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Edited Transcript of CRN.TO earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q2 2019 Crown Capital Partners Inc Earnings Call

TORONTO Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Crown Capital Partners Inc earnings conference call or presentation Thursday, August 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Allen Johnson

Crown Capital Partners Inc. - CEO, President & Director

* Michael John Overvelde

Crown Capital Partners Inc. - Senior VP & CFO

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Conference Call Participants

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* Brenna Phelan

Raymond James Ltd., Research Division - Equity Analyst

* Jaeme Gloyn

National Bank Financial, Inc., Research Division - Analyst

* Jeffrey Michael Fenwick

Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research

* Marko Tesanovic

AltaCorp Capital Inc., Research Division - Associate of Institutional Research

* Trevor Reynolds

Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Crown Capital's Q2 2019 Results Conference Call.

Please note that today's call contains forward-looking statements within the meaning of the applicable Canadian securities legislation. Forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause actual financial results, performance or achievements to be materially different from estimated future results, performance or achievements expressed or implied by those forward-looking statements. For a description of the risks associated with Crown's business, please refer to the company's filings for Q2 2019 as well as at AIS at sedar.com.

Chris Johnson, Chief Executive Officer, you may begin your conference.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [2]

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Thank you, operator, and good morning and welcome to today's conference call. I'm joined here by Michael Overvelde, our Chief Financial Officer. I'll start today's call with a few questions on the key highlights for the quarter and then Mike will review the financials before we open the call for questions.

After a challenging first quarter, I'm pleased to say we're back on track in the second quarter with a number of important developments and return to profitability. One of the most significant highlights you will see reflected in our Q2 numbers is the expected recovery on the loan to Solo Liquor. As you recall, we recorded a provision for the full amount of loan in Q1. In May, having worked closely with the first lien lender and the court-appointed receiver, we announced that Crown Partners Fund acquired $13.6 million of the senior debt to Solo. With today's results, in addition of $13.6 million, we're expecting to recover $4 million from the original loan to Solo.

Now losses are part of the reality in lending portfolios. We've been fortunate to avoid an impairment for over 5 years. Further, as the situation at Solo appeared grim following a very significant inventory fraud, we expect the recovery of $4 million underscores our team's ability to work in a bad situation and avoid much greater losses.

Bay Capital come back in Q1 with 2 repayments in the special situation portfolio, and we're able to put new money to work with a $25 million loan to Rokstad Power Holdings. $15.5 million of this was advanced in the third -- in the second quarter and the remainder, post-June 30. Rokstad provides power lines construction and maintenance services to utility customers across North America. We believe it's an outstanding business, certainly durable at a fast-growing market. Subsequent to the end of the quarter, we announced the Canadian Helicopters are paying an $8 million term loan. The company entered a new large syndicated senior facility to finance the acquisition, and Crown's payback is part of that process. Canadian Helicopters is a very strong performer for the [fund JV], a gross IRR of almost 24%. With this transaction and considering the expected recovery of Solo investment, we generated a gross IRR of 14% of all loan to date, including the Crown Partners Fund.

We remain highly supportive of the Canadian Helicopters business, and we're able to effect an expansion of our lending platform with a new senior facility. Concurrent with the repayment, we entered into an agreement with Concentra Bank to provide investment management services for their $20 million investment in the senior facility. This facility -- this leverages our deep knowledge of the Canadian Helicopters business and trust relations with the company. Based upon our well-established presence in the Canadian market, we generate strong deal flow, and over time, this presents an opportunity to act at a similar role for senior debt transactions that do not fit the parameters of the Crown Partners Fund. Many institutions are eager to put capital to work in middle market credit, which presents a unique opportunity for our group. While the fees are modest, they are recurring in nature and can -- and if we do, do a handful of transactions a year, we'll see a potential new fee stream for Crown.

In Q2, we continued to build our Crown Power Fund and resolved the situation with our operating partner that generated a $3 million impairment in Q1. I'm pleased to say we've made significant progress on both fronts and hope to have announcements for that in Q3. When we introduced the Crown Power Fund, we talked about how the opportunity aligns well with our core capabilities and sourcing instruction transactions that creates strong risk-adjusted recurring cash flows. Like the power infrastructure market, we see similar characteristics in the market to bring data networks to underserved communities. It's a growth industry with a real need for capital. As a finance partner, we can generate high-quality recurring cash flows through long-term contracts with strong counterparties. In addition to direct investments, we see significant opportunity to develop a third-party fund to target this market.

Our first investment was in WireIE, where approximately 1 year ago, we established income streaming facility for the company. Through various circumstances, we presented the opportunity to acquire the business, and in July, we acquired all of debt and equity in WireIE for a nominal amount and a performance-based note of approximately $5 million. We believe it's an attractive entry point for Crown shareholders and gives us a platform to go after this market.

With that, I'll turn the call over to Mike, who will review the financial results.

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Michael John Overvelde, Crown Capital Partners Inc. - Senior VP & CFO [3]

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All right. Thanks, Chris, and good morning, everyone. I'm just going to quickly cover the highlights for Q2. Chris mentioned, after a difficult first quarter, we saw improvements in several key financial measures this quarter. Total revenues increased to $11 million compared with $9 million in Q2 of last year. This year-over-year change is due mainly to a $4.4 million net change in unrealized gains in the fair value of investments that includes an expected recovery of $4 million on the Solo Liquor investment.

Interest revenue was $5.7 million in the quarter, down from $6.3 million last year as a result of slightly lower average level of interest yield investment based on the repayments that Chris referred to earlier.

Now for the 6-month period, however, interest revenue was higher than last year at $13.7 million versus $11.8 million last year due to additional on balance sheet investments and the revenue from the Q1 repayments of the Bill Gosling and Baylin loans.

Fees and other income were $0.8 million in Q2 versus $1.6 million a year ago, when we had earned fees in relation to the repayment of Petrowest loan, as you may recall. On a year-to-date basis, fees and other income increased over the previous -- over the prior year, reflecting early repayment fees earned in relation to the Bill Gosling and Baylin loan repayments. The biggest positive impact on the Q2 numbers was that $4.4 million net gain on investments, $4 million of which related again to the expected recovery of Solo Liquor, as Chris discussed earlier. Beyond this, the change reflects a net increase in the carrying value of loans, which includes a $1.2 million gain on the Canadian Helicopters investment that's partially offset by a net reduction in the aggregate carrying value of equity-related investments.

Total expenses were $3.6 million in the second quarter compared to $2.5 million in Q2 of last year, with a number of line-item variances. The increase mainly reflects higher G&A expenses in the quarter, which is really a function of 2 things: one is higher legal costs, including legal costs incurred at the fund level in relation to the Solo recovery process as well as other legal costs related to restructuring of our relationship with one of our power fund operators; an increase -- the second, I guess, item impacting G&A was an increase in GST/HST expense that relates to largely a onetime payment made following an assessment regarding prior years that we at Crown disagree with for which we've filed a formal notice of objection. We expect each of these contributors to elevated G&A to be temporary and nonrecurring in nature, and I'd stress that our run rate operating expense level is relatively unchanged.

Salary expense is up slightly year-over-year to $1 million in Q2 versus $0.8 million a year ago. That's due mainly to an increase in headcount. You'll also note that share-based compensation expense fell to just about $0.1 million that continues to track below year-ago levels, the result of far fewer amortizing units outstanding. Finance costs of $0.8 million were higher than $0.3 million a year ago, explained simply by a higher average level of debt outstanding. Recall that our convertible debentures were issued late in Q2 of last year that the credit -- and the credit facility in Crown Partners Fund was only established in Q1 of this year.

Adjusted funds from operations were $1.9 million in the quarter, that compares with $3.6 million last year. However, net income net of noncontrolling interest increased over the prior year period to $2.3 million or $0.23 per share, up from $2 million or $0.21 per basic share. Importantly as well, both measures were up significantly from the first quarter.

Looking at the balance sheet. Total assets at quarter end were $266 million. That's down modestly from $276 million at year-end, explained mostly by a reduction in the carrying value of investments, which decreased to $220 million versus $247 million at year-end. That reflects both that Bill Gosling and Baylin repayments as well as the unrealized loss recognized year-to-date of the Solo investment and was partially offset by the initial advances made to Rokstad in Q2.

Cash and cash equivalents increased from $11.3 million at year-end to $26.5 million. Total equity decreased to $100 million or $10.43 per basic share compared with $104.9 million or $10.91 per basic share at the end of last year, and that primarily reflects the net loss reported in Q1 for both dividend payments and share repurchases in the year-to-date.

In addition to the dividend we paid during Q2, we declared another $0.15 per share dividend late yesterday, we pay it in August. While we've seen a modest net reduction in interest-generating assets since the end of 2018, we continue to have healthy cash flow to support our dividend, and we would expect to add new investments to the portfolio in the coming quarters, such that we expect the assets to increase from current levels.

I'd also note that we continue to have substantial capital available to fund opportunities as they arise. At quarter end, we had access to approximately $170 million for additional investments, which includes our working capital, over $103 million of committed capital available to Crown Partners Fund and Crown Power Fund from third parties, plus undrawn amounts available under each of our 2 credit facilities.

With that, I'm going to turn it back to Chris for some closing remarks.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [4]

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Well, thanks, Michael. Our outlook for the remainder of fiscal 2019 remains positive. On the special situation side, our pipeline is strengthening, and we're focused on originating significant new transactions. As part of our normal transaction flow, we expect to deepen our funding relationship with Concentra and add additional agency opportunities. On the Power Fund, we expect to onboard new partners and approve some projects as we build steady assets and infrastructure in this new fund. And with the foothold now in the data networking space, we will expand that future development in that end market.

With that, we look forward to updating you with our release of Q3 results in November. I will turn the call over to questions now, operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Brenna Phelan from Raymond James.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [2]

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So I just wanted to clarify. So you said you acquired all of the debt and equity of WireIE. Was that, the debt, consistent with the last kind of publicly available information of their previous debt holder?

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Michael John Overvelde, Crown Capital Partners Inc. - Senior VP & CFO [3]

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So there was 2 significant debt holders. So yes, that would be consistent with that. There were some additional advances they made. We talked to this -- it was Covington Capital and VentureLink were the 2 debt -- or Covington is basically the majority equity holder as well as lender and VentureLink was the convertible debt holder. We acquired all of that.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [4]

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For an amount that's nominal to you guys, so they kind of just walked away?

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Michael John Overvelde, Crown Capital Partners Inc. - Senior VP & CFO [5]

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Well, they earned it somewhat significant.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [6]

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Okay. So do you expect -- can you maybe give us some color on your visibility? And like what they were missing and what -- where you see the opportunity in this business and how you guys can help?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [7]

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Well, I can't really talk about them. But in terms of us, what we see is a very strong platform to originate recurring cash flows, right? Their business is contractual in nature. They build networks. They operate as a subcarrier mostly to the major Canadian telecommunications providers and earn 3-year, 5-year, maybe 7-year contracts with them. And we just find that the people's consumption of data is growing at such a rapid rate, and much of rural Canada is still underserviced in terms of high-speed connections that it's a very large growth industry.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [8]

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Okay. Great. And then any updates on PenEquity?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [9]

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Probably not a lot new from -- there's been a lot of progress, but the story is similar to what it was at the end of Q1. The company is looking to dispose of some properties, it has a significant property under contract, it can use to move towards closing with that, we will get caught up our arrears and remain highly supportive of the company and its efforts to do that.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [10]

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Okay. And then the pipeline you're seeing in the special situation fund is firming, it looks to be -- any specific areas of interest that you're pursuing?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [11]

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Yes. We actually are seeing both some infill opportunities inside the portfolio, like there's some good things happening in that -- in a number of them that we can upsize our loan to existing clients. And that's good to do, brings them up to bigger positions if we can. And then we -- the Rokstad deal is a large new loan, and we expect that one to get larger as well. That -- it's such a large growing market they're dealing with there, and so we remain very supportive of that one. And then we've just seen a bit of an uptick in the last couple of months in terms of just companies raising capital for one reason or another, and we've gotten through them in the process we're working on. So it's starting to feel a lot better than it did, say, 6 months ago.

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Operator [12]

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Your next question is from Marko Tesanovic from AltaCorp Capital.

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Marko Tesanovic, AltaCorp Capital Inc., Research Division - Associate of Institutional Research [13]

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Just filling in for Chris Murray. I'm hoping you could touch on the magnitude of recoveries in the power fund through the back half of the year and sort of just also touch on anything you would have to do to facilitate that.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [14]

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Okay. Right. So for me, first, this is an ongoing legal process. So I can't give you any specifics per se. When we made the provision in Q1, we made the point and continue to make the point we remain pretty confident that we're going to recover the money. The way accounting standards work, you couldn't call it technically a receivable. There is a receivable, but it's not the receivable in the sense you can record it, so we provided for it. So I think there was a fair bit of conservatism at least in the valuation census to what went through our results. As the month has gone on, so we're now several months down the road from that, we've got a lot firmer in terms of how the money is being -- is going to come back.

As I said in my remarks, I expect in Q3 to be able to tell you more about that. And whether or not that, from an accounting sense, becomes part of -- we can bring that back into earnings this year, it's up to so many different things, including the accounting standards that, I would say, won't necessarily parallel what I think things actually were. But as I said, by the end of Q3, we can give some reasonably good guidance as to what we expect to recover there.

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Operator [15]

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And your next question is from Jeff Fenwick of Cormark Securities.

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Jeffrey Michael Fenwick, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [16]

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Could we just revisit the WireIE news there? I wasn't exactly clear on what was going on there. So this was a business, it obviously has gone into distress, and this is why you took over the equity to protect your investment, is that what's going on?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [17]

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I wouldn't characterize it quite as such. It's not a business in distress. It's a growing business that has tremendous opportunity in front of it. It's -- the pipeline they have is massive. And just like our pipeline, our power fund is massive. It just is a very capital-intensive business and needs both operating capital support as well as build-out capital support. And it's public -- somewhat public information. I won't get into exactly what the previous owner was doing, but they were supporting the company continuously to grow the working capital.

And our view is, we're going to -- we already have done some level of realignment of expenses. And so it won't be back for us, and it's basically a cash-generative business for us going forward. But the main thing is, when we -- we like the long-term recurring nature of the cash flows. We want to be an owner as we've started evolving the business to a higher impact for earnings in power fund. We've looked at the other situation evolved in like the WireIE situation said, well, this feels somewhat similar in terms of cash flows, how do we get more impact there than just throw a coupon from the streaming facility? So when the opportunity opened up for a nominal amount now and then become a reasonably significant earnout payment, opened up just because the funds are kind of reach the end of life of the previous owners, we took that as an opportunity to take over the operation. And so we actually feel pretty bullish on the situation.

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Jeffrey Michael Fenwick, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [18]

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I mean I guess this raises the concern why I see you getting the equity for basically nothing, a great message. And I guess my concern is you mentioned it's capital-intensive. So are you confident that pipeline of their business is strong? That -- I think you have about $2.5 million you've committed as incremental funding to put in. Is that going to be enough to cover what's probably, I guess, a big working capital build in this bid process?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [19]

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Yes. So now that we own it, what we committed, it doesn't really matter. It's a question of what we choose to allocate to it. And our goal is, like, ideally Jeff, we get to $100 million, and we can turn it into a fund. If it stays in that $10 million, $20 million range, it's not a great fund for us. But -- so the goal is to grow it significantly and to move it into that structure where we can raise third-party funds and continue to own at Crown level direct equity in it.

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Jeffrey Michael Fenwick, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [20]

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And I guess it's going to end up getting consolidated onto your financials. Is that true? Or are you going to hold it as a fair valued investment?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [21]

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It's consolidated.

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Jeffrey Michael Fenwick, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [22]

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And maybe just an update -- sorry, your line was a little fuzzy there in your commentary. Could you update us on the outlook for the power fund? Any new developments there or opportunity to finance? I mean you're pretty -- I think you're pretty bullish on the opportunity. So anything of note recently that you're paying attention to?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [23]

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Yes. We are very bullish. The issue we've had, and that triggered the impairment, I believe, has set us 6 to 9 months behind. That's something that we had to resolve. And I think it's largely resolved at this point in time. But we continue to move other operators through and projects for existing operators. So we added 1 new pretty significant operator in Q2, I believe. They'll cover up much of the space left by the one we're exiting. And we've been cultivating and developing and building towards a couple very significant relationships in Western Canada, which the market remained focused on for a year now. And I'm hoping in Q3, we'll see some of that get announced that they'll be chunky entry points into that marketplace. So it's -- long term, it's still the same story. We've had to -- we're dealing with a new line of business here and unfortunately ended up with a bit of a difficult situation early on, and we're through that now, or largely through that now, and it's back to growth mode.

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Operator [24]

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Your next question is from Trevor Reynolds of Acumen.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [25]

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Just on the special sit side, you said you feel a little more confident on that side. Do you expect to be able to backfill the return on capital year-to-date? Just kind of a little bit update on that front.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [26]

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Yes. The return on capital is not a -- we're going to be through that pretty quickly. The -- so as we had the 3 loans repay. So it doesn't take a lot to build that back up. It's just -- can we grow it? Which I think, at this point in time, we feel pretty confident, we'll be growing the book by the end of the year.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [27]

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Good. And just on the power fund, I guess, where do you -- where does the deployment sit on that front? And I mean, obviously, you'd set some targets when you -- out the door when you first started things, and I'm just kind of curious where you sit on that front? Obviously, you had the one issue, but maybe just an update on that front.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [28]

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Yes. So in terms of what we've committed to, I don't have the number. I think it is what's being deployed, but it's around the $30 million mark in terms of projects. It was a bigger number before we had that issue with the operator because we had a number of their projects vetted and in the committed stage. So when you have the issue, it just came out. And so now it's -- we're working on the new -- working on the pipelines with the other guys and the new partner, and also these new groups too we're talking to. And so it's -- I'll have more information at Q3, so I don't want to give a number right now because it's -- some of that is -- the other ones coming are quite chunky and significantly change the amount of capital we're committing and deploying.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [29]

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Okay. And then you also mentioned previously that getting into Alberta was an opportunity there that...

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [30]

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Yes. Alberta is a great market because there's a couple of things. If you think about the cost of the distributed generation, it's -- you are capturing the value of high electricity prices, cheap gas prices. But in Alberta, it's real huge gas prices, and there's also very high transmission distribution charges in their electricity bills. So the fact you are on-site generation, you can, if you island a project, completely avoid the transmission distribution charges and get access to real cheap gas. So -- and additionally, Alberta has an open grid. So we could actually set things up that we can sell surplus power to the grid, which is something you can't do in Ontario.

So we've always seen that as -- it has quite big differences, though, so I don't want it make sound like it's just hey, that's all wonderful, and it's just better than Ontario. It just is different, but it has those opportunities I just mentioned. So we've structured things a little differently, hopefully, on the path to establishing long-term recurring cash flows and some ownership interest in the projects that we create.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [31]

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Okay. And is it just a matter of finding an operator then that you're comfortable with or...

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [32]

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Absolutely. So we've been in a sourcing mode of operators for over a year. And we've reviewed 6 or 7 different groups and a number of different projects, and it's just -- it's finding the right fit and the right structure and ideally, finding some more significant assets that can establish relationship with rather than just one project at a time.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [33]

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Okay. Perfect. So Q3, hopefully, you're in a little more on that front?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [34]

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Yes. I don't -- I'd say, we're getting kind of later stage. I'm hoping we'll be able to announce that if not Q3, it'd be before our next conference call.

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Trevor Reynolds, Acumen Capital Finance Partners Limited, Research Division - VP of Research & Equity Research Analyst [35]

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Okay. And then just lastly on the -- that $100 million that -- or I mean I guess just on the WireIE side of things, what sort of pace of deployment would you be hoping to see on that front?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [36]

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It's early days. Like it's -- I think we need to do is we need to -- as we move onto WireIE business, get integrated with that group, get things running as we'd like things to be running and then obviously match their capital requirements and build that one up and look for similar platforms as well. They keep coming back, I think we all are aware of how data is changing lives in our own personal uses and business uses. And that's even before the introduction of some 5G technology that's on the horizon. So a platform that services the data network and telecom space, I think, is really important. And we have a good one in WireIE. So it's just -- the question I can't answer right now, and it's just because it's a little too early to say, is to what extent can it develop into a material fund environment.

And that really is where Crown's business model takes flight, is when we can get fund that grows third-party money, not Crown money necessarily, that would possibly dilute the shareholders. This is money that's quite accretive because we earn management fees from third-party money. And then ultimately, what we're after to build long-term value for our shareholders is the equity components that we negotiate with these companies. WireIE is very significant. We own 100% of that company. With Power Funds, Crown owns directly 25%, and indirectly, the fund owns 25%. So there is -- that is really what our objectives are, it's just too early to say to what extent will it become a fund environment.

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Operator [37]

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Your next question is from Jaeme Gloyn from National Bank.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [38]

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First question, just wondering if you can give us an update, if there is any, on the Solo recovery amount? Previously -- I see it in this quarter right now, but is that a -- is that your -- see any potential upside to that as you continue to work through that loan?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [39]

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Yes. I think that's probably a real -- the $4 million is the likely conclusion. We've actually initiated a forensic review because they mentioned the [lost customer] fraud, and hopefully, the people we've hired will find some value in that. And -- but it's such a speculative process to say what can come out of that, I don't know. But in terms of what can be extracted from the state of Solo, that's it. Maybe marginally. Is that some money provided for expenses and stuff like that, that whether it will be relatively [not allowed].

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [40]

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Right. Okay. And as it relates to the Concentra relationship, is this a one-off event? Or do you see managing high-yield assets for credit unions or other investors as a potential longer-term strategy?

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [41]

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Yes. So this is not a high-yield asset. This is a very traditional senior loan that we've done for them. I don't think there's much appetite for at least the Concentra Bank and others like them we're talking to, to own a more risky kind of high-yield loans we do that made development of that opportunity. In other words, we're certainly going to remain open to that concept. But really, what we're seeing right now is, over the years, we're doing the second lien pieces traditionally, and the first lien loans we do, do, graduate it to more traditional finance structures as they go on. And so over the years, we've just seen a lot of potential, that valuable deal probably just sort of pass through our hands.

And for a couple of years now, we've been saying that we want to establish some senior debt capacity. Do we do that in our own fund? Do we do that in our own balance sheet? Or do we do that in an agency relationship? And ultimately, came to view at this time, it's really we're financially indifferent to doing it in the fund or doing it in an agency relationship, and it's a whole lot less brain damage to just do it as these agency relationships. There's groups such as Concentra, them specifically, we're talking about a much deeper portfolio relationship, and they want to grow their commercial loans book. There's many others in a very competitive banking road right now that are looking for access to any deal flow. I'll give you -- like for example, like the Rokstad deal we've taken on, we're first lien in that. As that come and grows, we see carbon outflow a senior piece and managing that as an agency relationship. In the past, that loan would just have been moved out to third-party bank, and we've said at -- in our credit agreement, we wouldn't have any conversation. Now we continue to manage that relationship, and we'll bring in our partners, these agency partners to do that. And not only is it, I think, better alignment than just a straight third-party bank, which does lower risk, it provides Crown with an opportunity to earn some additional fee income.

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Operator [42]

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Thank you. There are no further questions. You may proceed.

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Christopher Allen Johnson, Crown Capital Partners Inc. - CEO, President & Director [43]

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Okay. Well, I appreciate everybody's time this morning, and thanks for your questions. We're available as needed to do further follow-up. So again, thank you for your time.

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Operator [44]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.