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Edited Transcript of CPTA earnings conference call or presentation 5-Mar-19 1:30pm GMT

Q4 2018 Capitala Finance Corp Earnings Call

Charlotte, North Carolina Mar 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Capitala Finance Corp earnings conference call or presentation Tuesday, March 5, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph B. Alala

Capitala Finance Corp. - Chairman, President & CEO

* Stephen A. Arnall

Capitala Finance Corp. - CFO & COO

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Conference Call Participants

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* Christopher Whitbread Patrick Nolan

Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research

* Kyle M. Joseph

Jefferies LLC, Research Division - Equity Analyst

* Ryan Patrick Lynch

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

* Thomas Quinn Wenk

JMP Securities LLC, Research Division - Associate

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Presentation

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Operator [1]

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At this time, I would like to welcome everyone to Capitala Finance Corp.'s Conference Call for the Quarter Ended December 31, 2018. (Operator Instructions)

Today's call is being recorded, and a replay will be available approximately 3 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, Stephen Arnall. Capitala Finance Corp. issued a press release on March 4, 2019, with details of the company's quarterly financial and operating results. A copy of the press release is available on the company's website.

Please note that this call contains forward-looking statements that provide information other than historical information, including statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in the forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's annual report on Form 10-K. At this time, I would like to turn the meeting over to Joe Alala.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [2]

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Thank you, operator. Good morning. Thanks for joining the call today. I appreciate the opportunity to discuss Capitala Finance Corp.'s performance for the fourth quarter and full year 2018 and a look ahead at our priorities for 2019, at which time, I will turn it over to Steve to discuss more about our performance and investment portfolio.

Our direct origination platform had a strong finish to 2018. During the second half of the year, our platform originated approximately $370 million of investments in lower-middle market companies, $150 million of investments during the fourth quarter. During the fourth quarter, Capitala Finance Corp. invested $48.9 million, including $34.6 million of first lien investments, $13.6 million in Capitala Senior Loan Fund II and $700,000 into equity investments. We remain active in the lower-middle market and are pleased to have recently announced the opening of our Dallas, Texas office, which is our seventh direct origination office.

We're very excited to have launched Capitala Senior Loan Fund II, a joint venture with our long-term investment partner, Kemper Insurance. The JV does not pay management fees and is designed to enhance our ROE and reduce our cost of capital. We have jointly committed $50 million of capital to the JV and are finalizing over $100 million in leverage for that vehicle and hope to grow this program significantly over the next several years.

Our investment focus changed in early 2016, focusing on senior secured structures, moving away from mezzanine structures. Since that time, Capitala Finance Corp. has invested approximately $261 million in debt investments, with 89% being first lien debt structures. At year-end 2018, on a fair value basis, 69% of our debt portfolio was first lien compared to 51% at year-end 2016.

During the quarter, our net asset value per share declined by approximately 6%. Equity investment fair value depreciation makes up 64% of that decline, debt fair value depreciation makes up 31% and distributions in excess of our net investment income account for the difference.

Nonaccrual loans have decreased by 63% from the prior year-end. Also, investments with an internal risk rating of 3 and 4 have collectively declined by 32% from prior year-end, a byproduct of much hard work by our portfolio monitoring team. Our portfolio group will continue to actively manage all of our investments and strive to reduce the number, in dollar amount, of investments rated 3 and 4.

As we move into 2019, management is focused on a number of priorities: consistent coverage of our dividends, maintain the dividend and continue to have no return of capital; continued reduction of nonaccrual risk rate 3 investments; stable and preferably growing our net asset value per share; meaningful reduction of our equity portfolio through monetizations. We recently received $5.9 million for our warrant in B&W Quality Growers, our fifth-largest equity position at year-end, generating a realized gain for the same amount. We continue to want to ramp Capitala Senior Loan Fund II and begin making distributions from that vehicle; continue to make quality senior secured debt investments; and as a platform, close on additional permanent pools of capital to help us increase our presence in the lower-middle market and by increasing our hold size across the platform.

At this point, I'd like to ask Steve to provide some color on our financial results.

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [3]

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Thanks, Joe. Good morning. Total investment income was $11.3 million during the fourth quarter 2018, $0.3 million lower than the fourth quarter 2017. PIK income decreased by $0.5 million for the comparable periods, resulting from continued efforts to earn and collect cash interest as opposed to PIK income. Total expenses for the fourth quarter 2018 were $7.8 million, an increase of $0.4 million from the fourth quarter 2017.

Our status as an emerging growth company expired at the end of 2018, and therefore, we incurred additional professional fees during the period and for the full year for internal control services.

Net investment income of $0.22 per share for the fourth quarter 2018 were slightly less than our distributions paid of $0.25. We fully understand the importance of consistent distribution coverage and are focused on providing such coverage on a quarterly basis.

Net realized losses for the fourth quarter of 2018 totaled $14.6 million or $0.91 per share. We realized a $16.7 million loss related to On Site Fuel Services, Inc., partially offset by a $1.9 million gain related to City Gear, LLC. The loss related to On Site Fuel Services did not impact our net asset value as the fair value was 0 at September 30, 2018.

Net unrealized depreciation totaled $1.2 million for the fourth quarter of 2018, compared to depreciation of $17.3 million in 2017. The net decrease to net assets resulting from operations totaled $9.2 million or $0.57 per share for the fourth quarter 2018 compared to a net decrease of $0.6 million for the comparable period 2017.

Net assets at December 31, 2018, totaled $190.6 million or $11.88 per share compared to $13.91 per share at December 31, 2017. Stability and ultimately growing the net asset value per share remains one of our highest priorities.

At December 31, 2018, we had $39.3 million in cash and cash equivalents. In addition, we had $10 million drawn and $104.5 million available on our senior secured credit facility priced at LIBOR plus 300 basis points.

Regulatory leverage at December 31, 2018 was 0.72x compared to 0.61x the previous year-end. On November 1, 2018, our Board of Directors approved the company be subject to a minimum asset coverage ratio of at least 150% to be effective as of November 1, 2019.

Lastly, on March 1 of this year, we repaid early all $15.7 million of SBA debentures outstanding for CapitalSouth Partners Fund II, L.P and relinquished the SBIC license.

At December 31, 2018, our investment portfolio included 44 investments with a fair value of $448.9 million and a cost basis of $420 million. During the quarter, we invested $48.9 million across 4 new companies and 7 existing portfolio companies. Of this amount, $34.6 million were debt investments, all first lien structure, while $13.6 million was invested into Capitala Senior Loan Fund II and $0.7 million into equity investments.

First lien debt investments on a fair value basis at December 31, 2018, comprised 52.9% of the portfolio, while second lien and subordinating debt collectively represent 23.5%, equity and warrant investments represent 20.5% and our investment in Capitala Senior Loan Fund II represent 3%.

At year-end, we had 2 portfolio companies on nonaccrual status with a cost basis and a fair value basis of $20.7 million and $9.4 million, respectively.

On fair value basis, nonaccrual loans represent 2.1% of the portfolio at December 31, 2018, down 63% from the prior year-end.

Lastly, our direct origination platform included our new Dallas, Texas office is focused on generating quality senior secured opportunities to satisfy the return profile of Capitala platform, including Capitala Finance Corp.

At this point, we'd like to turn it over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Kyle Joseph with Jefferies.

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Kyle M. Joseph, Jefferies LLC, Research Division - Equity Analyst [2]

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Joe, just wanted to get your sense, you gave some '19 priorities. But want to get to your sense of your outlook for the overall yield on the book. Obviously, you guys have a little bit more of a conservative strategy. Sounds like you can offset some of that with the new joint venture. And then given market conditions and a little bit higher rates, just give us a sense for where you see yields going this year.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [3]

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Yes. Well, I think in our existing book -- that's a great question by the way. Existing book's around 11.9%. I think -- beginning of '16, when we started shifting our strategy from mezzanine to first lien, it was probably high 13, so we probably lost maybe 200 basis points of yield there, which is sort of what we forecasted when we announced the investment strategy change to more first lien back in '16. So what's helping us are a few things. One, we have a general rise in LIBOR, which has helped us. And two, we've been doing some bifurcation of the unitranche. Primarily those are going into our new joint venture, the Capitala Senior Loan Fund II, and what we're able to do there is lower our cost of capital through putting the first out allocation of the unitranche into that JV, thus increasing our, sort of, net margin and yield on those deals. So we think we can maintain double-digit yields. Another thing we're very much focused on is loan-to-value. Our loan-to-value has really been decreasing over time. We're on our last handful of deals on the credit side, not all this would be in the BDC of course, but there are around 50%, 55% loan-to-value, which we think we have conservative structures, still getting double-digit yields, still have all of the material covenants in our structures. So we're feeling really good about of the new opportunities we've invested in, in 2018.

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Kyle M. Joseph, Jefferies LLC, Research Division - Equity Analyst [4]

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

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [5]

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Target leverage for our company? Or for those investments...

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Kyle M. Joseph, Jefferies LLC, Research Division - Equity Analyst [6]

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Sorry. Yes, your own debt to equity. Apologies.

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [7]

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Yes, so we're in the 0.7x range at year-end. I think historically, we've said any -- somewhere around 0.8x to no more than 0.85, give or take, is probably a good spot for us. In the interim, we will continue to have additional conversations with our senior secured lender about our options for additional leverage as we approach November 1 and the reset asset coverage ratio. So somewhere in the mid-0.8x from a regulatory perspective is probably a good spot for us.

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Operator [8]

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

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [9]

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The weighted debt -- the weighted average on the debt book was 10.1% and last quarter was 12%, just trying to see what the difference was.

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [10]

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The portfolio -- the weighted average portfolio yield at quarter-end is 11.9%. The yield on the newer investments, maybe which we're talking about for the quarter -- the weighted average yield on the book at the end of the year was 11.9%.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [11]

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Yes. I was just looking at the debt investments.

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [12]

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The only thing that really happened during the fourth quarter was we exited -- City Gear was a pretty good yielding asset during the fourth quarter, same with US Well Services, those were repaid, so those were 2 debt investments that we got back during the fourth quarter. If you look at what we reinvested during the fourth quarter and early 2019, which would not be reflected in years. The Chicken Soup investment was just shy of 11%. The US BioTek was 10%. So probably, I think the money that we put back out was a little lower than what we got back in but not materially so.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [13]

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Okay. And the SLF. Joe, did I hear you correctly, that you funded $13 million of it this quarter?

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [14]

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Yes. Correct.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [15]

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And then the target's eventually roughly $50 million or so?

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [16]

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

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [17]

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

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [18]

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Well, to the fifth gear or to the full ramp? I mean, we will try to allocate all -- as many unitranche loans as we can into that JV. And the sort of design now the -- ultimately holds 30 positions, so we should be halfway ramped at 15 positions, which we -- if we can follow the activity we had in the second half of 2018, when we were very active, we can follow that forward the next few quarters, we should -- about fall, we should have 15 properties in there.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [19]

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Great. And then the last question. On the leverage again, by November 1, when you're -- do you -- excuse me, any sort of anticipation getting board -- excuse me, shareholder approval for higher leverage?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [20]

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

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [21]

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And then once November 1 happens, currently, you need to renegotiate with your debt providers. But once that happens, is the intention to take the leverage up, at least, the regulatory leverage up above 1.1?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [22]

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Probably premature to give any guidance on where we think that might go. I think we'll work with our lender group and determine what best fits our profile and what makes the most sense. But it'd be premature to really give any guidance on that right now.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [23]

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I mean, Chris, this is Joe. What we're really focused on and which we -- it's just -- it takes a while is, these risk 3, risk 4 assets, removing those from that rating, getting them improved, which we've done. We did a -- we fell, a good job last quarter by reducing that by 1/3. And also we got to rotate this equity. We did have a nice rotation with B&W that happened a few weeks ago. And that was a warrant. We had really no cost in it, netted $5.9 million. We've got some other -- that was our fifth-largest equity position. We've got some other larger equity positions that we expect should monetize in 2019. If we can get our equity percentage of the portfolio down and the risk 3 rated assets significantly reduced, if not removed, then we're in a much better position to address how we would do a portfolio leverage construct going forward. But right now, we are sort of laser-focused on risk 3 rated assets, which we believe we're doing a good job, it's just taking longer. And equity rotation, which again, is taking longer, but we're -- as we just saw in B&W, we're hitting our marks on these. We hit almost exactly on our mark on that; monetization, which was all profit because it was a warrant. So that's what we're really focused on and the big thing for 2019.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [24]

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Great. And then I guess final question is, EPS did not cover the dividend this quarter. Any consideration for 2009 (sic) [2019] reinstating the management fee waiver?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [25]

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Well, the waiver really has always been in place. We've never taken it away. So we'll address the waiver when that situation arises, meaning that we'd be in a position have to consider doing so. We didn't earn an incentive fee during the fourth quarter, so it wasn't an issue.

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Operator [26]

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

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Thomas Quinn Wenk, JMP Securities LLC, Research Division - Associate [27]

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

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [28]

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Yes. This is Steve. We generally try not to go too deep in the individual portfolio companies, but I thought somebody might ask about this. We've got it marked at 75% of the cost basis at year-end. The first lien debt's marked at 80% and the equity is at 0. The valuation is really driven by declines in trailing 12-month EBITDA, which seem to have stabilized. The company's current on all payments and the portfolio group really is engaged on a periodic basis to stay engaged with the company and keep monitoring going forward, so that's kind of what we offer on them right now.

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Thomas Quinn Wenk, JMP Securities LLC, Research Division - Associate [29]

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Got it. Your portfolio doesn't have much health care, but we noticed you've started to make some marginal investments in the sector recently. What would you guys say has caused you to be a bit more active in the sector?

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [30]

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Generally, we're a generalist. We do have some health care exposure. We haven't -- I think when you're referring to some new investments, probably U.S. BioTek, which we closed at the end of last year, which is a testing facility that we -- it's a smaller investment for the BDC. It's an exciting equity sponsor opportunity. But having said that, we've made good money in health care. The person we just hired to open our Dallas office has a sort of health-care-finance background. We do expect and want to have health care a larger percentage of the portfolio. I think in the economy, it's around 20%. Our portfolio, it's at about 3%, it's less than 3% in the BDC portfolio. I'm going to have to check that number on the BDC portfolio. But we've actually historically made significant returns, investing in different segments of health care. So we expect that to grow. It's what percent? It's 10% now. So we expect that to grow more. But it's a large part of the economy, and if you know what you're doing, you can make some good money in health care.

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Thomas Quinn Wenk, JMP Securities LLC, Research Division - Associate [31]

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Got it. Last question. Your stock has traded at a pretty steep discount to the group NAV over the last couple of years. And we suspect many shareholders are wondering how and when the stock can begin to trade back up closer to peers or book value. So what would you guys say is your plan today to unlock value in the stock? And how might that necessarily be a bit different from past plans?

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [32]

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Well, I really think -- this is Joe, it's continuing to execute the same plan, it's just taking longer. We've got to get NAV stability, and we're going to NAV stability by focusing on these risk 3 rated assets and also the equity monetizations. A lot of our NAV decline -- or the majority of our NAV decline for this prior quarter was really just these company. They're fine credits, but their earnings are just off in that quarter. So if you're using the same enterprise value multiple and you multiply it by a trailing earnings that are less, you're going to lose value there. So I mean, luckily for a long time, a lot of our companies on average have been growing, consistently on a quarterly basis, so that equity value appreciates. We have a quarter, Q4, all the uncertainty that happened in our portfolio as far as earnings, credits are fine, but the enterprise value went down because the multiples stayed the same and the earnings went down. So we can reduce volatility by reducing the equity as a percent of the portfolio. Right now, it's 20.5%. We wanted to get it 10% or under. So I think we're doing the right things. I think you mentioned ABS. If you look at all the deals when we switched to a first-lien strategy, back in early '16, we really had hardly any credit stress, if any, until recently with ABS. And there's more to that story than we can really discuss due to the pending or current litigation that the equity sponsor is involved in with the seller of that entity. So we can't really talk about it. But really, have had no credit stress as we moved to our first lien strategy in early 2016. So we think we just got to continue doing what we can. Just a reminder to those who continue to ask this, most of our assets are still in the SBIC, small business investment company subsidiary. But you cannot use any of those cash -- idle cash in that to do a share buyback. We have very little, if any, sort of, capacity at the parent to initiate any kind of meaningful share buyback, which is, it's -- most of our liquidity is still in our SBIC subsidiaries. But we think we can continue focusing on the strategy change we started in '16, reducing these risk 3 rated assets, and we should be trading closer to NAV.

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Operator [33]

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(Operator Instructions) Our next question comes from the line of Ryan Lynch with KBW.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [34]

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First one just has to do with the higher G&A this quarter. I think you guys mentioned some higher professional fees for the quarter and for the year. You guys also mentioned opening your Dallas office, I wasn't sure if that affected it at all. Just trying to just get a better understanding of what your guys -- what's a reasonable, sort of, run rate for G&A as we look in -- on a quarterly basis as we look into 2019?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [35]

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Yes. I think, Ryan, if you look historically, now that we're not an emerging growth company anymore, somewhere in the $1.1 million is probably a reasonable number, all things equal. And this has to do with timing. Timing, as somebody's professional fee invoicing is, kind of, out of our hands, but historically, that seems to be a pretty good spot.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [36]

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And, Ryan, this is Joe. Just to answer your specific about the Dallas office. The manager pays for all of the, sort of, growth of the offices, we get sort of a flat fee and admin fee from the BDC. Our growth in our private vehicles has enabled us continue opening offices. About a year ago, we opened New York. We just opened Dallas. So we're able to subsidize the growth of the platform. I think, subsidize, pay for that with the growth of our private vehicles versus adding any more expense to the BDC to grow our investment professionals.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [37]

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Okay. And then my next question has to do -- I wanted to follow up on some of the previous questions regarding leverage. And I know you guys gave some guidance on regulatory leverage in, kind of, the 0.8 to 0.85 range. But what I want to talk about was total leverage or effective leverage including the SBA debentures. So this quarter, you guys have total leverage bumped up to 1.59x debt-to-equity. That's by far the highest debt to equity framed BDCs, that I know of, operating today. So I just wanted to get you guys' view on how you guys view total leverage and where you guys think that should run, while I get that you guys have a significant amount of regulatory cushion from a regulatory standpoint, from a risk standpoint of managing the BDC, what do you think the total amount of leverage that the asset you guys are putting on today should have?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [38]

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Ryan, this is Steve. We historically really have not gone down that road of giving guidance on the total side. I understand your question completely. I would remind you that we just did just pay off $15.7 million on March 1 of SBA debentures which are exempt. So that would reduce the total that would not have any bearing on the regulatory. We're very sensitive to what you're asking, and it will be something that we work again in conjunction with our senior secured lending group, how we balance regulatory leverage and total leverage and how it fits within our operating model, understanding that the goal is consistent dividend, coverage and stable NAV. So just not prepared to offer any kind of guidance to you in terms of what we think is the cap investors are looking for.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [39]

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Well, and I would just add, on our debt-to-equity ratio, we're not the highest right now, but we're close. But now, with the repayment of the SBIC too that Steve just mentioned, we're sort of right in the center of the group of BDCs that have an SBIC. So we're sort of right on the same target path there. We're not -- by far not an outlier, we're sort of median in the pack if you look at that, so -- but yes, we're not -- by far not the highest, and with our recent repayment, we're right in the middle of the pack of the those that have SBICs.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [40]

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Sure, yes, I mean, just the reason I asked is just -- was the additional JV that you guys are adding on, which a lot of BDCs have that sort of off-balance sheet leverage, and those are -- I view as -- those as attractive entities for shareholders because the produce some really good returns, but just we've seen total leverage at the BDC grow substantially really over the last year, 1 to 2 years. And so with that trajectory, if that continues, this entity from a leverage standpoint, just is, that's just adding risks. So I just wanted to -- I don't necessarily need a cap, but I just, kind of, wanted to know, are you guys comfortable continue really growing the total debt-to-equity even if the regulatory debt-to-equity doesn't change significantly?

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [41]

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

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Operator [42]

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

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Thomas Quinn Wenk, JMP Securities LLC, Research Division - Associate [43]

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Tom again, just a quick follow-up. So to be clear, did you say the last 12 months' EBITDA growth for the portfolio was flat year-over-year?

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [44]

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No. I think what I was talking about is our equity depreciation in the equity securities of the BDC, if you have an off quarter, even if your prior 3 quarters are the same, you're multiplying the same enterprise value multiple times the trailing. Typically, what we did or what the third-party process does, is it multiplies the same multiple -- maybe multiple moves a little bit, but let's assume more or less they stay the same, times a trailing number, so if you have a quarter that's off on earnings, you'll have a decrease in your equity value, but that doesn't mean there's any credit stress whatsoever there necessarily. So most of our NAV decline from last quarter was related to equity value depreciation, which you can get back. I mean, one of the -- one of our big equity positions that happened last quarter was when we exited US Wells, so we got our debt back which is paying 14%. We also got 1.1 million shares of stock, and it's traded, it's, the symbol is USWS. So as that stock appreciates, it -- I think it's around $8 now, I haven't looked in a few days.

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Stephen A. Arnall, Capitala Finance Corp. - CFO & COO [45]

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About $9.

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [46]

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But say, if it goes above $8, that will directly increase our NAV related to that investment. And at 1.1 million shares in US Well services, I mean that can really move your NAV if that stock really starts to appreciate. So there's things like that, that really affected the equity or the NAV versus all of our companies were flat for the year.

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Thomas Quinn Wenk, JMP Securities LLC, Research Division - Associate [47]

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

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [48]

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Well, there's -- well, we don't have board approval to do it, but realistically, even if we did have board approval, we have really no capital to do it. So most of our liquidities are in SBIC subs. They're restricted, you can't use any of that cash to buy back stock. We just put a nice commitment into our Senior Loan Fund JV with Kemper. And so we really have no, sort of, free capital right now to do a meaningful stock buyback.

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Operator [49]

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

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Joseph B. Alala, Capitala Finance Corp. - Chairman, President & CEO [50]

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

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Operator [51]

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