay off your bank on a second's notice, you are in a risk position. We don't want to be in a risk position. So that was another factor. And as a result, we were able to go through that what some people call a crisis; I call it the normal cyclicality of the financial markets.

We were able to go through there with less damage to our company than I think any other BDC. Someone can challenge me on that and I will pull up the data if they are interested. So going forward, we are now increasing the dividend again, sir. I think you have probably noticed. They are miniscule increases, monthly increases and they are miniscule. And the reason we would like to keep that going forever but the reason they are miniscule is we want to enhance the odds and likelihood that we can do that forever.

But as Robert Dodd mentioned, we have some work to do in order to get our steady normalized net investment income up to the level of the dividend and beyond the level of the dividend, and we are working very hard to do that. But until we have achieved -- by the way, until we have achieved that if we can. It's our intent but that doesn't -- intention is not the same thing as guarantee or realization.

Until we can do that as our intent as we hope -- might not happen, but until it does happen, if it does, we have to keep increasing the dividend at a very, very modest -- you might say miniscule level of monthly increase, which diminishes the likelihood that we would ever have to cut it again, which would be very upsetting and disappointing to us.

We would feel like, boy, we really didn't want to have to do that, okay. So right as it stands now, we are maximizing the odds as we see it, that we can continue on the track that we are on. Would we like to increase the dividend by even more each month? Yes, we really would. But these are uncertain times right now. We have to watch and see where things shake out.

We have some plans and projects on the stove cooking as Grier mentioned. We can't be making predictions here because we really can't predict the future. We have some things that we think can go very well for us.

Then maybe our next earnings call it is a very different discussion, which is what we hope for. But that is how we have to do it, in the most conservative, risk-controlled, modest, careful basis. So if it is of any comfort to you, we want to increase the dividend every single month as long as we are associated with this company.

Grier, what would you add to that?

Well, I think that is a very complete answer. The concern is I see several other people in the queue. I want to make sure they get a quiet chance to ask their questions, too.

Sir, shall I move on to the next question?

Yes, please. Thank you.

Thank you. [Gerald Parker], a private investor.

Good afternoon, guys. Just in following up on that last call, you might remember one of our prior calls I made an observation that by continuing to issue equity , what happens, and even though the Company does better on a gross level, on a net share level we do worse. And that is kind of like what happened here is that your headline is that we increased our net investment income by 42%, (technical difficulty) which was the good news. But the net increase per share actually reduced.

So that was the point I made, I don't know it was six months ago or something like that, where maybe we should try to -- and since we are getting -- I mean, you guys have done the calculations. Does it cost us more on a per share level or in the equity market? But it seems that where we are not really seeing the benefit on the bottom line per share that I would like to see because of the fact that we are basically liquidating the Company, and I think mortgaging our future.

Now, you might be able to justify your increased fees that you guys get as management guys, which was also discussed in the earlier call, and you mentioned that you justify it because you have a bigger net investment income. But it is not really bigger per share; it is actually smaller.

But other than that I would like to also discuss with you the dividends. I mean how -- the dividends for -- how are you going to sustain the dividend when the amount of the dividend, as far as I can tell, exceeds our net investment income?

20 minutes)

First of all, our net investment income actually was up quarter over quarter. Granted we had some one-time effects in there but as a factual matter, our income was up. Secondly on an aggregate basis with two issuances last quarter of equity on an aggregate basis, they were at a premium to book value so they did enhance a shareholder value with really second deal, that of the underwriter spread was slightly below but on an aggregate basis of the two deals, they were up.

Thirdly as I mentioned earlier in the call, over the last nine months, we've done $325 million of bond issuance. We've increased our revolver by $90 million and working on what we think could be a near-term $25 million upsizing. That is $440 million in the aggregate compared to equity last quarter which was about half that.

So we have been focusing on accretive capital for growth and the primary path right in front of us is to use our revolver to help drive that investment income and address your very concern.

John, is there anything you would add to that?

Well, yes. One thing -- and I appreciate the questions because I like it when people ask questions that they think are the most difficult to answer as opposed to politically correct softball questions.

So addressing first the net investment income, our net investment income for the June quarter was $0.31 per weighted average number of shares for the quarter which was in line with our dividend. Now somebody might say, as Grier said quite properly, well but there is a couple of one-time items in there. Well that is correct. I think there is typically one or two so-called one-time items every quarter. This is my point about hitting singles.

So at the quarter, we know we are going to hit singles. What are those? Those are the interest payments and the dividend payments that we are going to get that quarter, which are predictable provided we have a good book of assets, which we've work -- as I've said -- very hard to put on the books and maintain and monitor.

Now we don't know in any particular inning is this person or that person going to hit a double or a triple? We just don't know. But it seems that every quarter somebody hits a double, somebody hits a triple, somebody might hit a home run. So looking at this quarter here, I see that our net investment income was $0.31 per weighted average number of shares for the quarter, which is in line with our dividend for this quarter.

So I guess on that -- maybe I can just pause for a second, on that part of the question, I'm not sure I understand the concern that our net investment income is not keeping up with our dividend.

Well, just that I'm looking at the press release and by the way, your analogy with the single-double-triple and one day you'll hit a home run brings me back a thought of the AT&T commercial with the little girl who wanted the mother to pay attention to her and the mother said she's on the phone with a client and the little girl says, mommy, when can I be a client?

I have been a shareholder for well over five years -- probably six or seven -- and I think you guys do a -- I think you guys do a fine job but when are we going to see the home run? Have we seen the home run yet?

Well, I guess first, let me suggest that I don't think if you're looking for a quote unquote home run, I have to confess BDCs are not known to be delivering them. Most people view the home run would be like eBay or Facebook or something like that. But if you have been an investor since 2004?

Early, early on.

Okay, well I'm looking at a chart here which I'm happy to send to you which shows how we've performed since 2004. And we have outperformed all the total return all of the other BDCs but one since -- for which there is a special story -- going back to 2004. So when I look at ourselves compared to the other management teams, right, there is ready set go and the marathon starts. I see us in sometimes we are in first place and sometimes we are in second.

Okay well --.

Okay, so --.

You can send that to me but the point with the investment income was on your press release, it says here on the first page you have a net investment income of $1.10 and you have dividends to shareholders per share of $1.21. Now is there some other income or are there other some cash flow source that is giving us the money that is going to keep that dividend at that $1.21 level or better?

Okay well, first, if you go to the tape here, that is for the year, okay. So we are looking at for the entire year $1.10, right. And the dividend for the entire year, I don't have right in front of me, maybe someone else does. But typically what I try to look at is how are we doing right now? How fast are we running right now, right?

And right now we've earned the dividend for this quarter. So we didn't -- we didn't do as well earning the full dividend -- the three quarters prior to this quarter because -- I guess -- I mean I don't know what the total amount of the dividends was. Right off hand I think it was $1.20 versus $1.10. So we were $0.10 short which by the way is less than a 10% over distribution.

If you were to look at the average BDC for reasons it is a very complex discussion, but the average BDC over distributes by more than 10%. So we are below average in terms of even for the full year where we were -- where we paid dividends less than our net investment income.

For the most recent quarter, we earned a net investment income equal to -- roughly equal to maybe more than our dividend. And so there the trend is your friend. I'm not saying we can continue to do that but if the last three quarters we fell short by approximately $0.03 a share and now in the fourth quarter, we are there, we are above possibly, then the trend is working in the direction we would like it to work. What I hesitate to say is that we can assure anybody that we can continue to do that. All I can say is that I don't know a management team that is as dedicated to doing it as we are. And I believe the proof is in the pudding if you look at the total return that we provided to shareholders going back to -- go to January 2005, go look on stockcharts.com and compare us on a total return basis with all of the other BDCs. I think you will be surprised.

By the way, had you bought any other BDC but one, you would be worse off and there are I think 30 of them. That is not so bad choosing number two out of 30. And by the way, as of three months ago, we were number one out of 30. Granted you haven't hit a home run but you know what, you have outperformed the S&P, you've outperformed the Dow, you've outperformed the New York Stock Exchange, you've outperformed [NYSE], you've outperformed NASDAQ. What is so bad about that? I would like to do that in everything I do.

Looking at my purchases of the Company because I have made quite a number over the years, some of which were as high as $16 a share and change, even with all of the purchases I've made including one for $7.75 just last week when it hit that number and a number of other purchases at $8 and $9, my average cost of the stock is still over $10.

Hold on, you should count your lucky stars. Your average cost is more than $2 maybe more than $3 below my average cost. So I am quite envious to you. I'm very happy with my -- with the return that I have on this asset. It has outperformed just as a shareholder, as I said, it has outperformed all of the indices that we can find, the Dow, the S&P, NASDAQ, New York Stock Exchange, NYSE.

Okay, if there are other indices that you look at, please let me know. But it has outperformed all of those very important benchmarks since 2004.

I don't know how I can be unhappy with an investment that is outperformed the S&P which over any 10-year period outperforms 99% of money managers. I mean maybe -- some people invest in the stock market hoping to quote hit a home run. If you will read Warren Buffett's letters, you will see that his point is that gamblers make the casino rich, okay. The way to make money in the stock market is to steady eddy every day blocking and tackling, not looking for home runs, looking for the kind of steady returns that our Company provides. And that is why we've outperformed the benchmarks that money managers are unable to outperform. And it is like -- I will send you the data. It is very significant and important data in my judgment.

Great, you can send it to me. I would appreciate that. And that is the way I look at your Company and a number of other companies I invest in. There's not one time that I ever sell any of the shares. I guess the big mistake I made is buying it at $16; if I didn't do that I would be probably be well ahead. But that is neither here nor there.

But my real question though is how can you as a company afford to pay out in a dividend more than you make?

By the way, I'm suspecting, sir, that you may not -- and this is a common mistake that we see, some people just look at the stock price. And for example, if you go on Yahoo! Finance, all those returns there do not include the dividend, okay. So it is quite distorted for example I believe it is something like 60% of the return on the S&P or 64% since 1926 is dividends.

Right, no, I think I am including because my account is with TD Ameritrade and right there next to your current information, it says what your average price is and I reinvest the dividend so -- and they reinvest it for me so I believe that they are calculating the price. But anyway, how do we pay more in a dividend than we do earn?

Okay, well, as I just explained, we are not doing that in the quarter that we just completed, which is the nearest in time and therefore the most relevant snapshot of what we are doing, we fully earn the dividend.

But on a year basis, we didn't.

Well, okay, but so the last -- but right -- do you disagree that the trend is moving in the right direction?

Well, it's a structure in trend. The year is a longer-term trend. I kind of like to look at longer-term trends. If I'm looking at a stock what is their growth rate going to be in five years not in the next 30 days.

I -- this is more -- a stock like this has more of a bond component to it than your average Apple Computer or eBay or Micron Technology that doubled the other day. This is designed -- this whole setup, this Company is designed to provide income quarter after quarter after quarter. Yes, like all financials, the stock price will fluctuate. As I think you probably know, financials have been quite volatile since 2007 for reasons we could discuss at another time. So the stock price will fluctuate. As JPMorgan said, prices will fluctuate. We understand that.

But we pay a steady dividend and it is outperformed the indices. And right now for this quarter, we fully earned the dividend. I will send you the data on the other BDCs. I'm trying to think of one that has fully earned its dividend for this quarter. There may be none. Maybe Robert Dodd can tell us right now, maybe there is two or three. The vast majority do not earn their dividends.

Why is that? That is a very long discussion as to why. I'm not even sure I know the full answer. A partial answer is that we want our dividend to be steady, we want it to be predictable, we want it to be reliable. Why? Because we think our shareholders benefit from the reliability and predictability.

As a corollary, our cost of capital should be less if our dividend is steady than if it's volatile. So we keep our dividend steady. Right now it is in line with our net investment income. It wasn't in the last three quarters. Should we have lowered it then in the last three quarters? Would that have been good for our shareholders? Well, maybe some of our shareholders would prefer us to never pay more than our net investment income. But I can assure you based on my conversations with them and what I read and what I observe with other BDCs, is that people place a higher value on a steady dividend that is aligned with the net investment income but not hostage to it. So if the net investment income falls short in a given quarter for whatever reason, the dividend is not automatically cut.

I don't know many people -- I can't think of any who really -- I doubt even you would be interested to see that happen.

Number three, it is nice to have an aspiration. It is nice to say, guys, we've got to work even harder, we are right there with the dividend. Next quarter we absolutely want to beat it again two quarters in a row. Let's get to work as opposed to having a dividend below the net investment income and building some cash cushion in the Company that our shareholders from what I understand would prefer to have it in their pockets.

Well, I agree with you that we wouldn't -- a shareholder want to see the dividends go up and down because that would create instability in the stock. But I'm just asking from a higher level, how does a company -- how does a country -- like we are a countries we could print money -- but how does any entity, I'm a businessman as well, how do you pay more out to your owners in profits than you get in? But anyway it (multiple speakers)

Hold on let me -- is your business profitable every day, every week, every month?

No. And that requires me to go to the bank and borrow money just to pay the expenses, to run the business.

But you could roll up all of your people, you could-- you know give half of your space back to the landlord in a month when sales are down a bit. You could do that but you are telling me you don't do that, right.

Never have.

Okay, well that sounds logical sensible common sense. You are probably running your business on a five-, 10- or 15-year plan and so if sales are down during a hurricane -- what business are you in sir?

I'm an attorney.

Okay, you are an attorney. If for whatever reason -- you're actually in a pretty stable business but I don't know maybe it involves litigation which is less stable -- but if for whatever reason your receipts are down in a given month, I don't think you automatically squeeze the company down or cut everybody's pay. I mean I've run quite a few businesses. I can't imagine walking out on the floor and saying, our revenues are down 20%, our profits are down 40%, everyone is taking a 40% pay cut until we get back on stream here. Obviously no well-run business does that.

No, but a dividend, an income distribution or a dividend distribution which dividend is normally from income is different than running an expense -- a salary, a telephone bill. I mean those are required. Normally you see a dividend coming out of profits or net income.

Okay, but bear in mind our customers, our counterparties, the people who rely upon us are not just the employees and the people that work at Prospect and the counterparties. But our shareholders expect that dividend. They are counting on that. Okay, if they own whatever it is 1000 shares, when that check comes for some of them, it may already be spent. I hope not. But the steadiness of the dividend is very important.

Right, right.

And I think our shareholders as a group would prefer that we slightly over distribute. By the way, I don't believe a 10 -- I mean we are talking a 9% over distribution for the year, entire year just ended. A 9% over distribution. First, let me say without -- I don't have the data in front of me, I believe that the vast majority and it may be every -- maybe not every -- I hesitate to say that, of the 30 or 34 BDCs out there, I would be surprised if more than -- we'll put it this way, I would be surprised if at least two-thirds do not over distribute more than we do.

At one point Apollo was over distributing 40%, okay. Why did they do that? You could call them up and ask them, okay. And others have for their own sets of reasons whatever they fully are. And people do that, I think these are smart people that we compete with, they over distribute for periods of time then maybe they under distribute for periods of time.

If you go back to the life of this Company, if you go back and you said you were a shareholder, and by the way, I am very grateful that you're a shareholder, I am too. I feel like I'm in the same boat with you. I want the stock to do well. If you go back all the way to 2004, I think you will see that we over distributed steady -- I mean under distributed steadily up until I think the first of these significant downturns maybe in 2008 was when the first time we slightly over distributed. And by the way, the over distribution was at times much larger than 9%. So the amount of the gap is smaller.

I don't think our business -- and I don't view our shareholders expecting dividends as so different from employees expecting a check and needing to pay a mortgage. I think everybody is depending on this economic engine to deliver economic returns that they can use to pay their bills.

Okay, well I don't want to take up all of your time. I think it you guys over the years have done a really fine job and just some of the things that you read and on these annual reports not really clear. I came to the last shareholders meeting that we had at your office about -- maybe it was in February or something. And hopefully I will come back again this year. Maybe we could just have another chat.

Well, Gerald, we appreciate hearing from you. I'm sure other people on the call are glad you've asked difficult questions. If anybody wants the data, I am happy to provide it. Some of what I have said here is estimates and guesswork based on having seen things -- some of it I'm more confident about. We can pull up the data.

What I am reminded of is I used to run marathons, running your marathon and then you are going at the best way to win the marathon is a one steady speed. Don't go -- if you can run 6 1/2 miles an hour, do it. Okay, don't -- I mean excuse me -- a mile every 6 1/2 minutes, do that. Don't move it up to 7 just because people are running past you. Don't slow it down just because you are passing other people.

And so when I would run a marathon, people would say, these people are running past you, you've got to pick up the pace. I'd say no, no, no, no, I'm running at the exact same speed the entire marathon. And at the end, I passed all those people both the ones that tried to pass me sprinting and all of those kind of thing and I knew steady Eddy wins the race. And that is what I learned as a younger person.

So we are continuing to pursue that. And by the way, I feel very blessed that both Grier and Brian and also Daria are very risk averse. Risk-averse protect capital first and then we will be there and maybe, you know what, maybe someday, Gerald, we will hit a homerun just for you.

Great okay, well, I'm on your team.

Okay.

Thank you.

Grier, back to Grier.

Okay, Jill, should we go to the next question?

Greg Mason, Stifel Nicolaus.

Okay this is Troy Ward sitting with Greg here. Grier, I just have a follow up on something that was brought up it feels like a couple of hours ago at this point about your shareholder agreement, your external management agreement. John, you mentioned how hard it was that to change. What is the difficulty of just putting something in your proxy asking the shareholders to make a change. And as you said, when you got into this, you are right, it was a 2 and 20 game and that is what the external manager basically was paid. But clearly in the last 24 months, we have seen several five or six BDCs come out I think the average is about 1.65, 1.7 on the base management fee. And maybe more importantly is better alignment of payment to the manager versus just what the pay is. For instance, you don't get paid on PIK income until that income is actually received. You have a high watermark, you have these things built into some of these other BDCs.

So what is stopping you? What is the huge hurdle that it is stopping you? As if you said, even if you wanted to you can't go out and do that. Why can't you just put that up to vote in a proxy? How often is your external shareholder agreement renewed with your owners, with the shareholders?

Okay, let me explain my point of view on this which has more -- there are more variables than just the agreement amending the agreement, what is involved in amending the agreement as to which I am not expert, okay.

I guess we could go back to when we formed the Company and when we put at the capital to take the Company public, people made these suggestions and we said we decline to work on that basis. So we -- our Company did not want to work on a basis other than industry standard. We don't think we are below industry standard in our performance in our effort, in our expertise, in our training. So we do not wish to work for below industry standard terms.

And I told the Board in 2004 when this was promoted to me that that was an unattractive proposition.

But clearly now, I would first of all say that that has changed. But even -- you know what, in all honesty the 2 and 20 probably isn't the biggest hurdle for us. What we like to see is the external managers pay be more aligned -- in fact, one of your shareholders was just actually saying this, be more aligned with the actual dollars that flow to the shareholder.

PIK income is a great example. If PIK income is received as you hope it is, and that is only reason you accrue it and we understand that and I'm not against PIK income -- but if you get paid an incentive fee on when we actually receive it in dollars, all that does is make an alignment, you don't lose a dollar as long as you perform. Those are the type of things that we would like to see not just Prospect but other managers as well move toward and we've definitely seen that in the last two years.

Okay, well, I guess one of the things that I think is a misapprehension here is that Prospect, the people at Prospect, who work at Prospect are like a hamster in a cage that runs a little harder or runs a little less hard depending on whether PIK income is permitted or not. And I know that probably no one on this call will believe that but we are just not wired that way. This is a very competitive, very difficult, very taxing and stressful business, okay. And people complain about working at our Company because it is quote a sweatshop. It is stressful. It wrecks your work life balance, you are on call, from John and Grier 24/7. You don't get a moment off of your Blackberry, but that is how it is.

And we are determined to perform. So making these changes to our management agreement would have no effect except to be somewhat de-motivating. Why are we now cutting -- imagine going to somebody in your Company, you've done a great job and last year you were paid $200,000. I want to a align incentives more. Now you're going to be paid $150,000, plus you get 1% of the profits.

I mean we would never do that because we know what the effect on people is. What I've learned is you never cut pay and you never demote somebody unless you want a problem in your Company. Okay.

So people at our Company are motivated to be the best they can be, to work at the best Company they can, to perform at the top of their game, they are not studying the management agreement to figure out how to make a dime or a dollar. If we were, you would see significantly more PIK income.

think -- I don't know how much PIK income other BDCs have. My guess and I hate to keep guessing on this call, I am not the expert on what everybody else does. I really focus on our own knitting. I would guess that the amount of PIK income we have is very close to the bottom of the 30 BDCs. And why is that? Because we don't like it. We don't want it, we don't like it.

When somebody comes to us and say, hey, well you know what, we like an 8% loan with 6% PIK income. The alternative is we will pay you 10% or excuse me, 12%. We take the 12% every single time.

And you might say, but why would you do that? Your management agreement incentivizes you to take the 8 plus 6 which is 14, why would you be -- it would be irrational for you to take the 12. But it is really not irrational for us to take the 12. It is highly rational and highly self-interested. Because our ability to go forward in this business and to raise more capital and to grow our Company and to provide for the people that work at the Company is all dependent on one single thing, doing the absolute best job that we can for our shareholders.

So if we allow our management agreement to incentivize us to do anything other than the very best thing we can do for our shareholders, then we are basically -- we are killing the golden goose. So we wouldn't do that. So therefore doing something like taking PIK income out of the management agreement would really have no beneficial effect for anyone anywhere in the system that I can see. We certainly would not work harder, we probably wouldn't work less hard. I don't think it would make any difference at all.

The amount of PIK income we have is so small that I think we are focusing on a fairly trivial aspect of that. So when I say changing the agreement is complex and I don't understand what shareholder votes are required or not, it is because with respect to considering various things that we would like to be able to do that we thought were in the interest of shareholders, that we thought were good ideas such as being able to do more leverage buyouts and things like that, we were told from time to time will this require an amendment to the shareholders' agreement.

And then we'd say fine, what is involved? And I'm not a practicing lawyer. I do have a law degree, I did practice law once a long time ago, I don't have all of the details on the ends and outs. But we have been told that amending your shareholders agreement is not -- your management agreement with a vote of shareholders is not undertaken lightly. Okay.

So in order to do that, to undertake that risk and that complexity whatever it is and I can see that I don't fully appreciate what's involved, I would have to believe that the goal was worth whatever risk is entailed. Okay.

And as I said just like with the PIK income, I mean Grier, why don't you pick up from here. How much of our income is PIK income?

We just calculated that. It is only 6% in the last fiscal year.

Did that include just PIK or PIK and other non-cash income like OID and accretion from PCAP?

That is just PIK.

I will just hop off and let somebody ask a question.

We earned the OID and have monetized a big part of that book, totally earned.

Right, when you actually monetize that, it comes in in actual cash, right. Thanks, Grier.

Thank you, Troy.

Adam Waldo, Lismore Partners, LLC.

Thanks. Just a quick question and I hope a quick answer given we are probably at the end of the call. You all spoke a little bit about the March -- pardon me -- the 2010 share repurchase authorization from May of $20 million and that none had been repurchased at this point. Is that authorization still in place or did it lapse?

We have renewed that authorization, the $100 million and that will be in place -- we need to -- the mailing to go to the shareholders.

Okay so --.

And once the mailing goes to the shareholders, then we can repurchase. My understanding, right, Brian, is we --.

We will have a total of $100 million whether the $20 million is in the $100 million or it goes away, we will have $100 million, we won't have $120 million.

I don't believe we did the actual mailing because we popped back up above book value and it traded well became kind of a moot point. But below book territory we absolutely want to preserve that option and that is why we are doing the mailing in conjunction with a proxy which is a convenient time to do it.

Okay, but let me just again clarify. So before the recent increase to $100 million total repo authorization, you had $20 million out. The stock hit a 52-week low of $7.41 on August 9 and has been trading in the 8s for much of July and August here. Why couldn't you have acted under the $20 million repo and submit -- existing authorization and then have submitted for an additional $80 million?

We have been in a blackout period for releasing earnings.

Okay. And then looking forward, can you just review for us the mechanics that would govern your ability to be active in the market as a repurchaser? Do you have any different guidelines in terms of the percentage of average daily trading volume that you can buy on any given day once this is presumably put in notice to shareholders? As a BDC, do you have any different authorization limitations from the SEC than a typical C-Corp has?

There are regulatory guidelines that we have to follow pertaining to share repurchases. I don't have all of them at my fingertips. I know we cannot be in receipt of material nonpublic information is one key one. I also recall there are some rules pertaining to purchases like near the end of the trading day if I'm not mistaken.

Right, you can't be in in the last hour and you can't buy more than 20% of your average daily trading volume. Those apply to you as a BDC as well as they do a C-Corp?

My understanding is yes.

Okay, thanks.

Thank you.

[John Ellis], a private shareholder.

I will try and make this short. Thank you for your marathon call. You gave us an estimate of $0.25 to $0.30 for Q1 2012 NII. How much of that do you expect to be nonrecurring and specifically how much from the write ups of the Patriot acquisition?

We expect that to be all of a recurring type nature. And yes, we do include ongoing new originations as recurring in the sense that we have been an active origination firm for many years.

The second part under question pertain to write-ups from Patriot. I think you're talking about the accretion of the original issue discount. Only about 837,000, which is less than a penny per share.

Okay so then we can mostly think of this as John's hitting of singles -- of the non-recurring?

For that portion, right, not including any other of the potential -- I don't know if you call it doubles, triples or homeruns. But we are looking at some potential monetizations in the book.

Okay, well you had $0.10 nonrecurring in Q4. Ballpark then should we think of that in Q1 to repeat itself?

No, that was specifically pertaining to one asset.

Okay, all right. So we're looking at $0.25 to $0.30 whatever it is, where ever it comes from?

That is correct. That is our current guidance.

Yes, including nonrecurring gains?

Right, where it doesn't -- we are not budgeting -- I guess I'm not saying it well. We are not budgeting any nonrecurring gains in the current quarter. Brian, do you want to clarify that?

Yes -- last quarter you will remember that we actually announced that we expected $0.10 to come from this early repayment. We are not announcing any such items for the first quarter of fiscal 2012.

Okay, so the $0.25 to $0.30 is so to speak a hard figure?

Yes, it is what I would call recurring income.

Yes, got it. Thank you very much.

Thank you.

That sounds like a question from a Harvard Law school graduate.

Somebody knows something there.

One smart enough to live in Maine.

I missed that. This is John I'm speaking with you now?

Right.

Okay, all right. Hey, and send me all of the stuff you have offered to send these other people. I would find that exceptionally interesting.

Okay.

Okay, I will call in and give you a physical address.

Thank you.

Thank you.

Rick Elkin, a private investor.

Sure, just on another way of looking at the dividend, it seems to me an easy way to get to 100% coverage or even over coverage would be to buy your stock in the open market while it is at $1.50 or $1.60 discount to the net asset value. Would you do that once you have the authorization if the stock is still down here?

Well, we have announced $100 million repurchase plan. We are mailing the shareholder base and once that mailing is complete then from a regulatory standpoint, we can execute on purchases. And while we are in a below book value territory, purchases of stock are absolutely part of the spectrum of potential investments just as valid as booking new originations. So absolutely, yes, we are looking at that as a possibility. And our mailing should commence what would you say, Brian, the next couple of weeks?

Second week in September.

The second week of September. So that gives you visibility as to when we would have the ability to do that.

My question is more once you have the ability to do it and assuming the stock is still $1.50 or $1.60 or so below the book value, why would this not to be at the top of your universe of potential investments given that it holds open the possibility of not only covering the dividend but also being able to increase it? And as you say, your shareholder base is people that seek dividends.

If at that time we complete the mailing if a repurchase we think is our best returning on risk-adjusted basis investment in front of us in the slate of opportunities, then our intention would be to execute.

Sure, I understand that but what I am saying is, it would seem to me there are two different value scales here. And you are ranking it against potential new loans where as from the point of view of an investor in the Company, the ability to increase the dividend would seem to be the highest priority.

Absolutely, I guess what I am saying is because the future is uncertain as I said earlier in the call, if we add another-- Patriot Capital come along where we have earned what, Brian, in cash realized basis probably more than 40% IRR at this point in time?

Definitely in excess of 30.

It would probably not be prudent to turn down an opportunity like that and to repurchase. So I just want to give us some flexibility here because our origination and deal flow footprint is a deep one and a wide one and we see a lot of opportunities around here and we would sure hate to miss out on attractive opportunity like that again.

I'm not saying that is in front of us right now but possibly. But repurchases -- look, we announced this (inaudible) and give ourselves the option to do it.

Grier, let me jump in here for a second.

Yes, go ahead, John.

The reason we can't assure anybody about anything involving the future, Rick, is of course it is unpredictable.

But I'm just saying on the assumption of the stock price still being low, obviously I don't know if it will be or not but I'm saying is it were still to be in the price range where it is now, it would seem to be a very -- it would seem to be the highest priority for a shareholder.

Right, right. So let me -- first let me agree with you. I think that right this very second we would love to go out and buy the stock. Right this very second.

Okay.

Okay. Because right now the stars are aligned. One of the variables we look at several others are also aligned right at the moment, but we have to get this regulatory mother may I permission each time we want to do something. And -- but there is a possible -- that the stars -- the NAV star may be aligned -- but I hope not -- for a very long time. But there are other stars that need to be outlined as well.

For example, let's say we get the authorization -- pick a day. I guess it is actually -- I'm just going to pick a day, okay, let's say time period zero we get the authorization. And right at that moment the stock is trading at $1.50 below NAV, our bank facility is drawn at 0.75, right, and we do not want to be that high and certainly nowhere near 0.8. And we have signed commitments to finance companies say in the amount of $200 million and those are progressing towards close. And we could go buy the stock -- go buy our stock, right, and then we would have -- now how are we going to fund those companies coming on stream?

Well, we could borrow more against our facility when we might be considering that to be imprudent, okay. If our stock is down at that level obviously there are problems in the financial market, well not obviously, but I would infer the likelihood of problems in the financial market. Now we have borrowers coming on stream like these transactions can take three months or longer. And so now we are getting like we are in say -- it is two weeks away that $150 million in financings are supposed to close.

If we go by our stock as attractive as that is, now we have to figure out -- are we going to go to these borrowers and say, hey, sorry, possibly be in litigation but we didn't calculate that this great opportunity to buy our stock, we finally get permission from the SEC and shareholders or are we going to go buy our stock and then ramp up our bank facility to levels that make us uncomfortable like 0.7? Or are we going to go buy our stock and then turn around and issue a convert or issue more stock at those prices and now all we have done is we've brought our stock in and say, pick a number, $7. I hope it doesn't anywhere near that, say $7.

If we then go turn around and sell stock at $7 to meet our financial obligations to onstream -- coming onstream borrowers, then all we have done is nicked ourselves for the time and effort to do an underwriting, the risk, uncertainty, the underwriter spread and so forth.

So what happens is we are running every day a multi-variable calculus and our eyes are on the horizon, not the wave one foot in front of our boat on the horizon. And therefore I agree completely with what Grier said. We will examine all of these variables and attempt to do the highest returning lowest link to controllable risk activity that we can.

And so just so looking at the NAV as attractive as that is, that is not talismanic for what we do. It is not a single variable equation.

Would not prudent hit a lot of singles approach to the Company be to say, okay, we'll take of our amount of money that we have available to do things to make investments with, we will put maybe 75% or 80% of it toward new loans but we even reserve maybe 20% or 25% to see if the stock is cheap and that way we can do some of both?

Well, we have done that. We have already done that. We do that on an ongoing basis. We maintain what I would call a reserve, a cushion of liquidity at all times over and above all of the contractual demands on the Company.

Right but I am saying do enough of that so that you can also have an additional reserve so that you would be in a position at all times to buy some stock especially at a time period when it has been weak.

Okay. Well let me ask you, let's say we have $150 million of liquidity right now.

Right.

And our bank facility is where we want it. We don't want to issue any more stock and I've got $300 million of deals coming at us. Okay. Should I tell those people we've got to start to get out of $225 million of those deals? Should I tell them --?

Well, if you only have $150 million of liquidity, you know you are going to have to get out of some of them. So --.

No, when you have a pipeline of $300 million, it is not atypical for about $150 million to close. And the company grows liquidity on a monthly -- really more than a monthly -- weekly basis. We have incoming interest payments, we have incoming dividend payments all the time. So but right now, I would like people on this phone call to understand that this is not like flying a Cessna with one instrument. It's like flying a spaceship with 70 of them, we've got to (multiple speakers)

I understand all of that but why not make a revision as you plan and manage your business, why not make a provision to have some liquidity available at all times to buy the stock as you make a provision to have liquidity available to lend money and expand your book of loans?

Right, first I said we do that. We have a cushion of liquidity to do whatever we want at any time. So if the stock -- if the obstacle is not our failure to plan or our lack of liquidity or our lack of lining up financing options. Those are no problems. We have all the liquidity we need to buying the stock at the drop of a hat.

Okay.

Now the obstacle is the government and the government's requirement that we jump through XYZ hoops in order to do that. We are waiting for that permission. When we get that permission, we will continue to have the reserve of liquidity.

Okay, okay. So then --

So that is not a problem.

Okay. All right, so then you would be in a position to do it once you get the approvals if it makes sense from the cost of the stock price?

Yes, we will not -- well I don't want to be Pollyanna about this. It doesn't serve anybody. The answer is yes, however, it is not difficult for me to imagine a whole set of circumstances that might make it difficult at that exact time. For example, right now we have pipeline of $300 million. Do you agree with me that at this exact moment, since we think about half of that will close in the next month or so, do agree with me that we should not be telling those people hey, don't process any further. See if you can get out of those commitments and quasi commitments. Do you agree with me that that would not be a smart idea?

Well what I am misunderstanding is why are you asking me that if you just told me that you have adequate liquidity and a cushion of liquidity to do both things?

Well because the future is uncertain and if all $300 million of those deals come down the pike, we are going to eat through our cushion. That is quite possible. Sometimes it happens, right. You've got 10 deals coming toward the company to close in some months three close, in other months, nine close.

That is why I am saying that it might make sense to have a separate pile of capital whatever it is if its $20 million or $25 million or $15 million just set aside specifically and only for the purchase of the stock if it is at an appropriate price.

Okay, but what do you mean when you say -- I mean are you saying -- I'm not sure what you mean -- this is a very fluid dynamic multi-variable constantly changing situation. I am imagining that you what you are thinking, is it Rick, do I have the name right?

Yes.

-- that you know what, why don't you guys put $150 million in a vault and just say, we are not going to touch this --.

I didn't say that. I said like maybe $20 million or $25 million, have it there with the idea of buying the stock at a favorable price if it is at a favorable price because you know that if you do that, it will immediately increase your dividend coverage and maybe that is only 10% of your liquidity but it is some money. And I don't see why you wouldn't put aside a separate pile like that so that's come what may given the uncertainties in the future, one of the things that you would be prepared to do at all times would be to buy the stock if it was at a big discount to the net asset value.

Rick, you will be happy to know never in the history of this Company have we not had such a small amount of money available to buying stock, making a loan, making an acquisition. $25 million to $30 million is a modest fraction of our daily liquidity. We have a daily liquidity report which lays out on a spreadsheet -- it's very complex, lays out all sources of liquidity from bank loans, from incoming payments, from the pledging of loans --.

Well, that is my exact point. Since it is a small modest amount of your liquidity, then you should be able to set it aside for this purpose. And --.

Why do you keep thinking we haven't done that? We have.

Because you keep telling me well it depends on the future what happens with our pipeline.

Let me give an analogy, okay. Let's say -- I don't know if you are married I will talk about --.

I am married.

Okay that you and your wife have set aside a $100,000 for your retirement.

Okay.

Can you be absolutely sure there will never be an event between now and your retirement when you might need that money for something else? I don't know what it might be.

Well, I would say that I have set aside a enough for retirement that I'm quite sure that I will never need most of it. I mean I might need some of it but I'm not going to need most of it.

Well, you know, I don't know if you are aware or not but you know that we have to be very, very careful in making statements about the future. We've got a definite liquidity cushion. The fact is I am very comfortable talking about the past. There have never been a moment in this Company's history when it did not have -- without any special effort just the normal conservative cash management we do day in day out without saying I need a reserve for X. I need it for Y, I need it for Z. There has never been a day when we didn't have at least $50 million. So that is double the reserve you are talking about.

There is no -- once again, if I told you I'm earmarking money, I'm telling Brian and Grier this money has to go into this drawer or into this account or we can never -- if our limit on the [Rabo facility] is in our mind is 0.8 but we can never use anything more than 0.75 because we needs 0.05 to buy back stock, I wouldn't be telling you the truth so I'm not going to do it.

The fact is we have constant liquidity. And the main point is when the moment comes, buy stock and we think it is economically intelligent to do it, we will do it. You will not hear me -- I will guarantee this, you will not hear me say we didn't buy the stock because we didn't have liquidity. Darn it, we didn't plan, you know, you won't hear me say that. If it is true I will say it, okay. Because it could happen. But I don't think it is going to happen.

I think the main point is that we do have the liquidity, we do have the wherewithal because we are careful planners. By the way, I am also -- I would love to suggest that people look up the beneficial stock impact that comes from companies buying in their own stock. I think people are imagining it is a significant move the needle exercise. And my observation, Robert Dodd and I'm sure Troy and other people, Greg, could chime in here. My observation is there is a lot of optics and limited substance surrounding both -- all of the following, the announcement of stock backpacks, the execution of them, and number three, when they are executed, their beneficent effect on the stock.

Because what we find is that our stock and other people's stocks trade based on how the engine down in the engine room is humming along on a long run program. But I'm happy to be corrected on that and maybe somebody could send me some data that shows if we were to spend $25 million buying back stock, which is really a rounding error for our Company, that that -- if that could raise the stock price by 10%, I can't imagine anybody in our Company not thinking that was above priority number one.

Well, I'm not concerned -- I'm not focused on that. I'm focused on the dividends per share. But what I would say in a general sense is that it really depends on how much stock you are able to buy and how significant the discount is. But -- if I could just ask you one quick thing and then I will really sign off. Once you get the new authorization, how long is it good for?

A year.

Okay. All right, I really do I appreciate your taking the time to answer the questions in detail.

We like the questions from the people who are expressing some frustration with us because if you don't ask the questions we may not to be aware of the frustration and then we can't address it as best we can. We are not perfect but we are determined to do the best we can and these questions help us do better.

Grier, would you add anything to what I just had to say?

Well, we announced the buyback authorization for a reason and I appreciate the helpful comments from Rick. Thank you very much. We will take all those into consideration.

Again, thank you guys for your time and appreciate your -- what can I say -- all of your efforts, your willingness to work hard, your willingness to try to do good things for the shareholders. So, thank you.

By the way, Rick, just to add the last codicil to that commentary, the reason we refiled was because we wanted to go buy shares a couple of weeks ago. And I'm not even going to mention what the stock price was because it is too painful to discuss certainly on this call.

But we said, wow, we need to go into the market right now and start buying back the stock and we spoke to our general counsel and we said, we need to do this now. What -- what boxes do we need to check, what steps do we need to take? And it was then that we learned to our chagrin that oh, you need to do this every year and it only lasts a year. So of course you can imagine there might have been some gnashing of teeth. Why wasn't this done, why wasn't it -- why isn't this done automatically every year?

Right.

So now it is going to be done automatically every year. We are never going to be without -- we are never going to have hopefully even a nanosecond where we are prevented from doing what we started or at least wanted to start doing -- whatever it was -- a couple three weeks ago.

Grier, do you want to correct anything I just said?

We will have to check on that one year piece. I think the authorization may be ad infinitum but we will check on that.

Okay.

Well I guess the other thing is as Grier did point out earlier, right, you can't go out and buy -- the Company is not allowed -- there is lot of restrictions, some of which pick up right before an SEC filing such as a prospectus, a 10-Q or a 10-K.

Okay, back to Grier.

Okay, I think that is the last question. John, do you want to wrap things up?

Well, I would like to thank everybody for sharing with us their advice, their concerns and we learn from these calls. We think they help us be better managers, become better managers and be more responsive to shareholders. That is what we are paid to do and we are determined -- we are determined to do the best we can.

So I'm thankful that everybody came onto this call, some people I am sure interrupted their August vacation and I hope people can go back and enjoy the rest of the week. So thank you very much, everyone. Bye.

Thank you, all.

Thank you for your time. The conference has now concluded. Thank you for attending. You may now disconnect your lines.