SLR Investment Corp (SLRC) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2011 Solar Capital Ltd.

Earnings Conference Call Hosted by Michael Gross, Chairman and CEO.

My name is Mamud and I'm event coordinator today.

During the presentation your lines will remain on listen-only.

(Operator Instructions)

I would like to advise all parties that this conference is being recorded.

And now I would like to hand the call over to Mr.

Michael Gross.

Please go ahead.

Thank you very much and good morning.

Welcome to Solar Capital Ltd.'s earnings call for the quarter ended September 30, 2011.

I'm joined here today by Bruce Spohler, our Chief Operating Officer and Nick Radesca, our Chief Financial Officer.

Before we begin, Nick, would you please start off by covering the webcast and forward-looking statements?

Of course, thanks, Michael.

Before we begin let me start off by covering the webcast and forward-looking statements.

I'd like to remind everyone that today's call and webcast are being recorded.

Please note that they are the property of Solar Capital Ltd.

and that any unauthorized broadcast in any form are strictly prohibited.

This conference call is being webcast on our website www.solarcapltd.com.

A replay of this call will be made available on our website later today.

I'd also like to call your attention to the customary disclosures in our press release regarding forward-looking information.

Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or future performance or financial condition.

These statements are not guarantees of our future performance, condition or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the SEC.

Solar Capital Ltd.

undertakes no duty to update any forward-looking statements made herein unless required to do so by law.

To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670.

At this time I'd like to turn the call back to our Chairman and Chief Executive Officer Michael Gross.

Thank you, Nick.

Our underwriting platform continued to deliver.

During the third quarter we originated over $97 million par amount of new investments with only $5 million of redemptions.

Net origination for the quarter as a result totaled approximately $92 million.

We have an additional approximate $250 million of credit facility capacity to deploy, and we do not anticipate significant redemptions in Q4.

This expected portfolio growth should continue to drive increases in our net investment income.

As of September 30th, all of the assets in our portfolio are performing.

Overall, the financial performance of our portfolio companies remains steady.

Our portfolio consists of predominantly US-based businesses with minimal exposure to Europe.

The fair value, weighted average mark on our credit portfolio at the end of September was 92.

The valuation was struck on September 30th, and given that our valuation methodology takes into account secondary trading levels for comparable issuers, the decline in fair market value was predominantly driven by technical factors at a point in time when prices on the liquid loan and high yield indices were near the 2011 lows.

The leveraged loan and high yield indices have recovered off of lows since the end of the quarter, and we believe there is substantial additional realizable value above our September 30th NAV.

Our management team continues to own approximately 6% of the public stock of the Company.

As significant investors, we view the current market dislocation that negatively impacted NAV in the short term to be a positive for long-term investors like ourselves.

The investments we are making today in the current environment with our available capital will enhance the overall risk-reward portfolio of our portfolio.

In response to the deteriorating market conditions during the quarter, we focused our origination efforts on investments that are more senior in the capital structure while still providing attractive yield and return profiles.

The re-pricing of new issue terms in the liquid loan and high yield markets has translated into more attractive opportunities in the middle market space as well.

We're taking advantage of these opportunities by modestly increasing our portfolio and leverage while maintaining our target leverage of 0.65 times debt-to-equity.

Finally, our Board of Directors declared a quarterly dividend of $0.50 per share, which is more than fully covered by our taxable earnings and is substantially covered by GAAP net investment income.

The fourth quarter 2011 dividend we pay on December 29, 2011 to holders of record as of September 15, 2011.

At this time I'll turn the call over to Nick and take the financial highlights.

Thanks, Michael.

Solar Capital had net investment income of $0.57 per share for the third quarter.

Our investment portfolio had a fair market value of approximately $1 billion on September 30, 2011.

The portfolio value increase for the quarter resulted primarily from positive net originations, partially offset by the decline in the fair value of our investments.

As of the end of the quarter, 100% of our portfolio is performing.

As of November 1, 2011, investable capital was in excess of $1.25 billion with approximately $250 million available for new investing.

For the third quarter of 2011, gross investment income was $35.3 million consistent with the prior quarter.

Net investment income totaled $20.7 million for the period and $61.2 million year-to-date.

Net realized gains and unrealized losses totaled a loss of $72.7 million for the third quarter.

As a result, the NAV at September 30th was $773.7 million or $21.20 per share compared to $846.3 million or $23.22 per share at June 30, 2011.

Year-to-date net realized and unrealized losses totaled $51.8 million.

The net unrealized loss for the quarter and the year-to-date predominantly reflects lower valuations of portfolio assets.

Our valuation methodology takes into account the widening of spreads in the secondary market for investments comparable to those we own.

The weighted average investment risk rating of our portfolio has remained steady at approximately 2, measured at fair market value at the end of the second quarter, based on our 1-to-4 risk rating scale with 1 representing the least amount of risk.

At this time, I'd like to turn the call over to our Chief Operating Officer Bruce Spohler.

Thank you, Nick.

Let me start by giving you an overview of our portfolio.

At quarter-end the fair market value of our investment portfolio was approximately $1 billion.

Our portfolio continues to be comprised of 100% performing assets.

To continue to maintain an attractive risk-reward profile on our portfolio, during the period that we've just experienced of severe market volatility, we've increased our exposure to secured investments by over 40% since the end of last year.

As of September 30th, our portfolio was approximately 37% senior secured, 56% subordinated debt and 7% equity.

The fair value weighted average yield on the income-producing investments was approximately 14.6% as compared with just over 14% at June.

We have investments in 41 portfolio companies operating across 25 industries.

Our originations remain robust while redemptions were low resulting in net originations of approximately $92 million.

The terms and leverage levels of our approximately $97 million par value of new investments had a weighted average yield of approximately 13% while leverage was under four times at these investments.

Let me take a moment to highlight some of the Q3 investment activity.

We sourced a $20 million second lien investment to support a tuck-in acquisition by Transplace, a third-party logistics provider which is currently owned by CI Capital.

We believe that both the company's low total leverage of approximately 3.3 times, as well as its yield of approximately 12% make it an attractive addition to our portfolio.

Since we began our underwriting process on Transplace this past spring, the company has continued to demonstrate strong fundamental momentum.

We also invested $20 million in a first lien term loan for Interactive Health Solutions, which is a leading provider of employee health maintenance programs.

The loan has a yield of approximately 12.5% as well as attractive call protection.

We see this as very attractive risk-reward for a first lien security.

In addition, we funded the previously committed $21 million of second lien financing for Altamont Partner's acquisition of McLarens.

These are property and casualty claim adjusters that we had funded in Q2.

During the third quarter we increased the investment in our second lien notes by approximately $11 million taking our total investment up to just over $30 million.

The second lien loan yields in excess of 13.5% and has attractive leverage profile of under four times to our investment.

Finally, we leveraged our existing knowledge of Good Sam Enterprises, formerly known as Affinity, and took advantage of the market dislocation to make a secondary market purchase of the company's second lien notes at a discount.

The yield on this investment exceeds 13%.

In the near term, we continue to expect modest redemptions given the market volatility and wider spread environment which allows us to retain the high quality assets longer and extend our portfolio duration.

Now, I'd like to turn the call back to Michael.

Thank you very much, Bruce.

We are pleased with the results of our selective origination efforts during the third quarter.

We still have $250 million of credit facility proceeds available to us to invest in new deals in a climate that we believe is more lender friendly.

Despite the recent market dislocation, our new issue pipeline remains attractive with compelling risk-reward characteristics.

We anticipate portfolio growth will be accretive to earnings.

The weighted average mark of 92 on our credit portfolio as of September 30th has been largely driven by technical factors at a point in time when leveraged loans and high yield indices traded near their lows.

The secondary trading levels of these indices have recovered off of the lows since the quarter-end.

We believe our portfolio has additional potential realizable value above our current NAV.

And as significant long-term holders of stock, we believe the current market conditions coupled with our available capital present an opportunity to further increase shareholder value.

At 11.00 this morning we'll be hosting an earnings call for the second full quarter of operations for Solar Senior Capital or SUNS.

Our ability to provide senior secured financing through this vehicle enhances our origination team's ability to meet our client's capital needs.

We are seeing benefits of this value proposition in Solar Capital's deal flow.

Thank you for your time.

Operator, will you please open up the line for questions?

(Operator Instructions).

Our first question comes from the line of John Stilmar from SunTrust.

Over to you, John.

Thank you, good morning, gentlemen.

Quick question for you with regards to your market conditions.

Of the loans that you're starting to see today and that are starting to fill into your pipeline, and you referenced the obvious market dislocation, where were those borrowers going previously during let's call it the more fruitful times or the more liquid times in the first part of the year?

Were they -- is the opportunities that you're seeing today more of a high yield replacement product or is it just the simple fact that in the volatile times they're seeking the surety of capital that you can provide in closing a transaction for the sponsors?

I'm wondering if you can maybe characterize both those?

It's more of the latter because, again, the size of companies we're focused on tend to be too small for the high yield market regardless of the volatility.

But it's what has to happen is -- the competitive dynamic really hasn't changed.

There's been no new entrants.

The volatility has kept some of these other IPOs from getting done.

There's been very little capital inflow to these type of vehicles.

And so people are being very rational with their capital and issuers are forced to take the market terms that are out there.

Okay.

And then with transactions that were closed in the quarter was there renegotiations or any of those things that may have happened during the quarter -- like, I mean, we're reading about [flex up] transactions.

Can you talk to me about how your deals that closed this quarter and sort of the lead time that it took to get to close those transactions, and how those were closed during a period of volatility?

Thank you.

Sure.

I think, John, as you know, our lead time on direct origination assets tends to be a couple of months to several months.

And so by definition we started the underwriting process back in the spring.

It's very difficult to go out and readjust pricing just because of market volatility, either up or down.

Once you get to the point where you're mostly committed it's hard to adjust your underlying financial terms.

But what you are able to do is continue to reassess the business and its operating performance and the appropriate risk and the appropriate capital structure.

And so that does get continually evaluated right up until [you] bring down diligence at closing where you're looking at recent results.

So there tends to be a bit more flexibility on the risk side than there are on the economics given the long duration of the process, but obviously if there was a substantial change then you might get in there and be able to review economics.

Great.

Thank you for your help.

No problem.

Thank you for your question.

The next question is from the line of Mickey Schleien from Ladenburg.

Over to you, Mickey.

Good morning, just a couple of housekeeping questions, could you tell me what percentage of your loans are floating rate with and without floors and what percent are first lien?

Yes, the roughly 70% of the credit assets are fixed and 30% are floating.

And of the 30% I would say approximately 10% do not have a floor.

And what percent are first lien?

Yes, the first lien are predominantly what I would call a unitranche.

We -- SUNS, as you know, is the vehicle where we do what I would call our traditional first lien assets.

So our secured assets are predominantly either second lien where there's not much in the way of a revolver ahead of it, so we do start at dollar one.

And unitranche where we're also starting at dollar one, and that's close to 15%.

The unitranche is about 15% you said?

Total.

Total.

Total first lien.

But again, you have to be mindful that our second liens generally have nothing but a revolver ahead of them.

Okay.

Not in all cases but in many.

Understood.

Thank you.

Thank you for your question.

The next question is from the line of Joel Houck from Wells Fargo.

Over to you, Joel.

Okay, thanks and good morning, guys.

I'm wondering with this shift we've seen toward second lien and unitranche, as you guys pointed out, I mean where do you think a reasonable expectation is for that?

And what would cause you guys to kind of go back toward the more traditional sub-debt?

Are you looking for a stabilization in the overall market or is it more structure, pricing, esoteric issues related to kind of your specific markets?

I think we're already beginning to see mezz increase its percentage of the mix of the product offering, and I think that's driven in part by the dislocation, and from our perspective in part by both where we and other junior capital providers together with the senior lenders come down on the risk side of the question.

So today when we're looking at mezzanine we're seeing it at a lower attachment point and a lower overall leverage so leverage levels closer to the four times, low fours, as opposed to the mid-to-high fours.

And so I think that's part of it.

It's really the risk equation and the requirement by banks increasingly for more junior capital underneath them.

And so it's market-driven broadly and for us it's really risk-adjusted return.

So Bruce, I take that to mean things are getting better in that product sense.

I mean we've perhaps seen close to the peak in terms of the senior secured bucket?

Yes, I think so.

I think that by definition as the banks pull back they pull back on both senior leverage and total leverage and so we pull back as well and are more comfortable taking a junior place in the capital structure when the attachment and total leverage points are attractive.

Okay, thank you very much.

And pricing, as you know, remains somewhat stable.

If anything it's widened out a little bit.

Right, okay.

Thank you for the question.

The next question is from Richard Shane from JPMorgan, over to Richard.

Thanks, guys, just a quick question.

The capital raising cycle slowed down in the BDC space over the last six or nine months.

And just curious if you're seeing that have a direct impact in sort of competitive behavior?

Are you finding that the overall group is being aggressive in terms of deal terms at this point or are you starting to see more -- greater flexibility and frankly situations where there is less and less competition bidding on the same deals that you might have seen earlier in the year?

It's a combination of both of that.

I think we are seeing less competition because capital has become more scarce.

And in general people have been very rational.

In fact, they've been rational throughout the year.

We didn't really see things that we thought were silly things being done even when things were a little more frothy.

Maybe pricing climbed up a little bit but you didn't see leverage ratios get anywhere near to what they were at historical levels.

Got it.

And as we move back towards equilibrium, strategically how do you approach that?

Are there certain sectors that you look at now and say, okay, great.

This is a place we want greater exposure and can be a little bit more proactive in terms of shaping the portfolio that way.

Can you talk about that a little bit.

I think as you know from a sector perspective we have been rather defensive over the last couple of years.

Hopefully we will find a time where we're comfortable getting more aggressive, but the economy hasn't been supportive of that posture.

So as a result I don't think we're looking at industries any differently.

I think we continue to shy away from consumer discretionary and continue to look at staples, and strong free cash flow businesses where we feel we have some visibility to underwrite.

And I think it's the only thing that has shifted is a little bit to my earlier comment where we're looking at situations where we're more comfortable taking subordinated risk because the overall leverage profiles have come in.

But I think the industry perspective hasn't changed here.

Okay, great, thank you very much.

I appreciate your time.

Pleasure.

Thank you for your question.

Casey Alexander from Gilford Securities is next.

Over to you, please?

Yes, good morning.

Good morning.

Were the marks -- did they hit the subordinated debt harder than the senior debt?

And also what percentage of the senior debt, is it all self-originated or is there some that is highly liquid tradable syndicated deals in there?

The majority of the senior debt is direct originated.

Some of it, like a [Totes], might have a syndicated first lien ahead of us.

Yes, but I wouldn't call it large liquid.

But we wouldn't call it large liquid.

We'd call it mid-market, handful of guys took down the bank debt, and we and another BDC took down the entire second lien tranche.

So it's predominantly directly originated.

Okay.

And in terms of the sort of magnitude of the impact on the portfolio, how does it hit the senior versus the subordinated?

I would say, and you'll hear a little bit about this at SUNS a little bit later this morning, the magnitude is somewhat similar as you look at just what happened in the loan market versus the high yield market.

It was not that dissimilar.

The only difference is since quarter-end you'd probably see the high yield market has rallied back a little bit stronger than the loan market, but I think our marks were rather consistent.

And what we really try to do from a value perspective is reflect the market dislocation.

There are a couple of situations where we have near term visibility on some redemptions and repayments so we were more inclined to keep something closer to par because we see a par payout in the very near future.

But by and large we tried to reflect both the loan and high yield dislocation across the portfolio.

Okay, great.

Thank you.

Thank you for your question.

The next question is from the line of Vernon Plack from BB&T Capital Markets.

Over to you, please?

Thanks.

And I know you've talked a little this morning about NAV recovery, particularly given your portfolio and you know how investments are going to be redeemed here at some point, but should we expect that to be perhaps a near term event or a nearer term event regarding these redemptions that -- with some of these loans paying off at par?

What are you thinking there?

We, as I mentioned earlier, Vernon, we've only seen -- we haven't seen any significant redemptions in Q4 --

Right.

-- consistent with Q3.

Q3.

There is one that's been publicly announced which is our senior note holding of just over $20 million in Seven Media --

Yes.

-- which put out a redemption notice.

But we don't expect meaningful Q4 redemptions.

But we -- there are assets that I mentioned that I think the market and the sponsors would like to take out, but they're going to be a bit opportunistic given the dislocation that's out there today.

So I guess the short answer is when the markets stabilize.

There are some things that we're pleased to hold onto a little bit longer here, but we could see given fundamental outperformance some repayments next year subject to market conditions.

Okay.

And I think this question was answered through a variety of responses from earlier questions, but if I had to ask it this way, where is the best opportunity today in terms of risk-reward?

If you had a dollar to put to work would it be best served probably in the sub-debt area and in defensive industries?

Is that where you feel you're going to get the biggest bang for your buck?

I think both.

Both the sub-debt and senior areas of defensive industries.

Okay.

I think we tend to be very cautious on our outlook on the economy and so we are looking for defensive investments.

Sure.

And I think what you should take comfort in and given that we truly act as principals here and this goes back earlier to a question about what our target portfolio mix is?

We really don't have a target portfolio mix of senior versus subordinated.

It's about finding the best risk-reward that we can find for that marginal dollar investment.

Okay, great.

Thank you.

Thank you for your question.

The next question is from Jonathan Finger from Finger Interests.

Over to you, please.

Good morning, guys.

Hi, Jon.

I was just curious what you were seeing at the portfolio company level in terms of revenue growth and margin performance.

Sort of A, are you all on target and are your portfolio companies on target?

Yes, I would say again because we're somewhat defensive.

And the one industry that we have some concentration in, albeit across a number of issuers, is food and beverage.

I would say revenues are, as opposed to last year, Jonathan, where revenues were up nominally, sub-5%, but we saw good generation on the -- increase on the EBITDA level as people were really working the cost side of the equation.

That's shifted a bit this year.

I think to no surprise to anyone revenues are up a little bit more than that but they're giving a fair bit of it back on the margin side given what we're seeing on input costs, whether it's on the food side or oil, resin, et cetera.

So I think a bit of margin pressure is taking away some of the revenue growth that we're seeing.

The nice thing as you know for us as a lender is we're really focused on consistent free cash flow generation to deleverage and de-risk our investments.

Okay, great, thank you.

Thank you for your question.

The next question is from [Ed Antwan] from [Chatsworth].

Over to you [presenter].

Hi guys, couple questions, number one do you want to talk at all about pipeline and deals going into Q4 and Q1?

Sure, I think just a couple things on that, Ed.

The pipeline, as you may recall in Q1 of this past year was dominated by refinancing activity.

In part because a lot of the M&A activity surge that we had seen in Q4 of last year.

And then as we got into the middle of this year we started to hit on both cylinders, i.e., the new acquisition platforms for P/E sponsors created additional pipeline for us.

It was probably 50% of the activity in Q2 alongside refinancings.

And then as we got into Q3 it really shifted predominantly given the dislocation in the financing markets to acquisition-driven transactions where people needed capital to fund transactions as opposed to refi where people could be a bit more opportunistic given the dislocation.

I think as we get into Q4, again we're forecasting a slow refinancing market.

We haven't seen redemptions in our portfolio.

And we haven't seen much in the way of new opportunities in the refinancing market broadly, although there have been a couple of transactions out there.

So it's really been M&A-dominated and in particular I would say tuck-in acquisitions to existing platforms is more of a theme as sponsors find a way to buy things and create synergies and create value that way.

So long-winded way of answering I think volumes will be down in Q4, but I think as we get into next year you will begin to see refinancings once we have a stable market pick up alongside the M&A activity.

And as we mentioned earlier, Ed, I think the -- we don't expect meaningful redemptions in the near term as well.

So let me just re-ask that question.

What's the over-under on $50 million of originations in Q4?

We never really comment specifically on a specific number like that, Ed.

All right, how about just two more follow-ups?

One, near term maturities, AMC, DSW, any color on prognosis of those two investments?

No, other than that we continue to believe that they're both going to be refinanced on some basis.

AMC has a sizeable cash balance on the balance sheet as does DS, but it does to some extent speak to the stability of the refinancing markets.

But as you know we feel that we're well-positioned in the capital structure from a value perspective on either one of those.

Okay.

And maybe last, just kind of a longstanding issue with you guys, and I know it's something you work on, kind of the realization of the equity?

You still have a fair amount of your balance sheet invested in call it non-interest paying equity.

Any thoughts on monetization, conversion to interest-earning assets?

Right, just to put it into perspective, we have only $60 million today, which is 6% and then the portfolio ramps simply to become less and less.

We really only have -- we have two positions that are tradable in XP and Seven Media, which are about [$15 million] market value approximately so about a quarter of our equity portfolio.

Those we'll sell at the right time and you should expect we'll get liquid in those in the next three to six months.

The others are private positions where we're alongside the sponsors and those will take a longer period of time.

The good news is they're marked from a rate of return perspective so they're not market realizable value.

They're market-based, current market value, and we expect to achieve valuations in excess of where they're marked today.

And just to add to that, as you know, at the trough we had NXP valued at $0.05 at cost and were successful exiting half of that position earlier this year in excess of our cost.

So we will prudently look to continue to cycle out of those.

And last for me, you know, I usually ask about your more troubled assets so I won't even mention the name.

What can you tell me about your most difficult position?

Sure.

With respect to Direct Buy, it's a position that we continue to watch as you know.

It's publicly quoted.

They are current on their interest payments, but they are highly tied to the housing cycle and so they're under pressure.

The market's come down from the low 40s to the low 30s from Q2 to Q3, and it's something we're focused on.

The nice thing is that unfortunately it's a de minimis part of the portfolio at $8 million fair value, but we continue to believe that there is value there.

Okay, thanks a lot guys.

Pleasure.

Thank you for your question.

The next question is from Greg Mason from Stifel Nicolaus.

Over to you please.

Great, thank you, guys.

Ed just touched on a part of my question talking about any type of credit deterioration in the portfolio.

I'd also like to hear some comments maybe on ProSieben and Weetabix as those had pretty significant marks this quarter.

Can you give us some color on those?

Sure.

We can sum it up in one word.

Yes, Europe.

Europe.

ProSieben and Weetabix are two assets over in Europe, leaving aside NXP which has global operations and is publicly traded here in the States, but those -- Europe is only 5% of our portfolio and those are the two.

The nice thing is touching on ProSieben, if you have to be in Europe we believe Germany's probably the best place to be right now.

ProSieben is a publicly quoted security.

The company is about to report, but all of the pre-announcements we've heard is that it continues to perform extremely well on a fundamental basis.

For the benefit of history, at the trough we had this marked when EBITDA was closer to EUR600 million as low as $0.03 on the dollar.

The business is expected to generate EBITDA closer to EUR1 billion when they report.

And the business has de-levered nicely both through growth in EBITDA as well as through asset sales.

This was marked, again, it's a public quote, but it was marked as high as the 90s recently in the last couple of quarters.

So it suffers from volatility in the European capital markets not fundamental issues.

We had it marked in the 40s at the end of September.

This morning's quote is 59, and we expect that to continue to recover and would expect a full recovery as they announce their earnings in the next couple of days here.

So we feel very good about that investment but we do have some mark-to-market volatility given what's going on in Europe.

With respect to Weetabix, Weetabix is an asset we've also owned for a couple of years, and it is basically a shredded wheat cereal business that's been around for 100 years over in the UK and sells internationally as well as in the States.

About GBP120 million of EBITDA, continues to perform on the fundamental basis.

We took a mark there to reflect just the technical market deterioration in terms of spreads widening out.

This does not reflect fundamentals, and what you'll see there is that because it's a floating rate instrument without a LIBOR floor we end up needing to move the dollar mark in order to reflect that yield to maturity of mid-teens that we currently have on our credit portfolio.

Additionally, there's also some offset on the positive to the mark you're seeing on the security in the hedge value is that directly hedges any currency exposure.

So the market Weetabix is nothing more than reflecting the technicals in the market.

We actually have quotes, although we don't see it as a frequently traded security, in the low 80s as we speak.

Okay, great.

Thank you, guys.

Thank you for your question.

The next question is from Arren Cyganovich from Evercore.

Go ahead please.

Thanks, just kind of following up on the credit quality scene there, a couple of the assets that are marked below 50% of par value, can you just remind me how you'd think about those?

Because they're accruing does that mean that you expect to receive all the principal back and do you ever move into a situation where you just decide to start taking that interest that you receive and paying down your cost basis rather than accruing it?

How do you think about that broadly?

Sure.

As you may recall historically, ProSieben is a good example of an asset that we did that on, where we went to cash cost recovery and applied the interest to the principal when it was down in the $0.03 range because we really had questions about the fundamentals.

As I just touched on, we don't believe today that there is any risk of impairment at ProSieben based on the fundamental performance and think that this is really based on the technicals.

So we have done it in the past, and it will be valued -- evaluated asset by asset based on what we see as realizable value.

Thank you.

Thank you for your question.

And we have no further questions.

(Operator Instructions).

We have no further questions.

And with that I'll hand it back to our speaker Mr.

Mike Gross for closing comments.

Just in conclusion, thank you for all your time this morning and all your great questions, and we look forward to speaking to those of you who will be on the 11.00 call in 20 minutes.

Thank you, Mr.

Gross.

(Inaudible) your conference call now comes to an end.

You may now disconnect.

Thank you very much for joining.