Good afternoon, ladies and gentlemen and welcome to the Kohlberg Capital Corporation third quarter 2008 earnings conference call. This call is being recorded. Currently, all lines are in a listen-only mode and we will have a question-and-answer session following the presentation. At this time, for opening remarks and introductions, I would now like to turn the call over to Ms. Jody Burfening. Please go ahead, ma’am.

Thank you operator. Good afternoon, everyone. This is Jody Burfening of Lippert Heilshorn & Associates. Thank you for joining this afternoon to discuss Kohlberg Capital's third quarter 2008 results. Joining me on the call are Chris Lacovara, Chairman; Dayl Pearson, President and Chief Executive Officer; and Michael Wirth, Chief Financial Officer. The company issued its third quarter earnings release earlier today. The copy is available in the Investor Relations section of the company’s website at www.kohlbergcapital.com. Before turning the call over to management, I would like to remind everyone that certain statements made during this conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kohlberg Capital believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks such as those described in the Risk Factors section of the company’s 10-K and sections of Form 10-Q and other SEC documents filed during the course of the year could cause actual results to differ materially from expectations. Kohlberg Capital undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required to report it under the rules and regulations of the Security and Exchange Commission. With that I would now like to turn the call over to Chris. Good afternoon, Chris.

Thank you, Jody, and thank you all for joining Kohlberg Capital for a review of our third quarter financial results. I will open the call with some general comments about the financial performance of our middle market lending and asset management businesses in the context of the ongoing volatility of the credit markets. I will then turn the call over to Dayl Pearson, our Chief Executive Officer who will discuss our investment portfolio in more detail. After that, our Chief Financial Officer, Mike Wirth, will provide a recap of our third quarter financial results and performance. We will then open the line up for your questions at the end of the call. For the company’s third fiscal quarter ended September 30, net investment income per common share was $0.35 versus $0.38 per share for the second quarter. Kohlberg Capital declared and paid in cash a dividend for the third quarter of $0.35 per share compared to our second quarter dividend of $0.41 per share. Net asset value per share was $12.97 at September 30 as compared to $13.14 as of June 30. Net investment income and dividend per share for the nine-month period were $1.20 and $1.17 per share respectively. As these figures indicate, we continue to maintain our core strategy of funding 100% of our dividend with net investment income without a return of capital. However, the slight decrease in our third quarter dividend as compared to the prior quarter is indicative of several challenges facing our company and the BDC sector in general, as a result of current market conditions. First, with our stock currently trading at a substantial discount to our net asset value, it is not possible or advisable to raise new equity capital which could otherwise be invested at what are currently very attractive interest…

Thank you, Chris. I’ll start with some highlights of the quarter and then review our portfolio of loan and equity in more detail. Net asset value on a dollar basis was $276.5 million or $12.91 per share at the end of the quarter, down from $279 million or $13.14 per share at the end of the last quarter. Compared to the year ending 2007, net asset value on a dollar basis is $17.5 million higher, primarily due to our rights offering in May which raised approximately $27 million net proceeds, and offset by unrealized mark-to-market losses of approximately $11.8 million. As with most BDCs and other financial sector stocks, our stock price continues to trade at significant discount to our NAV. These relatively low valuations represent an overall concern about credit quality in recession. Our policy of being the most diversified BDC (inaudible) industry, as well as being very focused on the most senior part of the capital structure, i.e., first lien loans were designed with this environment in mind. We believe diversity and focusing on less cyclical industries will benefit us in the current environment. We ended the quarter with total assets of $581 million, an increase of $48.1 million over the second quarter, as we increased our loan portfolio on cash balances with additional leverage. Total investments reached $525.8 million, an increase of $19.4 million from last quarter’s $506.4 million. We made a few new investments in the quarter including one add-on mezzanine loan at a very attractive yield and some secondary market investments. Net realized losses increased by approximately $2.5 million during the quarter. This consists of approximately $6.1 million net decrease in the value of corporate securities and equities, despite the fact that portfolio companies continued to amortized loans at par, and this was offset by…

Thank you, Dayl. Good afternoon everyone. Starting with our income statement, we reported total investment income of $11.3 million compared to $10.5 million in the year ago period. This increase reflects increased dividends from our CLO equity investments and $1 million dividend payment from Katonah Debt Advisors, our wholly-owned asset management company, which was offset in part by lower interest income from debt securities relative to the same quarter of last year. Higher total investment income and lower expenses resulted in an increase in net investment income for the third quarter of this year to $7.5 million or $0.35 a share compared to $6.1 million or $0.34 per share in the third quarter of last year. Relative to our second quarter, total investment income decreased approximately $937,000 or 7.6% in the third quarter. Such decline from second quarter to the third quarter is primarily as a result of decreased spreads on CLO fund securities due to the timing and level of the resetting of the benchmark interest rate for the underlying assets in each CLO fund, and the related CLO fund to both liabilities. Quantitatively, in the second quarter, our CLO fund investments earned approximately $4.6 million as compared to $2.2 million in the third quarter. The difference in quality performance is not due to any credit issues in the CLO funds, but due to wider net spreads earned on the CLO funds in the second quarter relative to the third quarter. The mechanics of these resets are as follows; the sale of funds liability interest rate is reset based on the three-month LIBOR each quarterly distribution date. However, the underlying assets in this CLO fund are set at various points throughout the quarter depending on the contractual reset date of each loan. Further complicating on that spread calculation, generally,…

Thank you. (Operator instructions) And we’ll take our first question from Greg Mason with Stifel Nicolaus. Greg Mason – Stifel Nicolaus: Good afternoon. First, could you talk a little bit more on your credit facility and what the impact was and why you guys are – how about your liquidity on your balance sheet that you don’t think it’s going to be a problem paying off the credit facility?

Well, I think that – first of all, as Mike said, there is no required pay-down of the facility other than that as loans that are pledged as collateral repays, that cash goes to the facility. So there is no scheduled amortization other than the termination date two years from today. What we do need to do is just make sure that we are managing cash because interest collected on loans pledged in the facility will also be swept, but based on the amount of assets we actually have outside the facility plus cash on hand, we don’t think that will a problem. But we really want to emphasize that there is no required amortization schedule. It’s simply as principal of loans pledged to facility comes – is repaid, that cash goes to the facility where it would otherwise go to us for reinvestment. Greg Mason – Stifel Nicolaus: So, should you think this puts the stock buyback option off the table now, given this facility?

No. We knew about this. We had made this decision not to accept the more onerous terms before the stock buyback. Candidly, the stock buyback approved is small enough that it really doesn’t compete for liquidity with the required terms of the loan.

And, Greg, we are continuing to have discussions with the two lenders about extending the facility, and we’re going through negotiations right now in terms of potential interest rates and other changes to the structure, so we’re continuing to have our ongoing discussions about that.

Yes. To answer the first part of your question which is key to understanding the decision that the company made, they were absolutely willing to extend or to continue for the full five-year term but they wanted to reprice the entire line today, increasing the interest rate by 200 basis points. And so, in many ways, the lenders themselves recommended that we allow ourselves to go into amortization. And at some point, if the credit market conditions improve over the next two years, it will be much easier to refinance or reset the facility without having to take the much higher interest that would be available to us in the current market.

It’s important to know that again, that it was a repricing issue and not because there were any covenants defaults or any credit issues. It was just a matter of the liquidity providers wanting to reprice the facility. Greg Mason – Stifel Nicolaus: Okay, great. And then moving on CLO equity. The marks went up to nearly $60 million this quarter from $56.8 last quarter. Was that write-up in values or did you add new CLO investments during the quarter?

The fair values for the CLOs were actually written up. There was no new incremental increase in our purchases of CLO securities during the quarter. Greg Mason – Stifel Nicolaus: Can you talk about how you value those CLO equity marks written up, probably looks like just roughly $0.95, $0.93 on the dollar? And we’ve heard of CLO equity marks for equity investments out there in the marketplace of $0.20 to $0.30 on the dollar. How do you look at your valuation versus what we hear in terms of public marks?

Well, we do mark those every quarter and we do have to use a modeling methodology to do those marks because we’re on the [ph] thinly traded and those few that you do see are actually more distressed seller type situations, which we aren’t in and you don’t have – it is specific that under GAAP, you don’t have to take distressed mark. So what we do is we very carefully detail out of the underlying assets in the CLO Funds, and then schedule out what those prospective cash flows are. We look at what the amortization of those assets are. We schedule out the underlying liabilities. We assume frankly a very conservative default rate and recovery rate and then discount back the cash flows. That methodology has been consistent from quarter-to-quarter. We did have a slight change as far as the modeling. The methodology is of doing net present values remain the same, but we actually were able to get more granular, if you will, and modeling out the underlying assets and liabilities of those CLOs that we do not manage, which would be Katonah III, IV and V.

One other point I would make, while the average value relative to cost may be roughly $0.90 on the dollar, that’s actually not the percentage at par value because many of the positions KCAP acquired at a discount to par. And so, the comparable calculation for the CLOs, excluding 2007-1, is on average, we hold those marks at something like 70% at par. And then the deal that we did invested in 2007-1, that $29 million acquisition which we did under the new credit regime, we hold that at cost. You don’t see the par value in the financial disclosure, just cost. Greg Mason – Stifel Nicolaus: But that cost was also below par?

Exactly. And 2007-1, I think we acquired that at around 90 because we took a fee concession against par value, so there’s actually a bigger discount in our carrying value relative to par. Greg Mason – Stifel Nicolaus: Okay, one last question and I’ll hop out and get back in. Can you actually give us the number of your headcount reduction in the quarter, how many people was it?

It was five. Greg Mason – Stifel Nicolaus: Versus what was your total platform before that?

It was in the mid 30s. Greg Mason – Stifel Nicolaus: Okay. Great, thanks guys.

(Operator instructions) We’ll take the next question from John Hecht with JMP Securities. John Hecht – JMP Securities: Good afternoon guys. Can you guys give us an update on the warehouse that was with Bear Stearns and now it's been moved to JP Morgan, and what your potential strategies would be to resolve that?

Sure. We actually sent a notice to Bear and JP Morgan indicating that in our view the engagement letter was breached because of the failure by Bear Stearns to do a number of things that were required under the terms of the engagement, and we’ve also taken the position that as a result of the breach, the letter is essentially not in force and that we have no obligation under the first loss guarantee as a result of the breach. We’ve also indicated that given the failure to raise those other funds, we have lost fee income and revenue opportunities that we have potential claim against Bear/JP Morgan for damages which are actually not farther [ph] capped under the engagement. Obviously, Bear and JP Morgan don't necessarily agree with that position and we are in discussions with them. If we can put this behind both companies at a number that would be substantially less, then the amount of the first loss guarantee cap was be $18 million; and those discussions are ongoing. John Hecht – JMP Securities: Okay. And then, structurally, you guys will be recognizing both the income and the expense from the BMO line even as it amortizes (inaudible).

That is correct. John Hecht – JMP Securities: Okay. So structurally, is it – did you guys ever valuate any of the potential structures so you wouldn’t have dividend obligations as you amortize that down or is there ways you can make your dividend more reflect what you’re earning without that facility during the interim period? Is there any options to consider there?

Well, we haven’t really seriously considered a change in the corporate form to reduce the dividend and we don’t think that’s necessary because, again, we have two years until that facility actually has to be repaid. And as we mentioned before, the natural amortization of it as loans repay in the facility, and therefore, the proceeds are swept. It’s fairly small and should not reduce our ability to pay the dividend at the current levels. If we got two years from now and we were not able to replace that by (inaudible) attractive cost, then I think we would look at other options. But essentially, what will happen right now and over the next quarters is that we will simply deleverage. As you know, and as Mike said, we’re actually already at the BDC leverage limit. It’s one of the reasons we drew up the full facility, and so you’ll just have a natural deleveraging which should not have any dramatic impact on the dividend. Essentially, what we lose is the leverage and the ability to reinvest cash proceeds that go against the facility and new loan, so we stay in maintenance mode but we don’t think that it poses any sort of liquidity challenges that would impact our ability to pay the dividend at the current rates. John Hecht – JMP Securities: Okay. Thank you very much.

We’ll now take our next question from David Chiaverini with BMO Capital Markets. David Chiaverini – BMO Capital Markets: Hey, guys, a few questions for you. Regarding KDA, you mentioned that the nine-month net income is $2.9 million. What was the net income for the most recent quarter?

Just for KDA, it was – unfortunately, I don’t have it handy. What it would be though would be whatever we have listed in the Q which we filed today and you could just take the second quarter Q and subtract it. I believe it was $1.3 million, but I have to have the paper in front of me to verify that. David Chiaverini – BMO Capital Markets: Okay, I’ll take a look at that. And then with the warehouse with Bear Stearns, what is the amortization period of that does expire?

Well, it says it has no amortization period. Remember, we have no investment in that warehouse. What would happen is that JP Morgan would simply sell the assets into the market. They hold those assets effectively on their balance sheet or in their trading book, and so they would simply sell those assets and keep the proceeds. David Chiaverini – BMO Capital Markets: Now, the $18 million deposit, did you guys actually give them the $18 million or did they essentially lend that to you?

Neither. It was a guarantee from KDA. Actually, not even from Kohlberg Capital, where under the terms of the engagement, if the warehouse was sold at a loss, KDA was liable for the first $18 million of that loss; and essentially, that’s what we are discussing with them because in KCAP and KDA’s view, we’re no longer liable for that due to the breach of the agreement or other terms that had to be satisfied. David Chiaverini – BMO Capital Markets: And if you are deemed to be on the hook for that $18 million, would you have to then write that against the valuation that you’re carrying KDA at?

Yes. What would happen is if we had to pay that or any portion of it, KDA would pay it with additional funds invested from KCAP, and then that value would be reduced. It would be an unrealized loss, so it would not have any impact on our dividend since it would flow through our valuation accounting for KDA. What we would lose would be the income on any money paid to Bear Stearns, which would be a much smaller, really, we think a modest impact on our ongoing dividend. David Chiaverini – BMO Capital Markets: Okay. And then switching over the KCAP facility. Roughly, how much will amortize each quarter?

Well, that's function of how quickly loans repay. Mike had mentioned that since September 30, approximately $5 million is repaid. That’s probably a good proxy on a quarterly basis going forward, probably approximately $5 million to $7 million. David Chiaverini – BMO Capital Markets: It was at $5 million to $7 million for one-month period, so the real quarterly amount would be more like $15 million to $20 million?

No. No, because again, the facility ended on September 30, so any amortizations that occur at September 30, we actually like to pay them at facility; so that’s really something as of September 30, paid up. We also, in addition, have had about $3 million of payments of annual excess cash flow for payments. Most of our loans have excess cash for the sweeps and anyone who had a fiscal year of June 30, those excess cash flow appearance were due in October.

I just want to make sure one thing is clear. The amortization of loan repayment numbers in terms of loans we hold, that Dayl quoted, offer the company as a whole but not every loan is pledged. It appeared to be, only about half of our book or more than half our book is pledged, so the amount that goes against the BMO facility to amortize that is only repayments of loans that are pledged, so.

And again, most amortization of payments occurs on quarter end, so therefore, the reduction from $270 million to $265 million reflected September 30 of amortization payments. The next significant event in terms of amortization payments will be December 31. David Chiaverini – BMO Capital Markets: And are all of the loans amortized or are there any bullet payments that occur at the end of –?

I mean, the amortization is, again, it’s very minor. It’s generally 1% to 3% a year. A number of the middle-market loans do have scheduled amortization but again, overall within the loans in the facility, it’s –

I think those are bullets we kept outside of the facility.

Yes, by (inaudible).

Well, and also, when we talk about loans repaying, again it’s really not because they have scheduled amortization. It’s usually some corporate event either we’re refinancing or a sale. And that’s also good news for limiting our amortization of the BMO facility because in the current environment, people are not refinancing and they’re not selling. So again, it’s why we don’t think that there will be a major near-term deleveraging under the BMO facility, which isn’t that much amortization occurring.

But most of everything that was paying down have actually been older loan-yielding loans so over time, it actually moves our weighted average yield up. David Chiaverini – BMO Capital Markets: Okay. And so there’s $270 million outstanding. How much in assets or loans are pledged against that $270 million?

About $320 million to $310 million? From $310 million to $320 million. Again, it’s a non-recourse facility. David Chiaverini – BMO Capital Markets: Okay. Thanks, guys.

(Operators instructions) We’ll take our next question from Greg Mason with Stifel Nicolaus. Greg Mason – Stifel Nicolaus: Great, thank you. Talking a little bit more about this facility and the amortization, just to make sure I understand it right. You’re saying that all of the interest payments as well are swept, so it’s like a turbo amortization? Is that correct?

Interests are loans pledged. Greg Mason – Stifel Nicolaus: Right.

So you’ve got –

A lot. And again, that’s offset first by the interest expense related to the facility. Greg Mason – Stifel Nicolaus: Okay, got it. So then how do you plan on covering some of the cash? I assume you have to record that net interest income still in your GAAP earnings and pay that out as a BDC. Is that correct?

Greg, that’s correct. And so, what we’ve done is we’ve scheduled out, I mean, we were very careful to model out our cash position as well as our liquid investments, so that even though the interest is used – the interest would be imposed [ph] after so that in the facility don’t count as GAAP income and thus should be distributed that we’ll have sufficient cash on hand to continue to make those distributions.

And just keep in mind, Greg, most of the higher-yielding assets on our balance sheet are not pledged to the facility. The CLO equity investments are not pledged to the facility. Most of the mezzanine and some of the second lien loans are not pledged to the facility, so both of the higher-yielding assets are outside the facility. Greg Mason – Stifel Nicolaus: Okay. So if we look at your $7.6 million cash dividend that you pay, most of that will be covered from a cash income, and whatever the shortfall is, you plan on taking from that cash account that you drew down. Is that how you’re thinking of it?

That’s correct.

That’s correct. That’s correct. Essentially, we’ll just have to leave more cash.

Cash or liquid assets.

Or liquid assets on the balance sheet, so that we can make up the amount that swept but that we still have to pay out. Greg Mason – Stifel Nicolaus: Okay, great. Thank you, guys.

I just wanted to get back on KDA. For the quarter, there’s about $1.6 million, $1.7 million of net income at the KDA level. Someone asked that question earlier.

And as a reminder, the only part of that that actually is distributable income is the amount that’s actually dividend it up, which was $1 million for the quarter.

(Operators instructions) We’ll take our next question from Faye Elliott with Merrill Lynch. Faye Elliott – Merrill Lynch: Hi, good afternoon. I may have missed it. I had to jump on the call a little bit late. You have previously some dividendable income at KDA that you could have dividend it up to yourself. Did you already explain where that income is?

It’s still at KDA, last $1 million that we actually did dividend up in the quarter; so they remain at KDA, approximately $2 million –

It remains at KDA approximately $3.7 million as of September 30. Faye Elliott – Merrill Lynch: Okay. And is that something that you planned to hold down at KDA? Or do you think that that could be available if you need any dividend income, given that you have to worry about – well, I guess you’d have to dividend it up and then it would be part of your dividendable income. Is it possible that you could dividend that up if you needed to? Or are you holding that down at KDA for collateral or any other reason?

The cash is not encumbered. Faye Elliott – Merrill Lynch: Okay.

It’s not pledged to anybody.

Right. Faye Elliott – Merrill Lynch: Okay. So it could be just as need to be?

Yes.

Yes. Faye Elliott – Merrill Lynch: Okay, that’s all I had. Thanks.

And with no further questions from the audience, I’d now like to turn the call back over to Chris Lacovara for any closing or additional remarks.

I just thank you all for your attention and support of Kohlberg Capital. Thank you for joining us today.

Thank you.

Thanks.

That does conclude today’s teleconference. Thank you for your participation. You may now disconnect your line.