Prospect Capital Corp (PSEC) 2017 Q2 法說會逐字稿

Good morning and welcome to the Prospect Capital second fiscal quarter earnings release and conference call. All participants will be in listen only mode.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Anita. 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, our 10-Q, and our corporate presentation filed previously and available on the investor relations tab on our website prospectstreet.com.

Now I will turn the call back over to John.

Thank you, Brian. For the December 2016 fiscal quarter, our net investment income, or NII, was $84.4 million, or $0.24 per share, up $0.02 from the prior quarter. Our net income was $100.9 million or $0.28 per share, up $0.05 from the prior quarter. These increases from the prior quarter occurred as we made new investments and recorded unrealized appreciation of our investments.

For the six months ended December 2016, our net investment income was $163.3 million or $0.46 per share, down $0.08 from the prior-year. Our net income was $182.2 million or $0.51 per share, up $0.70 from the prior year. With the Harbortouch sale and other significant repayments, we were under invested during the first half of FY17 carrying an average cash balance of $168 million.

In addition to deploying capital in new originations, we are also seeking to increase income through extensions and refinancings in our structured credit portfolio, realizations in our multifamily real estate portfolio, securitizations in our online lending business, drawing on our revolver to retire more expensive term debt, divesting lower yielding assets in favor of servicing fees and higher-yielding assets, nourishing energy-related investments, and benefiting from enhanced asset returns as LIBOR potentially increases beyond floor levels.

We previously announced monthly cash dividends to shareholders of $0.08333 per share for February, March, and April 2017; 105 consecutive shareholder distributions. We plan on announcing our next series of shareholder distributions in May.

Since our IPO 13 years ago through our April 2017 distribution at the current share count, we will have paid out $15.62 per share to initial, continuing shareholders, exceeding $2.2 billion in cumulative distributions to all shareholders. Our NAV stood at $9.62 per share in December 2016, up $0.02 from the prior quarter. Our debt to equity ratio was 76.2% at December 2016, down 400 basis points from 80.2% at December 2015.

Our balance sheet as of December 31, 2016 consisted of 90.4% floating rate interest earning assets and 99.9% fixed rate liabilities, positioning us to benefit from potentially significant rate increases. Our recurring income, as measured by our percentage of total investments income from interest income, was 95% in the December 2016 quarter.

We believe there is no greater alignment between management and shareholders than for management to purchase a significant amount of stock, particularly when management has purchased stock in the open market paying the same prices as other shareholders. Prospect management is the largest shareholder in Prospect and has never sold a share. Management on a combined basis has purchased at cost over $170 million of stock in prospect, including over $100 million since December 2015.

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

Thanks, John. Our scaled business with around $7 billion of assets and undrawn credit continues to deliver solid performance. Our team consists of approximately 100 professionals, representing one of the largest 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 and direct nonsponsored lending, Prospect-sponsored operating and financial buyouts, structured credit, real estate yield investing, and online lending.

As of December 2016, our controlled investments at fair value stood at 31.5% of our portfolio. This diversity allows us to source a broad range and high volume of opportunities, then select in a disciplined bottoms-up manner the opportunities we game 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 low 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. As of December 2016, our portfolio at fair value comprised 45.9% first lien, 23.6% second lien, 18.3% structured credit with underlying first lien assets, 0.2% small business whole loan, 0.8% unsecured debt and 11.2% equity investments; resulting in 88% of our investments being assets with underlying secured debt benefiting from borrower pledged collateral.

Prospect's approach is one that generates attractive risk adjusted yields and our debt investments were generating an annualized yield of 13.2% as of December 2016, up 40 basis points from the prior quarter. We also hold equity positions in certain investments that can act as yield enhancers or capital gains contributors, as such positions generate distributions. We have continued to prioritize first lien senior and secured debt with our originations to protect against downside risk while still achieving above market yields through credit selection discipline and a differentiated origination approach.

As of December 2016, we held 123 portfolio investments with a fair value of $5.94 billion. We also continue to invest in a diversified fashion across many different portfolio company industries with no significant industry concentration. The largest is 9.3%. As of December 2016, our asset concentration in the energy industry stood at 2.6%, including our first lien senior secured loans where third parties bear first loss capital risk. Non-accruals as a percentage of total assets stood at approximately 1.5% in December 2016, with approximately 0.4% residing in the energy industry.

Our weighted average portfolio net leverage stood at 4.77 times EBITDA. Our weighted average EBITDA per portfolio company stood at $51.6 million in December 2016. The majority of our portfolio consists of sole agented and self originated middle-market loans. In recent years we have perceived the risk adjusted reward to be higher for agented, self originated, and anchor investor opportunities compared to the non-anchor, broadly syndicated market causing us to prioritize our proactive sourcing efforts.

Our differentiated call center initiative continues to drive proprietary deal flow for our business. Originations in the December 2016 quarter aggregated $470 million. We also experienced $645 million of repayments and exits as a validation of our capital preservation objectives, resulting in net repayments of $175 million.

During the December 2016 quarter, our originations comprised 54% syndicated debt, including early-look anchoring investments and club investments,15% third party sponsor deals, 15% online lending, 7% structured credit, 4% aircraft leasing, 3% real estate and 2% operating buyouts. To date we have made multiple investments in the real estate arena through our private REITs, largely focusing on multifamily, stabilized yield acquisitions with attractive 10-year financing.

In the June 2016 quarter, we consolidated our REITs into NPRC. Our real estate portfolio is benefiting from rising rents and strong occupancies and our cash yields have increased. In the past year we have recapitalized many of our properties with attractive financing and exited completely certain properties including Vista, [Avington], and Bexley, so we can redeploy capital into other return-enhancing avenues. We expect both recapitalizations and exits to continue.

We also recently closed our first portfolio investments in student housing, an attractive segments similar to multifamily residential where we have analyzed many opportunities for several years.

Over the past few years, we have grown our online lending portfolio directly as well as within NPRC; with a focus on super prime, prime, and near prime consumer and small business borrowers. We and NPRC currently have exposure to approximately $847 million today of loans directly and through securitization interests across multiple origination and underwriting platforms. Our online business, which includes attractive advance rate financing for certain assets, is currently delivering a mid-teens levered yield net of all costs and expected losses.

In the past three years, we and NPRC have closed and upsized five bank credit facilities and two securitizations, including in the December 2016 quarter, our first consumer securitization to support our online business with more credit facilities and securitizations expected in the future.

Our structured credit business performance has exceeded our underwriting expectations, demonstrating the benefits of pursuing majority stakes, working with world class management teams, providing strong collateral underwriting through primary issuance and focusing on attractive risk adjusted opportunities.

As of December 2016, we held $1.1 billion across 41 nonrecourse structured credit investments. The underlying structured credit portfolios is comprised of over 2,800 loans and a total asset base of over $20 billion. As of December 2016, our structured credit portfolio experienced a trailing 12-month default rate of 1.16%, a decline of 23 basis points from the prior quarter and 42 basis points less than the broadly syndicated market default rate of 1.58%.

In the December 2016 quarter, this portfolio generated an annualized cash yield of 21.5% and a GAAP yield of 14.8%. As of December 2016, our existing structured credit portfolio has generated $813 million in cumulative cash distributions to us, representing 62% of our original investment. We've also exited seven investments totaling $154 million, with an average realized IRR of 16.8% and cash on cash to multiple of 1.42 times.

Our structured credit portfolio consists entirely of majority owned positions. Such positions can enjoy significant benefits compared to minority holdings in the same tranche. In many cases we receive fee rebates because of our majority position. As a majority holder we control the ability to call a transaction in our sole discretion in the future, and we believe such options add substantial value to our portfolio.

We have the option of waiting years to call a transaction in an optimal fashion rather than when loan asset valuations might be temporarily low. We, as majority investor, can refinance liabilities on more advantageous terms, remove bond baskets in exchange for better terms from debt investors in the deal, and extend or reset the investment period to enhance value. Our structure credit equity portfolio has paid us an average 24.4% cash yield in the 12 months ended December 31, 2016.

So far in the current March 2017 quarter, we have booked $273 million in originations and received repayments of $26 million, resulting in net originations of $247 million. Our originations have comprised 66% third-party sponsor deals, 15% real estate, 8% online lending, 6% operating buyout, and 5% syndicated debt.

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

Thanks, Grier

We believe our prudent leverage, diversified access to match book funding, substantial majority of unencumbered assets, and wading towards unsecured fixed rate debt demonstrate both balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities.

Our company is locked in a ladder of fixed rate liabilities extending over 25 years into the future, while the significant majority of our loans float with LIBOR, providing potential upside to shareholders as interest rates rise.

We are a leader and innovator in our marketplace. We were the first Company in our industry to issue a convertible bond, develop a notes program, issue an institutional bond, acquire another BDC, and many other firsts. Shareholders and unsecured creditors alike should appreciate the thoughtful approach differentiated in our industry, which we have taken towards the construction of the right hand side of our balance sheet.

As of December 2016, we held approximately $4.8 billion of our assets as unencumbered assets, representing approximately 78% of our portfolio. The remaining assets are pledged to Prospect Capital Funding LLC, which has a AA rated $885 million revolver with 21 banks, and with a $1.5 billion total size accordion feature at our option. The revolver is priced at LIBOR plus 225 basis points and revolves until March 2019, followed by one year of amortization with interest distributions continuing to be allowed to us.

Outside of our revolver, and benefiting from our unencumbered assets, we've issued at Prospect Capital Corporation multiple types of investment grade unsecured debt, including convertible bonds, institutional bonds, baby bonds, 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 enjoy an investment grade BBB+ rating from Kroll, and investment grade triple BBB- rating from S&P. We've now tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration more than 25 years.

Our debt maturities extends through 2043. With so many banks and debt investors across so many debt tranches, we have substantially reduced our counter-party risk over the years. We have refinanced three debt maturities in the past two years, including our $100 million baby bond in May 2015, our $150 million convertible note in December 2015, and our $167.5 million convertible note in August 2016. We have no liability maturities exceeding $5 million for the remainder of the FY17.

Our $885 million revolver is currently undrawn. If the need should arise to decrease our leverage ratio, we believe we could slow originations and allow repayments and exits to come during the ordinary course as we demonstrated during the first half of calendar year 2016.

On December 10, 2015, we issued $160 million of 6.25% senior unsecured notes due June 2024. We increased that bond by $39 million under an ATM program from June to August 2016. We now have seven separate unsecured debt issuances aggregating $1.7 billion, not including our program notes, with maturities ranging from October 2017 to June 2024. As of December 31, 2016, we had $962 million of program notes outstanding with staggered maturities through October 2043.

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

Okay, thank you very much, Grier and Brian. We can now answer any questions.

We will now begin the question-and-answer session

(Operator Instructions)

Christopher Nolan, FBR & Company.

Thanks for taking my questions, Grier, what is the strategy here; it sounds like you're going further down the capital stack in terms of the percentage makeup of the second lien is that the case?

We did have an uptick in second lien and I would describe it as a strategy change, Chris, more of a timing effect associated with having a couple of substantial first-lien repayments in the December quarter coupled with some deals that we thought were attractive that did happen to be second lien.

We just closed recently just under $140 million first-lien investments that just increased our first-lien mix intra-quarter in the current March quarter and in general all things being equal we do prefer first liens over second; the second-lien book is going to be much more weighted towards larger credits and you saw an increase in our average EBITDA per portfolio company that fell between September 30 and December 31.

Right; was there an increase in the syndicated and club-debt originations? Does that reflect a new origination pipeline?

Well we've always had a pipeline including syndicated and club investments; our strategy there is to play a meaningful role in the deal by rolling up our sleeves a getting started with our work early in the process. To not only get our credit work done, which of course is very important, but also to make sure it is a meaningful size as well. Not all syndications are created equal and the word syndicated debt certainly do not mean the same thing from deal the deal.

You can have smaller tranches that are quite illiquid there maybe only one holders and the tranche; we label that syndicated debt but it's really much more of a club deal and a deal in which we're playing a vital and anchoring role to the transaction. So this is something we've always had for many years in place.

Also, on the CLO's your yields seemed to have gone down from 26% to 21.5% on the cash basis and the GAAP yield is down, what is driving that?

The biggest driver is we did have an increase in the valuation in the quarter so that is a metric that Brian reported on a fair-market value basis; so that is the biggest aspect of that number.

Great thank you. Thanks for taking my question.

Thank you.

Thank you Chris.

Merrill Ross, Wunderlich.

Good morning. John you mentioned a laundry list of ways that you could increase, if you will, the intensity of earnings and you first mentioned the CLO's and the ability to refinance them; is that representing the lowest hanging fruit? The most readily available if not the highest return or if you could identify the lowest hanging fruit that would be interesting?

Merrill I love that question and I wish I could instantly answer it with a prioritization of what fruit is lower hanging than one other fruit. First let me share with you that our saying at the Company is the constant pressure method; meaning we are looking at every asset and every liability on a continuing basis both from a risk point of view and a return point of view. And as Grier mentioned to Christopher Nolan we really do prefer first-lien transactions if it is syndicated, we want to be the agent.

At this point in the cycle we are very focused on risk. Now with respect to intensifying earnings and I like your phrase I hope you don't mind if I use it, it is true that the CLO's offer low hanging fruit because with the compression and spreads we can refinance or, eventually, call deals and realize gains or reduce liability costs. So what we have done is we have looked at our entire fleet of CLO's and starting about a year ago we mapped out which ones we could refinance, which ones we could redeem, which ones we could consider calling, all with an eye to getting a calendar up and running that would enable us to refinance, I think it is nine deals.

I think Grier and Brian will have the more exact number. We had maybe nine candidates that were accretive, we may have done seven. At this point, yes, we start with the deals that from an amount of capital at risk point of view, from a dollars that can be saved point of view, from a calendar point of view, fit into a lineup. Because what happens is everybody can't refinance on the same day; there is only so much capacity to refinance these liabilities. I have been very happy with our CLO Team mapping out all of the opportunities in our portfolio and methodically and sequentially refinancing where it was worthwhile, i.e., accretive.

Elsewhere I would say the second -- in our Company everyone has a different opinion which I greatly encourage and you're about to hear some more in just a minute. I guess if someone asked me well where else is there low hanging fruit? I would say we have it in our real estate book, I think. Why? Because interest rates have come down since we made many of those multi-family investments. We're fortunate with 20/20 hindsight to have focused on a very strong area in the market over the last five years; we felt that multi-family is stable that we are running lesser credit risks than with single tenant investments, than with office, than with industrial.

Fortunately, the election returns have borne us out in real estate and I think most of our portfolio it is worth more than we paid, maybe all of it, so that is another area of fruit -- by the way none of it comes across to me as low hanging. I wish I could say we could just reach out and grab it. We do have to do a lot of analysis to identify these opportunities. Brian what do you see as low hanging fruit?

Merrill, I think the biggest driver of earnings intensity would be deploying the cash that is on the balance sheet and being able to further deploy to use some portion of the credit facility. I think those are the two things that can have a short-term immediate effect that it is just a matter of finding transactions that meet our return parameters that we think are good credit risks.

How about you Grier?

I would add to that, that the [ines went] to earlier, and that statement or paragraph for, on a relative basis, lower hanging. When we think about a reasonable visibility to get something done in the first half of 2017. So deploying capital is one of those as Brian just mentioned.

On the structured credit front we have, I think, about 10 deals approximately working on in the refi front that we hope to get done reasonably expeditiously I believe prior to quarter end. On the multi-family side I think we have at least three sell-side processes going on in the book possibly more. And I know we have a securitization teed up another one in our consumer book following on the heels of the one we just did in December.

Those we stated first. They're quite visible in front of us; some of the other elements we are also working on, but there are definitely multiple drivers here at play [out and narrow].

I would add, Grier mentioning the online business. Merrill what we've learned in the online business we've been doing this as long as -- I think the only person I can think of that's been buying these loans longer the we have is our friend Bob Conrad; if Bob is on the call, hello Bob. Years doing the online lending inevitably provides an education to people who have not been doing it may not have. I think we -- our underwriting has improved with online, I think our ability to project returns has improved, I think I said this two years ago I believe we have the largest, certainly the most experienced and maybe the largest online lending team buying loans from originators.

And that team has become steadily more expertised at underwriting, projecting, very importantly arranging financing, which should never be taken for granted, and doing securitizations. All of which I think lower whatever risk is extant in online lending. And number two, increase our expected returns and number three enhance our visibility with respect to what those expected returns are going to be. Which is a risk mitigant.

Sort of as an unrelated follow-up maybe a little related; you mentioned that you sold seven CLO positions in the quarter (inaudible). They were good returns, I just wondered where they were sold relative to their most recent fair value?

Brian could you address that? Because I'm not even sure if seven -- there are so many that we are working on at any given time of not sure if seven is a great time to refinance, Merrill, as you have observed Brian how many?

Those were prior period sales; we did not sell any CLO's during the quarter.

Thank you.

But Brian how many have we completed? I guess we shouldn't be talking about the numbers that we're still working on.

It's in earnings release John.

Okay.

Okay, Merrill thank you very much.

Sure.

Thank you Merrill. Did you have any more questions Merrill.

No I'm good. Thank you.

Christopher Testa, National Securities Corp.

Good morning, guys, thanks for taking my questions. Just curious, on the real estate portfolio when you start to get into student housing do you think that now is a better time, all things held equal, to the inept seller in multi-family should we expect more to shift in the real estate portfolio going forward?

Let me take that and I am sure that Brian, who's an expert in real estate and Grier will have a lot to add. What I have learned -- I quote Cain from time to time, there's only two opinions on interest rates, those that come from people who don't know where interest rates are going and those that come from people who don't know that they don't know where interest rates are going.

So I'm staying out of the prediction business macro predictions interest rate. Is student housing going to perform well in the future versus multi-family, office and the like. Rather my preference is to look at each investment primarily from a bottoms-up basis, what is the return, what is the risk of this specific investment, and of course we evaluate macro factors to the extent that we can foresee them as possibilities into our risk analysis.

So why do we do multi-family so much relative to single tenant and office? Because on a deal by deal by deal basis we like the diverse tenant diversity, the fact that people do need a place to sleep, at night the fact that people are motivated to pay their rent so they don't have to worry about being evicted. The fact that there are low occupancies -- low vacancy rates, the fact that where we invest there are multiple strong employers and strong and stable economy. You'll notice many of our investments are South of the Mason-Dixon line so that's why we like and continue to like multi-family.

But when a storage facility or student housing transaction comes our way with a strong sponsor, with an inside track at a good price, with good risk controls, and a budget that presents to us minimum uncertainty with respect to vacancies, rents, the cost to upgrade which is a big part of these investments both multi-family and students, the return on the investment that we might be making in refurbishment and upgrades.

If all of those factors, and there are many more, lineup then we will do student housing. Are the going to do more? I don't know it depends on when we next see a good transaction. Brian with all your decades of experience in real estate what would you add to that? And Grier.

I think that we monitor all of our real estate holdings, good to see what they look like on a quarterly basis and we evaluate whether we think there is enough upside potential in them to keep them around or we look to sell them.

We've monetized three properties in the last, I believe the last six to eight months and continue to look at properties that are good candidates for sale at substantial profits. And whether we see limited upside potential because we've already done the refurbishment which is our strategy to move them to a higher rental rate. Grier?

Two pieces: One, student housing; there are some similarities with multi-family, there are differences as well. We've only pulled the trigger on one portfolio transaction over many years for a reason. And that is if you look at demographic trends we're not having significant population growth and that includes overall college enrollments.

There's school shutting down, there's schools with shrinking enrollments; you want to be very careful about that. There are other schools, usually the larger state schools, et cetera, that are not experiencing decline and so, logically, you'd want to prioritize that and analyze the supply and demand characteristics very carefully.

Multi-family, more broadly speaking, is a much bigger market where we've made many more investments and on the question of exiting versus new investments the answer, we conclude, is both. That if the bottoms-up analysis on any individual property on how to optimize it including the exit which is come to date in two forms, one, by re-capitalizing the asset and taking a substantial distribution to ourselves based on performance of the assets and the growth in the value of the junior capital accounts.

That's driven by two things: one, rising rents -- really three things: rising rents, rising occupancies, and three, the refurbishment value-add program because we're generally focusing on class B properties with some age to them and, therefore, upside through a CapEx refurbishment program.

So we see on a macro basis positive factors. There has not been a significant over build of workforce housing in our country. The multi-family supply additions have been largely skewed toward luxury, high rent end of things that is just not where we have focused. And you have dynamics coming out on alternatives for home purchases for multi family migration and increasing costs, their difficulty getting financing, difficulty with supply, et cetera.

And then the demographic trends of seniors who want to downside into apartments as well as an increasing trend. So there are a lot of positives -- and if you see any pick-up in inflation that tends to be a positive for rents. So you see a lot of things there. We monitor it carefully but it is really much more of a bottoms-up individual property basis and we benefit from having dozens and dozens of properties and making the best decision as we determine, in conjunction with our Management Team co-investor for each one.

Okay that is great detail thank you guys. I'm just wondering if you could discuss, just touching on the sale of equity, I'm sorry to ask another question on this. Given that you have, I think you said, 10 CLO's you are in the process of refinancing but on the flip side there is so much less in terms of reinvestment opportunities where to see the shaking out in terms of future cash on cash yields?

To be determined. There is two positive effects and one negative. The two positives are bringing down our cost of liabilities and the decline in defaults. The energy wave has largely crashed -- the energy commodities wave of the credit issue of late 2014 and 2015 has largely crashed through much of the syndicated loan sector and done its damage and now you are seen LTM default rates decline again. So those of the to positives.

The negative is pressure on the asset side. So two positives, one negative and we don't know yet what the net effect will be instead we're focusing on the things that are more controllable in front of us by working on these refinancings. And that is where holding a majority stake is very important because we can pivot swiftly, we don't need anyone else's vote and we can get executions done expeditiously. Which in a deal where no one holds the majority equity, therefore, no one is in charge and no one is quite as organized; that might be done quite sub-optimally late if it at all in other situations. We like that optimization and capital protection.

Got it. Just looking at the fourth quarter a lot of the CLO re-fis, the AAA's were pricing at [L plus] below 140s, is that relatively similar to what you're seeing today on the re-fis, or has it been coming in cheaper, gone up a bit?

It is changing in real-time, it is really hard to generalize and each deal is little bit different. The quality of a particular collateral manager perception will be different. The folks that we team up with are generally deemed to be high quality. That's information that is pretty readily available out there I just leave that to some other data sources.

Okay great. Wondering if you could comment on what you're seeing on the structures on second liens today versus. What you are seeing a year ago obviously the pricing is tighter, just curious what you're seeing from a sponsors in terms of how the structuring is?

There is a wide variety out there and we're being careful. I would say generally we have seen an uptick in unattractive capital structures; it's not just increasingly over the years, the leverage it's multiple of what? A lot of the action comes down to the ad backs the adjustments the real digging and that's where we have significant advantages because we of such a large team.

We have individuals that prospect, dedicated toward tearing through accounting and ad backs and coming up with their own underwriting view as opposed to blindly accepting what some promoter on the other side of the table who wants to see a deal happen is trying to push across to whether it's a sponsor, a banker, or what have you. Underwriting is always critical and is gotten even trickier in recent years because ad backs have gotten more aggressive.

So we focus very hard on that and we're disciplined and that is why you saw exits exceed repayments in the quarter we just ended. Now in the quarter to date we're ahead; we found some attractive deals. It is all going to be in a bottoms-up basis and we're happy to go -- we're happy with the investments we have made but many others are swimming by that we're say no to.

One of the advantages that we have is Reed Parmalee, who works for Brian, who is our quality-of-earnings expert with a CPA with significant experience reviewing quality of earnings reports. So it is not just the MBAs and our transaction leads and those teams, we have some professionals that pour through these financials and his quality-of-earnings reports.

We also have Reed and other, I'll call them, green eye-shades in Brian's Department who often are more rigorous than an MBA might be and we think when it comes to reviewing quality-of-earnings reports and we think that that discipline and rigor has helped keep our non-accruals as low as they have been.

Okay great that's all for me. Thanks for taking my questions.

Thank you.

Casey Alexander, Compass Research and Trading

Hello good morning, most of been asked and answered can you share with us what the unlevered yield of the online portfolio is?

Grier?

Sure, it's in the range of -- and I'm quoting net of expected losses because analyzing it otherwise is anti-conservative, in the range of 10% to 11%.

That is great, thank you. Secondly, I see you have set up another vehicle to invest in the online business. Would that be a vehicle that would then be co-investing with the BDC in loan packages that you'd be buying from originators?

Boy, that is very early stage and years in the future for any impact so I am not sure if even worthwhile to discuss at this point.

Okay I wasn't sure when you intended to actually launch it. Great thank you for answering my questions everything else has been answered already.

Thank you.

Thank you Casey.

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

All right, thank you everyone have a wonderful afternoon and of course if you're in the New York area, don't go outside without a coat and boots, thank you. Bye now.

Thank you all.

This conference has now concluded; thank you for attending today's presentation. You may now disconnect.