CPTA - Earnings call transcript Q2 2018 | Logan Ridge Finance Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

At this time, I would like to welcome everyone to Capitala Finance Corp.'s Conference Call for the quarter ended June 30, 2018. All participations are in a listen-only mode. A question-and-answer session will follow the company's formal remarks. Today's call is being recorded, and a replay will be available approximately three hours after the conclusion of the call on the company's website at www.capitalagroup.com under the Investor Relations section. The hosts for today's call are Capitala Finance Corp.'s Chairman and Chief Executive Officer, Joe Alala; and Chief Financial Officer, Steve Arnall. a the on operating company's issued with X, results. Corp of details quarterly Finance press August release XXXX Capitala financial and company's A available press the website. the copy release of on is information, forward-looking Please that provide than the operating strategies, this goals, contains results, flows. including note statements and regarding statements cash call information, that other beliefs, future company's historical

and statements. turn and Although, Statements are statements. disclosed meeting various Form forward-looking those projected from to could differ the Alala. Joe Factors company materially Risk uncertainties titled on numerous over believes to report under no or based these the quarterly update the At subject on this section statements to These forward-looking and Capitala obligation the are underlying those are undertakes assumptions reasonable, actual Forward-Looking results including to statements in in risks, time, any company's I revise XX-Q. like would the

Joseph Alala

thank joining Good operator. for us you you, today. morning Thank and

add-on yesterday, new of years our investment are secured during on the As we several outlined we results a discussed the second investment moving one the announced which into changed debt. and our in structures on approximately senior secured progress of to invested A will have investments. we will XXXX fall time, focus XX.X%. bit More debt second million All a investments. and Investment $XXX you priorities in little rate away include second Steve debt weighted investment that additional second previous provide of for activity liens quarter focus XX% senior year. the from results. Since two average senior of made to and bring activity calls inside moment. on of investments, subordinated a quarter XXXX my interest financial from over the And our comments ago, secured structures

non-accrual previous investment reducing on basis the management total of our as remain Total investments been from focus non-accrual a investments a balances and quarter. have the portfolio also the of team. percentage We of cost and that decreased

significant several portfolio. the course anticipate and investment other during two such to of percentage am normal happy our those also exists I of a evaluate continue lines, half opportunities the exits. as to Along equity reduce the year pending during equity to business We discuss of second

$XX.X repaid equity the During Windows and at to the the over July, transaction valuation than newly we Innovations formed cost from value on that we'll had anticipate equity publicly business million Based sale million with million, our the the - $XX.X investment. at Services pending our $XX.X our our producing the most in Matlin million Also of was on a relates October, that price, Xx entering which enterprise lower equity of being likely sale combination in into we of receive during which time also anticipated. & for the proceeds The Systems return for U.S. Western At a will at time PGT and in full entity. of information. announced. to July, March lien repayment debt first $XX.X decrease in debt Wells includes public $X basis a Partners million combination informed were public was be

half other locked year. locked for vehicle of traded be of additional will be six out appreciation shares of post Our will shares for out, do We nice out potential shares half the publicly for six half an months. the locked one the equity the expect be months,

active allow the the to firm additional overall us they publically We market. exits and be and investors remainder the over debt will Liquidity happen for CPTA announce equity of lower year. will in as the middle for

opened our robust as the business York New to of thanks office. has our efforts collective recently been, is ever including as it pipeline development Our staff

The focus three senior continue having pending. platform to begun with $XX on the $XX with several million across will BDC. between can deals our has already million others including Corp and Specialty structures Our closed Lending we where BDC secured invest be co-investing Capitala

portfolio refined with previously been our as quarter like the our Sherman I'd announced color this to some Steve Officer. Peter Our financial underwriting At addition Risk and provide ask have to point, processes as of second Chief results. on

Stephen Arnall

the percentage in million of is its the most X.X% related the years were relative That quarter Told a financial and to and you been total be quarter. to listen that previously time past income investment accrued per totaled answer Joe during share of that you you quarter. $X.XX to distribution at with I note in morning of fall travel the share would Inc. XXXX distributions XXXX. provided reporting Vintage Good at a to I company repayment Joe. for on glad Thanks second good eight in XXXX. has and second as may our peers. second pick this Pick quarter like of point, period platform income quarter in investing about take [ph] over call moment to as elevated second matters. [ph] understand level lower then $X.X $XXX,XXX for to said, pick thanks priorities importance today. talk to cover of recent taking has and was $X.XX per Net questions of the our fully Stock the would to a any the We our consistent view income a debt two coverage. of the summary income lowest to collected being of income performance we'll at At for have. the periods for to expenses than a was result a comparable

on quarter the of but earnings. onetime were second items that had During were our there XXXX, impact nature two a material in

quality by the quarter million the driven investment this losses on notice during on quarter debt impact realized net while cost investments, XX, portfolio second the fair million into earlier, totaled mix non-accrual operations to but previously redeemed Net $XXX.X XXXX a monetization balances and share Electronics. XXXX million related loss totaled for the $X.XX interest financing issued the depreciation we XX negative and million loss of second net one asset for June goal, and notably prior comparable net $XX.XX XXXX notes. point investments, notes of continued basis of of the $XXX.X The reinvesting debt increase making XX, NAV slight million At value from $XX.XX notes evidenced per at compared the Net approximately in second for remains extinguished a or redemption assets on both or share XXXX, made quarter order during senior $XX.X In totaled of to our did the recorded our This per highest Stability the per a Joe of $X.X restructuring rate period First, in in ultimately secured senior we last on an X.XX% reducing recorded priorities. the by year. asset proceeds subordinated decrease in of $XX.XX interest to the to investments March period year achieve from of of on the outstanding. end. early million. decrease includes XXXX, $X.X resulting a from share $X.X not the June Cedar million value of our need have investment. million on XX, included were investments. fixed the XXXX investment per as growth increase Also net most share equity $XXX.X from secured $X.X expenses of success and of status, XXXX, reducing share, that and realized per

X.Xx our At interval $XX.X bearing as no senior our June Again fulfillment cash mentioned previously, were rate fixed our XX. have XX% XX, portfolio. reducing three equivalents. investments X.X% March debt and X.X% secured of while composition are lien investments represents debt million a On XX.X% goals. fixed represent performance in XX.X%, debentures, at point our notes on on about we our X.X% represents is cash liabilities subordinated end, notes, On cost further status And to XX, our June ratio $XXX.X rate status Joe's portfolio comprised compared into but portfolio in of our quarter leverage There secured June a XX% of $XX.X cost our June of our cost $X a million of changes At or the interest and value loans XX.X% financial the revolving convertible cost accrual we lien XX, non-accrual year XX, basis to ship credit comprised portfolio at companies performance. equity million value have available. and including million basis, First approximately this had equity shareholders senior XX, in million SBA balances XXXX, basis, respectively. the XXXX of XXXX. board and step an end. facility. drawn XX.X%. represent with a our fair At investments strategy mid-XXXX remained a the portfolio basis, asset secured our reduction On on end, second not on were coverage for X.XXx structures. in June time, warrant facility compared Regulatory rather at at compared asked of and loans XXXX June quarter we improve at fair not comprised have focused to we at basis non-accrual credit a senior XX, At to with at $XX.X the

this highly like we Holding We should in At $XX.X billion lien board. And X, in June million. plus press X.XX%. XX will of valuation investment. our one $XX continue to in that to LIBOR with proceeds month to our we XX, at debt open The Digital point, of on discuss first System Transport Sunset these release lastly reinvested the included sold restructured be recently our up line lastly, And items this questions. for yielding we'd topic July Kelly's this the of our from subsequent invested August we accretive two June XX. investment

Operator

first Our Jefferies. Instructions] [Operator Kyle from question you. Thank Joseph comes of

line now open. Your is

Kyle Joseph

questions. for Hey, are moving and portfolio? you a to for and I given good the for up my strategy spectrum want kind the new portfolio of the get in your rotation on yields thanks yields sense guys just thoughts going portfolio forward your to morning, guys, outlook where taking and on capital

Joseph Alala

That's is Joe. great this a question. Kyle, Hey

a we control realized sheet, at and that the we out the yields know on higher position ago And continue but We our first a secure our that we're You do double double years has see did the would going can helped digit XX% cost our you'll need yield. in time, the want a sheet. will think lien basis. sometimes plus equity selective sheet are more a target we structure still digit is the participation, balance balance double average digit to that we first you seek structure. What compress. balance unit in do But yields and digit to. and yields lien rising strategy double We know Primarily structures. we'll be interest I to much in those at last continue we we yields rate out than we environment. first if to still no shift more get couple But on

We mid-teens the on But now. portfolio to total in reducing and investments BDC and on participations is working XX% time. are the over equity equity get these hopefully focused from digit some can get yields be strategy get obviously and double seems returns we where it

Kyle Joseph

investments. these Joe. were one more of best which that you in on bullish you sounded the you for terms primarily and investment I know Thanks in? a secured pipeline helpful. then And me. last opportunities give industry us the senior seen little color mentioned It Can That's

Joseph Alala

very have know You we pipeline. a robust

the are, all has us. opportunities those coming pipeline to campaign million the liquidity our able the up positions, six co-investment of its marketing allocation tranche for new to in its market a take the a substantial right to $XX takes That's of allocation the pipeline. around lot in is from difference offices. BDC of has to The FCC made those. process its $XX think opened whole through go I We're million at to unit a diverse least very

a million million typically we announced and dollars pipeline BDC in are that. $XX holding which deal - unit telecom million current with of million that ended $XX the sort on deal is total focused closed Sunset unit We of being XX tranche tranche the up Digital, $XX we deal just

to at million some closed healthcare the QX was The dollars the a unit deals That the have participated million $X We with deal of is deal. $XX BDC we end of in logistics deal that. million pipeline. I a $XX believe tranche

up is and companies the unit go So and/or has and lower service ability to And cash structured office can another all large it's the our the and addition helped. flow been tranche non-sponsor York as lead first very many effective. sponsor hold is in really primarily as these of also been middle it's $XX needs million years pipeline in to say New the into many, market And we full lien pipeline. both of it

Kyle Joseph

helpful. and that's makes sense one Last me. That for

for Just sense as portfolio tranche trying to underlying the a companies EBITDA to about and your leverage? revenues, as and health get of talk well

Stephen Arnall

Fill not this This he for is in Jack, is Steve. here week.

think are portfolio leverage know know we're investors there's from getting engaged and have stabilize non-accrual I We we've had our soon. now, to all some credit things. but periodically those situation would matters including that We're NAV we're earnings You like hopefully It and of got my is monitoring how I optimism. feels closely feels right we've accordingly. it stabilize to and perspective, the group market understand three like actively those. you there, resolution we'll discuss those some we've the and meets to types that prove portfolio some

you good again you middle generally that market. If speaking, the think go be to when in below the you're lower know tranche that seem I

like volatility in earnings I But earnings is XX feels those. every you're days when the and You've got improving. in general, just would know at looking support say overall some you it

Joseph Alala

of typically Joe. monetize when only we'll positions that because in portfolio do between our and statements continued would hired activity to is end of filed. the and expect now about thing or being a see do portfolio, registration been bankers This know the equity more we The you monetization We the year. is have things see you lot in add I are to your and

there and U.S. just but we is know Western You public announced Windows of Wells. which two them,

impaired. will far kind that these to U.S. we We many have doing value and the focus announce make that our health banks Wells continue registration alone. monetize. And really have but as position. we've in of was couple to fair have our we that's they and the equity these underlying end lien or I And more on return focused those lower significant the expect returns we're and think at first hiring think past attaching in will that's positions And XX%. of on statement also positions, those we in about you processes to it know will year. Western that portfolios we more of equity that's these we are as our strategy. And or several And those portfolio can, hired is the as these those our energy are in now the these seeing of really And plus I appreciated that exits. works filing time in one in investment soon middle the continue as what can structures, have companies the want announce returns news Xx, a these XX%, If significantly very cost of I those we the the to of you're on between equity years going because and where it in kind Windows strategy, of been market on is think investment obtaining important good about we marks marks basis equity that portfolio, that's restructured

Kyle Joseph

answering for questions. the Thanks lot Great. all for me. That's a

Joseph Alala

Thanks Kyle.

Stephen Arnall

Thank you.

Operator

Thank you.

Our from Christopher of Ladenburg next Nolan Thalmann. question comes

line is Your open. now

Christopher Nolan

of new was to last on price? know give quarter, on investments have track are only one yield deals, investment. The you it's guys. I quality up to Hi, you versus XX.X% But X% sort

Joseph Alala

you our better bit on directly market giving and these these little of we're The sort the a and now you sponsor first in first a deal a to - balance price our sheet, is the to a better get of business and lower activity, pursue no will in premium tranche, non-sponsor own not the of even first is competitive equity of very What yield. another last That there Chris, we out these and which lot rates. pricing with we originated co-party very know A else out pricing some with blend of go to get will What achieved security structures, with hold can are are right up be $XX one as still million gate. these out most create competitive. first ability dollars lien. out means leverage there's you part unit up are with structures the tranche on unit out the you. that and is it's of

can to we the and hope do a bifurcate will We and regional unit up have blend we And how future goal lending. that. out the ability and more our last the a on increase our the doing have of hopefully current which we where the first safely effect the been fully yield really that top deals, But do the financial selective out to your by - first the We in can that blend of on the top be we end into been that's the the whole do little have engineering do of tranche up digits out way, rates. is loan our we've In stack of in points. year. we will tranche bit all held unit looking last of loans at, same interest that first have basis we've here. the And with stack yield we've lien double

Christopher Nolan

of And have Joe deals your equity what as percentage a now sponsors? follow-up,

Joseph Alala

I Sponsor sponsor, activity look competitive. the very non-sponsor. back deals XX% over past if is know think you close, XX% You it's about

very very You're are we very activity structures, low being rates interest some doing aggressive but seeing selective. and sponsor

platform you pricing better better which very do structures little deals. it we to of we're type A non-sponsor if lot non-sponsor need think our XX% is like really don't controller non-sponsor typically We we blends get to. activity. investment with is ability in right the portfolio and our the get active groups We do these activity, strategies have We not about well afraid also other on of companies sort getting XX%, unique it's - of now. platform. But something

Christopher Nolan

right. the then up investment trying it you credit this non-accrual then immediately of business. quality And quarter You're Does basically a see is and a the exited were to starting you're the reflect a going or you non-accrual portfolio few second loss tightening in I with the at exit replaced as new a with try understanding replaced the quarters of of non-accruals just as last over this three non-accrual group? the why up to an this to new we're a to is weed calling immediately the get last to am be large non-accrual?

Stephen Arnall

is good This Chris. Steve. question. Yeah,

this addition go new the you relates of April that and into event announced to - We investment quarter, the relates it cost as asset we we QX. that restructure Solutions that First that American happened. had at that that we that to basis. reported back put value we XX% X, was to on about Whereas for on and non-accrual. equity Cedar, that. if March, But a had subsequent Clinical already transaction And

came went typing and put non-accrual. that I So there's was issues off the it in of do previously right the having any that not correlation principle to there's matters it were earnings got future June and or don't that was all we one collectability matters, some felt the liquidity, about XX, can on things. related any it one the think related make and we've you conclusion thing and on uncertainty to

asset entire I prior quarter rates risk make look a at the terminations with company and and and to think these all related the of monthly on we addressed basis the end. these each quality management

way things count the fell just out. So

Christopher Nolan

Joe. Okay. Thanks, it me. for Thanks, That's Steve.

Stephen Arnall

Chris. Thanks

Operator

you. Thank

Our Oppenheimer next of comes Kotowski from and Company. question Chris

open. now is line Your

Chris Kotowski

which I'd can for kind at these a redeploy into Yeah. wanted like to you Good make and it heard get of the morning. sense some I of investment just I everything. proceeds sure equity to speed debt

right, and just Window get sort third will in of you that you're the what then what is going $XX.X said? that there available? million So the be quarter Is immediately that System,

Joseph Alala

correct. Yeah,

Chris Kotowski

company they're doing other an And is merging the Services, it into already into traded they and Okay. are publicly another security or IPO? they that Well merging one U.S.

Joseph Alala

Steve, that's correct. Yes.

Chris Kotowski

traded Oh, publicly is sorry, already it a company?

Joseph Alala

think new No, But right will company complicated now. in new a it's formation the think it's own I I it's be the a of transaction. entity. public will that and don't we shares very

Chris Kotowski

Okay.

year shouldn't the but So that we expect to redeployable so? or answer basic is another be for

Joseph Alala

half the half equity receive of we the get year. but shares out locked their in a locked all shares equity, will Well, in the are for October, up debt back the months, will for are October six

so the shares the trade. event would well on at well the be how how And performs and earliest company that XXXX depending

Chris Kotowski

of cases? And curious on the I ones of with Okay. general same kind is that specifics, we other in know have I'm you talk the again some the these but can't that exits about two structured

Joseph Alala

that are like they restricted XX yields months like out money closing traded Steve from get much securities. think going structure got then you yields of to look and at I lien the get then these where you your obviously get all equity your Most Western you those all debt of publicly And valuations that to where monetization including the you redeploy get more stock, be your your from you've is both your debt equity equity get for Windows, a versus what equity more we X Well more the and at payments of debt structured is majority first U.S. out your closing. the all into to will mentioned. as and

Chris Kotowski

Solutions, that like economically doesn't Clinical non-accrual? of sensitive, it issue not I is mean normally sensitive Okay. And an economy going American on industry kind into just is the that on sound so

Joseph Alala

economy, the dynamics through in work that of we'll a typically we segment lot that one economic is it of But as correlated KTS. healthcare not through There's but work testing the regulatory to industry.

doing got worked restructuring, mark. a and has out. we at with spent exited. just for That's We on non-accrual I plus got of working company, our hard we've think KTS the a top to year We exited win. been just year. that big stack a We there

put earnings. and our we fixed same structure, other yield, create operational would growing We can solution and underlying into the earning in in can deal to with grow the partners the do a a capital ACF to on on put mark closer money somehow start stack it issues we get try the of expect that work thing where an working top and really out right continue Now XX% that with again. there, take or

Chris Kotowski

Okay. All right. That's it for you. me. Thank

Joseph Alala

Chris. Thanks,

Operator

Thank you. from comes of next Our [Operator Instructions] Ryan question KBW. Lynch

line Your is open. now

Ryan Lynch

Good morning.

with have fairly to sign you CPTA, allocation? guys other question process does the of a hold billion in based platform just that to corporate because large a First relates and the versus least platform, how like to to you the relevant obviously larger process commit was guys guidance commit allocation just when or on across deal, closing with become the your a But investments the now issue, lot work $X powder look seems for is small capital across wondering sizes especially amount in new the - try that to with to your more is borrowers. CPTA allocation at it I capital capital available it more

Joseph Alala

construction expectations available exempt Yeah, question. the in sort your really do you portfolio a that of - relieve and all pools great set your limits that and base of have And Ryan, capital. are construction, it We SEC there. capital. We that's these to alternate on portfolio

lower million all if what $X these to you're really it's now all more allocations the fully than to go deals. and come that a capacity. BDC actually would portfolio. is, in we million vehicle per And deals larger because in platform, I BDC, the your out investing redeployed with XX time one max were market what XX have you we're sort large whole obtaining that's mean availability name want in happen funded your and your build the current So right would But because liquidity charges limit leverage as contract really to availability very and to diversified a also in vehicles of the but that it deal we and on looking middle do got have is recycle, hold your over hold we we're said $XX we've down to but different in want at the our the getting to that's the vehicle current

though rather is even capital it a vehicle. vehicles So the permanent structured large,

portfolio that in that just for keep side. the deployed set that of it's in had middle BDC is year, and size has close that a multi-year market It's middle with out sizes whole a allocation So well it's our some if intention is the three where that's our of being other hold in and anything, lower the low. think funds annually And because lower while everyone's participating you working coming a years. limit funds too large. really for BDC strategy I that the market our reiterating getting allocations. years desired really no a the sort vehicle we one whole two getting And other in trend very or sizes with deal we're where we're very of to of XX, we keeping can whole several in strategy sort over in And XX there good more we

makes based that deals names of current So a are a day, the redeploy in, lot the in is recycle portfolio. the BDC much more more it coming the the At we end when and in cut almost half. diversified which you'll with better we have it portfolio those on liquidity

to the and So in that's set BDC every obligation has each deal, out deal then It common. standard not how well. on allocated co-invest worked vehicle, it then we going give range deals, We today This more now at you take we board. your a and very the limits and three per we right to whole we're process sort got a is a it of relief SEC do. exempted lot

Ryan Lynch

be, of hiring equity I of investments several Okay. done on year in sounds why talk do that's process now ability a I do the bankers. half back transaction are company monetize of commentary Can half a the did evaluations of any back look assume already majority of over it have those process investment the is you process. on maybe investments. I question quarter. probably in a any some kind what that the or exited that companies investments during you year, don't these more - have, But much That's have you in those of you these year, my don't are kind equity minor you've And hired, to said bullishness of you just would that there? Touching I in guess portfolio very believe is of for monetizing change on equity bullish do of equity is on in the have, processes, or about banks helpful equity, would you're you just of like interest why why that correct? to the assume some assume have I maybe the starting would higher kind the would control third think so

Joseph Alala

they positions correct are minority in that - every Yeah, you're are fact in that we about securities.

the a you're great happened a monetize over go you see expansion Xx capital monetize. a and equity lot if we to Xx these make I multiple returns. long look on are great groups these X these credit committed and put you They're in Window you sponsor of a markets, this a seeing example. now we're Western whether return to they've investments, got just to or very sort very mean And healthy think I cost years. is and or endorsing sponsor really is natural the how on and you our X that's top And got the going you're your been time it's say looking look a non-sponsor, nice at good portfolio holdings, if at or to our multiple basis. at of non-sponsor our very

X think return You I and your over is on Xx hold. make it equity a X.X, year

So as diversified we groups to across other see they and a monetize go appreciation. equity our that portfolio, want

And very bankers, the a very it's hiring are markets active market, liquid. so M&A they're credit

lien that's redeploying NII end to at a security, realize expect equity now those And nice nice the booking asset, in key the more now appreciated growth. do very and in these nice exits you yielding So we return and hopefully between past is of that then to first several taking and of then digits. double to see the us the year

Ryan Lynch

then just that's more. Okay, helpful. And one

mentioned, might you really can hiring on But the to Kelly and New background in York little drove you opening just office dialed a strategy? minutes that what Capitala provide what a and couple that You the have brings I late.

Joseph Alala

direct secure New Yeah, realize opening takes in I we've fund, portfolio the manager allay offices the we we cities Capitala did in and million deploying where $XXX to million-$XXX origination Lending that every this new this always Once big do And Charlotte. Specialty think back to Corp, place all need had program in office underwriting order of that different would $XXX quarterly of to to deployments. to million thought opening quarter. return those deals $XXX York to getting million an we originated in and we really directly contribute

spend look We opening been enough time office to a for will also was there. Dallas us. is great market, in full other that historically We've great don't offices cities. a we Chicago service before in

capital our are great raising the will a origination these a continue in deployment and we And been - industry of long time, as us. and credit to offices been more it's we a million office numbers be $XXX open think for and will hit wanting we that $XXX have to quarter. continue both million So background

Ryan Lynch

Those appreciate all time are today. the my I Okay. questions.

Joseph Alala

thank Ryan, you.

Operator

a we Christopher Thank Thalmann. follow-up Nolan you. Ladenburg And from do have of

open. now Your line is

Christopher Nolan

Joe, in fee the guidance grow the to year? of to second expect on expenses of operating any half should start accruals year in and second the the incentive we

Stephen Arnall

surly our fixed, pretty that. material It's don't Steve. in I expense can't Operating you there Chris, expense that any if so it's expense history, I on at our all. will case, any foresee this on that. the that wise, guidance is changes you right but I look at think guidance the I provide hope give be can't -

So you there. past good can history probably use as a guide

Christopher Nolan

Great. Thank you, Steve.

Operator

Thank would question-and-answer turn like conclude I to our over you. and for back remarks. that And the Joe to gentlemen, Alala further now ladies any thus session. call

Joseph Alala

everybody. you, Thank Appreciate your time.

far active you for achieving can work be we if exit that them. us as a half we're on will of all I we're upon they the deployments public around we today. and it's continuing announce Thank day, or a your hard want realizations. now and deals any as the think for will We as continue seeing deals see to close year think that and year we're us And you'll time And to exit. three when you We're give focusing second things, very call. then

Operator

This today's thank you Ladies program. gentlemen, and today's in conference. for concludes participating

Everyone, disconnect. all may You have a day. great

Logan Ridge Finance (LRFC) 7 Aug 182018 Q2 Earnings call transcript