Prospect Capital Corp (PSEC) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Prospect Capital Corporation third fiscal quarter earnings release and 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 call over to John Barry. Please go ahead.

Thank you, Andrew. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer, and Brian Oswald, our Chief Financial Officer. Brian?

Thanks, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward-looking statements within the meaning of the Securities Laws that are intended to be subject to Safe Harbor Protection.

Actual outcomes and results could differ materially from those forecast due to the impact of many factors. We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, see our earnings press release and our 10-Q filed previously. Now I'll turn the call back over to John.

Thanks, Brian. Our net investment income was up 90% year-over-year from $123 million to $230 million for the first three quarters of our current fiscal year. In the March quarter, we notched record origination volume of $784 million.

Net investment income for the March quarter was $60 million. On a weighted average per share basis, net investment for the March 2013 quarter was $0.26. For the March 2012 quarter, our net investment income was $58 million or $0.51 for weighted average number of shares.

NAV was at $10.71 on March 31, 2013.

Net of cash and equivalents, out debt to equity ratio was 44% in March and 29% in December. We estimate our net investment income per weighted average share in the current June quarter will be $0.26 to $0.32. We have substantial debt capacity and liquidity to drive future earnings through prudently increased levels of matchbook funding.

We have announced more shareholder distributions through August, which will be our 61st shareholder distribution and our 38th consecutive per share monthly increase. Our net investment income has exceeded distributions for the current fiscal year, the prior fiscal year, and the cumulative history of the Company. For the current fiscal year, our net investment income, in excess of distributions to shareholders, was $42.5 million or $0.22 per share. We have now paid out $11.49 per share and $785 million in distributions over the life of the Company. Thank you. I will now turn the call over to Grier.

Thanks, John. Our business continues to grow at a solid and prudent pace. As of today, we've now reached more than $4.6 billion of assets plus undrawn credit. Our team has increased to 75 professionals, representing one of the largest dedicated middle-market credit groups in the industry. With our scale, longevity, experience and deep bench, we continue to focus on a diversified investment strategy that covers third-party private equity sponsor-related lending, direct non-sponsor lending, club and syndicated lending, Prospect sponsor transactions, real estate yield investing and structured credit.

This diversity allows us to source a broad range and high volume of opportunities, then selecting in a disciplined, bottoms-up manner, the opportunities we deem to be the most attractive on a risk-adjusted basis. Our team typically evaluates thousands of opportunities annually and invests in a disciplined manner in a single-digit percentage of such opportunities.

Our non-bank structure gives us the flexibility to invest in multiple levels of the corporate capital stack with a preference for secured lending and senior loans. Our approach is one that generates attractive risk-adjusted yields and our debt investments were generating an annualized yield of 13.9% as of March 31. We also hold equity positions in many transactions that can act as yield enhancers or capital gains contributors, as such positions generate distributions.

Originations in the March 2013 quarter were a record 784 million, up approximately 5 times our originations in the prior year 2012 quarter. We also experienced $103 million of repayments as a nice validation of our capital preservation objective.

As of March, we are up to 120 portfolio companies at a 54% year-over-year increase and demonstrating both an increase in diversity, as well as a migration toward both a larger position and a larger portfolio of companies. We also continue to invest in a diversified fashion across many different portfolio company industries with no significant industry concentration.

Our originations in the March 2013 quarter were weighted toward the last month of the quarter, resulting in only a partial quarter positive income impact from such originations. We expect such originations to generate full quarter positive impact in the current June 2013 quarter.

The majority of our portfolio consists of agented and self-originated middle-market loans. In general, we perceive the risk-adjusted reward in the current environment to be superior for agented and self-originated opportunities compared to the syndicated market, causing us to prioritize our proactive sourcing efforts. Our financial services' controlled investments are performing well, with annualized cash yields in excess of 18%, and our CLOs are currently yielding approximately 20% annualized.

Today, we made a few investments in the real estate arena with our private REIT, APH, largely focused on multifamily stabilized yield acquisitions with attractive 10-year financing. We hope to increase that activity more and larger deals in the months to come.

During calendar year 2012, we received significant dividend and interest income from our ESHI investments. Our income from ESHI in calendar year 2013 is significantly less than such income in calendar year 2012. We're targeting to offset this decrease by utilizing existing liquidity and prudent leverage to finance our growth through new originations including attractive yielding investments in the financial services and other sectors. The current June quarter is off to a strong start with 164 million originations and a growing pipeline.

Our credit quality continues to be robust. None of our loans originated in nearly six years has gone to non-accrual status. Non-accruals, as a percentage of total assets, stood at only 1.3% in March, down from 1.9% in June. Our advance investment pipeline aggregates more than $600 million in potential opportunities, boding well for the coming months. Thank you. I'll now turn the call over to Brian.

Thanks, Grier. As John discussed, we've grown our business with low leverage. Net of cash and equivalents, our debt to equity ratio stood at 44% in December. We believe our low leverage, diversified access to matchbook funding the vast majority of unencumbered assets and weighting towards secured fixed-rate debt demonstrate both balance sheet strength, as well as substantial liquidity to capitalize on attractive opportunities.

We are a leader and innovator in our marketplace. We were the first company in our industry to issue a convertible bond, conduct an ATM program and develop a notes program and acquire a competitor, as we did with Patriot Capital. We also just issued the first institutional bond in our sector in six years.

Shareholders and unsecured creditors alike should appreciate the thoughtful approach differentiated in our industry, which we have taken toward construction of the right-hand side of our balance sheet. As of March, we held approximately $3.3 billion of our assets as unencumbered assets. The remaining assets are pledged to Prospect Capital Funding, LLC, which has AA-rated $552.5 million revolver with 17 banks and with a $650 million total size accordion feature at our option.

The revolver is priced at LIBOR plus 275 basis points, and revolves for three years followed by two years of amortization with interest distributions allowed. We started the June 2012 quarter with a $410 million revolver in 10 banks, so we've seen significant lender interest as we've grown the revolver.

Outside of our revolver and benefiting from our unencumbered assets, we've issued at Prospect Capital Corporation multiple types of BBB-rated unsecured debt, including convertible bonds, a baby bond, an institutional bond and program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions, and no cross defaults with our revolver.

We've now tapped the five to 30-year unsecured term debt market to extend our liability duration. We have no debt maturities until December 2015, with debt maturities extending through 2043. With so many banks and debt investors across so many debt tranches, we've substantially reduced our counterparty risk over the years.

As of today, we have issued five tranches of convertible bonds with staggered maturities that aggregate $847.5 million at interest rates ranging from 5.375% to 6.25% and have conversion prices ranging from $11.35 to $12.76 per share. In the past, we have repurchased such bonds when we deemed such purchases to be attractive for us.

We have issued a $100 million, 6.95% baby bond due in 2022 and traded on the New York Stock Exchange with the ticker PRY. On March 15, 2013, we issued $250 million in aggregate principal amount of 5.875% senior unsecured notes due March, 2023. This was the first institutional bond issued in our sector in the last six years.

We have issued $264 million of program notes with staggered maturities between 2019 and 2043 and a weighted average interest rate of 5.7%. From June 30 to today, in addition to our revolver expansion, program notes issuance and two convertible bond issuances, one in August and one in December, we have issued equity at a premium to net asset value.

From February 11 through May 7, we've sold approximately 17.2 million shares of our common stock in our ATM program at an average price of $11.14 per share and raised $191.9 million of gross proceeds.

We currently have no borrowings under our revolver. Assuming sufficient assets are pledged to the revolver and that we are in compliance with all revolver terms, and taking into account our cash balances on hand, we have approximately $740 million of new investment capacity. Now I'll turn the call back to John.

Thank you, Brian. We can answer any questions.

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Jonathan Bock of Wells Fargo. Please go ahead.

Good morning, and thank you for taking my questions. Grier, one item as it relates to scalability -- I know you've built quite a large franchise. Could you give us the number of MBs, VPs and associates that you have at Prospect working in all different areas, and then maybe talk about your hiring needs just across the platform near term?

Sure. Thank you for that question, Jonathan. Our total headcount is about 75 professionals and what's different today about us versus other externally managed BDCs in the marketplace is our BDC is a main event. This is really our primary area of focus as essentially close to a full-time endeavor for us. The breakout of 75 is about 45 approximately (inaudible) front office on the investment and credit staff and about 30 or so in the back office that includes our finance team, our legal team, our administration team, HR, recruiting, etc.

And we're always looking for good, talented people, whether it is 2003 or 2013. It really doesn't matter what year it is, so we're always on the hunt for talented people. If you know of anyone listening to the call, please let us know. We find outstanding people are accretive to our business. And we do think that scale, Jonathan, is a big advantage of what we do. We have noticed that in the last quarter, the March quarter, some of our peers and others in the marketplace were down in originations. They are referencing discipline as the reason for that.

We consider ourselves pretty disciplined as well. We're closing a single percentage of what we see. And I think the reason that we've been successful at converting profitable deals is because we're willing to invest in resources and hire people and build up our staff, as opposed to others that may be flat-lining and not making such investments. So you've seen the return on that.

I appreciate --

Jonathan, it's John Barry. I'd like to jump in here and take advantage of this opportunity with your excellent call -- excellent question. The Company is no more, no less than all the people that work here and we're very alert to that. We're very proud of the fact that we spend a lot of time with our people trying to ensure that they're happy here with us. We've not lost a senior -- a single senior person that we wanted to have stay going back to 1999, and that requires a lot of attention, needless to say. I think we have the lowest turnover of anybody that we compete with that I know about.

As far as recruiting, our strategy with respect to recruiting is different, I think, than what you would normally see. We're always recruiting people; we're always looking for the best athletes, period, whether the person's last job was as a surgeon, a news announcer, a research analyst, an investment banker. We want the very best people and we spend a large amount of time recruiting these people. On my list for today are -- I'm just looking at it now -- four people that I need to be meeting with or speaking to that are in various stages of possibly joining our company.

So anyone who feels that he or she could be additive to what we do should definitely contact us because we would be very interested, regardless of experience, regardless of level. We look for people who are capable of adding to the franchise and enhancing shareholder value and that applies through thick and thin. And it's really -- my number one job is to be constantly on the lookout for good people because, as you've noticed, we have a huge book of assets to keep working hard for our shareholders, and it won't happen unless we keep hiring excellent people as we have been quite fortunate to have been able to do.

I appreciate that, guys, thank you. Now, turning real quickly to --

By the way, if you have any interest, let us know.

Okay. I appreciate that. So turning to First Tower, one quick question as it relates to the valuation -- so we saw the valuation in the equity dropped and generally, valuations are important and I noticed that now, there is an additive, or I would say a discounted cash flow valuation metric that's now being used in addition to comps. So there's going to be a question there as it relates to what's driving the mark, in you view, and have you seen any fundamental deterioration in the business?

Okay. Jonathan, thanks for your question. By the way, the valuation process for our business, since inception, on equity-type positions has always used discounted cash flow in addition to our comps, so there's nothing new there.

Okay.

Tower is -- I would describe it as a stable business and generating attractive yields. We've seen the growth there moderate. The business had been on a significant growth pattern for a number of years and we've basically seen that level off, so there was a valuation maybe reflecting more of a growth aspect previously, and with that moderation, that mark has been taken down a bit.

But the sort of EBITDA Of the business is quite stable and we're hoping to see growth commence again with the company. They are expanding into some new markets here in 2013 and some pretty interesting things going on with the company. So from our perspective, I wouldn't read too much into that change in mark and the business continues to be a solid dividend and cash flow distributor to us.

Then just a few follow-ups then, Grier, because I was reading through -- and I appreciate the enhanced disclosure on First Tower, so I know you mentioned that their total assets of $632 million and total financing receivables of $400 million, which I would assume is the loan portfolio, but then maybe where I'm not understanding it entirely is it says that there's roughly $264 million of debt ahead of Prospect. And I want to know, is that total debt ahead of your credit line or is that $264 million inclusive of the revolver that you have out to First Tower?

No, that's third-party ABL debt --

Okay. So the -- okay.

-- which is typical to -- for these types of businesses. They're asset-rich companies and we are actually running that business with a fairly low level of leverage. We're looking at some interesting things to do in that business as well, potentially, to securitize that (inaudible). There's another company in the space a few months ago that did a securitization in the installment area, so that's interesting to diversify beyond the bank market and add a little bit of longevity.

These aren't very long loans, long-life loans. They are about two-year fully amortizing loans and the bank market terms are getting more attractive. We hope to actually drive that down over time, maybe as an alternative to securitization. We've got a lot of pretty attractive financing options for that business right now.

Well, that's interesting because as we -- we are pretty familiar with the space and in terms of regulation, particularly just both the U.S. and the UK do have fairly similar attributes in terms of how the regulatory agencies to react, and the UK limited rollovers, right? And the installment loan product, I understand, is not payday, but is it subjected to the same amount of rollover risk to a point where, if the CFPB does shut down rollovers, those loans come due and what happened?

And it happened in a company in our coverage. It ended up having a very high level of defaults, that quarter Rollover stopped. How does that risk look today and does that compromise an ability to securitize installment loans, given that the regulatory environment is really anybody's best guess?

Sure. We analyze that risk pretty extensively, as you can imagine, in the almost year that we spent diligencing this company and five years that we spent diligencing this sector and being an investor, a debt investor, in Regional Management, which is another public company in the space. Tower is different from other installment companies, like some in the public arena, in that it is an A-loan lender; it is not a B-loan installment lender. B-Loan is a higher APR, smaller loan, somewhat less creditworthy, deeper subprime sector. That's not Tower.

Tower is higher up on the credit quality spectrum, an A-loan lender -- $2,000 loans, which are a little bit on the larger end, reflecting more creditworthy customers, two-year loans. The existing customer refinancing rate is, I think, 50% and the range of that compared to maybe 75% for the B-loan crowd. So you're talking about a different portion with the installment sector, at least a couple of steps removed from payday. That treadmill aspect, if there's a regulatory action, thing, a customer can't refinance X number of times in a year, four times, whatever it is.

Tower would do just fine with that because it's not a heavy refinancing type model. So it's different from other companies in the space and we have had opportunities to look at those types of businesses for financing and acquisition and have shied away from the high regulatory risk areas.

Okay, great. Appreciate the discussion on that investment. And then finally, more philosophical -- and John and Grier, this would be kind of tailored to both of you. If we look at the 23 million in ATM shares that were issued just this past quarter, and a number of other share issuances that are done at an equity cost of capital, let's say, is the dividend yield at 12%, can you walk us through the net accretion to earnings at raising at such a high cost of capital, what that can do -- I mean, how you make that really strongly earnings accretive over time because investors likely would have a question.

12% is what I am paying on equity. There's a certain amount on debt and if they are focused on senior secured loans, there might not be enough spread left for me in the middle. So how would you kind of approach that question of financing in light that there has been a lot of equity issued over the past few quarters?

Sure. Well, we would like to see that cost of capital go down, obviously, over time. We think we've been protective in our issuance in an ATM product that tends to have less of a dampening effect as opposed to the (inaudible) down effect of marketed deals. What we've wanted to do is to make sure we've got the ability to fund the pipeline in front of us and to think over the long term strategically about driving profit through repeat business relationships with certain sponsors that come to us frequently wanting to make sure we're there for the long-term. And if you are there for the short term and come through, not on every deal, but on the deals that make sense, you're going to get a big share of that business over the long term.

It also sets us up with our scale to do differentiated things by having a larger equity base, as we've had. We've been able to do things that others haven't, for example, doing the first institutional bond deal in the sector. We often think we don't get full recognition for how protective we have been in architecting the balance sheet at Prospect.

When the next storm comes, and it will come -- it's not a question of if, but when -- we have built a very strong fortress here by having over $3 billion of unencumbered assets and an entirely fixed rate financing structure on our term debt with no financial covenants. So we will be the ones going on offense when others are liquidity weak. We know they're dealing with covenant breaches and the like and we will have that balance sheet strength to do so. So we have equitized the business to date.

Having said that, Jonathan, we recognize we've run the business under-levered for quite some time and obviously, we get those comments frequently, including people on the risk-management credit side who surprise us by saying, wow, you are pretty under-levered; you know, you can move that up, and we appreciate that commentary.

I think it reflects our carefulness in downside protection in how we approach the business, but because we have so much unencumbered assets and fixed rate debt that's flexible, we can move that leverage ratio prudently up while still maintaining a healthy cushion versus the 1X regulatory limit that's afforded by our structure. So by doing that, Jonathan, in a prudent way, we think that should be earnings accretive to us and drive that investment income growth.

We also -- we can't actually talk about it in advance, but we also continue to look at other interesting ways to drive earnings accretion on the financing side and we hope to have more to announce on some pretty exciting initiatives in that regard in the coming quarters. We just can't talk about it on this particular call.

All right.

Jonathan, this is John, and thank you again for that question. Our portfolio yield is 13.9%. It is a heavy-lifting portfolio; it requires a lot of perspiration to maintain that. So we're able to earn a spread over a -- there's a 12% dividend, but this cost of capital does have our attention front and center, and we are perplexed that our cost of capital is as high as it is on equity.

We would love to get from somebody a list of the reasons why, so we could not guess at what they are and given how markets are, no one provides you a list, but maybe you could provide us a list, and we could examine what steps we could take. Right now, we only issue stock at a premium to NAV and at a cost of capital underneath the annualized yield of our portfolio. So each time we do that, we're making money for our shareholders.

Number two, our method of issuing securities is very cost effective, as I believe you know. So we're doing things that a person would do with his or her household in order to enhance the net worth of the family, and it ought to translate into advancing the net worth of the business, which it does, yet, we're stuck with a cost of capital which I am personally quite unhappy with. And I would be very interested in any observations or suggestions you have as to what the particularized causes might be and I would be very interested in addressing them because we would like to get our cost of capital down.

Appreciate that. I mean, we could always discuss that offline, and I appreciate you answering my questions. Thank you.

Thanks, Jonathan.

The next question comes from Greg Mason of KBW. Please go ahead.

Great, good morning, gentlemen. Thanks for taking my questions. Grier, could you talk about -- you have the ability to do both buyouts and just middle-market debt. What are you seeing in terms of the opportunities in those two categories and is one more attractive than the other today?

It's hard to generalize, Greg, because we look at everything bottoms-up. We can't generalize within middle market the sub-segments and we've talked about it in the past. We sort of see three rough categories have been the middle market -- lower middle market, sub to $10 million EBITDA, traditional middle market, $10 million to, say, $40 million of EBITDA and $40 million to $100 million, the upper middle market, you get into the quasi-syndicated market.

We are far less excited about the upper middle market, syndicated market, in which covenants seem to have disappeared from the market, leverage is popping up. We call it "desperate lender syndrome," sort of like "Desperate Housewives." People just seem to have forgotten about risk sometimes in that marketplace and so we've shied away from that. And you are seeing our average portfolio company size increase to about a $30 million EBITDA level. It'll be interesting to see if that continues to increase much over time. I suspect that further increases might be tough just because of the efficiencies that kick in when you get larger than that.

In terms of buying versus financing -- to directly address your question -- our buyout business has always been highly opportunistic and special situation in nature. You're not going to see us as a company getting on one of these calls bragging about closing 20% of (inaudible) auctions we see of others have done in the space before. We are highly uninterested in market share and volumes and that sort of thing and instead, highly interested in doing good deals.

So we have seen a tick-up in our number of control deals that have been one or two a year for many years, and then in the last year, it's been in the range of closer to half a dozen -- still a minority of our deals. So we have about 120 portfolio companies and a small percentage of those are controlled ones, but we do try to find ones that move the needle, and there are situations in which sellers need to move quick and having the ability to one-stop a deal with both debt and equity is very attractive.

Selling your company and going through an auction with dozens of buyers who then hand you off to dozens of lenders on the double-auction scenario and it may be someone retrades the price at the last second and the deal collapses, and you've got nothing. It's pretty exhausting for a private company owner to go through, and when we show up and say you're just dealing with us as one party, it's not always interesting to every last counterparty, but enough where we can find some pretty interesting deals.

Add to that tax advantages we have on the financial services side where we can act as quasi-strategic investors and you've got a pretty interesting controlled business for us that we expect to see continue. We have a huge amount of capacity in our 50% -- 10%-plus voting control BDC, quote, unquote, "control basket."

Great, and then one additional question on the real estate environment -- it looks like post-quarter-end, you did another roughly $20 million real estate acquisition. What are you seeing in that market and how quickly do you think you can continue to make investments in the real estate business?

I would describe our last six months as putting our toe in the water with experienced people, but being very careful to get down our financial model, underwriting model and make sure we think we're on the right path for our strategy. We really like the multifamily sector because of the diversity that's involved there because we can get 10-year fixed-rate financing from Fannie and Freddie and it's a spread business where we're valued on the cap rate available to us and comparing that to the cost of financing.

And from our perspective, we can lock in a nice, double-digit yield over a 10-year period and also have the potential for upside through a capital improvement program and rent enhancement and occupancy enhancement, that's a plus too. We work with operating partners there that are very experienced and obviously, run the day-to-day operations. It's a management intensive type of business and we're looking at other deals in the space. It's hard for me to say that we're going to do X million and fill in what X is for this quarter and next, but I'd be surprised if you don't see meaningful growth in that book in the next six to nine months.

Great, thanks, guys.

The next question comes from Bo Ladyman of Raymond James. Please go ahead.

Hey, guys, I appreciate your taking my questions as well. One on the competitive environment from [ST] and CLOs. Obviously, the amount of CLOs originated over the past year has grown pretty substantially. Can you give us an idea of how -- what the competitive environment looks like now versus six to 12 months ago?

Sure. Volumes are up and competition is up. Both have occurred in tandem, but we have continued to maintain a disciplined approach towards that market. The deals we do are controlled deals, on which we control the call. We think that's highly protective, control the manage removal rights as well and they're all primary issuance.

So we continue to underwrite the collateral, expunging all lower credit quality collateral, so we have clean baskets from the get-go. And we continue to have a very high bar for the collateral manager partners that we work with. Only the top 10% to 25% need apply, and there's some pretty big brand-name AUM folks that we turn down that don't have teams that work together across economic cycles and for a decade-plus.

So you see a lot of repeat business that we're doing with those relationships. Those relationships don't do every single deal with us, but they recognize that we have long-term capital that we are credit folks that understand the space. We're not sort of a murky hedge fund, in one day, in one year, and out the next, and we're there as a consistent, long-term player in the space.

That portfolio continues to perform very well. We have, I think, 750 million loans and that portfolio is spread across -- what, Brian, 14 deals at this point, 15, in that range -- and zero defaults, not a single one which, granted, we have been in a benign default environment, but we think zero is pretty good.

But what also doesn't get appreciated -- the same thing when we're closing other deals, folks say, gosh, you must be closing every deal you see. No, we close a very small percentage of what we look at. In the CLO business, our model stipulations have to be hit or we don't proceed and it's a pretty rigorous underwriting standard that is often not met.

Great, thank you. I appreciate that. One more on the CLO -- CLO income was flat sequentially. I imagine that is timing related. Could you give us an idea on the current portfolio that you have, what the seasonality of the income stream is that we should expect?

There isn't too much seasonality of the income stream. We did have -- across our sort of new originations, the March quarter was fairly back-end weighted. Last month, I think, accounted for two-thirds of the originations for the quarter, so that's why we made a comment about the quarter earnings not reflecting a full quarter benefit, but overall, not a lot of seasonality with the underlying portfolio of the companies.

Originations, they may be seasonal from time to time. I mean, January was a fairly slow month, but that's to be expected, I think, because January is always sort of a slow month because people get back from the holidays and you had probably a little bit of a pull-forward effect from all the deals that closed in December from the tax change fears. So in the summertime, I don't know, we've had some pretty busy summer month originations, so it can be hard to predict that.

And then one more for me on guidance, $0.26 to $0.32 per share -- does that include but any material dividends that you received in the quarter?

No, it does not.

Okay, wonderful. Thank you.

The next question comes from Casey Alexander of Gilford Securities. Please go ahead.

Yes, good morning. Most of my questions were just answered on the CLOs, but -- and I think you mentioned this before, but the CLOs are what percentage of the overall portfolio?

17% or 18%.

17% or 18%.

As of 3-31, a little lower, right?

Right, right.

That's what I mean. And do you have kind of a -- because it's not offered in your release. I could figure it out from the portfolio, but do you have a breakdown of the investments as a percentage of the portfolio firstly, and secondly, in CLO equity that you can share with us?

We have that in the Q and Brian is looking at the precise page as we speak for that, but yes, we've broken that out for many years. Which page number is that on, Brian?

That's on page 41.

Page 41, Casey, you can see the breakdown.

Terrific, I will go look it up, thanks.

The next question comes from Joshua Kuhn of JMK Entertainment. Please go ahead.

Hey, good morning, everybody.

Good morning.

Congratulations on record originations in the quarter. My question relates specifically to the undistributed dividends or distributions. And in Q2, we had $82 million of undistributed income and in the current quarter, we have $66 million. Was that a $16.6 million pay towards the January, February and March distribution?

Yes.

Thank you.

Okay, cool.

The next question comes from Craig [Koppelman], a private investor. Please go ahead.

Boy, I can't believe I finally got through to you guys after all these years. I'm quite excited to talk to you guys. Can you all hear me?

We can hear you perfectly.

Okay, great. Let me -- my mind is going a gazillion miles an hour because there's actually a couple of things that have been said earlier in this call that I hadn't planned on addressing, but I would like to briefly, as well as some of my other questions. Now, I've been a long-term investor with you guys since 2007. I have now roughly 35,000 shares with you guys, so I think you can see that I am a long-term investor and I like you guys a lot.

And I make my living -- even though I am an individual investor, I make my living as a full-time investor, have done so for 20 years. And by the way, one of the things I wanted to interject, I have no doubt in my mind that I could work for you guys. I don't want to do that, but I am the type of person that you are looking for, so that's how you know right now that I know what I'm doing and what I'm talking about.

Now, one of the things, as an individual investor, I wish that you all would pay attention to, besides the great yield that you guys have, and it kind of relates to your cost of capital question that you were talking about earlier, is the share price. Back in 2007, I have shares that I bought at $16 a share, $15 a share, $14 a share, $13 a share. I go back that long with you guys and it seems like we can't get out of the $9, $10, $11 a share range. I remember the last time the shares got close to $12, maybe even got over $12, we did a secondary and boom, that went away.

So would your cost of capital not go down if you guys paid more attention to getting the share price up? Am I ever going to see $13, $14, $15 a share? I would like to because, see, as an individual investor, I think a lot of times in these BDCs, in these REITs and mortgage REITs and stuff, I think companies think that individual investors are satisfied with a 10%, 11%, 12% yield. Well, I'm not satisfied with that. I want that and I want share price appreciation, just like you guys want with the investments that you make. I want that share price appreciation and we've been stuck because of these secondaries and things like that.

This last secondary that you guys did in November just killed the stock. I mean, I looked at it as an opportunity and I bought shares in the high 9's -- the high 9's -- and you guys were, what, $11, $11.5 at the time? I mean, you guys have to understand, as a retail investor, that's just devastating to us and I believe -- now, correct me if I'm wrong -- but what I'm looking at on my database says that 30% of your shares are held by institutions, and let's assume 5% to 10% of the shares are held by insiders. So does that not mean that you have a substantial shareholder base as the retail Investors, guys like me out there?

Now, I know You guys do these secondaries to raise more capital to invest and it's a tough -- I think that's the toughest things you guys have to do is balance the amount of debt that you're using and the capital that you're raising. I hear you, it needs to be done, but it's just -- it's devastating to have the stock. You guys are rolling along, stock climbing, and then you announce one of these secondaries and boom, the bottom drops out, and you're offering the secondary at a 3% or 4% discount, which I believe is a bill of goods that Wall Street is selling you. You don't need to offer that stock.

Mr. Barry, you are a very confident guy. I haven't missed a conference call from you guys in six years, seven years. You are a feisty guy and I like that; I'm a feisty guy. I like that. You guys know what you're doing. I love you guys, but be confident. When you're offering a secondary, the Street sold you a bill of goods. They say you ought to make this to sell this, you've got to offer it at a 3%, 4% or 5% discount to the Street, and that gives us individual investors, who are loyal to you, who hang in there quarter after quarter -- I've been an investor with you guys when you were Prospect Energy, six years -- what about us? We don't get any respect. Are you telling me that if you do a secondary and you don't offer it at the market price, those shares aren't going to sell?

You said a couple of quarters ago that that's just the cost of doing a secondary, but you are such a confident guy, you are confident in the people you want to hire, you're confident in the management fees that you ask. Why not be confident and say, hey, the cost that capital is selling at $11.10 a share. The day we have this secondary, we're going to keep it at $11. It's going to hit the Street at $11.10 a share. I can guarantee you, that's going to give individual investors like me the confidence in that share price and that's going to feed on itself, and that's the one way you can get your cost of capital down.

And the other thing that I want to say is you guys have got a great story to tell. I invest in all kinds of companies and I've been an individual -- and I'm a young guy. I've got more letters after the end of my name than -- I don't need to mention on this call, and I've been making my living as a small guy out here buying [low] for 20 years -- 20 years. So I have a passion for investing and being (inaudible) in all kinds of companies, the CEOs of other companies, they do these investment conferences because they're getting out there and they're getting their names -- they're telling their story. I don't -- I'm not aware of any investment conferences that you guys have done. You've got a great story to tell. Get out there and tell it.

And by the way, that loudmouth knucklehead at CNBC, he gives you guys no respect -- no respect, zero, zippo. Anytime somebody calls in and says, hey, what do you think about Prospect Capital, he disses you; he disses you. You've got to go out there and meet that guy head to head and tell your story and tell them why you've got a 12% yield. He pushes you guys aside and he recommends a mortgage REIT or somebody else out there. He doesn't recommend you guys.

And those are the people -- if you've got a shareholder base, retail investors, [60]% -- let's say 50%, let's say 55%, 40%, those are the people that listen to this guy, the retail investor. You need to get him behind you. That's going to get your share price up; that's going to lower your cost of capital. But your cost of capital on the equity side is not going to go down unless you cut the dividend -- you don't want to do that -- or you get the share price up. You've got to get the share price up.

And you've got to get out there and tell your story. You guys have got a great story to tell. I love you guys and Mr. Barry, you are such a confident guy. Get out there and take on a guy like that. Take on a guy -- he loves that. He wants you to come in there and tell your story and you do and you get his respect, and that's going to help you get your share price up and that's going to -- and then the next time you do a secondary, you're going to get more money because the share price is higher.

Hey, Craig, this is John. This is my favorite -- I'm going to call it a question -- of all time.

Okay.

Okay. Let me just comment first on Jim Kramer, okay? The guy has under-performed the S&P for as long as "Barron's" has been able to get numbers on him, okay?

Hey, you're preaching to the choir.

All right. And so what he's doing (multiple speakers).

(Multiple speakers) goes over the cliff, believe me, I know.

He is misleading a lot of people into stock-picking.

I know.

And where he (multiple speakers) --

That's the point.

Yes, so we used to go on Lou Dobbs and these other shows and we felt that it's a better -- the more important thing -- task for us is to focus on our knitting and try and do the best job we can. Now, number two --

I understand that; I understand.

I own a lot of these shares.

I know that.

But you have to send us your resume, okay? We may be making you an offer that you can't refuse, okay, Craig?

I like (multiple speakers) you guys.

You (multiple speakers). You have my e-mail address. Please send me information on yourself. We could take this call offline. We could talk a long time about all these things that you've mentioned. We have been thinking very hard about them, and just because we don't -- we couldn't possibly cover all that ground in this call. I'll just say a few things quickly.

I understand.

Kramer is a massive under-performer, including in his, quote --

I --

-- "charitable trust."

I know all that.

And "Barron's" has exposed him, okay? That's why he's a clown on TV.

Right, my point.

I am embarrassed to say he went to Harvard Law School. Number two, on the shares, I own a lot of those shares, they're very expensive. It has been painful for us. We are perplexed. We have thought about every single thing that you mentioned, and more, and that's why we want to talk to you more offline. Number three, you obviously get what's going on. Let me just make a couple of comments on the secondaries, okay?

All right.

We haven't done one in a very long time. The stock typically bounces back. Our number one method of raising equity capital is through the ATM which is way cheaper, but we're now beginning to examine with much more care than we have in the past the tradeoff between trying to run a business every day and have adequate liquidity, and are we doing things such as the ATM, that are artificially depressing the share price, because the share price is important to us. The share price and the cost of capital are one and the same.

Right.

One of the things that occurred to me is that maybe there's people out there who think, whoa, these guys can't possibly have a 13.9% annualized yield in their portfolio without taking on a lot of risk or, whoa, CLOs, those are risky. Well, we need to get out there and just as you say, and educate people, and that's what we are thinking about how to do. What we don't want to do is leave the factory, go out into the four corners of the world and tell the story, and then come back and find there's no story to tell.

Right.

So the main thing is to make sure that the home front is well attended to and we are looking into every single thing that you mentioned -- every single thing -- but maybe by the next time we have an earnings call, you will be very happy with the fact that we have addressed a number of the items that you've mentioned because they are right-front-burner for us now, and the best way we learn is by listening to people who disagree with us, listening -- not Kramer. We're not learning anything from him, unfortunately -- but other people who are thoughtful and not bouncing around in a studio making funny noises.

And Craig, I would like to learn from you, so could you schedule a time that we could talk with you offline and let some other people ask some less exciting and interesting questions?

Sure, sure.

Okay then. Thank you.

And I (multiple speakers) --

Okay (multiple speakers) --

And I do appreciate --

Craig, give me your number. Had we get ahold of you? Just give me your phone number.

Let's not do this on the call.

Well, I want to do it right now because I don't have time later. Give me your number, Craig, please.

Okay, 407 -- is this like going out where everybody is going to hear it?

[No], just give me your number, come on. They're not going to call you.

407-678-5240.

Somebody will call you. Thank you, Craig.

All right. Thank you.

And one other piece is I think we're doing four different investor relations conferences in the next month. If folks are aware of other opportunities to get out the message, we are happy to present. Thank you, Craig.

The next question comes from Patrick O'Gorman, a private investor. Please go ahead.

Yes, thanks for taking my call. As a private investor, I was listening to you address the other fellow too, and one of my concerns when I looked at the statement was the advisory fees for that quarter went from $23 million to $33 million, which is about a 40% increase. During that quarter, the net asset value dropped $0.10 and the income came in light at around $0.26. How am I to think of that for the future?

Thanks for your question, Patrick. Well, for the future, we don't publish net asset value projections. We have put out an estimate for the June quarter --

Right, I saw that.

-- for net Investment income with the lower end of that range being with the last quarter and then greater than that at the higher end of the range, and we're focused on deploying capital right now. We've seen an uptick in our pipeline that we hope bodes well for future deployment, that can help to drive accretive growth for the business. So that's what we're focused on. As we said --

Right, and I noticed as a private investor, the same thing the other fellow did, the amount of secondaries increased. The advisory fee this quarter went up considerably and now, that's very good for you, but how good is that for the stockholder?

Actually, Patrick, the advisory fees were down from the December quarter. They were down in the March quarter versus December, not up.

Was that the number then for the year, that $23 million, as opposed to $33 million --

it may have been.

-- for the three quarters?

$23 million (multiple speakers).

Sequential quarters were down.

Okay. And as far as -- you people also invest in -- you are in property businesses in Florida. I notice a property you purchased in Tampa. Well, I am a retired builder and I live 70 miles from Tampa. I live in New York in the summertime, so if there's ever any interest in someone checking out properties, I am certainly capable of doing that.

Good. Well, Patrick --

Patrick, we are very, very interested in that because when we do anything in real estate, we like to get as much local knowledgeable expertise as we can, and we have lots of stories about things we learned just talking to neighbors and talking to people down the street and across the street. Would you please send me, John Barry, an e-mail? Grier suggested that asking you for your phone number is an intrusion of privacy, so --

I can give you my phone number. It's all right.

Okay. What is it?

My phone number in New York is 315-947-5242.

We'll call you. Thank you, Patrick.

Okey-doke.

Thank you.

The next question comes from Dr. Steve [Collaf], a private investor. Please go ahead.

Good morning, gentlemen. This is Steve Collaf. I had met you, I think, two years ago at your annual meeting and I also was on a conference call, I think, two conferences ago. I couldn't be on the last one because it was on either a Monday, Wednesday or Friday, when I have patients, but I was fortunate that you held this one on a Tuesday. So I wanted to say thank you.

I have a commentary and two questions. The first one, a commentary, is simply that two quarters ago, I gave you guys a real hard time and I was kind of upset because I felt that the dividend income was increasing minusculely and I had mentioned how about a special one-time dividend? And you gentlemen, the management team, listened, and you actually did something better. Instead of giving me a one-time lollipop, you gave me over a 10% dividend for the year.

So I know a lot of times, you only hear from people when they complain and you don't hear from people when they're expressing gratitude and appreciation, and I wanted to say thank you very much for listening and listening very well to me, and I'm sure to various other shareholders. So thank you, number one.

Well, Steve, thank you very much. I was afraid that the reason you were not on the last call -- we missed you. I was afraid that you shunned us because the dividend increase wasn't big enough.

So you did remember who I was?

Absolutely.

Well, I do say thank you because I am a healthcare person; I'm not a financial person. I'm not very -- that good with the numbers, and I was thinking to myself, well, a one-time special dividend is probably not going to hurt them too much. I know that you run your business extremely conservatively, fiscally speaking, as I do, and you're always waiting for a rainy day because you never know what's going to happen.

And I run my business the same way and when my wife or my kids ask me for an extra buck, I'm always maybe wanting to give them $0.50 just in case, and you gave me the full dollar. In fact, you gave me probably more than $1, so I do want to say thank you. I think I spoke probably for many individual shareholders and thank you goes a long way.

And that increasing dividend, I want you to know is not just representing remuneration in forms of money, but it's actually college tuition for my kids and others. It's being able to perhaps go on vacation; it's being able to pay rent, whatever it may be. So I'm sure if you don't realize that it means a lot, it means a hell of a lot, so thank you.

You're welcome.

Well, Steve, with (inaudible) raising the dividend, as you probably observed, because once we do that, we feel it is a locked-in obligation that we need to be able to pay for as far out as we can see.

Yes.

Number two, we are conscious of the stock price and we feel that it's more protective of the stock price to make a permanent increase than a one-time.

Right.

But no matter what we do, we then have to get back on the treadmill and run that much harder and perspire that much more to make sure that we are growing our net investment income, which we are trying to do. We've discussed this on this call, so I appreciate it, Steve. Of course, we would never forget you and your advice, and I'm sure the shareholders of our company are glad to know that your advice is being given a heavy weight here.

Well, good, I appreciate that very much because not only it means a lot to me personally, but I think I try to be extremely fair and not just be one-sided. So I will stop the commentary now, and I have two questions. I will get to my second question first simply because it was already addressed, I think, by an individual shareholder who, unlike that individual shareholder, I don't have a lot of letters behind my name and I do still work for a living. And I don't own 15 or 20 different companies, but I do, humbly speaking, I own 139,100 shares, so I also am a long-time investor. I have a lot of trust in you guys as a management team.

And having said that, I wanted to ask you -- and I can see that bits and pieces that you are saying yes to my question, which was that I wanted to know if you were able to say do you guys, this management team, do you meet and say, hey, man, I can't believe what's going on with this stock price? How do we work on getting our stock price -- your prospectus says that you want to have -- and I am paraphrasing -- but basically high amounts of current dividend income with long-term capital appreciation.

And I think you can appreciate -- no pun intended -- that the appreciation of the stock price has not been what it is, and I'm asking you, I guess rhetorically, do you, in fact, as a company, or as a management team, do you talk about frustration with the lack of appreciation in the stock price, especially in light of the fact that the general market indices have been -- they've been doing pretty well. And I think Prospect Capital, unfortunately, and much to my dismay and disappointment, doesn't seem to be, anecdotally speaking -- again, I'm a healthy guy; I'm not a financial guy -- but anecdotally speaking, it doesn't seem to have participated vis-à-vis with the general market indices in terms of stock price.

Well, Steve, we have definitely noticed that. It's not a happy fact. I own quite a few shares and I forget what the top tick was. Was it $18 a share? So --

Yes, I checked your shares.

So --

You've bought all the way up and all the way down, for sure.

Right. So I have significant capital losses there and as we discussed with Craig and with other people, this is a topic of continuous attention, and we are hopefully going to be speaking to Jonathan offline, to Craig offline, and trying to figure out what it is that we can do that we haven't been doing, that would better protect the stock price, so --

Yes, if I may --

So don't worry that we're not thinking about it.

Okay, good. And if I may, just a (inaudible) because I know you have one more question, but the one gentleman individual shareholder said that people might ask us, oh, how can you -- because I know I went to a party about six months ago. I was talking to a very astute real invest investor. He owns about 100 properties; he's an attorney. He does invest in stock, and I always (inaudible) Prospect Capital and I tell them exactly what they do. I'm always looking for more investors to come because I feel it's just the management team is extremely trustworthy. You do your business thoroughly. You always have attention to risk, but the average retail investor is, ah, come on, how can you get 12% at -- that's got to be so risky.

[Right].

And I feel like telling them half of the properties you bought are 100% more risk than Prospect Capital. So think that that one -- that general sentiment is probably something that is echoed out there with many people, and if there is a way to satisfy that dilemma, I think that may be an impetus that might propel this company to another level.

You know what, Steve? We have numbers that show us outperforming in various ways and we worked for the placement agent on a particular project a few years ago -- really more than a few.

Right.

And when the placement agent looked at the number, they said, well, people just won't believe that you performed at this level.

Right.

I mean, they'll just assume that there's risk in here. I said, well, I don't know what to say.

Right.

He said, well, why don't we just show a lesser return? And I think I'm learning a lot from what everyone has to say. Of course, we'd already thought about these things.

Sure.

We address things one at a time typically. This has moved up on -- and keeping the portfolio invested, keeping the risk under control, avoiding non-accruals, maintaining a 13.9% annualized yield, trying to make sure our cost of capital stays low, making sure we have a sufficient liquidity, these are all -- if you don't do those things, you'll be out of business.

Right.

So we could do those first. Then secondarily, we do have to focus on the stock price, and needless to say, that has always had our attention, but it's going to have it more because we don't think that our cost of capital on a dividend basis should be anywhere 12%.

Right, right, right, right.

And look, I'm an efficient market guy. I think the markets are efficient.

Right.

I think on this one, I'm now thinking maybe they're not that efficient when it comes to particular sub-sectors and in particular, BDCs, and maybe people need to get back on "The Lou Dobbs Show" and even speak to guys like Kramer and things like that, though we hope to have ideas that are more meaningful than that.

Right.

But we are thinking of this and, Steve, if you have additional ideas, please send them to me.

I will, I will. One more question and I'll get off so anybody else can go.

I hope you're telling all of your patients what a good buy --

You better believe it. I got 4,300 and -- oh, you said you hope I'm telling my patients what?

What a good buy Prospect is.

You better believe it, I am. I tell everyone and I will continue. I'm in my 27th and a half year of practice and God willing, I'll have at least another 15 or 20 to go. So you're going to have a lot of investors coming here from little tiny Carlstadt, New Jersey, in Bergen County. But my last question is --

And (multiple speakers). By the way, does Daria have your contact information?

Daria knows me too well; Daria knows me too well.

All right.

I'm her personal email buddy, so you can tell her that Steve Collaf first of all said hello, and secondly, I hope her foot or ankle healed up nicely over the last six months to a year, okay?

Hey, good luck to you.

Thank you so --

Hey, wait, I just got one more thing and I'll let you go. It's a question. It's that I read the other day, a week ago, Leon Black, who's the CEO of Apollo, was talking about -- he's a private equity guy. He was talking about how he's basically trying to sell everything that isn't nailed down to the wall in his portfolio, and then I read another CEO who's in your space, the BDC space, a guy named -- his last name is [Goleb] who I think also runs a BDC, he said that he sees a lot of deals that he's passing -- that their company is passing on. He's seeing deals done by somebody else. So that tells me, the neophyte, that perhaps there is a lot of liquidity in the market, that people are doing deals sloppily.

And I guess my question to you is do you see that happening? Is that what you see also in the arena? And along those lines, when you say in your question-and-answer that you have $3 billion potentially of unencumbered assets to work with, does that mean you're like a mini-Warren Buffett where if God forbid, the world comes to an end in 2007 like it did before, that you guys have $3 billion that lenders are contractually obligated to give you to be able to start investing in companies?

Okay. Well, Steve, let me thank you for the question and just mention I'm going to be very crisp and short --

Okay.

-- so that we can take care of the other people because we're out of time.

Okay.

But number one, Warren Buffett, we're a very, very, very, very mini, mini, mini-Warren Buffett.

You know what I mean; you know what I'm saying.

Okay. Number two, as far as compression, there is compression in margins, compression in yields. The yields, they go in cycles. They get compressed and then there's some collapse of some kind and then they go back out again, and it's our job to continue to earn a margin between our cost of capital, which we've discussed already, and what we can earn. We're still able to earn a margin, but yes, when margins compress, it does get harder, but they will someday expand out as well. So Steve, could we finish this conversation --

Sure.

-- offline?

Yes, yes, no problem, gentlemen.

Because we've got to take care of (multiple speakers) other people.

Listen, thanks a million again. Thank you, okay?

Yes, before we're completely out of time, thanks.

(Inaudible), bye-bye.

The next question comes from Annan Ellis, a private investor. Please go ahead.

Hello, John, can you hear me? Hello?

Yes, I can, yes; yes, I can, yes.

Okay. I'm not particularly interested in a higher share price. As we speak, I'm buying you at $10.86 for an over 12% yield and that's just fine. So I'm -- but I've argued your case with a lot of people over the years and I made a list of why I think you don't get a higher share price and I (inaudible) number one.

Could you send that to us? Mr. Ellis, could you send that to us?

Yes, yes, I could put it in an email.

We would love to see it.

Yes, sure. That's fair enough. The only thing that I have --

Because I really find that I'm --

Yes, I (multiple speakers), I appreciate that.

I can take more rational action reading something that's written down as opposed to taking notes.

I understand. And John, just let me say I think you're too smart for the market. You're a very smart guy (multiple speakers).

Do you know what that reminds me of?

(Multiple speakers) done such extraordinary things.

Mr. Ellis?

Yes?

I used to work with this guy, Fred Potter, and he said to me, hey, John, you know what? This guy thinks he's smarter than the market. No one is smarter than the market, nobody.

Yes, I hear -- yes, I understand, but people don't understand (multiple speakers).

I'm not even maxi-maxi-Warren.

They don't understand. Okay, thanks.

Will you send us the list, please? We would love to see it and we'd love to talk to you about it.

Okay.

Okay?

Thanks.

Thank you so much, Mr. Ellis.

The next question comes from Donald [Penny], private investor. Please go ahead.

Hello, gentlemen. One thing I think you could probably do is actually sort of like digest your ones that you've already done and take -- you just got your debt up from $29 million back up to -- like what was it, $48 million?

Yes, well, (inaudible) debt to equity ratio?

Yes, sir, we actually -- as we've said in our earnings release, that is -- right there is a potential -- the amount of debt we have is low. We can increase that and in fact, it's rising virtually as we speak as a percentage of our assets.

Well, you know what I mean about digesting it to where you basically take in loans, then you [spin] out your money into different companies and stuff like that, and then basically, what you do is you pay down the debt again, then come back around and do your loans out there again.

Well, what we try to do is fund the loans with a mix of debt and equity that has an all-in cost substantially -- as much substantially as we can get it -- below the earnings on the loan, net of all fees and expenses and overhead and so forth. And so when the loan is paid off, that's right, we may pay the debt down. More likely, when the loan is paid off, we'd make a -- we invest in a new loan.

Because what you could do down the road then is basically, you can have more money to actually borrow more money. Do you understand what I'm saying? And you're basically stacking up and you (multiple speakers).

Well, yes, that is -- if I understand your point, that is what we do. We increase our footings, we increase the assets, and we increase the liabilities. As the percentage of debt that's used to fund investments goes up, the margin normally -- all other things being equal -- will increase.

Yes, that, and also, when you offer the shares, that kind of cuts into your -- it seems like it cuts into your NAV and everything like that when you (multiple speakers).

Well, we've only offered shares above net asset value for as far back as I can remember, so I would tell you that the arithmetic shows that the offering shares above net asset value, as we've done for as far back as I can remember, as I said, increases the net asset value.

Yes, but what I'm talking about is it adds more common shares out there is what I'm trying to tell you and it actually kind of like dilutes the [nip] from going up higher.

Well, arithmetically, yes, the more shares out there, you better have more net investment income.

Sure, (multiple speakers).

We doubled -- what's that, Donald?

That's what I'm talking about, basically digesting what you do. Do you know what I'm saying? Take --

Right. I wish it were as easy as just saying, hey, let's stop everything and digest what we're doing, like eating a Thanksgiving dinner and taking a nap.

(Multiple speakers), really.

What?

What I'm saying is maybe just slow down a little bit because you did a lot of deals and everything like that, but sometimes, you've just got to take it down just maybe like a notch because I basically do the same thing, what you guys do. I learned off of you guys.

Well --

I take money and I borrow it and I invest it. I'm using your system.

Well, good.

But I have cash to actually pay the money, plus my dividends basically pay for my loan.

Well, we don't do anything that doesn't earn a profit and arithmetically, if you walk away from a profit, I don't know how that is arithmetically good for the Company.

Yes, I know what you're saying. Yes, every time you can make a profit, that's good, yes.

Right.

I'm just saying (multiple speakers).

So we're not doing anything that we know of that we can identify in advance is unprofitable.

Because (multiple speakers).

But Donald, we certainly are taking under consideration what you've had to say and what others have had to say. We need to go onto the next question because we are out of time.

Okay.

Thank you so much.

Okay. Just one more thing -- like I said, I'm basically getting bigger loans because I'm actually getting bigger dividends as time goes on. That's what I'm trying to say.

Good.

Okay. Thank you.

We wish you the best of luck. Thank you, sir.

(Inaudible) you guys, bye.

And please feel free to email me. I'll try to respond.

Okay. Thank you.

The next question comes from Bob [Pardy], a private investor. Please go ahead.

Yes, first, comments, ask a question. You can go on Bloomberg TV to promote yourself. Other business development companies like Fifth Street have been on there. And my question is you mentioned that you have a lot of your own money in the Company and in the stock. Do you reinvest your dividends back into the stock on a monthly basis?

Yes, 100%. I've never sold a share and I've never failed to reinvest the dividend in the stock.

Okay. All right. Thank you very much.

Thank you, all.

And we have a question from Joshua Kuhn, JMK Entertainment. Please go ahead.

Thank you so much for your patience. This is an actual question. I have a question in terms of the unrealized depreciation in the quarter. Was that solely due to the First Tower -- the lowering of the value of First Tower?

I'm sorry, could you repeat the question, sir? It was very low.

The unrealized depreciation in the quarter, it actually increased by approximately $9 million.

(Multiple speakers).

Was that due to First Tower's -- re-valuing of the First Tower investment?

Yes, we discussed that earlier in the call about taking the value down a notch because growth had slowed down.

Perfect. Thank you so much.

Thank you.

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

Thank you, all, very much. Have a wonderful lunch, guys.

Thank you, all. Bye.

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