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Edited Transcript of TCRD earnings conference call or presentation 8-May-20 1:30pm GMT

Q1 2020 THL Credit Inc Earnings Call

Boston May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of THL Credit Inc earnings conference call or presentation Friday, May 8, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Flynn

THL Credit, Inc. - CEO & Director

* James R. Fellows

THL Credit, Inc. - CIO, Co-Head of Tradable Credit and Portfolio Manager

* Sabrina Rusnak-Carlson

First Eagle Alternative Credit, LLC - General Counsel & Chief Compliance Officer

* Terrence William Olson

THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO

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Conference Call Participants

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* Leon G. Cooperman

Omega Advisors, Inc. - President, CEO & Chairman

* Paul Conrad Johnson

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

* Robert James Dodd

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

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Presentation

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Operator [1]

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Good morning, and welcome to the THL Credit, Inc.'s earnings conference call for its first fiscal quarter ended March 31, 2020. It is my pleasure to turn the call over to Sabrina Rusnak-Carlson of THL Credit, Inc. Ms. Rusnak-Carlson, you may begin. .

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Sabrina Rusnak-Carlson, First Eagle Alternative Credit, LLC - General Counsel & Chief Compliance Officer [2]

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Thank you, operator. Good morning, and thank you for joining us. With me today are Chris Flynn, our Chief Executive Officer; Jim Fellows, our Chief Investment Officer; and Terry Olson, our Chief Operating and Chief Financial Officer.

Before we begin, please note that the statements made on this call may constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended. Such statements reflect various assumptions by THL Credit concerning anticipated results that are not guarantees of future performance and are subject to known and unknown certainties and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are, in some ways, beyond management's control and include the factors entitled Risk Factors in our most recent annual report on Form 10-K as updated by our quarterly report on Form 10-Q and our periodic and other filings with the Securities and Exchange Commission.

Although we believe that the assumptions on which any forward-looking statements are based on are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. You should not place undue reliance on these forward-looking statements. THL Credit undertakes no duty to update any of these forward-looking statements made herein. All forward-looking statements speak only as of the date of this call. Our earnings announcement and 10-Q were released yesterday afternoon, copies of which can be found on our website along with the Q1 earnings presentation that we may refer to during this call. A webcast replay of this call will be available until May 18, 2020, starting approximately 2 hours after we conclude this morning. To access the replay, please visit our website at www.thlcreditbdc.com.

With that, I'll turn the call over to Chris.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [3]

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Thanks, Sabrina, and good morning, everyone.

First, let me say, we hope you and your families are safe and healthy during these challenging and unprecedented times.

On March -- I'm sorry, on April 20, we issued a letter to stockholders providing a business update, including the recent $30 million stock issuance. Since then, we have filed our proxy for our special meeting on May 28. On today's call, we will expand on some of these topics discussed in the letter and our proxy. First, I'll provide an update on our response to COVID-19, some high-level financial results for the quarter and then recent business updates. Jim will provide some additional color on the market and how we're managing the portfolio and Terry will discuss our financial results and portfolio in more detail.

Our first priority during this pandemic has been the health and safety of our people. I could not be more proud by the way our team seamlessly transitioned to working remotely beginning back in mid-March. Our robust technology infrastructure has made it possible for 100% of our firm to work productively from home, and our business has been able to operate with minimal disruption. The team continues to effectively manage all aspects of our business, including TCRD, and we are already benefiting from the scale and resources of a larger First Eagle asset management platform. While there is no certainty in how long current conditions will persist or what shape the rebound will take, we are confident in the experience and capabilities of our team and the support of our infrastructure to continue to manage the approximately $23 billion in credit assets we have under management. The breadth and scale of our platform at First Eagle positions us to steer beyond these challenging times and continue to support our investors.

Moving on to discussions of the highlights for the first quarter. NAV for the quarter declined to $5.22 per share. While this decline is significant, approximately half of this is related to our Logan joint venture, which value is driven by loan prices in the broadly syndicated market. As a reminder, we are running 2 distinct portfolios in TCRD. One, a direct lending portfolio held directly on the balance sheet; and two, a highly diversified portfolio, primarily broadly syndicated senior secured loans held off-balance sheet in the Logan joint venture. The Logan joint venture had total assets of [$290 million] (corrected by company after the call), with loans to over 128 unique issuers as of March 31, 2020, and represents the single largest investment on our balance sheet with our equity valued at $46 million as of March 31, 2020. The broadly syndicated market experienced unprecedented volatility since early March, but has rebounded quite meaningfully in recent weeks, as Jim will discuss shortly. This reflected somewhat in our NAV increase of $5.34 per share as of April 13 -- I'm sorry, April 15, that was recently reported in connection with a $30 million equity infusion. We have been actively managing this portfolio and have opportunistically traded out of select names to reduce leverage. We remain in compliance of the Logan joint venture credit facility and do not anticipate any restrictions as it relates to our ability to continue to pay a dividend on TCRD's equity position in the Logan joint venture.

The remaining NAV reductions relate primarily to assets held on our balance sheet and the increased credit risk associated with COVID-19. Unrelated to COVID-19, OEM was our largest write-down for the quarter at $0.30 per share, and our holdings were put on nonaccrual status. We also took a $0.14 write-down on Allied Wireline to put that loan on nonaccrual ahead of the restructuring of the credit, which has been significantly impacted by the drop in oil prices. We're optimistic for the longer-term prospects of the Allied business.

I'd like to provide some additional color on OEM. OEM continues to feel pressure from customer delays in Q1 that impacted liquidity. The company has responded with prudent cost-cutting initiatives and remains active in assessing strategic alternatives to monetize certain business units and technology that is enhanced in recent quarters. Net investment income for the third quarter was $0.09 a share or $0.10 for onetime adjustments associated with downsizing and amending our credit facility. The decline quarter-to-quarter is primarily due to OEM and Allied Wireline going on nonaccrual.

As highlighted in our last earnings call, we expect to take more aggressive actions to exit our legacy investments like OEM. As a result, these markdowns and the credits in the portfolio do not support the current dividend level. Accordingly, the Board of Directors has reduced -- the Board of Directors has approved a reduction of our dividend to $0.10 per share for Q2 2020. While we believe this dividend level appropriately reflects the current earning powers of our portfolio, we will continue to evaluate the dividend each quarter in light of COVID-19.

Next, I'd like to highlight the amendment to TCRD syndicated credit facility by ING. TCRD was modestly levered compared to many other BDCs at about 0.7 to 0.8x going into the COVID crisis. We were able to successfully reset covenants to us and with the needed headroom to run our business and continue to pay a cash dividend. From a liquidity perspective, the balance sheet of TCRD is well positioned with cash and credit facility availability. We have been conservative in providing undrawn capital commitments to borrowers. Given the uncertainty in any market, many of our issuers in our portfolio did draw under the revolvers. TCRD has been and continues to be well capitalized to meet these obligations.

Finally, I want to highlight the $30 million equity offering that closed in April. As noted in our press release and shareholder release on April 20, First Eagle and the former owners of THL Credit Advisers purchased $30 million worth of newly issued shares from TCRD at NAV. On a pro forma basis, such first has now collectively owned approximately 20% of TCRD's outstanding stock. TCRD intends to use these proceeds to tender for shares if and when the shareholders approve the management contract at the upcoming special meeting scheduled for May 28. The advisers also agreed to waive the management fee and incentive fees for both the third and fourth quarter of 2020 and the first quarter of 2021, also subject to shareholder approval in the management contract.

The fee waivers are intended to provide support to TCRD's journey these unprecedented times, and we are pleased to be able to given the size and scale of the First Eagle platform.

I will now turn the call over to Jim Fellows to discuss what we are seeing in the broader market and how we're managing our portfolio through the pandemic.

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James R. Fellows, THL Credit, Inc. - CIO, Co-Head of Tradable Credit and Portfolio Manager [4]

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Thanks, Chris, and good morning, everyone.

The first quarter was the worst that the syndicated loan market has seen since the 2008 financial crisis with the broadly syndicated loan market falling roughly 12.5%. The Logan JV is directly correlated to these prices and its portfolio was marked down accordingly in Q1, contributing to nearly half the total portfolio markdown for the quarter. We've seen improved conditions in the liquid market since then as prices have rebounded to some extent. This is largely determined based off ratings and liquidity of the underlying loans.

Next, I will talk a bit about how we are managing the portfolio in light of COVID-19. We have been in regular dialogue with our sponsors and borrowers since the start of the pandemic earlier this year. We've implemented a tiering system for all of our credits based on a scale of 1 through 3, largely determined by the amount of direct exposure these credits have to the virus. Our primary focus now is on managing liquidity and working with our sponsors to extend duration for these investments that need it. To the extent relief is required in the form of interest or amortization deferral, we expect to be appropriately compensated. We believe now more than ever that having a portfolio that is predominantly first lien loans will be crucial and -- to managing through this crisis.

With that, I'll turn the phone over to Terry.

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [5]

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Thanks, Jim, and good morning, everyone.

For some portfolio highlights, as of March 31, our portfolio of $384 million was invested 75% on senior secured debt and 15% in the Logan JV. As a reminder, the Logan JV is 98% invested in first lien assets, the remaining 10% of the portfolio was held in second lien and other income-producing equity holdings. Weighted average yield on the debt and income-producing portfolio, including Logan, decreased to 6.8%. The decline quarter-over-quarter is primarily a result of adding the new nonaccruals, which as of quarter end, on a cost basis, increased from 14% of the portfolio to 21%. Loadmaster and Holland were the only other company in addition to OEM and Allied on nonaccrual at 3/31.

Moving to the financials for the [first] (corrected by company after the call) quarter and looking at some of the components of our $7.9 million of investment income. Interest income represented $4.7 million, a decrease related to the nonaccruals. The dividend income was basically flat quarter-over-quarter at $3 million, comprised of $2.3 million from Logan and about $700,000 from C&K. On the expense side, total expenses for the quarter were flat at $5.2 million, but Q1 did include a onetime charge of $318,000 related to the acceleration of the amortization of certain deferred financing costs in connection with the amendment of our credit facility. From a leverage and liquidity perspective, leverage levels increased to 1.25x as of March 31 due to the sizable markdowns in the portfolio. As part of the credit facility amendment that Chris mentioned, we increased our leverage capacity to 1.55x or 165% asset coverage ratio, reduced the net worth test from $175 million to $140 million; and downsized our facility from $150 million to $120 million in exchange for a 25 basis point rate increase to L+ 275. We believe that the smaller or slightly higher-priced facility provides us more flexibility with the structure, and leave it for the adequate cushion to manage through the COVID-19 crisis.

We saw an uptick in revolver draws in March and April. TCRD had $22 million of cash on the balance sheet at March 31, largely as a result of selling our broadly syndicated holdings purchased in December and late February. We currently have remaining unfunded commitments of around $8 million and are well positioned, from a liquidity standpoint, to fund these commitments, if necessary.

And with that, I'll turn the call back to Chris.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [6]

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Thanks, Terry.

While we've made progress on our strategy, there has been pain as a result of the unanticipated health and economic crisis. Nonetheless, we remain committed to continue this portfolio repositioning. We have diversified our book over the past 2 years in sponsored back first lien positions and remain well positioned to manage the portfolio going forward with good liquidity in the market. We have made all of our decisions with TCRD and the stockholders best interest in mind, and we believe longer-term commitment to TCRD is evident in the financial support in the form of non-dilutive equity contributions, fee waivers and a commitment to a sizable and accretive tender offer.

We believe a vote on May 28 in favor of the contract renewals is in the best interest of the shareholders, and we look forward to a favorable outcome so we can complete the execution of the strategic plan we laid out 2 years ago now inside the First Eagle platform.

With that, I'll turn the call over to the operator 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 Lee Cooperman of Omega Family Office.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [2]

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What was the FFO -- I hope you're safe and healthy. What was the FFO in the quarter? I think you had a chance to read the release yet?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [3]

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That's okay. You're saying free cash flow from operations, Lee?

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [4]

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Yes.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [5]

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Yes. It was $0.10 a share, excluding the fee that we paid to amend the credit facility.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [6]

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Okay. And if -- in the future, when you're paying the new owner -- new operator a full fee, what would that reduce the FFO on a quarterly basis? A few pennies in the quarter?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [7]

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No. That is a fully loaded number. Going forward, as the contract is approved, we would add $0.03 a share. So you're being paid. That $0.10 was -- included a management fee. It's (inaudible) Q4

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [8]

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I see. That was already included okay.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [9]

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That's included.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [10]

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Okay. Explain to me, I haven't read the document yet. But the -- if the approve -- if the deal with First Eagle was approved, what is the cost of terminating them? And how long do they have the contract for before they could be terminated?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [11]

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Yes. I'll answer that. And Sabrina, our General Counsel, will correct me if I'm wrong, but there's no breakage fee associated with the contract being terminated. If the contract is approved, I believe there's a 2-year window before we would be up for renewal. At the end of that 2-year window, though, again, there's no breakage fee, if that's what you're implying.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [12]

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Got you. Okay. So the $0.10 is after accruing a fee that we're not paying. So the actual cash FFO was $0.13?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [13]

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Excluding the management fee, it would have been $0.13, yes.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [14]

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Right, right, which is being excluded until the end of the first quarter of next year?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [15]

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It is. Yes. So again, all things being equal, without a management fee in Q3 and Q4, you would have been at $0.13 a share.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [16]

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Right, right. And...

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [17]

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One of the things, Lee, is with OEM as our largest position, we put that on nonaccrual because it's a -- it was important for us to make the determination that we need to preserve NAV. As you've said and as we've recognized, there's been too much NAV deterioration in the portfolio. We need to take some capital, reinvest back into the business to ensure some more NAV stability. We've taken cost-cutting measures in the business. We've invested in a lot of good technology. We've got some very, very good discussions with strategic partners that we think can create a situation or a solution where -- sometime in the future, there's a chance it can come back on. But right now, just given the size and scale of the position, felt it prudent to put it on nonaccrual to ensure -- or to take steps necessary to minimize any further any NAV deterioration.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [18]

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What is the size of the OEM commitment?

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [19]

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Lee, this is Terry. It's valued at around $29 million.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [20]

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And what is their business?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [21]

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It's in the semiconductor space, it makes wafers that -- for end markets that -- think of 5G products. The business has felt -- it's got a good technology, it just has -- it just doesn't have a size and scale for distribution. And you need both, right? We can make a really, really good product, but if we can't sell it, if we can't push it to the channel, that's where we're having issues on the revenue side. That's one of the main focuses are right now, for us to find a good strategic partner to monetize that technology that we've invested over the last 2 years.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [22]

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Right. The -- do you have a qualitative view whether you think the $5.22 NAV at the end of the first quarter was the bottom of the cycle? Or you just don't know, you don't have a view?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [23]

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It's difficult to say, Lee, just given the uncertainty when the economy is going to come back. You'll see from 3/31 at $5.22, the Logan portfolio moved up almost $0.12 a share. So the NAV that we actually purchased the $30 million of stock was $5.34. The loan market continues to stabilize. So we feel good about that. And again, that was almost half of our NAV deterioration was associated with Logan.

The good news is we've repositioned the portfolio. It's 90% first lien, including Logan. So we are at the top of the capital structure. We have managed liquidity and are trying to extend duration on all of our portfolio companies until the economy turns back on.

So listen, if the economy turns back on quickly, and I'm not suggesting that's going to happen, but if it would turn on quickly, I feel pretty good. But if this is -- turns out to be a protracted cycle where you could see further deterioration. I don't think we're unique to that. I think that would be across all asset managers if the economy does not turn on soon. There's going to be continued pressure on assets.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [24]

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And then tell me a little bit about the Allied Wire commitment and exactly what they do.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [25]

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Allied Wireline's in the oil and gas industry. As you can imagine, tremendous pressure in that portfolio. We're a small investor in a fairly large business. The decision was made to convert our debt into equity. That process is ongoing. Once it's done, we'll own a combination of a small debt security, a preferred equity security in the business. There is a chance, when oil comes back, that this can go back on an earning status. But right now, given oil prices and demand for the company's services, it's fairly low.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [26]

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All right. There's one other question that escapes me. Oh, yes. You keep talking about tender offers. Is that a commitment that you've already made, that you are going to do a tender offer? Or is it a chance that you might go a different route?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [27]

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No, I appreciate the question. So we've raised $30 million, specifically earmarked to do a tender. We're continuing to have discussions with our Board and with advisers on the best way to execute that.

There's 2 different right ways we can move forward. You could do a Dutch auction. We could do a fixed price. We may end up staging it over time, depending on the stock price and current market conditions, but the $30 million is highlighted as -- was raised -- is...

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [28]

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Well, my point is you keep talking tender offer, but it may not be tender offer. Maybe just open market purchases, and it may be over an extended period of time. That decision has not yet been made.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [29]

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Right. I mean, the money has been raised to do a tender. It's subject to the contract being approved. But once the contract is approved, we plan on outlining, at a minimum, step 1 and what the tender will be.

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Operator [30]

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Our next question comes from Robert Dodd of Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [31]

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Can you talk a little bit about capital allocation? If the pandemic hadn't happened, we know kind of where you wanted to allocate capital. First lien loans, et cetera, et cetera. Obviously, now OEMs or nonaccruals, for example, they may have more capital needs, which potentially could improve an ultimate recovery. But what's your appetite to put potentially more liquidity into some of these already markdown stocking positions to kind of maximize the long-term recovery versus trying to minimize that segment in the portfolio? I mean, how is that going to be balanced over the next, call it, 3, 6, 9 months?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [32]

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Yes. Robert, it's a great question. We appreciate it. So maybe to step back and expand a little bit on what Jim covered. So when we stepped into the pandemic, we, along with many other asset managers, try to start to score or weight our portfolios into categories Tier 1, 2 and 3 on who had the most exposure or the direct impact.

The second part that we've done now is dive back into these businesses to try to evaluate which companies will come back sooner when the economy opens back up. And we're ranking those. So my -- our focus right now is extending the duration and managing the liquidity. And in the terms to the extent there is incremental capital needed to bridge that gap, we're going to start with the business that we think are going to be going to come back because we think those will be good investments.

The good news is we're primarily a sponsor-backed portfolio. Most of the conversations we've had have been in and have taken good partnership with the sponsors. So to the extent there is a solution needed, we're optimistic that it'll be something that we'll work on and do together. In a downside scenario, if the sponsor is not willing to step in and we have to provide that liquidity, as Jim said, we'll be compensated for that. And if we have to run the businesses, we will.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [33]

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Okay. I appreciate that. And the sponsor question was the follow-up, so you already answered that as well. So guys, stay healthy.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [34]

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Thanks, Robert.

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Operator [35]

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Our next question comes from Paul Johnson of KBW.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [36]

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My first question was around the credit facility. I believe you have about $38 million of available capacity undrawn. Is that fully drawable today? Or is any of that subject to sort of any borrower base restrictions?

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [37]

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This is -- Paul, Terry Olson. Can't draw the full amount today. Don't have an expectation of drawing more in the near future given the cash levels we are like running on the balance sheet today. But it is subject to borrowing-based governors.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [38]

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Paul, the only thing I'd add to that, if you look at our unfunded commitments, be it revolver draws or our delayed draw term loans, the amount that's not funded on our balance sheet is less than $10 million. And today, Terry, we're sitting on, what, $22 million of cash?

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [39]

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Well, a little less than $20 million. Just that.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [40]

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About $20 million of cash. So we do not have a liquidity issue as it relates to our need to access that revolver.

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [41]

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But Paul, let me just clarify something. We do have sufficient borrowing base to draw the whole amount. We wouldn't draw to that level of utilization under the existing facility. One, we don't want to wind it that tight. And two, we don't have a capital need to do that. Just let me say that another way. Apologies.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [42]

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Yes. The leverage is -- again, I think leverage is important because you're seeing certain managers get offsides a bit either with their manager or overextended on unfunded commitments. We manage a lot of leveraged vehicles, not just TCRD, and I think we've been very, very prudent. You've seen that and the fact that we stayed onsides with ING. We're able to get an amendment done where we can continue to pay a cash dividend. We've been able to manage our Logan facility aggressively to manage leverage there. So while we don't like the volatility in the market, we do have a tremendous amount of experience across the platform, managing levered vehicles. And from that standpoint, we feel like we've got a very, very, very good team in place, namely with Jim Fellows as our CIO.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [43]

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Okay. And my second question was around the dividend. I'm just hoping to get an understanding of what the policy is going forward. Obviously, earnings are still a little bit uncertain at this point, you guys have higher nonaccruals. How are you looking to set that? Is that something that can fluctuate going forward? Or are you looking to potentially hold the dividend where you've set it today? What are your thoughts around that?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [44]

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Yes. Listen, we've come into this pandemic wanting to be conservative. Obviously, we took a steep discount, our cut to the dividend is at $0.10. All things being equal in a pretty bad quarter, we earned that $0.10 and that's what we paid out. We've got some incremental cushion going forward with the management fee waivers that add about $0.03 per share.

But we're no different than anybody else with a fixed income portfolio of levered borrowers. As the pandemic continues for an extended period of time, there could be incremental pressure. We don't have a crystal ball on that asset, so that's why we made the commentary that we'll continue to manage it quarter-to-quarter. It was another part of the decision in moving OEM to nonaccrual. Again, no one likes that. We prefer to be in a position where that wasn't the situation. But again, as we try to signal to the market where our earnings power is, we're doing this and generating that $0.10 with our single largest investment not being paid on an earning or a current basis.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [45]

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Okay. That's very good detail. And then on the JV. Obviously, that was marked down fairly heavily this quarter. I'm just curious, was the markdown in the JV, was that entirely due to the market credit spreads-related adjustments? Or were there any credit issues in there? I think there was 1 nonaccrual this quarter, there was a couple last quarter. Just any kind of commentary on the credit quality in there would be great.

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Terrence William Olson, THL Credit, Inc. - Assistant Secretary, Treasurer, CFO & COO [46]

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Yes. This is Terry, Paul. Appreciate that. I think there's only 2 loans on nonaccrual, very minor positions. I think 85-ish percent of that portfolio is tied to what I'll call the more broadly syndicated or more syndicated side of the market, which took a much heavier hit this quarter. So I would say it's more market-driven across that portfolio than anything credit-related big picture.

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Paul Conrad Johnson, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [47]

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Okay. And lastly, you guys mentioned that you're already seeing benefits from the First Eagle platform today. I'm just curious if you could talk about what those benefits are so far?

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [48]

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Yes, sure. Thanks, Paul. I appreciate that question.

So the good news is when we announced the transaction in December, we were able to close very quickly in January. We did a tremendous amount of work upfront, so we knew the exact team that we wanted to put on the field going forward. We're probably slightly overstaffed after that process was done, which, quite frankly, given where we are today, is a positive. So we feel good about the team, and we feel good about the experience.

One of the benefits though of being part of the larger asset manager is, to the extent there is issues, we have the size and scale to continue to invest in the team. So I spent a lot of time, Jim has spent a lot of time talking to the folks that are managing these individual portfolios. So to the extent we need to beef up teams that have experience and work out their restructurings, we have a large enough out in the balance sheet and income statement to add those resources. You know much smaller platforms, unfortunately, won't be able to make those same investments as you see potential pressure on management fees or carry income.

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Operator [49]

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I would now like to turn the conference back to Chris Flynn.

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Christopher J. Flynn, THL Credit, Inc. - CEO & Director [50]

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Perfect. Thank you all for joining our quarterly update this morning. I hope you're all leaving this call with a better sense of the meaningful progress we've made in executing our strategic initiatives while also working to navigate our portfolios and the economic consequences of this health crisis.

I hope you and your families remain healthy and safe as we navigate these unprecedented times. And by the next earnings call, we will be well on our way to the return to the normalcy. Thanks again.

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Operator [51]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may all disconnect.