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Edited Transcript of GLAD earnings conference call or presentation 15-Nov-18 1:30pm GMT

Q4 2018 Gladstone Capital Corp Earnings Call

MCLEAN Jan 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Gladstone Capital Corp earnings conference call or presentation Thursday, November 15, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David John Gladstone

Gladstone Capital Corporation - Chairman & CEO

* Erich Hellmold

Gladstone Land Corporation - Assistant General Counsel

* Nicole Schaltenbrand

Gladstone Capital Corporation - CFO and Treasurer

* Robert L. Marcotte

Gladstone Capital Corporation - Executive MD and President

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Conference Call Participants

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* Christopher Robert Testa

National Securities Corporation, Research Division - Equity Research Analyst

* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Gladstone Capital Fourth Quarter and Year-End Earnings Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to David Gladstone. Sir, you may begin.

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David John Gladstone, Gladstone Capital Corporation - Chairman & CEO [2]

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All right. Thank you, Chelsea. Nice introduction, and hello, everyone. This is David Gladstone, Chairman, and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Capital for the quarter ending and the fiscal year ending September 30, 2018. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and any potential shareholders. We welcome the opportunity to provide an update on our company and the investment portfolio.

We always start out with one of our lawyers, and here today is Assistant General Counsel, Erich Hellmold, and he'll make a statement regarding forward-looking statements. Erich?

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Erich Hellmold, Gladstone Land Corporation - Assistant General Counsel [3]

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Thanks. Good morning, everybody.

Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based upon our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our Forms 10-Q, 10-K and other documents that we file with the SEC. Those can be found on our website, www.gladstonecapital.com, specifically the Investor Relations page or on the SEC's website, www.sec.gov. We undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

Please take the opportunity to visit our website, www.gladstonecapital.com, and sign up for our e-mail notification service. We can also be found on Twitter at @GladstoneComps and Facebook, keyword: The Gladstone Companies.

Today's call is an overview of our results, so please review our press release and Form 10-K issued yesterday for more detailed information. Again, those can be found on the Investor Relations page of our website.

Now I'll turn it over to the President, Bob Marcotte.

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [4]

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Good morning, and thank you all for dialing in today. Let's get into the results for the last quarter in our portfolio performance and capital position, and I'll conclude with some comments on fiscal 2018 results and the outlook for fiscal 2019.

The highlights for the quarter ended September 30, 2018, include: originations were $10.7 million for the quarter, and we exited a syndicated loan position of $3.7 million. For the quarter, amortization payments exceeded line advances, resulting in a $1.2 million increase in net investments on the quarter excluding any appreciation or depreciation.

Cash interest income rose 2.1% on the quarter to $10.5 million. However, a peak income declined by $800,000 with the movement of our loan to FDF Energy to nonaccrual in the quarter, resulting in a 5.1% decline in total interest income.

Total investment income was $11.3 million, which is down $1.1 million from last quarter as a result of the reduced prepayment and success fees. For the quarter, the overall portfolio yield on our interest-bearing portfolio increased slightly to 11.9% and fee income lifted the annualized yield on the portfolio to 11.8%.

Net investment income fell 2% to $5.9 million or $0.21 per share as net management fees declined by $900,000 compared to the prior quarter with an increase in adviser incentive fee credits offsetting the decline in interest income. The net assets from operations declined by $9.9 million or $0.35 per share as a result of the $15.8 million of net portfolio depreciation on the quarter. Despite the results on the quarter, the return on equity for the trailing 4 quarters was 8%. The net asset value dropped $0.54 a share or 6.1% to $8.32 a share at September 30.

With respect to the portfolio, the asset mix on the quarter was largely unchanged given the modest originations and prepayments as secured first liens rose slightly to 51% of our investment portfolio at fair value as the proportion of second lien investments declined slightly.

We experienced several notable movements in the portfolio within the quarter. FDF Energy is one. The company experienced several customer losses over the summer unrelated to their operating performance, which combined with the cost of maintaining their aging truck fleet and retaining truck drivers triggered a liquidity event, which precipitated the company filing bankruptcy on September 29. The company continues to be profitable, and we're working with the sponsor and other senior creditors to restructure the company's debts and formulate an exit plan. The outlook for the company's last mile fracking material transportation service continues to be strong as does the demand for drilling -- their drilling fluid and cleaning services businesses. We took a significant markdown on our second lien exposure to FDF in the quarter, and we moved our residual position to the nonaccrual as of 9/30.

Sunshine is a legacy investment in the publications and marketing services sector, which had been on nonaccrual for some time. The company executed a significant rightsizing of its cost structure earlier in the year and has been able to stabilize the results. Last quarter, we completed the rightsizing of the company's legacy debt burden and realized the previously unrealized depreciation as part of the positioning of the company for eventual sale and exit.

Our nonaccrual investments increased this quarter with the addition of FDF, which partially -- which more than offset the restructuring of Sunshine. As a result of -- at 9/30, we had one nonperforming asset representing a cost of $26.9 million and fair value of $7.7 million or 2% of our portfolio value.

As a reminder, I wanted to outline that GLAD's typical proprietary investments often are initiated as senior secured investments, which provide us greater control at a lower leverage and risk profile. For example, GLAD's exposure to the top 5 credits in our portfolio increased slightly to $122.8 million or 31.5% of the total investment portfolio fair value. However, 4 of these first lien investments, which represent 81% of the total exposure, are first lien. Since the end of the quarter, we have closed 2 syndicated loan investments totaling $3.6 million and received the payoff of one syndicated investment in the amount of $3.1 million. As referenced previously, several of our investments are under contract to be sold or being marketed for sale, and we expect investment prepayments of approximately $20 million or more over the balance for the current quarter.

The current backlog of new proprietary investments slated to close in the near term is very strong and totals approximately $55 million. We expect these originations to comfortably outpace prepayments and should serve to support the continued growth of our net interest income in the coming quarters.

With respect to the fiscal year just ended September 30, for the year we just ended, we successfully increased the fair value of our portfolio by $38 million or 10.7%. We increased the weighted average yield on investments to 11.8% for the year despite the general spread compression and ended the year with nonearning assets of 2%. Our operating costs declined as a percentage of our average investments to just under 80 basis points from 90 basis points last year, and we maintained our annual shareholder distributions at $0.84 per share. In addition, we executed the amendment and extension of our bank facilities, significantly reducing our bank costs.

Over the past year, we've successfully improved our capital position through common stock issuance under ATM program. And as of September 30, our debt-to-equity stood at 69%, leaving us ample capacity to fund additional growth in net originations.

In addition, after the end of the quarter and in light of our current investment backlog, we issued $57.5 million of 5-year term debt at a yield of 6.125%. The proceeds of this offering will be used to repay a portion of the amount outstanding at a credit facility and to fund new investment opportunities while preserving a significant portion of our current $190 million bank line for additional investments over the balance of fiscal 2019.

With respect to the outlook for fiscal 2019, based on the current deal momentum, we are cautiously optimistic we'll be able to deliver net originations sufficient to offset any potential prepayments and lift our net investment income in addition to the benefit that any higher interest rates may generate. We're continuing to see accretive investment opportunities that fit within our growth-oriented lower middle-market business focus. We have a very strong track record, which comes -- we have a very strong track record, which also comes with a healthy level of follow-on investment opportunities as we have experienced in the prior quarters. While our Board approved -- while our Board approval to increase our permitted leverage will be effective in April 2019, we will not be in a position to act on it prior to the refunding of our existing preferred stock in September of 2019. Once completed, you should expect us -- to see us move to the 0.9 to 1.25 debt-to-equity range, which is intended to provide us the flexibility to be more competitive on senior secured assets that we originate in the marketplace while providing incremental cost efficiencies and enable us to improve the returns to our shareholders.

And now I would like to turn the call over to Nicole Schaltenbrand, the CFO of Gladstone Capital, to provide some details on the fund's financial results for the quarter and fiscal year 2018.

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Nicole Schaltenbrand, Gladstone Capital Corporation - CFO and Treasurer [5]

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Good morning, everyone. During the September quarter, total interest income declined by $600,000 or 5.1% over the prior quarter, driven mainly by FDF being placed on nonaccrual. The impact of FDF is partially offset by the 16 basis point increase in the average LIBOR rate. Aside from placing FDF on nonaccrual, the weighted average principal balance of our interest-bearing portfolio was largely unchanged since the prior quarter.

Other income declined in the absence of any significant repayments to $400,000 from $900,000 in the prior quarter.

Total expenses declined by $1 million to $5.4 million for the quarter. Total financing expenses were largely unchanged at $2.4 million on slightly lower average borrowings.

Net management and incentive fees declined by $900,000 as incentive fee credits rose by $800,000 to offset the decline in investment income. Other expenses were unchanged at roughly 75 basis points on average assets on the quarter.

For the quarter, net investment income was $5.9 million or $0.21 per share and covered 100% of our shareholder distributions.

Moving over to the balance sheet. As of the end of the year, we had approximately $400 million in total assets consisting of $390 million in investments at fair value and $10 million in cash and other assets. Liabilities declined slightly to $162 million and consisted primarily of approximately $110 million in borrowings on our credit facility and about $52 million of Series 2024 Term Preferred Stock at liquidation value.

Net assets declined by $7.9 million since the prior quarter-end with the $15.8 million of net realized and unrealized portfolio depreciation, which was partially offset by the $8 million of common equity raise under our ATM program. We issued 842,000 common shares at a weighted average price of $9.62 per share during the quarter.

NAV per share declined by $0.54 to $8.32 as of the end of the year compared to $8.86 as of June 30.

For all of fiscal year 2018, net assets are up 7.9% to $237 million. Looking forward, we continue to be well positioned to benefit from any upward movement in interest rates as 90% of the portfolio is tied to floating rate investments. The weighted average LIBOR floor on these assets is 1.4% and with floating rate assets of $355 million at principal and only $52 million of floating rate debt, which is pro forma for the recent note issuance and related repayment of our floating rate debt, a 100 basis point rise in LIBOR should generate an approximate 8% increase in net interest income.

Inclusive of the change in our net asset value of the past quarter, our leverage position improved slightly to 68% as of September 30. And we ended the quarter with $80 million of unused commitment under our line of credit. Our current unused commitment is approximately $138 million today.

And now, David will conclude the presentation.

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David John Gladstone, Gladstone Capital Corporation - Chairman & CEO [6]

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Well, thank you, Nicole and Bob and Erich. You all did a great job of informing our shareholders and analysts that are following the company.

And in summary, Gladstone Capital had a good quarter with the exception, of course, of the unfortunate development at FDF Energy. And while that company was pushed into protecting itself with a voluntary bankruptcy, they are looking to solve their problems, and I think we'll see something in the next quarter or 2.

The company is continuing to build its business of midsize business area focus, and I think this company is well positioned to grow over the balance of fiscal year 2019. Here are the things that I looked at this quarter: the fund closed $8 million in originations to support the growth of the existing investments and as they continue to grow and prosper. The company is executing on a good number of the new investment opportunities and if we're successful in those new investments, that will support a significant earnings growth over the balance of fiscal year 2019. The company raised a lot of long-term funding by selling its $57.5 million of notes. These are sometimes called bonds and this has substantially enhanced the diversification of the company's capital base with the attractive price rate notes that we sold. This helps the company mitigate some of the impact of the expected bad rate increase on the horizon. As you can imagine, it's always good to borrow some money at fixed rates when rates are going up. That sort of keeps us out of that problem.

Also, net investment income was $5.9 million, which fully covered the dividends for the quarter of $0.21 per share. I love those dividends as all of you do. Gladstone Capital has remained committed to paying shareholders cash dividends. And so in October, our Board of Directors declared a monthly distribution to our common shareholders of $0.07 per common share for the months of October, November and December, which is an annual run rate of $0.84 per share. Board will meet again in January to determine the monthly distributions of common -- to common shareholders for the following quarter, that's a quarter for January, February and March. Through the date of this call, the company has made 189 sequential monthly and some quarterly cash distributions to our common stockholders of almost $323 million worth of payments. The company has never missed a monthly cash distribution and the amount is about $11.32 per share for the shares outstanding as of September 30, 2018.

The current distribution rate of our common stock with a common stock price at about $9.23 yesterday, our distribution run rate now is about 9.1%, which continues to be an attractive return relative to the most yield-oriented alternatives that are out there today. Monthly distribution of 6% per year on the preferred stock, which translates to $1.50 annually and the term preferred stock trades under the ticker symbol GLADN and the closing price yesterday was $25.29. That provides a terrific yield based on the safety of that.

So in summary -- before we start some questions, in summary, the company sees an improving position in private businesses that are midsized with a good management team. Many of these are owned by midsized buyout funds that are looking for experienced partners like ours that can lend money and also lend in some forward-looking statements for those businesses. This gives us a chance to make an attractive interest-paying loan, which supports our ongoing commitments to pay cash distributions to shareholders. We have a strong team in place to capitalize on this market.

And operator, if you will come on now, we'll get some good questions from the folks out there that are listening to this presentation.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Christopher Testa with National Securities Corporation.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [2]

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Just to the expense ratable to disclose on Francis. How much debt is ahead of you given that you're the second lien debt in this investment?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [3]

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Chris, I think that's a matter of public record. Obviously, all that stuff's been filed so I think that's available out there. I don't want to get into the details of the company's private financings.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [4]

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Okay. No, that's fair. And is there -- the outcome -- I know David had mentioned that possibly something comes about in the next quarter or so. Are you guys anticipating potentially a debt-for-equity swap as the company kind of realigns itself and moves towards better profitability?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [5]

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Chris, I got to say when a company is in bankruptcy with multiple creditors in a dynamic market condition, anticipating the outcome of that is fraught with risk. I got to say that there will certainly be a lot of options on the table as to how to try to move that forward. I would not want to lock in a particular view. I think there is a likelihood that we would be equitized to some extent but ongoing negotiations and dynamics in that process really are something that I don't want to comment on because I know for certain that I will be wrong. So that is not something that I can reasonably predict or control.

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David John Gladstone, Gladstone Capital Corporation - Chairman & CEO [6]

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And also -- and Chris, you just don't want to discuss your position in a forum like this for the simple reason that obviously others who are involved in that transaction are on the phone or will listen to the playback. So I think we're going to get some positive feedback as the company had to really just protect itself by going into bankruptcy. There were too many people circling around, and I think it'll be a good resolution as we go forward.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [7]

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Okay, that's fair. And I understand the dynamics, but as you guys know, I got to be a little bit of a pain in the ass and try to get some information pertaining to it. So given that Francis was placed -- they went for bankruptcy like literally last day or second last day of the quarter, was interest accrued through the 9/30 quarter for Francis either in whole or in part?

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Nicole Schaltenbrand, Gladstone Capital Corporation - CFO and Treasurer [8]

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No. The nonaccrual effective date was July 1. So there was none...

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [9]

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Oh, July 1. Okay, got it. Okay, that's helpful. And Sunshine, obviously, congrats on exiting that. I know that had been on the books for quite some time. Was this sold in line with the previous quarter marks?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [10]

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To be clear, Chris, it is still in on our books. What we said we will be -- we restructured. So they had been laboring under an upside down capital structure for an extended period of time. And as part of aligning the capital structure with the earnings ability and providing appropriate incentive to the management team going forward in the form of equity, we realized the accumulated depreciation and essentially, it is now a very small investment on our portfolio. It is poised to grow. We have an incentive management team, and we are optimistic that we will find an exit on the -- in the not-too-distant future. But at this point, it's just basically been resized commensurate with the current earnings profile of the business.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [11]

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Okay, that's helpful, Bob. And I might have misheard this, sorry to make you to repeat this. I know that your Board approval for the reduced asset coverage becomes effective in April of '19, but you said something that you're not able to go above that until September of '19. Is that correct?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [12]

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Yes. As we've covered in the past, we have an outstanding preferred stock issue that has a separate and distinct leverage covenant. It does not modify with the revised regulatory change. So in order to increase our leverage above 1:1, we have to call that preferred stock out. That preferred stock was issued in 2017 in September and at a 2-year noncall. So the call date for that preferred is September 19, at which time we could refund that, eliminate the underlying covenant and take advantage of the increased asset level flexibility of the board approval. We will also have to modify our underlying bank covenants, but we've had every indication that, that will not be an issue given the current asset coverage those banks have and they've -- similar agents and banks are participants in our affiliated company, Gladstone Investment, which has already modified that because they were in the process of raising some capital. So we feel pretty clear that, that will be something we will address in the coming months, but it's the preferred stock that's the long pull on the issue to getting to a higher level of leverage.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [13]

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Got it. Okay, that makes sense. So the preferred could be called and then may be replaced with another preferred that allows the asset -- reduced asset coverage or perhaps another baby bond or something like that?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [14]

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Yes. The intent, by going into 2019, would be the added flexibility of the recently issued baby bond as it diversifies our sources and gives us more flexibility to address that call. We obviously have a very significant amount available under our current line and the asset collateral to support it. So there's a multitude of options that we will envision to exercise as we get closer to that call date.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [15]

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Got it. And, Bob, as you amend the credit facility for the reduced asset coverage, do you intend to upsize that facility as well?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [16]

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That's a good question. I think, currently, the availability net of the recently issued bond is well in excess of $100 million. So I think we have plenty of capacity. We will have to reassess that based upon available at the time. As you know, banks like to see utilization of commitments and they're also fairly expensive commitments if you're not using them. So we're going to be very judicious in increasing that line amount in light of the cost of doing so.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [17]

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Got it. Okay, that makes sense. And one more -- a couple of more for me, if I may. Just -- as you guys have discussed moving more towards maybe first lien and away from second lien as you take advantage of the reduced asset coverage, is this something where now as you're putting money to work and you know that it's going to be effective soon with calling the press that is it safe to say, what's going on the books today reflects what you'll be doing with the reduced asset coverage? Or you're just doing business as usual now and then move towards first lien when you actually are able to utilize that reduced asset coverage?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [18]

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I think as we've said in the past, we're not going to change the focus of the business just because the asset coverage test is moved. Today, as I mentioned earlier, the -- we typically see in the lower middle market unitranche first lien investment opportunities, which scale up and ultimately, we may bring in senior banks in front of us and go to a second lien position as the company matures and grows. So we're not doing anything different than we were doing before. We will continue to originate assets. They are accretive given our current cost of capital. As we get closer or in a position to take advantage of the revised asset coverage test, I think there will be 2 things to be focused on: one, what is our cost of capital at that time given prevailing interest rates and given the need to refund the preferred. Our cost of capital is going to obviously be changing. And two, I think it would be my intent that there are probably a few very attractive assets that we competitively were unable to win in the last couple of quarters. I think there'll be some situations where we will, given our cost of capital and the leverage at that time, potentially be a bit more constructive or competitive on. So the way I describe it is, we're not resetting our expectations today because we don't know what the cost of capital is going to look like the better part of 9 months from now, and we will address it then. Right now, we are continuing to originate assets that are accretive given our current costs of capital and our current leverage structure.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [19]

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Okay, got it. And that's very helpful, Bob. And just last one for me, if I may. Just a lot of peers in the sector have introduced a breakpoint in fees so that when you're going above 1:1, mathematically, the only way that, that shareholders will actually benefit from the increased balance sheet leverage is if base fees are scaled down on assets purchased over 1:1 debt-to-equity. Has -- this something -- is this something, excuse me, that has been discussed internally within the company?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [20]

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As I alluded, we're going to look at all the factors involved with moving the competitive profile of the business. I think I've been very clear that cost of capital, cost efficiencies and improving our competitive profile on certain senior-related investments and increasing the return to shareholders are all part of that (inaudible) I do view the opportunity to increase our leverage as something that will benefit the underlying shareholders and that will be a critical element of how we approach the capitalization and go-forward plan as we allot -- as we pursue it later in fiscal 2019.

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Operator [21]

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(Operator Instructions) Our next question comes from the line of Mickey Schleien with Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [22]

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We saw a pretty strong CPI number this morning. So at least to me, it seems certain that the Fed will raise rates again. So I want to ask you, when you take into account the industries and portfolio leverage was in the second lien portion of your portfolio, how do you think these borrowers will perform in terms of their cash flow as the Fed continues to raise rates, which I personally think could be another, perhaps, 100 basis points?

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [23]

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I think most of the second lien -- well, overall, our portfolio is focused on growth-oriented businesses. So when we look at the exposures, we're expecting the top line of these businesses to be growing. We also focus on fixed charge coverage very closely. And certainly, overall leverage is something that our banks are very mindful of given the asset coverage and collateral performance tests that they put on us. Without getting in specific industries, we very much focus on businesses that are not negatively affected by changes in interest rates. We don't tend to do things that are cyclical because, quite frankly, it's impossible to be able to predict what the top line of those business is going to look like if interest rates move. So we don't have a ton of industries that are either insensitive to interest rates. Now with respect to the actual cost of funds that these businesses are likely to experience, I mean, typically, we try to target deals and capital structures that can produce fixed charge coverage in the range of 1.5:1, which is certainly more than enough to cover 100 basis point move in interest rates. So as long as we stick to focusing on cash flow and fixed charge coverage, the magnitude of rate change that you're describing is not going to be significant. 100 basis points on existing second lien position, it's probably, if you use just round numbers, let's say, it's 2.25 LIBOR, and these are round spread of 10, you're 12.25. 100 basis points is not going to be a move that would trip or compromise that company's ability to service debt so long as we have fixed charge coverage I described. So I don't see that sensitivity, but I -- we can certainly follow up and have a discussion of any specific situations that you may want to inquire on.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [24]

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That's really helpful. I appreciate that. And just one follow-up, sort of a housekeeping question. What was the nature of the reduction of the paid-in capital account on the balance sheet? I couldn't really see anything in the K that explained that to me.

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [25]

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The paid-in capital account?

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Nicole Schaltenbrand, Gladstone Capital Corporation - CFO and Treasurer [26]

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Yes. Which account specifically are you referring to?

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [27]

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Within the equity portion of the balance sheet. I mean, if you want to talk about it off-line, that's fine. I just -- the value went down quarter-to-quarter, I didn't understand why, but that's okay. We can talk about it later.

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Robert L. Marcotte, Gladstone Capital Corporation - Executive MD and President [28]

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That's fine, we will follow up with you.

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Nicole Schaltenbrand, Gladstone Capital Corporation - CFO and Treasurer [29]

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Yes, I can follow up with you. It just relates to the expiration of certain capital loss carryforwards. But I can -- I'll give you -- or you can give me a call later or I could give you a call to follow up on that.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [30]

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So it was a reclassification? Okay.

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Nicole Schaltenbrand, Gladstone Capital Corporation - CFO and Treasurer [31]

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Yes, exactly.

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Operator [32]

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I'm not showing any further questions at this time. I'd now like to turn the call back to David Gladstone for closing remarks.

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David John Gladstone, Gladstone Capital Corporation - Chairman & CEO [33]

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Well, thank you all for calling in. We appreciate the time you gave us, and we'll see you next quarter. That's the end of this call.

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Operator [34]

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