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Edited Transcript of ABDC earnings conference call or presentation 6-Nov-18 2:30pm GMT

Q3 2018 Alcentra Capital Corp Earnings Call

NEW YORK Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Alcentra Capital Corp earnings conference call or presentation Tuesday, November 6, 2018 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ellida McMillan

Alcentra Capital Corporation - CFO, COO & CAO

* Peter Glaser

Alcentra Capital Corporation - MD & Co-President

* Suhail A. Shaikh

Alcentra Capital Corporation - MD & Co-President

* Vijay P. Rajguru

Alcentra Limited - Global Co-­CIO

* Vijay P. Rajguru

Alcentra Capital Corporation - Chairman, CEO & Global Co-CIO

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Conference Call Participants

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* Casey Jay Alexander

Compass Point Research & Trading, LLC, Research Division - Senior VP & Research Analyst

* Jeffrey David Rudner

UBS Investment Bank, Research Division - Analyst

* Laura Allison Taylor Rudary

Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

* Paul Conrad Johnson

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

* Robert James Dodd

Raymond James & Associates, Inc., Research Division - Research Analyst

* Walter M. Schenker

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Alcentra Capital Corporation Third Quarter 2018 Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for today's call, Ms. Ellida McMillan, Chief Financial Officer. Ma'am, you may begin.

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Ellida McMillan, Alcentra Capital Corporation - CFO, COO & CAO [2]

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Thank you, Juenda. Good morning, and welcome, everyone to Alcentra Capital Corporation's Third Quarter 2018 Earnings Call. I'm joined this morning by Vijay Rajguru, Chairman and Chief Executive of Alcentra Capital Corporation and Chief Investment Officer, who manage our Alcentra. Also, joining us today are Peter Glaser and Suhail Shaikh, our new Co-Presidents of Alcentra Capital Corporation and Co-Heads of U.S. Direct Lending of the manager.

Before we begin, please note that this call is being recorded. Replay information is included in our November 5, 2018 press release and will be posted on the Investor Relations section of Alcentra Capital Corporation's website, which can be found at www.alcentracapital.com.

Please note that this call is the property of Alcentra Capital Corporation. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's call may include forward-looking statements and projections. We ask that you refer to our filings with the SEC for important factors that may cause actual results to differ materially from those anticipated in any forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our SEC filing, please visit our website or call Investor Relations at (212) 922-8240.

The format for today's call is as follows: Vijay, Peter and Suhail will provide an overall business and portfolio summary, and I will then provide an overview of our results, summarizing the financials, followed by a Q&A.

I will now turn it over to Vijay.

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Vijay P. Rajguru, Alcentra Limited - Global Co-­CIO [3]

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Thank you, Ellida. Good morning. Thank you for joining us to discuss our results for the third quarter. Before turning to the results, we wanted to first provide an update around the progress we've made in reorienting our strategy toward a more traditional, private equity focused, mid-market senior secured portfolio. We continue to believe this shift in strategy is in the best interest of ABDC investors as it'll allow us to establish and maintain a more stable asset base and NAV with appropriate risk return characteristics that provide attractive dividend and returns to our shareholders. This year, we've taken a number of steps to strengthen ABDC and position us favorably to maximize value for shareholders. We have strengthened both our management team and board with the additions of Peter and Suhail early this summer as Co-Presidents of ABDC as well as Bill Wright and Rick Van Zijl as Independent Directors to the Board. All 4 individuals are highly seasoned financial professionals, who will bring a wealth of experience and insight to ABDC. We've significantly expanded the U.S. direct lending team at the manager, which enhances our ability to source and allocate investments to ABDC that are in line with our shift in strategy.

We completed the share buyback plan we announced in late 2017 with $5 million worth of shares purchased by the company. On November 5, our Board of Directors authorized a new buyback plan for up to $10 million, which will stay in place until utilized. We will use this new buyback plan if we don't find appropriate investment opportunities.

We refinanced our credit facility and are pleased with the lower cost and greater flexibility it gives us to reach our goals. We permanently reduced our fees by 25 basis points across all of the base management fee breakpoints on the company's investment advisory agreement, including an additional temporary 25 basis point reduction from May 1, 2018 to April 30, 2019, across all of these base management fee breakpoints.

And with respect to rotating our portfolio, with Peter and Suhail -- which Peter and Suhail will comment on in more detail, since mid-2017, we have exited positions and redeployed over $100 million into new investments that are generally consistent with our announced focus, while seeking to avoid any realized losses from prematurely sourcing the sale of assets. These actions have contributed positively to our recent results and have put us on a stronger course for continued success. We believe NAV per share has stabilized, remaining flat since Q4 2017 and increasing 0.6% since Q2 2018. And while we recognize that it will take time to prudently rotate the portfolio into upper mid-market senior secured loans, we expect our strategy will continue to yield stability. And as we have said in previous earnings calls, it could take several additional quarters to complete such a rotation in its entirety.

Our board and management team are acutely focused on narrowing the gap between ABDC's share price and the portfolio's net asset value, and I'm encouraged by the progress we have made to date. We regularly review all options available to us and are highly confident that we have the right team and strategy in place to maximize shareholder value.

Peter, Suhail and Ellida will take you through some of the highlights of our quarter. Peter?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [4]

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Thank you, Vijay. Good morning all. Suhail and I have been highly focused on executing on the mandate Vijay described since we joined mid-year to continue to rotate the portfolio into senior secured risk. This is particularly important in today's robust economy, while market conditions remain constructive, careful evaluation of risk is important in light of an impressive environment, and we believe the types of positions we are seeking provide better protection around current and potential future volatility.

On the origination front, we have been active in sourcing and evaluating transactions and deploying capital recycled from exiting older positions with 3 new positions put on for approximately $24 million this quarter, 2 of which closed subsequently. These are firmly within the senior secured middle-market sponsor credits that Vijay mentioned with a particular focus on companies with EBITDA of $15 million to $75 million plus. We believe this segment of the credit market will continue to present compelling opportunities for investors. Let me take you through some examples of these originations. We made a $6 million investment in the second lien loan of Value Based Care Solutions since renamed Virence Health Technologies. Virence, the former health care IT Solutions business of GE was purchased by Veritas Capital during the quarter. Based on our relationship with the sponsor, ABDC was offered the opportunity to conduct due diligence and invest in this asset, which yields approximately 11%. Impact Group and Sandvine are examples of 2 other investments noted in our subsequent events, which are representative of the strategy. Impact, a sales and marketing agency business, is a $12.9 million unitranche investment yielding approximately 8.9%. This was a secondary purchase source through a club-partner relationship. We would also like to highlight Sandvine, an investment that also clearly falls into our new strategy. The sponsor of the company refinancing gave us an early look on a privately placed second lien. Given our access to other Alcentra funds, we were able to speak for almost half of the second lien. We were also able to leverage the analysts on Alcentra's liquid credit team who placed a sizable order for the syndicated first lien. This clearly demonstrates how Alcentra has a manager is committed to delivering a more complete solution to our sponsor clients ultimately benefiting the BDC with high-quality investments.

We ended the quarter with $248.6 million in fair value of our investment portfolio, which consisted of 34 positions, including 28 companies, 5 broadly syndicated loans and 1 rated debt security in a CLO. As noted in our quarterly filings, we have since exited all but one of those broadly syndicated loans and CLOs in order to redeploy the capital into our target strategy. Our NAV has marginally improved from $149.6 million at the end of Q2 to $149.8 million at the end of Q3 with NAV per share increasing from $11.01 to $11.08 when factoring in share buybacks.

Our regulatory debt-to-equity ratio of 0.73x is consistent with our publicly stated target area.

With that, let me turn it over to my Co-President, Suhail.

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [5]

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Thank you, Peter. While market conditions remain healthy as noted earlier, we retain the caution expressed last quarter that we had made in the economic cycle. Leverage continues to increase and EBITDA adjustments have become more pronounced. In an environment like this, it has become even more important to find credits that generate high free cash flow, have a reason to exist and have shown their ability to withstand cycle. We also believe that partnering with sponsors that we know to be responsible owners of businesses through difficult times will be key to successfully navigating the next cycle. Peter and I have managed the portfolio with that mindset and addressed the legacy lower middle-market, but while shifting toward to a target new credit.

As mentioned earlier, we have refinanced our credit facility with existing and new lenders. The key changes that we believe will help us execute on our strategy include reducing our interest cost by up to 75 basis point, extending the maturity by 2 years through September 2022, reducing our minimum asset coverage ratio and improving the advance rates. We've made adjustments this quarter to 4 names based on company-specific circumstances resulting in an increase in NAV during the quarter. We wrote down Tunnel Hill by $0.4 million and XGS by $1.6 million and marked up SAFE by $0.2 million, in NTI by $2.5 million, based on the best information we had available by the end of the quarter shortly thereafter. This underlies the stable NAV noted earlier in our remarks. SAFE was since repaid on November 2 as noted in the subsequent events of 10-Q.

The average portfolio investment on a cost basis was $6.9 million and $6.6 million on a fair value basis. Measured on a fair value basis, firstly lien debt comprised 62.4% of the portfolio relatively the same as last quarter with second lien positions at 16.5% versus 15% in Q2 and subordinated debt was 9.5% this quarter. Equity positions comprise approximately 10.8% of fair value of the portfolio. As stated in our filing on the subsequent events, we have exited most broadly syndicated loan and CLO positions that have provided us liquidity and income as part of our rotation strategy.

We noted last quarter that we were confident in our abilities to replace these more liquid assets with investments that are core to the company's strategy and we are doing so. We may deploy our capital temporarily in such liquid positions again to bridge timing gaps in our rotation. Being an affiliate of Alcentra, we have the advantage of sourcing high quality, broadly syndicated credit promotes us to funds managed by our liquid credit and structure product team. We received proceeds from repayments, loan dispositions and amortizations of $4.6 million, while new investments and add-ons totaled $6.1 million during the quarter. Our weighted yield stayed consistent with last quarter of 10.9% as we continue our transition to lower yielding senior secured credits.

We have 4 nonaccrual positions versus 3 last quarter. XGS was added to the nonaccrual list this quarter given company's performance. We are working diligently with our lending partners, the sponsors in the company towards the solution to maximize the recovery of our investment. Other nonaccrual carried over from last quarter include Black Diamond Rentals, Show Media and Southern Technical institute. In the case of Black Diamond Rentals, we are working with the sponsor to come up with a consensual solution to recapitalize the business. For the other 2 situations, we continue to actively monitor and work with their management teams and shareholders on corrective measures.

In summary, we believe that our continued focus on portfolio rotation should result in long-term value creation for shareholders. Peter and I are confident about our abilities to reshape this portfolio and continue to stabilize NAV per share.

Ellida will now take you through the detail of the adjustments and value as well as other activity within our portfolio.

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Ellida McMillan, Alcentra Capital Corporation - CFO, COO & CAO [6]

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Thank you, Suhail. For the 3 months ended September 30, 2018 total investment income was $6.6 million, a decrease of $1 million over the $7.6 million of total investment income for the 3 months ended September 30, 2017. This decrease was due to the continued transition of the portfolio into senior secured loans.

Net expense this quarter, after the waiver of management fees for the amended advisory agreement, were $3.6 million, which was an increase of $0.8 million for the 3 months ended September 30, 2017. Interest and financing expenses for the 3 months ended September 30, 2018 were $1.9 million and remain the same, $1.9 million for 3 months ended September 30, 2017. The base management fee was $0.9 million, a decrease of $0.3 million from the 3 months ended September 30, 2017 due to lower average total assets and a temporary 25 basis point reduction from May 1, 2018 to April 30, 2019. There were no incentive fees earned for this quarter nor the comparable period in 2017, although there was a $44,000 write-off attributable to a previously earned fee in regards to GST AutoLeather. Professional fees and other general and administrative expenses totaled $0.9 million, an increase of $0.1 million from the 3 months ended September 30, 2017, which was partially attributable to nonrecurring consulting fees. There were no consulting fees for the comparable period in 2017.

Net investment income for the 3 months ended September 30, 2018 was $3.3 million -- I'm sorry, $3 million, a decrease of $1.9 million from the $4.8 million during the 3 months ended September 30, 2017. The net realized loss this quarter from portfolio investment was $0.04 million and the net change in unrealized appreciation from portfolio investments was $0.7 million due to the write-up for NTI Holdings, LLC and the write-down for Xpress Global Holdings, LLC. As a result of these events, our net increase in net assets resulting from operations during the 3 months ended September 30, 2018 was $3.1 million and our NAV per share results for the quarter was $11.08.

As of September 30, 2018, Alcentra had $7.8 million in cash and $54.5 million outstanding under their credit facility. As Vijay mentioned earlier, the Board of Directors approved a share buyback plan on November 5 for up to $10 million. This plan will stay in place until it is utilized or amended.

I'd now like to turn the call back over to Vijay.

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Vijay P. Rajguru, Alcentra Limited - Global Co-­CIO [7]

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Thanks, Ellida. Before we begin our Q&A, I want to reiterate that while we still have work to do to execute our plan, we're confident we're on the best path to maximize shareholder value. We have a very strong team in place, both in terms of management and the board, and we look forward to seeing our plans come to fruition.

Operator, we'd like to now open the lines for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Casey Alexander from Compass Point.

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Casey Jay Alexander, Compass Point Research & Trading, LLC, Research Division - Senior VP & Research Analyst [2]

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Can you tell me what the attachment point was for the 2 second lien loans for Virence and Sandvine?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [3]

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Yes, I don't think we have that. I'm not sure that that's something that we've filed, but let me follow-up with that specifically after we check.

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Casey Jay Alexander, Compass Point Research & Trading, LLC, Research Division - Senior VP & Research Analyst [4]

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Okay. Well, you should have my number online, if you want to follow up with me.

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Operator [5]

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Our next question comes from Allison Rudary from Oppenheimer

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [6]

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I just have a quick question on Xpress Global. It appears that you guys have 2 pieces of that. One is a LIBOR with an interest payment at market fair value and the other is -- seems to be a kind of 100% PIK. Which one of those is on nonaccrual? Or is it both? And can you talk a little bit about like how those 2 are kind of interplaying right now?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [7]

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Yes. At this point, both of those are on nonaccruals and it's just on the waterfall, which one is to be paid first and which one's to be paid second. But as I noted, I mean, I think, the business is undergoing some stressful time. So we're working with all the stakeholders to come up with a plan, and we had to put in our nonaccrual as the company is trying to preserve cash.

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [8]

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Okay, great. That's good color. I guess, my final question is, it might take a little bit longer for you guys to kind of complete this portfolio transformation. But if you had to size what's in the portfolio as a percentage of fair value of what you sort of view as assets that you want to redeploy or retransition. How much of the portfolio is that -- is kind of like remaining that we consider in that like kind of work out or to be redeployed bucket?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [9]

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Look, I think, the best way for us to answer that is, Vijay mentioned that we've rotated over $100 million already toward the strategy by exiting other positions, and we certainly have a pretty specific plan to rotate some remaining positions. You rightly alluded to the fact that there are many positions that we like, and we don't have any intention to rotate. We're not going to publicly state what that ratio is, but we do feel as you've also heard that we think to do the remaining rotation in a prudent way without destroying value for shareholders, we think it could take up to several more quarters to achieve.

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Operator [10]

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Our next question comes from Paul Johnson from KBW.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [11]

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I just wonder -- and I mean, as we sort of look at, you guys have already had net repayments quarter-to-date here in 4Q '18. And as you're going through this portfolio transition, I mean, is that sort of what we can kind of expect in the coming quarters in sort of flat to maybe more -- an expectation for maybe negative growth even versus portfolio growth?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [12]

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It's a good question. I think you should expect us to flat to slightly up. And I think, we're going to be prudent about timing of certain assets as -- to give you an example, SAFE is a great example. I think, we were expecting that repayment to happen in Q1, and we got lucky and we got capital back earlier which allowed us to be -- to do a couple of other investments that we had not thought about this quarter. So I think it's hard to predict, but my sense is flat to slightly up is the right way to look at it. And we're just -- we'll just continue to monitor. And I think Vijay pointed this out, we're not going to be force sellers in the market for certain assets and take -- realize losses, we're going to be thoughtful about how we sort of rotate on the repayments

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [13]

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Sure, sure. My next question was, I mean, I'm looking at your presentation and it looks like, I mean -- and since about 4Q '17, you guys have run around 62% or so of first lien assets. I'm just sort of wondering -- I mean, is that sort of expect to where we -- what we can expect to see that kind of settle out at? Or is there opportunity for that to go higher perhaps under the increased leverage next year? What do you guys think about that?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [14]

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Yes, that's a good question. Look, I think you've seen it around that level for several quarters now. We think that's ballpark the right area, maybe 60% to 70% range is the way to think about that. We do have, as you know, the ability to obtain more leverage. Starting in May, the board voted last May on that, but that's more of a hypothetical because once we get to that date, we need to put in place a new credit facility. We're obviously operating the business today based on the redone credit facility that we have which has the same leverage limits, and we think the breakdown of how you see the portfolio is roughly in line with how we think about first lien versus second lien and other risk. You did see this quarter, obviously, that we've done a couple of second liens that was in the subsequent events and one during the quarters you saw, again, we're not going to just be piling on second lien risk, we're going to be very thoughtful and opportunistic about it, that's going to need to fit what we think as appropriate credit judgment and risk return criteria. But on a macro basis, we think it will still follow, we're going to breakdown that you saw and we just mentioned.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [15]

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Okay, great. And then finally just kind of regarding your share repurchases. You guys, I think, redid the buyback authorization, we applaud you for that. We -- there is obviously a lot of talk about -- there about the market being very competitive. I'm just wondering if you're finding more instances perhaps recently where it could be more accretive to repurchase shares versus making incremental loans in to this frothy market that we're experiencing today?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [16]

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Look, that's bottom of calculus for putting the program in place. As managers, we think that that's too good for us to have. We're mindful that the market is pretty fully [paid] and so we -- if the pipeline dries up, if something happens in the economy for whatever reason, we have visibility to exercise our buyback program and the board has given us the right to do that. So I think that's precisely the reason why we put it in place. From where we sit today, our pipeline looks pretty healthy going into the next -- this quarter and next quarter that could change at the moment's notice as you know. Deals can be pretty fickle, but seems pretty good about for where we sit today.

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Operator [17]

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Our next question comes from Robert Dodd from Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [18]

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Yes, going to one of Vijay's comments, I mean, you said it may take several more quarters to complete the rotation and reposition of the portfolio, and you used the word several a couple times, so I presume that's what's been approved by you and council. I mean, obviously, several tends to indicate here, literally dictionary definition more than 2, but less than many. So are we looking a year -- 3 to 5 quarters kind of is that what you're kind of indicating with the choice of several here rather than some longer period or shorter period?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [19]

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Look, I think, what we'd say is, we do have a plan for rotating the assets. To do it prudently, some of those maneuvers are in our control and some are not. Some require refinancing, some require sales, some require M&A activity, and we only have so much influence over those types of events without again harming value because as you've heard throughout the call in various ways, we're very focused on protecting NAV. And so the reason we used several is because we want to get it done, we're focused on it, we understand that that's what we're supposed to be doing. We just don't want to do it in a way that backfires and ultimately harms value. So it's hard to be more specific than that just because we don't control all the levers to get that done on an asset-by-asset basis.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [20]

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Got it, got it. And then kind of tying into that with Peter's comment about the mandate being for senior secured risk, which obviously, I think, could occur at this point in the cycle. Can you add any (technical difficulty) first lien, second lien, unitranche, first lien -- first in last out, all was a senior secured risk, but all have different profiles and obviously, the Impact Group with 12.9% unitranche loan. Unitranche isn't disclosed as far as I can call as a percentage of the portfolio anywhere in the filings. Can you give us an idea how much of the current book is unitranche? And how much -- without putting definitive numbers on it maybe, how much that type of structure is expected to be a part of the forward strategy?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [21]

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Yes. No, it's a great question, Robert. I think, it's in the nomenclature of what people define as unitranche, which could range from first out last out attachments to a stretch senior or a high-yielding first lien. So it's hard to breakdown the percentage on that basis because we -- quite a number of investments in our portfolio that are first lien investments, including Impact Group, that are really just first lien risk that are priced at a slightly higher yield because already unitranche got a stretch senior because it tend to be slightly more levered than where a bank would traditionally lend for a first and second lien traditional capital structure. So I think we think of unitranche as dollar-borne risk whether it's stretch senior or first lien. So I think that's probably the right way to think about it.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [22]

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Okay, got it. I appreciate that. On -- another one of the new ones, post-quarter Sandvine, obviously, you mentioned that you put -- it was done in collaboration with other Alcentra funds. One of the other things that did stick out subsequent to that, obviously, is, hey, there's a whole platform there, but also you mentioned that some other Alcentra funds or CLOs or whatever took first lien piece. So can you give me some color on the allocation there? So obviously, the BDC has taken a junior piece in that loan relative to another Alcentra fund. So in other words, Alcentra funds have also taken that second lien position. But there is other funds that Alcentra controls that are taking a senior position. So can you run us through again -- what's the calculus there on allocating the relative risk? And also, how that potentially interacts with your co-assumption, co-investment belief because...

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [23]

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Sure, sure. Yes, got you. Happy to take you through it. So the way it work is because of the origination relationships on the direct lending side of things, which is where the manager sits, we were invited in early to that process before the first lien went to market and in advance as lot of sponsors try to do these days, they try to club up their second lien prior to launching the first lien. So we were in early to do that diligence to take a point of view and to complete to be part of that second lien solution. We're able to work closely with our industry analysts from the liquid credit, the CLO business because of that early look, which obviously, provides an option for them to develop their view on the credit for the first lien syndication when something like that comes to market. The ability for us to work with other pools of capital allowed us to be a meaningful participant in the clubbing up of the second lien and therefore, have more influence over the amount of capital we can put to work and the terms and things like that, which obviously ends up being attractive for the BDC because we're able to allocate into it. And you're right, the allocation is subject to the co-exemptive relief rules that dictate how you need to allocate between vehicles, and needless to say, we follow those closely as we're required to. It's also fair to say that BDC would probably never have had a chance to get a piece of this, but for the fact that we were able to be bigger and more meaningful in that second lien tranche. The first lien is a separate exercise. Obviously, we have the knowledge in-house through the analyst participation in the diligence, but when the first lien comes to market, it has nothing to do with the direct lending business or the BDC. We don't have anything to do with those allocations, they just put their indication into the market and work with whoever the underwriting bank is to try to get a piece of the deal, and they ended up with a fairly sizable allocation as a result of the early work they did and expressing interest early and helping drive that part of the deal, but to be clear, that's -- but for the support that they helped to give us and the industry knowledge that they helped in terms of getting a nice attractive solution for the BDC, the sort of allocation between the first lien and second lien are separate exercises.

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [24]

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Yes, I think one other point to note is that the -- this structure was covenant light. And so given the limited availability of baskets -- covenant light basket in the BDC, we chose to just participate in the appropriately priced second lien for the BDC as opposed to the lower price first lien, which we decided was not good -- best return for the vehicle.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [25]

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Okay. I appreciate that. Just one last one, if I can. Obviously, on the nonaccrual side, several assets -- obviously, these take time to work out Black Diamond as you said, it's in a reviewing opportunity or whatever that's disclosed in the footnotes in the Q, the maturity and principle is 12/31, the Show Media is also 12/31, but I don't think it has the same footnotes, so maybe that one's being a little bit more dragged out. Putting these -- the previous question together in the way, what does the opportunity for the broader platform to allow the BDC to punch above its weight so to speak in these troubled assets as well. Obviously, there's the broader platform can enable you to get originations. Is there something where it can enable a recovery or a restructuring that's incrementally beneficial to the BDC because of the additional scale?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [26]

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Great question, Robert. And the answer is -- and the short answer is, always, there may be an opportunity subject to our ability to walk a fine line on co-exemptive relief rules. So to the extent we are benefiting the BDC in relation to other funds, we have to be mindful of that or vice versa. I think the situations you mentioned presently don't lend themselves to that analysis. But we're always thoughtful about that and to the extent we can bring capital to bear to some of these relationships to have recoveries, we would absolutely consider that.

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Operator [27]

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(Operator Instructions) And the next question comes from Jeff Rudner from UBS Financial.

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Jeffrey David Rudner, UBS Investment Bank, Research Division - Analyst [28]

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Congratulations on a very nice quarter, very important is that the NAV has stabilized certainly for the time being, which has been a concern previously. So I'm very appreciative of seeing that. Main question is, even with good results and NAV over $11 a share, $11.08, the price of the stock is still representative of a 40% plus discount to the NAV which at least in my universe is by far and away the highest discount to NAV. I understand we have a $10 million new additional share buyback program, but what other measures do you think the management team could take to narrow the market price to the NAV price?

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [29]

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I guess, the management always has -- I mean, we're executing on our strategy. I think part of this is as we mentioned and as Vijay had mentioned earlier, the rotation is taking place. You will see -- you will -- every quarter you will see some elements of that rotation strategy play through, some -- in some quarters maybe greater than others. And buyback program allows us to rewind incremental flexibility to use our share base and through -- and to line items better with shareholders as we move forward through this strategy. So I guess, I mean, in a nutshell, that's sort of the -- what we have available as we're thinking. There are always other ways we are thinking about expanding our relationships with -- as Peter mentioned, we may re-examine our [NAV] facility in May once we get the 2:1 leverage through, and -- but we'd have to go back and get an amendment to a credit facility or consider doing a refinancing. So that may be another tool. So I guess, those are some of the ways that we are continuing to think about increasing shareholder value.

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Operator [30]

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Our next question comes from Walter Schenker from MAZ Partners.

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Walter M. Schenker, [31]

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To beat this somewhat to death, the caveat on the share buyback, if I heard it correctly, was we have a $10 million share buyback, which we'll utilize if we cannot find attractive other investments. Obviously, all the metrics and the math of this stock at 40% discount, using $10 million accretes about 5% NAV just on straight math assuming you could achieve it, it's roughly a 12% on dividends, 6x earnings. Why is the buyback not a higher priority as opposed to making an additional loan?

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Peter Glaser, Alcentra Capital Corporation - MD & Co-President [32]

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Yes. Well, look, we are executing on the mandate that the Board of Directors has -- have given us, and hopefully, you've heard some of the steps we've taken around that. And certainly we feel share buybacks can be an appropriate tool at the right time. Now we're focused on the plan that we've laid out that we think will maximize long-term value to the shareholders. We recognize it'll take time to achieve, and we are making progress, but we don't view it as sort of a market trade per se. We view it as a more medium-term rotation as we've talked about to get to a place that is stable and gives appropriate risk return for this asset class to the investors in the entity. I think you also know that as we redeploy it takes time. We don't have that much liquidity, we're fully invested and the way that rotation takes place is one exit and then a redeployment at a time. And then similarly, we have finite number of dollars for share buybacks, which we will use prudently for sure as a tool, but we need to be mindful also of limits in size for our credit facility, of regulatory capital limits and things like that, so being over aggressive with share buybacks is something that we need to be careful about.

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Walter M. Schenker, [33]

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Yes. And it's still the best math and you could double NAV and liquidate the company if you could buyback enough stock. And I appreciate and give you tremendous credit for stabilizing the portfolio and doing the rotation with minimal damage or paying to investors, I understand all that. However, as an investor, it still seems the lowest risk statement, I apologize. Path forward to increase NAV is to buyback stock.

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Suhail A. Shaikh, Alcentra Capital Corporation - MD & Co-President [34]

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Thank you.

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Operator [35]

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I'm showing no further questions at this time. I would like to turn the call back to Vijay for any closing remarks.

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Vijay P. Rajguru, Alcentra Limited - Global Co-­CIO [36]

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Thank you. I want to thank all of you for participating on this call and the management team for their comments, and please reach out to us if you have any further questions. Thank you, and that concludes this call today.

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Ellida McMillan, Alcentra Capital Corporation - CFO, COO & CAO [37]

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Thank you.

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Operator [38]

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Ladies and gentlemen, thank you participating in today's conference. This concludes the program. You may now disconnect, and have a wonderful day.