CPTA - Earnings call transcript Q4 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 December 31, 2018. All participants 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 host for today’s call are Capitala Finance Corp.’s Chairman and Chief Executive Officer, Joe Alala, and Chief Financial Officer and Chief Operating Officer, Steve Arnall. Corp. Finance Capitala release the press X, with XXXX issued quarterly on financial of company’s and details a March operating results. the A company’s of press available is copy on website. release the provide statements regarding company’s this forward-looking call and Please operating strategies, the than cash note including statements flows. goals, that that information, historical information future contains results beliefs, other

risks, on and Although believes these statements. could subject including those would from materially the Form sections annual Factors the Risk the XX-K. in uncertainties the titled to to statements forward-looking on results like Statements the and assumptions those disclosed company over report I projected statements under and Alala. These various meeting to numerous Forward-Looking time, turn At based this are Joe differ company’s are are reasonable, underlying in actual

Joseph Alala III

a for quarter Steve Thank opportunity the for discuss I operatory. morning. to you, full investment which over priorities Good about performance portfolio. time and discuss the will year and ahead the call today. turn Corp's to our I appreciate joining and it for XXXX, Capitala look performance fourth at at Finance more our to Thanks XXXX,

XXXX. Our a had origination finish strong direct to platform

approximately During of market the our the $XXX fourth lower during year, second quarter. in million the companies, platform half investments investments originated of million of middle $XXX

equity recently lien is Senior our with into During pleased to the $XXX,XXX Fund to capital. are to direct JV million enhance $XX.X ROE of investments, investment opening origination in Kemper lower our reduce II, not announced first Insurance. fees have our and our We a including is launched fourth II middle We're office. which and cost the of venture management seventh very pay office, does our partner, Capitala designed The in of long-term and the quarter, Capitala Loan joint excited and Loan Capitala million Texas Finance million, Corp remain invested have Dallas, $XX.X market Senior Fund active $XX.X investments.

We in committed the million years. capital $XX program hope to $XXX and next of for million the vehicle leverage this jointly and JV over over grow have that significantly several are finalizing to

Our focusing has at in mezzanine approximately on fair XX% moving time, XXXX, being Since from Capitala structures, XXXX, invested with away structures. year-end year-end XXXX. debt was in portfolio lien Corp structures. XX% a XX% debt debt that basis, $XXX on investment's focus senior compared Finance first investments, changed early to secured of our value At first million lien

approximately by Equity the net from have X depreciation our net rating difference. depreciation account prior X%. portfolio During our declined quarter, per XX% in distributions the value X that XX% for loans from internal work Debt our income decline. investment the investment by makes XX% monitoring Non-accrual up fair asset and have XX% makes Also, by of an declined by of of prior risk a of excess value with year-end, share value and up byproduct team. investments decreased hard year-end. collectively much fair

number the will reduce our rated and and dollar of X actively in X. group of portfolio all strive to continue manage investments Our amount to investments

platform, of the begin Loan continued quality into making to realized Growers, II that our senior debt year-end, a monetizations. Quality move no in Steve and, B&W on presence and a ramp continued stable Senior Consistent our received on warrant on We investments, maintain rate our on Fund our net generating increase equity and continue us to our gain dividend $X.X dividends, X for management investments XXXX, provide make portfolio we As per secured additional of I'd of to financial fifth-largest coverage is to help number vehicle, our as of to across return equity market priorities. the through million recently our point, for platform. capital, risk growing of share, some lower focused preferably the have asset a to and nonaccrual same position and value from reduction meaningful our at in this like amount. by permit [indiscernible] distributions We've results. ask Capitala continue At increasing middle capital color the of pools close reduction

Stephen Arnall

Thanks, Fixed from comparable Total $X.X of million fourth lower income was million income the morning. decreased than the the Joe. Good by fourth XXXX. $XX.X periods, investment million resulting XXXX, quarter during $X.X quarter $.X fourth $X.X to of fixed Total efforts interest cash XXXX. the collect of from an and expenses earn income. million, were of as the quarter to continued opposed quarter XXXX million increase for for fourth

value We emerging an XXXX $X.XX we Gear, related focused We on full for such on importance share. fully quarterly in during purposes. Fuel asset the investment September million Services, end the decrease $XX.X asset Inc., $X.X did Fuel for totaled was per net our a $XXX.X Site XXXX. value compared share at the The million $XX.X of basis. $X.X XX, company at fourth XXXX fees compared Site $XX.XX On of and at for incurred to million in for for the of $X.X resulting related as additional as a period XXXX unrealized the realized related totaled $X.XX not year totaled XXXX to XXXX. to status our fourth $XX.XX net coverage share are net share Stability million totaled loss per distribution providing $X.X a gain growth expired LLC. share comparable therefore, of compared were realized of $XX.X fair $X.XX by professional the for control consistent quarter or from depreciation and September net asset of or fourth Net zero million per operations December Net the internal assets of depreciation ultimately, coverage quarter of XXXX The or per On the impact net losses of a million XX, share period to at per value loss one million for Services partially XXXX. remains priorities. decrease made XXXX quarter $X.XX. quarter the of Net Net City of XXXX. the to our offset to less understand and, income Our distributions per highest million than fourth growth and, slightly in XX,

cash XX, million December XXXX, As we had in and cash $XX.X equivalents.

senior In plus December addition, X.XXx million our basis LIBOR XX, we drawn million on at at had coverage a was credit priced November as $XXX.X facility of and to Board the Regulatory X.XXx $XX points. leverage of XXX XXXX our available to X, approved compared be minimum the least XXX% effective ratio November at X, previous asset On XXXX. Directors company of be XXXX, subject year-end. secured to

repaid December we our XX on portfolio $XX.X CapitalSouth outstanding SBA million. license. cost XX, a X Partners $XXX.X early of investment Lastly, all of SBIC a for March Fund included II basis investments, LP XXXX, debentures of the this At million of value at fair and year, $XXX with relinquish million

quarter, equity while Fund into million seven this II amt, across we companies and million existing structure, and in investments investments. was $XX.X Capitala were first million invested During four $XX.X lien Senior invested portfolio of debt $XX.X Loan new the million $X.X companies. Of

of equity of represent XX, First lien investment second and At subordinated basis II and December investments at in and Fund prior two X.X we XX.X% Capitala fair debt comprised and fair our fair non-accrual represent XX.X% investments of basis represent non-accrual million portfolio, the December warrant basis, XXXX debt XXXX, loans million down lien status Loan on the Senior while respectively. in year-end. a a at a XX.X%, portfolio the represent and basis value X%. at on collectively year-end, XX, had companies value value XX% cost $X.X $XX.X On portfolio

like generating that's senior their Texas secured platform, our internal to opportunities questions. to Corp. new turn to over At it of including our this on Capitala Lastly, platform quality origination focused direct profile we included point, Finance Capitala Dallas, office satisfy would

Operator

Instructions]. [Operator

Our comes question from line Jefferies. of first Kyle Joseph with the

open. line Your is

Kyle Joseph

Hey. your Morning, want guys. thanks sense. my just questions. And get taking to for Joe,

outlook guys want little book. of have of XXXX the strategy. get overall conservative more some a your I yield bit gave priorities, You to the sense you but Obviously, on your a for

new higher Sounds bit like and given a conditions that some joint with and eking off of the that little venture market rate. you're then –

you Just this going for where a see give year. yields sense us

Joseph Alala III

That's Existing is book XX.X%. way. the question, a around by great

XXXX, XX. I high when was our shifting of we started from think, beginning lien, probably it strategy mezzanine first to

lost we probably maybe sort is of XXX we've basis the announced to yield more So, when changed there, which back forecasted XXXX. points what in strategy, we first lien investment of

the a cost a been margin those tranche. our we've two, new yield what of joint are Senior has able things. increasing are us LIBOR, that Loan have Capitala unit some II. us. of JV, helped what's putting few So, general allocation of through Primarily first rise our into And unit and there those venture, the lower which bifurcation out we One, the in into doing going we're And the sort our do capital to of net deals. tranche is thus helping on Fund

double-digit think we can So, we maintain yields.

on loan-to-value. very is we're thing much focused Another

they loan-to-value, over on structures these the are the XX% not yields, has of but still XX%, which structures. last deals loan-to-value all BDC, decreasing credit really in conservative have around double-digit material still course, been of the Our our all have think On our time. side, covenants we we of would handful in getting be

in XXXX. we've about good really feeling invested we're So, opportunities the in new

Kyle Joseph

can helpful. you kind That's remind it. And Got given just leverage us of strategy, your any the target on new and very changes there? thoughts then,

Stephen Arnall

for or…? our leverage company Target

Kyle Joseph

Yeah.

Apologies. debt-to-equity. own Your

Stephen Arnall

Yeah.

at We year-end. are the in X.Xx

for said the leverage continue about X.XX, senior we take, think interim, X initial somewhere conversations to lender our I with spot have know secured more November – options we reset good coverage. or approach additional and give In for our , historically, around us. X.X, will than asset is as to a probably we

mid-X.Xx for So, regulatory the from good perspective a somewhere is probably us. in spot a

Kyle Joseph

Okay. answering Thanks very my much for questions.

Joseph Alala III

you. Thank

Operator

question of comes Thank line the from Nolan And next Thalmann. our you. Ladenburg with Christopher

is line open. Your

Christopher Nolan

And on book and the last Hey, the was XX.X% was guys. XX%. weighted debt just difference The average to want was. see what quarter

Stephen Arnall

is about at yield XX.X%. we average newer the yield The , maybe weighted XX.X%. was investments end year at of the for quarter, talking the which on the end average portfolio weighted the yield the book The on quarter are

Christopher Nolan

just I at looking investments. was Yeah. the debt

Stephen Arnall

US that – a good repaid. pretty during evening quarter was was with Services. the City quarter. Those Same executive thing the happened asset Gear fourth the only are The really during Well fourth

we back that investments debt got two were quarter. during fourth the those So,

The what and is in was at look shy of the XX. you was quarter be not XX. we Soup early just during [ph] Chicken the would reinvested XXXX, If which Biotech reflected US here, fourth

than So, not probably little materially we lower back what so. put we that got a back out the was in, money but

Christopher Nolan

funded correctly quarter? the Joe, $XX And million of did hear SLF, Okay. you that I it this you

Joseph Alala III

Correct.

Christopher Nolan

million roughly targets $XX so? then, or eventually the And

Joseph Alala III

JV, would that Well, our Yes. include too. that Kemper, in

Christopher Nolan

time do what period up ramping over to anticipate And you that?

Joseph Alala III

for the as JV try to XX or million unit we sort into many $XX can as full ramp? tranche Well, loans ultimately now holds the We of the design to will allocate that positions. that in

be ramped follow the for should very next of should quarters. can we which have XXXX activity if we there. half in fall, we follow active, we we at the XX positions, – can second So, should properties had that halfway we were by few We in when XX the

Christopher Nolan

X, the Great. last anticipation question, leverage November approval of any sort shareholder And getting the then, on higher leverage? again, for by

Stephen Arnall

this Chris. to do not point, At planning no, We're that.

Christopher Nolan

providers. November the happens, up release X up, to above But intention to X.X? need debt leverage renegotiate your leverage then, once is the once happens, currently, that take regulatory with And you

Stephen Arnall

might that premature think probably give guidance on to It's go. we any where

lender sense. our But right think the on be best and with I give to will premature our we fits really would that now. what determine guidance work it most makes and group profile any what

Christopher Nolan

you. Got

Joseph Alala III

by And is, X did, risk our now, What equity is we while risk equity. if the that percentage on good a Chris, the much we felt, in a these If down That can quarter it. had we're portfolio portfolio to monetization, from again our We are longer, got on also, expect rating, on XXXX. focused we've rotate We've million. was which those as had a then them to on, marks risk reduced, of on all that position X warrant. was laser assets, third. saw job reducing Joe. really which just we larger that by going got X we're how in forward. it's removed, we we're that That rotation almost was B&W Netted get rated equity a a we're getting because exactly last X, takes address this our other a improved, profit removing position. no this our just few longer, leverage of we a ago. rated nice in monetize we equity some a significantly right which doing fifth-largest equity should in B&W, and it a good that really positions happened cost with taking we $X.X We assets weeks was mark warrant. construct which and do better not hitting rotation hit job, these. would sort believe we assets, is taking But, which risk focused a We

what the theme we're on, and XXXX. really focused that's So, big for

Christopher Nolan

I guess, fee then, EPS cover this (sic) waiver? And quarter. dividend management Great. question consideration [XXXX] for did the final Any is not reinstating XXXX the

Stephen Arnall

Well, in taken it been place. away. really always the has never waiver We've

quarter. doing we're We position when arises, didn't meaning So, we'll so. fee have the in incentive fourth situation waiver always that rest an that to the earn a consider to during

issue. it So, an wasn't

Christopher Nolan

Thank taking my Okay. for guys. questions, you

Joseph Alala III

Thanks, Chris.

Operator

comes Securities. question of from line next our with And you. York the JMP Chris Thank

open. Your line is

Thomas Wenk

Tom my questions. Can comfort rather for meaningfully bit perhaps, morning. Biomedical an the talk in you supporting in debt marked mark prospects Good guys of investment? your that morning, this York Chris taking is the recovering was guys. value service Thanks drivers enterprise the And this for today? a Alternative investment Wenk this down quarter. about

Stephen Arnall

generally Yeah, this. I not on go about it this cost Steve. try to somebody ask individual a but companies, XX% year-end. might got into at marked deep to We is at basis We've portfolio thought

the basis to at the declines going and lien portfolio really is current engaged forward. company is which company's periodic first the The is a at debt The group stay have on with equity by stabilized. on trailing the XX% to engaged all valuation payments XX-month keep marked EBITDA, and The really is seems in and driven zero. monitoring

them So, right on that's kind now. of what offer I'll

Thomas Wenk

it. Got

in caused healthcare. Your recently. portfolio bit we sector doesn't started has sector? What noticed a be more you've you you make guys would But to in much the active to investments the some have marginal

Joseph Alala III

do Generally, a we're We generalist. healthcare exposure. some have

US We to a of our of said last it's smaller biotech, healthcare. open expect new But of just have closed It's some want background. made hired referring for haven't the by investments to portfolio. healthcare that, person – to money opportunity. Dallas we testing a you exciting sponsor are end – have we We sort larger The the finance has is and we which I good in healthcare think do at office when having an investment which year, a BDC. the percentage equity a facility

it's around economy, XX%. the in think I

portfolio, it's X%. Our about

historically, So, on investing have than going of the BDC X% less portfolio. in I'm segments portfolio. we've in BDC the to to significant returns, check actually, number different But made healthcare. that

we expect a XX% to grow. now. that So, That's

that you part if grow can money know expect And some the more. a make large we doing, it's healthcare. you So, in economy. But of what you're good to

Thomas Wenk

can And NAV value. to and begin traded Last right. discount All of your at peers stock couple book stock many it. last steep a the is up closer wondering years. or the Got to to group question, pretty back how we when are the over shareholders suspect date

is guys to your you how different in might and say plan value past the be bit from today would unlock a necessarily plans? stock what that So,

Joseph Alala III

declines but our were companies really NAV the off was think It's risk really earnings I they decline quarter. assets NAV or continuing lot going this NAV to taking the get got prior these and – credits, for quarter our is NAV equity It's the this just on in execute stability. We've focusing monetizations. – same fine these A Joe. their get also of X just plan. And to by stability majority that are of longer. just to rated we're Well,

you're are the and by it enterprise trailing same there. value So, multiply that you to lose less, value earnings if using going multiple, you're

for time, a a equity a consistently of on lot value companies that have average so luckily, basis been growing our long So, on quarterly appreciates.

same multiples uncertainty went We have stay value earnings as and the that quarter, earnings, far because the the all credits fine, portfolio the are in is the happened down our as going but QX, down. enterprise

reducing Right the now, XX.X%. a can or get we equity by XX% We the it percent volatility of want as So, portfolio. around. reduce to it's

things. we're doing right think the So, I

mentioned think I ABS. you

all until due can early hardly we strategy, more when is you really the seller If at first we any to XXXX, stress, to look if recently entity. that ABS. with with story or had we a to that lien in any, there's pending really And of back that switch the credit sponsor in involved deals litigation that the equity current discuss the

we But stress it. a lien about talk really credit first can't as no to had strategy early we So, have in XXXX. move really

continue we've can. So, we to what we think got just doing

in Investment of those assets to ask still the reminder, a who our continue Business to SBIC, most this, subsidiary. are Small Company, Just

any share idle cash in buyback. cash, cannot a those You do of that use to

have But of can We risk-three assets parent of sort reducing capacity we trading continue we – our on to should we still share strategy started of at focusing very we to any, NAV. most the few, and kind buyback liquidity initiate in be rated is XXXX, change closer our meaningful the if in the any subsidiaries. think SBIC

Thomas Wenk

Got it.

Okay, great. me. for That's Thanks, guys. it

Operator

Instructions]. [Operator

Our KBW. of Ryan line Lynch next question from with the comes

line open. is Your

Ryan Lynch

Hey, Thanks taking morning. questions. good for my

The first higher one quarter. this do the just with has G&A to

year. quarter guys think mentioned I for fees the professional for higher the you some and

your as we also run rate guys affected if look guys' as better what's I at opening quarterly just Dallas all. reasonable I a – to sure into mentioned look on trying was a office. understand for wasn't get sort that we your a of You G&A what of XXXX? basis

Stephen Arnall

Yeah.

not the number, anymore, $X.X equal. you is reasonable now things range in look we company historically, that Ryan, probably million think, all a been if have somewhere I emerging growth

Ryan Lynch

Okay.

Stephen Arnall

But, a good hands. our that of is historically, somebody's be Timing of spot. of to [indiscernible]. pretty professional invoicing fee kind out seems

Joseph Alala III

is this Ryan, Joe. And,

of for the the office. manager a from office, sort the the Dallas pays of flat growth fee sort We of fee BDC. this to of Just get admin and about all your the answer specific

a Our us New has opened York. growth just opened continue in year private ago, vehicles We to offices. About we enabled our opening Dallas.

So, the expense that growth platform. we're the professionals. our said to adding able investment to our of versus BDC any private more growth of pay subsidize to for with the subsidize I – the vehicles grow

Ryan Lynch

of gave what then, next range. in questions on debentures. to follow-up or And But wanted SBA regarding leverage regulatory was wanted X.XX including leverage question you – to about to the has know leverage. on do total previous guys leverage, of some effective guidance the I to Okay. kind I some I my X.XX the talk

So, this far your the debt-to-equity. total times the I to of BDCs know debt-to-equity guys' up quarter, leverage that any That's bumped by for X.XX today. of operating highest

So, a the get your risk standpoint standpoint, get total view total you a I regulatory the BDC. guys guys I to that guys leverage you should managing putting from do how just that view a that think assets you amount of and significant where you have? think guys guys' run. the of regulatory cushion of amount wanted from on you should leverage today on are is What have

Stephen Arnall

really question road your off million side. is Steve. gone the exempt. I $XX.X completely. of giving debentures I historically, understand not have that you which total on We, are on this of did guidance that X we Brian, pay down SBA March would just remind

bearing total, on have the reduce but would that any So, regulatory. the not

our to funding stable total balance operating understanding leverage dividend asking. group. conjunction secured And We leverage senior fits goal model, and is are with work very our regulatory you're the How in be we and NAV. that it how within will something it that and coverage what consistent we again sensitive

of think to kind are in looking So, not to of for. investors we is offer cap any terms the guidance prepared what you

Joseph Alala III

SBIC just of BDCs repayment not we But that our sort of Steve would are close. center an the group in SBIC. now. we now mentioned, are the that right on ratio, the II I highest the of right just with and Well, add, a have debt-to-equity But of

path we're So, on sort there. same of right target the

We outlier. are an by far not

have by that. we are pack in But, those SBIC's. sort not look repayment, the if who of middle are yeah, pack our the recent we of We of right far are median you highest. with at And in the the

Ryan Lynch

yeah. Sure,

last leverage you the of a with have really lot I one is view produce that the substantially ask to shareholders that off-balance-sheet they as guys sort because Just just which are I for entities just, leverage. seen year, good we've two on, grow additional attractive returns. at the years. adding really some total But reason over of BDC JV BDCs those the

trajectory, entity just that continues, standpoint with a this risk. so, that from is just adding And leverage – if that's

a cap, kind So, guys significantly? regulatory debt – even total if I just I the of but doesn't the you to comfortable to wanted need debt-to-equity just equity to continually wanted don't I growing are know, change necessarily

Stephen Arnall

get The I how to which But and doing. is to our only really license, determined. longer if what interested in we be leverage from of an we model really right, of SBIC term, timing out, able the it kind way earnings perspective portfolio makeup we of be works another grow is total would the yolk of were But think, on what depends like. the that look

Ryan Lynch

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

Joseph Alala III

Ryan. you, Thank

Operator

have a we question from Securities. Thank Chris with York JMP you. And follow-up

open. is line Your

Thomas Wenk

guys. Hey, again. Tom

follow-up. Just a quick

So, say EBITDA to you the growth year-over-year? clear, months, did portfolio XX last for the flat was be

Joseph Alala III

No.

and the think our talked about I I of depreciation the BDC. equity securities equity what is

the the times your a do the off same number. is assume trialing same, same let's – maybe you're what if – does it multiple multiplies are stay If an that a but less multiple or trailing three quarters multiple multiplying – a you more bit, value moves times process have what quarter, or little the third-party we enterprise prior same even our typically they

a equity So, there that's a on stress but value, quarter doesn't your that have earnings, if you is necessarily. mean there whatsoever in any off decrease credit have you

quarter last you get to was back. So, most equity value NAV which can related depreciation, our from of decline

big positions quarter when that our we happened Wells. US of was last equity One exited

which paying back got XX%. our we is So, debt

million We of shares X.X USWS. traded. it's And symbol is also The stock. got

Services, in a at stock appreciate. directly to investment. I related X.X goes that – starts appreciates US stock million few And increase Well it's I say, our above if that if will NAV it haven't shares days really that really so, as around in your So, $X, think NAV move that that $X, can looked – eight to

really affected equity of year. So, things of the the all like that our companies are flat NAV the it's versus for that

Thomas Wenk

Got it.

you correct? you're to unable that new understood. It is one, mentioned the time. Okay, guys currently And buyback at share last program implement this

Joseph Alala III

have realistically, We it. do approval, board have to to we it. But, if we even no approval don't did board do really capital have

So, most the are liquidities of restricted. our in They're subs. SBIC

You can't Kemper. a use buy back cash stock. any Senior that into just our of commitment put nice We to with Loan Fund JV

So, a we really stock right no capital have free meaningful to buybacks. now do

Thomas Wenk

Understood. for That's Got it, okay. for Thanks, the Thanks guys. follow-up. it me.

Joseph Alala III

Tom. Thanks,

Operator

no I'm turn call to Thank this back And remarks. for you. closing Joe showing I'd at further Alala like questions time. now the

Joseph Alala III

their ask thank to or call didn't a if Everyone, more day. some details and And are you we this Just to today. want direct you. into everyone have about all around great day anything we that for Thank wanted questions in time get cover call.

Operator

Everyone, a conclude for you does in conference. And day. the you have all thank gentlemen, disconnect. today's program. and great Ladies may This participating

Logan Ridge Finance (LRFC) 5 Mar 192018 Q4 Earnings call transcript