Good morning, and welcome to THL Credit Earnings Conference Call for its third fiscal quarter ended September 30, 2017. It is my pleasure to turn the call over to Ms. Sabrina Rusnak-Carlson, General Counsel of THL Credit. Ms. Rusnak-Carlson, you may begin.

Thank you, operator. Good morning and thank you for joining us. With me today are Sam Tillinghast and Chris Flynn, our co-Chief Executive Officers; and Terry Olson, our Chief Operating Officer and Chief Financial Officer. Before we begin, please note that 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 uncertainties 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, including the factors described from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which any forward-looking statements are based are reasonable, any of those assumptions could be proved 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 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 Q3 investor presentation that we may refer to during this call. A webcast replay of this call will be available until November 17, 2017, 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 Sam.

Thank you Sabrina and good morning everyone. First, I’d like to address our progress of our core assets strategy and then I'll discuss our incentive fee waivers and changes. Our core asset strategy which we implemented beginning in 2015 is designed to shift our portfolio from second lien and mezzanine investments and from investments in unsponsored companies to predominantly first lien investments in sponsored companies and the Logan joint venture which we refer to as our core assets. We believe the continued implementation of the strategy will result in a more resilient portfolio and more stable earnings for our shareholders. In connection with this tragedy, we also are pursuing opportunities to exit our non-core assets, which include control equity investments. At the end of the third quarter, our core assets made up 74% of the portfolio. This was an increase from 64% a year ago, but remain short of our target of 90%. The transition out of non-core assets has taken longer than anticipated and consequently has impacted NAV. As described more detail in our 10-Q with input from our shareholders and other market participants, effective January 1, 2018, our advisor has agreed to implement the following incentive fee changes on a go forward basis. First we’ll exclude the base management fee as an add-back for purposes of setting the incentive fee cap and our look back calculation. Second, our incentive fee will be calculated on a rolling 12-quarter basis instead of the most recent quarter that will effectively cash our performance on a longer term horizon. Under no circumstance will the amount of the incentive fees paid under this new formula be greater than that - would be due under the existing calculation which already includes 8% hurdle with three-year look back feature. Third, prior to these incentive fee…

Thanks Sam, and good morning everyone. During the quarter, we invested 29 million in two new companies, Anexinet and Women’s Health USA and five existing portfolio companies. 99% of the dollars put to work in Q3 were first lien floating rate assets consistent with our core strategy. The weighted average yield on these new investments made during the quarter was 8.8%. Realizations during the quarter totaled 46 million and included a sale of our first lien loan in CRS as well as our first lien term loan in RealD, and the repayment of our first lien term loan in the sale of our equity in Food Holdings. We generated a $0.6 million gain on the sale of our equity position. Now let’s move over to Logan. This continues to be an important part of our strategy and enhance the yield to the overall portfolio and increases our exposure to first lien loans. Logan consisted of 124 borrowers totaling $238 million at par and represent 10% of our portfolio at September 30. 89% of Logan’s portfolio is investment in first lien loans with the remainder in second lien. The portfolio was marked at 99% of cost at September 30 with no non-accruals on the portfolio and while credit remains strong, we did recognize a small net change in unrealized depreciation for the quarter driven by widening spreads in the market. Our Logan investment generated 2.5 million of dividend income for the third quarter representing [14.8%] dividend yield. This was at the higher end of the range we've received from Logan, which is ranged between 12.7% and 14.8% over the last eight quarters. Now let’s to turn to portfolio quality. As of September 30, our portfolio consisted of 45 companies valued at 653 million. The weighted average yield on the portfolio was…

Thanks Chris, good morning everyone. We generated $20.1 million of investment income this quarter compared to $20.3 million in Q2. Included in the investment income was 15.6 million of interest income producing securities which included $0.5 million of [FICC][Ph] income. We did not earn any prepayment fees during the quarter. We earned 3.7 million of dividend income during the quarter from the Logan JV and our equity investment in C&K and we also generated 1.1 million of interest income from other income producing securities including the interest from our investment of Duff & Phelps tax receivable agreement. And finally, we had $28 million of other income comprised of fees from our managed funds and other fee income related to certain investments. We incurred $9 million in expenses during the quarter compared to 10 million in Q2. Fees and expenses related to our borrowings including the amortization of deferred financing costs were 4.4 million. We also incurred 2.6 million of base management fees and our earned incentive fees were waived as Sam previously mentioned. And finally our administrative professional and other G&A and tax related expenses totaled 2.1 million compared to 1.8 million in Q2, the increase was primarily due to a $0.4 million one-time legal expenses incurred in connection with the exit of our investment in CRS. Moving to some balance sheet highlights, the portfolio had net change in unrealized depreciation of 4.8 million, which was largely driven by the reversal of unrealized depreciation from CRS and the markup of our control to the equity position in OEM, offset by markdowns taken on a few of our other equity provisions as well as the Logan JV. As of September 30, our leverage level was at 0.8 debt to equity which is at the high end of our targeted range of 0.6 to 0.8 and we expect to manage our leverage levels below 0.8 going forward. Our levels are lower post quarter end with the sale of our debt holdings in Wheels Up in October along with the subsequent paydown of our revolver. Finally during the quarter, we repurchased $1 million or 100,000 shares of our stock at a 16% discount to NAV and since inception we've repurchased $13.8 million or 1.2 million shares at 10.4 discount to NAV. With that I'll turn the call back over the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Jonathan Bock from Wells Fargo Securities.

Hey guys Fin O'Shea for Jonathan Bock this morning, thanks for taking our question and very appreciative of the changes to the formula of the incentive fee calculation. One clarification on that, you mentioned the starting point, the base will move to a year back from last quarter, is this - will that continue from now or will you change that in 2018 when the implementation of the calculation starts. Simply put, will you reset things in 2018?

This is Terry, thanks for the question. The new structure will be effective January 1 and will be calculated on a go-forward basis. The old structure will continue as it has, as it exists and the incentive fee in any given quarter going forward will be the lower of the two at this point going forward.

That clarifies it for me. Then just a couple of smaller questions. Dividend income came up a leg this quarter on the control book. Does that reflect a higher run rate or is that a one-off – higher run rate on today's control book that is, I know of course you're trying to reduce it. And then the other question, I'll just throw them both at once, are you looking to lower interest costs actively at this point.

This is Terry, I’ll take both of those. The bulk of the dividend income is from Logan and C&K. C&K was a little bit higher this quarter I’d say by probably a couple hundred thousand dollars than it's been in prior quarters, so slightly elevated. With respect to Logan, we had a fair number of repayments in Q3 that accelerated on the [unamortized] [ph] OID that probably elevated the dividend about $300,000 compared to some more recent quarters. So while the 14.8% is a little high, I’d probably characterize it as in the high 13% to 14% range is more of a run rate. As many of you know probably our bonds that we issued in November, 2014 are callable in the near term. We're always looking for ways to improve or opportunities to lower cost of capital per shareholders. And certainly with this non-call period expiring this month, we continue to evaluate refinancing options available. And what we can't really comment on the timing of outcomes - timing or the outcomes here, we think the market is strong to effectuate something.

Our next question comes from the line of Ryan Lynch from KBW, you may begin.

I do appreciate the changes you've made, shareholder friendly changes you made, you fee structure in addition to the waiver of the fees in the third and fourth quarter. And your guys thought to potentially waive up 25% of the incentive fees or on the dividend throughout 2018 but that last shareholder friendly input you guys have made potentially waiving 25% of the incentive fees in [Indiscernible] dividend through 2018, it's certainly a show of a friendly provision that you guys have implemented, but when I see that I think does that mean that earnings could potentially come in below the dividend without any sort of fee waiver in 2018 and then that makes me maybe think how sustainable is the dividend longer term without any sort of fee waivers. So, can you just walk about your confidence in the ability to earn the dividend without few waivers maybe beyond 2018?

Hey Ryan, this is Chris, I appreciate the question and understand your point of view. From our perspective we don't view this as a sign of weakness, it's more of a sign of strength. We wanted to send a signal to the market that we were - that we're committed as a platform to the BDC whether or not the 25% is actually used or not, we don't have any expectations one way or the other. But again given this transition to our core assets has taken longer than expected we thought it was important for us to send a strong signal to the market as a platform we're committed to making sure that the BDC performance in the stock turns around.

And then you mentioned that part of the portfolio depreciation you guys experienced in the quarter was due to maybe a decrease in value in C&K. Can you talk about what drove that decrease in the quarter, was it I think you also mentioned maybe you guys paid out higher dividend, did that drive that decrease in C&K. And with the decrease in fair value, does that potentially impact that company's ability to generate the same level of dividends in the future.

Ryan, this is Terry. Thanks for the question. The short answer is, the increased dividend in theory did decrease the equity value, but I'd characterize that de minimis overall as it relates to our whole position. I think the short answer on C&K, the retail grocery market with a group of stores in the Northwest, I think overall, our view on market comps and market has been a little compressed or stressed lately in terms of market multiples, but we don’t have any pause about the company’s ability to continue to generate cash flow to pay a dividend going forward as long as we remain shareholders.

And then one final one, on slide 14 as kind of a broader question, but on slide 14 of your slide deck, when I look at the median EBITDA of your guys’ companies that consist of your portfolio, in Q1, 2016, it was about 19 million, the most recent quarter, it had dropped down to about 10 million. So it effectively has been cut in half. Is that a strategy that you guys are pursuing, looking to go after and make loans to essentially smaller companies where maybe it’s less competitive or what really drove that decrease basically, very substantial decrease in the average median EBITDA of your portfolio companies?

Hey, Ryan. It’s Sam. Thanks for the question. It's not a change in strategy at all. We continue along with the same strategy that we've had for the last three years, first lien loans in sponsored companies. I think what you're seeing there is some outliers that are out of the portfolio. Now, I'd have to go back and check what the names were, but that's really an average that was largely skewed high by just a few credits I believe. There's been no change in strategy.

Okay. So no change in strategy, maybe just a few outliers skewing out of time. Okay, that’s all from me. Thanks for taking my questions.

Our next question comes from the line of Christopher Testa from National Securities.

Just on Specialty Brands Holdings, you kept them more constant at 72% of cost, second lien, it's retail. Just curious if you can give some color on how much debt is in front of you and just the total leverage on the company and how comfortable you are with that mark.

Hey, Chris. It’s Sam. Look, it’s a privately held company, so we can’t give a lot of detail on the financial structure. Yeah. It’s a chain of restaurants. We are working very closely with the management team, the sponsor, the financial advisors, other lenders to maximize value there. It has been impacted somewhat by just changes in retail, but that's really all we can say at this point.

And I know you guys disclosed around 17% of the unsponsored book remaining in the portfolio and obviously that's been kind of the genesis of a lot of the asset quality issues. Can you just give us some color on just how many names are in that book and how many are sitting on net unrealized losses?

Sure. This is Sam again. So we have $130 million in unsponsored credit, so what we classify as unsponsored credits. It's a total of eight individual companies. So of that 130 million though, 90 million is in positions that have already been restructured and in fact we are the control equity owner in those transactions. And in those transactions, we’ve improved performance and operations. So, the remaining 40 million that we don't control, we’ve recently sold out subsequent to September 30, we sold out our Wheels Up, which is a large portion of that, so we sold our debt in that credit. So that brings to a total of only $18 million that's really truly unsponsored today. And of that 18 million, it's really two credits. It's gold, which is a maker of baby socks, that's a $5 million position and John Gore, which -- while it’s a private company, it owns Broadway Across America and Broadway.com. And you can go online and see the cost of Broadway shows and you can go to Times Square and see the crowds there. So it's -- you can tell that it's performing well and our mark reflects that.

And just last one on the, just Terry, you had commented on obviously the leverages towards the higher end of your preference. Just wondering how you're weighing that and the pipeline of address opportunities with further stock repurchases.

Look, we’ve been committed to it and have done it in the past. I think I wouldn't characterize repurchases in the future to be fairly small, given where we're at with the portfolio and the leverage profile, just doesn’t give us a lot of room, but that's not to say we won't opportunistically have an opportunity here and there to purchase some as we have over the last several quarters to some degree.

[Operator Instructions] Our next question comes from the line of Leslie Vandegrift from Raymond James.

So I know, you talked a lot about the waiver in the prepared remarks and then earlier with the question. So one question I have left, when you say dividend coverage, I’m assuming you mean from realized all in, not just from NII, I think you guys are going to mark that again, is that true?

Leslie, this is Terry. I think the coverage, the dividend supported by NII so to the extent when incentive fee number drives us to, call it, $0.25, we obviously adjust the incentive fee downward to cover the $0.02 above the line.

Okay. And on CRS, on the realization this quarter. Last quarter, it was marked a bit better than you guys ended up exiting at. Now, can you give me some color around that and how that went down?

Sure. Subsequent to the call or almost maybe on the day of the call, the company filed for bankruptcy protection in early August, which continued to exacerbate the stress on the business and as we looked at our role going forward, we opted to sell our position to an existing holder and the capital structure rather than continue with what we would have believed a fairly long recovery process. So in effect, we decided to take the incremental loss and move on.

And then on -- obviously the dividend from Logan was high this quarter, you said a lot of accelerated OID there and prepayments in that. How are prepayments overall in the book fee wise, and what's the outlook for fourth quarter?

Yeah. As I mentioned earlier in the prepared remarks, we didn't have any prepayment penalties on the -- in the quarter. We've had very few. Again, it’s very difficult to project the level of prepayments and when they're going to occur to the extent they occur, which come with these. So we try to stay away from making some broad projections there. We've disclosed the prepayment fees and our historical Qs. So we tend to line up the last six or seven quarters as probably a decent average of what we might expect going forward, but again it can be pretty variable.

And our last question comes from the line of Lee Cooperman from Omega Advisors.

I profusely apologize, Chris. I thought the call was at 11, so I’ve missed, I just dialed in now. So some of these questions may have been covered and I apologize if they’re redundant and we can speak offline if you prefer. But first, before I ask you my question, I want to express my appreciation for the various measures the management has taken to support the shareholders and management’s own belief in its story, because there's been I know significant inside purchases over the last couple of years. Unfortunately, it really hasn't helped. We went public on April 21, 2010 at 13, we had a secondary 14.09, secondary 14.62 and here we stand at something south of $10 with a book value of 11.34. And I don’t know whether the market is requiring a high yield from us, because the mistakes you made in the past or they don’t like the setup, but either way, if something missing in the evaluation of our company. And so my question, but I do want to thank you. I know you’ve been standing behind this as much as you can. My first question, asking a lot of questions, you can answer in any way you want. First, is the earnings that we report today include anything unusual? Can we look at that at a run rate or that’s unwise to look at that way. Question one. Question two is the quest of running a business, what kind of gross ROE are you capable of generating with the amount of leverage you’re prepared to use and what does that net to the investor after costs. Third, I’m sure you discussed this already, so sorry to be redundant, the credit issues in the portfolio. And portfolio, are you prepared in your kind of your pattern of standing behind the shareholders, if we can’t get recognition, get the stock to sell at an appropriate price, would the external manager be willing to consider liquidation, returning money to shareholders, or perhaps since they have a large business, to buy the public shareholders out and let them move on. So those will be my questions.

Thanks, Lee. This is Chris. I think from combination of myself, Sam and Terry, probably answer all of those. I’ll start with the first one. If you look at our earnings per share, the headline number was $0.34 versus the $0.27 dividend. If you exclude the incentive fee waivers and one-time items, our core earnings of $0.28 versus $0.27, we still cover the dividend as expected from our core earnings. So I think from a run rate basis, we feel comfortable with the $0.28. We’ve obviously outlined here in our numbers, a willingness to waive the incentive fee if earned in Q4 and as a show of support from the platform to TCRD, a willingness to waive another -- up to 25% in 2018 to the extent there is a shortfall on the dividend. So I think from a positioning standpoint, the steps that we're trying to take here today is to recognize, as you said, the transition of our portfolio for some, I’d say strategic investment decisions that were made as it relates to non-core assets has continued to weigh down on the stock as it relates to its performance versus book value. This is our best step forward in continuing to improve that, but also better align the fees and the cost of managing the business with the shareholder expectations of what the dividend should be. As it relates to the cost of running the business and the gross ROE, we have always kind of talked about this in a range. Terry or Sam can chime in. I think this is about 9% to 10% ROE business, plus or minus. We feel confident in our portfolio. We think there is potential upside as we transition some of these non-core assets that aren’t currently earning income to generate dividend income, but it's difficult for us to predict when those will actually take place.

This is Sam. Lee, maybe I will take the question on credit and some of the issues there. So since we've changed the strategy back three years ago, we really don't have one credit that has underperformed. All of the rest of the credits, I think it's 98% of the credits had performed at expectations or above expectations, but we do have for non-accrual, we've got four credits now that makes up about 5% of the portfolio. Two of those credits are on Loadmaster. They've already been restructured. We’ve controlled those assets now. Performance has improved and stabilized in both of them. There are also two retail credits that are on nonaccrual specialty brands which I talked about earlier and Aerosoles. On Aerosoles, I point out, and Aerosoles is a retailer of women’s shoes. I point out that with the nonaccrual is really just our million dollars in subordinated convertible notes and that our $13 million first lien is non-accrual. We think we’re well collateralized on that first lien loan and that's reflected in our marks.

And Lee, I guess your last question on -- from a management perspective, you're right. We’ve had tremendous growth over and above and outside I guess the publicly traded has BDC has been frustrating for us. The stock has not performed better even though we think we've taken the right actions to kind of correct and reposition the portfolio. What's the right action? I mean, it's difficult to define at this point in time other than I think what we've done here today as a management team, and as an advisor is signal to the market our strong support for making sure we get this right, right is in the eyes of everybody’s own definition, but we are committed to making sure that this works for us and the shareholders and we continue to appreciate your support and all the other shareholders’ support through this transition.

Well, I congratulate you and the support. What I’d like you to do is keep an open mind. If this does not result in a change in valuation over the next 6, 9, 12 months that you're open to consider that maybe just a vehicle isn't the right vehicle for the market and you guys are very prideful. You have a big business away from here that you would just basically arrange to give back the money to shareholders if we continue to sell at a significant discount to the value of the business. Don’t need an answer today. Good luck and thank you.

Go ahead sir.

So is that all the questions?

Yes, sir. I am showing no further questions.

All right. This is Chris. I just want to thank everybody for participating today as we've discussed off and on through the Q&A, we just want to highlight the importance of TCRD as part of our $11 billion credit platform and we believe our actions today, as it relates to changes in our fee structure, reinforce our commitment to this vehicle, we believe we now have one of the most shareholder friendly fee structures in the BDC industry, providing strong alignment to, not only our shareholders and management, as we continue to move forward with the stock. Thanks. We look forward to speaking to you guys next quarter.

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