Good morning and welcome to THL Credit's Earnings Conference Call for its First Fiscal Quarter Ended March 31, 2018. As a reminder, this call is being recorded. It is my pleasure to turn the call over to Ms. Sabrina Rusnak-Carlson, General Counsel and Chief Compliance Officer of THL Credit. Ms. Rusnak-Carlson, you may begin.

Thank you, Operator. Good morning and thank you for joining us. With me today are Chris Flynn, our Chief Executive Officer; Jim Fellows, our Advisors 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 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 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 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 investor presentation that we may refer to during this call. A webcast replay of this call will be available until May 10, 2018, starting approximately two 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.

Good morning, everyone. It's good to have the opportunity to connect again with our shareholders and analysts to provide an update on our performance for the first quarter. It's always a quick turn between Q4 and Q1, so you'll hear some consistency in the messaging. Terry will cover the first quarter financial results in more detail shortly. But at a high level, we earned $0.27 on net investment income for the quarter versus our dividend of $0.27. Our NAV for the quarter was stable with a less than 1% decline. The movement in NAV was driven by two things; one, a loss on the sale of our investment in AeroGroup, as expenses incurred during the elongated bankruptcy process were higher than anticipated; and two, movement both up and down on a few of our equity positions. As noted in our Q4 call, our focus to improve our stock price and narrow the gap between price and NAV remains the same. We are focused on improving the diversification across the portfolio, monetizing our non-income-producing equity securities and growing the Logan joint venture, which provided roughly a 14% ROE to our shareholders in the first quarter. As noted earlier, while this strategy is being executed, we and our adviser have sought to ensure alignment among ourselves and our shareholders. As we've mentioned on our previous call, our adviser has agreed to waive all incentive fees for 2018. And as we've mentioned on the earlier call, we intend to purchase up to $10 million of TCR stock. We believe this plan as outlined is the correct one to drive value for our shareholders in terms of earnings and capital preservation. Once executed, we believe it will result in improved stock price performance. As for our performance versus our outlined plan, I would note…

Thanks, Chris, and good morning, everyone. First is a few portfolio highlights. Our portfolio of 600 million was 65% invested in first lien senior secured debt and 12% in the Logan JV. Second lien and subordinated debt and other income-producing positions represented 11%, and the remaining 12% was in equity holdings, of which 6% was non-earning. Credit quality was stable this quarter, with no new investments placed on non-accrual. Total non-accruals as a percent of the portfolio at cost declined quarter-over-quarter from 8.8% to 6.7%. At the end of the quarter, 84% of the companies in our portfolio on a fair value basis were rated either a 1 or a 2 credit score, which means they are performing at or above our expectations. 8% were rated 3, meaning they are performing below our expectations but payments are current. And no new investments were added to the 4 or 5 credit score buckets. The weighted average yield on the debt and income-producing portfolio, including Logan, was 11%. That remains well positioned from an interest rate perspective, with 93% of the portfolio on floating rate loans as of March 31st. They continue to benefit us, as we see the 3-month LIBOR now north of 2.3%. Now moving to the financials for the quarter. As Chris mentioned, NII per share was $0.27 versus our dividend -- $0.27 versus our dividend of $0.27. Investment income for the third quarter was $17 million was lower than Q4, primarily due to lower dividend income. The drivers of this included a lower dividend from C&K this quarter, given some seasonal liquidity; and the Logan JV, whose Q4 dividend included a slightly elevated level of income from portfolio refinancings and exits. On the expense side, total expenses for the quarter were $7.8 million compared to $9.8 million in Q4. Our credit facility fees reflect more normalized levels compared to Q4, which were higher than normal due to the acceleration of deferred financing costs totaling $1.2 million in connection with the amendment of our credit facility. Management fees were also down given our asset levels at 3/31 and we had continued reduction in our other professional and administrative expenses during the quarter. The portfolio incurred realized losses of $13.1 million in Q1, resulting from the realization of AeroGroup and the initial debt restructuring of Charming Charlie in connection with the bankruptcy proceedings. $10.6 million of these losses were already reflected in our NAV as unrealized, and this did not impact NAV for the quarter. From a leverage and liquidity perspective, we continue to remain fully invested. Leverage levels remain slightly over the high end of our range, up 0.6x to 0.8x. The paydown of A10 this week pushed our leverage levels below 0.8x, and we expect to manage our leverage levels below 0.8x going forward as we continue to reposition the portfolio and further diversify. With that, I'll turn the call back over to the operator to start the Q&A.

Thank you, sir. [Operator Instructions] Our first question comes from Jonathan Bock of Wells Fargo. Please go ahead.

Joe Mazzoli filling in for Jonathan Bock. So the first question relates to Charming Charlie, and I know you provided a little bit of color there. But I think it would be helpful for folks to kind of understand why additional capital was been deployed in this quarter in the form of the $4 million debt loan. And then also, kind of, to kind of understand the dynamic within the retail segment, I think, in this type of situation, there probably were some very profitable source, but why is this from unprofitable source that probably dragged down the valuation. Just some of the dynamics there, I think, would be helpful.

I'll handle the first part and maybe ask Jim Fellows to comment on the second part. As you look at the incremental dollars that were invested, as we said upfront, we have a retail company going through a bankruptcy through an important timeframe. It's through mission-critical for us and our other investor partners to ensure that the company had sufficient liquidity to make it through that season, if you will, and make sure that we had support from the trade and give the management team that we have in place sufficient capital, if you will, to execute on the game plan that we outlined, which is a much smaller store footprint and a much stronger balance sheet going forward. So for us, making that incremental investment, alongside our partner investors, was important. The second half of your question, as it relates just to retail in general, I'll ask Jim Fellows, our CIO, to comment.

Yes, thank you. Yes, Charming filed bankruptcy in December 11, exited in April 24. That's a relatively quick bankruptcy, which enabled us to rightsize the balance sheet, rationalize the cost structure, lower our lease expense, improve the trade terms and bring in a new and talented management team. So I think, the game plan was executed very well in a very short timeframe. I think, bigger picture, yes, retail is still very challenging, and I think as it relates to Charming, we wanted to downsize the store footprint and rationalize the balance sheet as quickly as possible. And today we still have a company with very positive four-wall EBITDA and which should allow us to compete effectively within the retail space. But that being said, retailing is still very challenging, but we feel like we're positioning to thrive going forward.

That's very helpful. And now the next question, this is a several-part question, with the recent law that now allows for 2:1 leverage within BDCs, do you plan to ask shareholders for permission via a vote? Or is this something that your board will decide? And then I have a follow-up question.

Thanks, Joe. This is Chris again. First on the recent change in legislation, as it relates to the 2:1 leverage. We think it's a tremendous opportunity for the industry. We also feel that we're uniquely positioned as a platform to take advantage of that. If you use Logan as a proxy, Logan has been an off-balance sheet vehicle levered approximately 1.5 times to 2 times. and it's generated a ROE north of 14% over an extended period of time. So we believe, long-term, the leverage guidelines will enable us to be more selective and creative when thinking the best assets across our entire platform to slot into this type of vehicle, this type of structure. But the fact is, as we sit here today, we've not made a decision as it relates to moving forward with that increased leverage. And we outlined upfront, there's a lot of work or basic blocking and tackling that we need to do to get our balance sheet prepared to the extent that we want to take on it from a leverage. I would say that to the extent we do, do that, you'll see the portfolio run substantially more diversified given the increased leverage. So once we've got that, the decision, we'll make a determination on how we want to move forward with the vote, be it through the board or with the shareholders. But at this time, we've not drawn that conclusion yet.

And then just one quick follow-up to that is, of course, you have had success within the Logan JV and then, of course, the extra manager manages significant CLO assets at much higher levels of leverage. So if you could provide -- if you were to increase leverage, what type of spreads would you invest? Would it be similar assets that are in each JV? And then also what type of cost of debt do you think would be there? And then finally, also would you consider enhanced stock repurchases if you have the ability to increase leverage?

That's a lot of questions, there, Joe. So I'll, I mean, I'll go in first order, and this is Chris again. On increased stock repurchases available to us as a result of increased leverage, as we sit here today, I firmly believe that the solution or the path forward for our BDC is a larger balance sheet, not a smaller balance sheet. These assets obviously, I understand from a mathematical perspective, is accretive to the shareholder. So we do, do it opportunistically. But shrinking the balance sheet overall, through a reduction in the equity, as we sit here today, we don't think is the right plan of action long term. Secondarily, as it relates, I think, to the asset mix that you see in the portfolio, I think, it's very early for us to make that determination. We're in the process of evaluating. You can see, I think, the average weighted spread in our Logan joint venture is right around, what, Terry, is the LIBOR?

Yield, 660.

Yes, so with LIBOR around 250 to 280, consider the average spread there between [indiscernible] 400 to 500 basis points. So I think you'd see a mix of assets in that lower end of the range again, because our goal, to the extent we did move forward with this, would be to take on higher quality, more diversified pool of assets. So I do think your weighted average spread would be lower. And then therefore, your cost of debt traditionally moves in tandem with that. So again, it's difficult for us to come back and opine on something that we haven't drawn the conclusion on it. I think the Logan joint venture, from publicly available data, was the easiest for us to disclose, gives you the best proxy of what type of return on equity we can generate to the extent we brought our balance sheet higher levered in the future.

Our next question comes from Leslie Vandegrift of Raymond James.

Just one follow-up to Joe's question there. I know you don't -- you haven't decided to ask yet, but if you did, you have the success with the Logan JV, you talked about north of 14% ROE, would having on-balance sheet, leverage is able to go up to the same amount, would that change how much you have to put into the Logan JV? Does it change its level of attractiveness versus the on-balance sheet loans?

Leslie, this is Chris. I think it's a great question. It's got to be part of our analysis, as we go through and consider whether or not to go out and seek the growth -- I'm sorry, the legislation change as it relates to leverage. Right now, we like our partner on the Logan joint venture. And as we said earlier on the call, our goal is to grow that from 10% at the start of the year, hopefully, 15% by the end of the year. We're well on our way. So our expectations right now are to continue to move that up as a larger percentage of our balance sheet right now as we sit here today.

And then, out of your current liability structure, so whether your revolvers or other debt, do any of those have covenants right now that stop you from going over one-to-one for the time being?

Yes, Leslie, this is Terry Olson. We do. Our senior credit facility has an asset coverage just to 200%. It would have to be amended to proceed.

And then lastly, the House Subcommittee for Financial Services Appropriation had a meeting and suggested to the SEC Chairman to review the AFFE rules and whether or not they should apply to BDCs. Do you guys have any color on that? Any thoughts on the fact that that's under review?

This is Sabrina Carlson. We've been actively involved, part of the founding members of the coalition with Aries and Apollo, in being active in lobbying for this change. I think that you speak to the BDC industry in general. I think if it changes to AFFE would be tremendous because in part for two reasons: one, I think, it would come out more transparency. I think part of the rule was enacted to disclose more information that we think in part that it actually doesn't accurately disclose expenses. I think secondarily, I think it's shown over an extended period of time the effect of that AFFE has really caused institutional investors to really leave the BDC industry. So with that change, I think that the ultimate effect would be to probably increase institutional investors, and we think that will correlate to better stock performance of the BDC industry.

Perfect. Okay. And then just one last question. Did you guys -- or what was the level of spillover income at the end of the quarter?

I'm sorry. What was that, Leslie? I didn't hear that last part?

What was level of spillover income you had at the end of the quarter?

I'm sorry, I still didn't hear, I really apologize.

No, that's okay.

Oh, Thank you. That was $0.34, Leslie. Apologies. I couldn't hear you.

Our next question comes from Christopher Testa of National Securities. Your question please.

Just curious. Obviously, the manager has been supporting the dividend, and that's great and very much appreciated. Just wondering, how much longer do you think that the manager is going to be willing to do this? First, it's kind of ripping off the Band-Aid and setting the dividend at a level where it could be earned with the resumption of incentive fees?

Chris, this is Chris. I appreciate the question. I think it's a good one. As we've said in our previous calls, the BDC is a critical component of our $12 billion platform. The fact that we've got a large platform, we are able to still support, as we have in the past, not only with the incentive fee waiver but also being an active buyer of the stock in the market. As we've said in the last call, we've called what we believe to be an accurate plan of action that we need to execute on. It's been eight weeks, so we've had a bit of a hard time to come back and figure out exactly how that execution plays out. And to the extent we sit back and we've executed, and we can tell you what the sustainable earnings per share are on a basis, we'll evaluate it at that time. But long-term, the manager is committed to making sure the BDC performs. It's committed to making sure the stock performs. The only thing we may be able to say publicly is we've agreed the waiver on incentive fees for 2018. And we'll reevaluate this, like I said, late in Q3 and Q4 to see if anything additional is required at that time.

Okay, great. Much appreciated. And just kind of going back to the increased kind of leverage question that Joe was asking, obviously, the rating agencies, especially S&P, have kind of just made a blanket statement, and at least from what I've heard with different management teams is that the banks who are doing the credit facilities are looking at these things on a much more one-off basis. So my question is, have you had discussions with the banks that are extending you credit? And I know, you had just mentioned that you do have a 200% asset coverage limit on those facilities. But have the talks been favorable in so far as you've had them? And do you expect the banks will appreciate you guys making effectively safer, lower yielding loans and not penalize you for that?

We actually have active dialogue with a lot of different lending institutions, as you can imagine, across our entire platform. The move from 1x to 2x of leverage, I think, the statement that S&P made that a blank statement, I think, that's difficult to make given that each individual BDC's balance sheet is different. How that asset mix is structured is substantially different. So I do think the industry itself is probably right. They need to be reviewed on a case-by-case basis. At a broad -- in regard to a public vehicle or a private vehicle obtaining leverage and financing two is to one ratio is not difficult to find these days. So to the extent we wanted to move down that route, I'm confident that we can execute and do that.

And just looking, you know, obviously, Charming Charlie, you had exited Chapter 11 last week. Just wondering, how much in terms of losses were recorded this quarter? Apologies, I might have missed that. And how many more realized losses do you expect to pull through into 2Q '18?

I'd point out that the loss I referred you in Charming is strictly related to what I'll call the accounting associated with the debt restructuring. We established a new cost basis equal to the fair value. In aggregate, there was just a flip from realized -- unrealized depreciation reversed in connection with booking the loss. So there was no NAV impact, if you will, of that realized loss associated with the Charlie during the quarter.

And that was during 1Q '18, not 2Q?

That's correct. There was no detrimental NAV impact in Q1 related to Charming Charlie.

And just another quick housekeeping item. You had mentioned something about a $1.2 million expense to amend the credit facility during the quarter, is that correct?

That was really -- sorry, that was a Q4 event. The $1.2 million related to unamortized deferred financing costs we had on the balance sheet, and that was -- we had to accelerate that in connection with the amendment. So that was a one-time item in Q4.

And last one for me, Terry, I know that you guys had, had a middle market CLO far different from the broadly syndicated CLOs that you have done on your platform. And obviously, that bodes well for you guys in order to get potentially some more incumbent borrowers. Ares had commented on something similar yesterday on their call. Just wondering, if there is a good enough appetite to be more middle market CLO's, specifically with your platform, and how you see that kind of augmenting your sponsor relationships and incumbent borrowers?

You're right. Obviously, if you look across our broader platform or a top quartile, top decile CLO manager, as it relates to the broadly syndicated market, as we sat back and thought through how do we develop more pockets of capital to execute our strategy and continue to grow the platform prudently, a middle market CLO makes a lot of sense. You've got a warehouse open today for one. We have a second one that's coming online. Our expectation, this will be a large growth driver for the platform going forward and, quite frankly, will enable us to manage the diversification requirements that we've said as it relates to the BDC going forward. The more pockets of capital that we have that we can execute on our plan, run those diversified across the platform, we think, gives us a competitive advantage. Q1 was a very active quarter for us across the platform. The BDC didn't have sufficient liquidity to participate, but we originated roughly $130 million of new loans built or held across a variety of private funds and middle market CLOs. So it was an active quarter for us, and we believe long-term, being a part of this $12 billion platform and growing will enable the BDC to participate. And like I said, best ideal loans across the entire platform and run that book much more diversified.

Got it, great. And then just last one for me, if I may. You guys have mentioned that out of a lot of the non-income-producing equity that there are a bunch that are actually having increased improvement and are doing well. Just wondering, are any of the ones you're looking to exit, particularly the ones with increased performance, under contract to be sold or have you received some inbound inquiries on those assets?

This is Chris again. We're not going to comment on any specific business more than we've done so already. I would just say, at a high level, as you run through a stress credit life cycle, the business goes through some form of stress, as you'll see the markdown in the investment. Our job is to step in and preserve capital. Once we stabilize those operations, which we've done as we highlighted on a number of the names today, once you see that stability over time and then hopefully an uptick in the mark that traditionally gives an indication that those are the investments that are getting ready to move outside of our balance sheet. We're not a natural holder of these investments. That's not new information. That's not new news. But we want to be selling these businesses from a position of strength. And I think if you look at the evolution of our mark, similarly highlighted on TriStarr, when we can convert our debt-to-equity, it was down to 15% mark. We basically have tripled that value since the time we've owned the business. It's still not back to par, but it's much better than what it was. So that's the type of trend that we want to see as we're thinking about whether we want to monetize these investments.

And our last question comes from Ryan Lynch of KBW. Your question please.

I just have one. You guys mentioned your guys goal to have growth in Logan from maybe 15% by the end of the year and 20% kind of longer term. My question is, just what is the biggest restriction for growth in the Logan JV? Is it finding appropriate assets to place into that fund or is it more finding capital within keypress balance sheet to actually help fund that growth given you guys were at maximum leverage plus you have a full portfolio of investment to support and find new deals?

Ryan, it's Chris. I appreciate the question. I think it's twofold. We have the ability to source assets for the Logan joint venture. I don't want to imply that it's easy. It's not. I think it's one of the benefits of a larger platform that enable us to find these assets. But the market is aggressive, so we're picking and choosing our spots there. But the second part is really the biggest constrain. It's finding insufficient capital inside the BDC balance sheet. That enables us to transition what is a non-borrowing base asset and grow that over time. We're also close I think approximately in our 30% bucket as well with the sell-down of A10 -- or the repayment of A10. That frees up some capacity there as well. But it's more on the equity side in the near term than it is on our ability to fund the assets.

This concludes our Q&A session. At this time, I'd like to turn the call back to Chris Flynn, Chief Executive Officer, for closing remarks.

Thanks, operator. I want to thank everyone for joining the call today. Our intention on the call as we look back in March is to be clear on what we think the foundation is and the right plan of action to improve our stock price. To reiterate, we plan to continue to execute on the following: improve diversification going forward and with our existing portfolio as possible, monetize our noncash-generating equity securities, which will be accretive to our dividend, grow the Logan joint venture to offset yield compression in our first lien quality assets, support the dividend through incentive fee waivers through 2018 and to continue to align our interests with our shareholders by being an active purchaser of the stock under our 10b5-1 purchase program. I want to reiterate that the BDC remains a top priority for our $12 billion platform. We believe this plan of action will result in improved stock performance. Thank you for your time, and we look forward to updating you next quarter.

Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.