Good morning and welcome to THL Credit's earnings conference call for its third fiscal quarter ending September 30, 2018. 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 Officer 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, and 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 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 15, 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.

Thanks, Sabrina, and good morning, everyone. I'd like to begin today's call by summarizing our financial results for the third quarter and will provide an update on our strategic plan. NII for the third quarter was $0.26 a share relative to our dividend of $0.27 a share. NAV per share was $10.10 as of September 30, down slightly from $10.23 in the prior quarter. The slight decline in NII versus the dividend was mostly attributed to portfolio contraction. We had a handful of repayments at the beginning of the quarter that had not yet been put all the capital back to work as of 09/30. The modest NAV decline was related to write-downs in Charming Charlie and LAI, which Jim will cover more detail later on. Moving to our strategic plan, on our March call, I articulated the specific steps we are taking to create a more resilient portfolio and stable earnings that we believe will benefit and drive shareholder value. First, I said on previous calls that we will focus on reducing non-core assets and exiting or monetizing up to 50% of our non-cash generating equity investments. As disclosed in our subsequent events and our 10-Q, we achieved a realization on a non-core asset, control investment and Tri-Starr in October. With this most recent exit, we have nearly achieved our objective and reduced non-cash generating equity investments from $41 million at December 31, 2017 to $22 million or by 44%. This $19 million reduction reflects realizations or investments moving into income-producing status. Consistent with our strategy, we intend to redeploy proceeds from Tri-Starr's equity and lower yielding term loan into the Logan joint venture and senior secured term loans which will be accretive to the dividend. As a reminder, this exit also further thus on our goal of reducing…

Thanks Chris. First let me address the Charming Charlie and LAI. As you may recall, Charming Charlie successfully exited bankruptcy in April. The company now has a leaner store base with a strong four wall EBITDA, a rationalized cost structure, improved trade terms and most importantly, a new and talented management team operating with a stronger balance sheet. Recognizing the positive impacts of this restructuring, the company does faced potential uncertainty as it relates to recent tariff activity. Our mark as of 09/30 represents the potential risk as a result of these tariffs. The fourth quarter obviously will be very important one for Charming Charlie. And early indications, although limited, looks favorable. Moving on to LAI, which was marked down this quarter, LAI is a provider of comprehensive engineering manufacturing and quality control solutions for critical components assemblies found in the variety of end markets. Due to recent project delays, management has revised its projected EBITDA downward for the remaining part of 2018. While we expect performance to improve in 2019 once the projects go online, our 09/30 mark reflects the near-term pressure on earnings and liquidity. Copperweld continues to perform well which is reflected in the additional mark-up this quarter. As a reminder, Copperweld have restructured in 2016. The company's management team has executed and grown EBITDA nicely and has now positioned the company for a sale. We began accruing a 12% dividend on our $3.4 million preferred investment and now receive a dividend on our common equity position which together are accretive to earnings per share by approximately $0.04 per year. Finally, an update on Loadmaster. While the investment continues to be stressed as evidenced by our Q3 mark, the company is currently pursuing a new strategic opportunity which is potentially very accretive to value. We've elected to…

Thanks Jim, and good morning, everyone. First a few portfolio highlights. The portfolio of $533 million was invested 64% first lien senior secured debt, 16% in the Logan JV. As a reminder, the Logan JV is 95% invested in first lien assets. The remaining 20% of the portfolio was held in second lien sub-debt and other income producing and equity holdings. Apart from the certain credits that Jim mentioned earlier, overall our credit quality was stable this quarter with no new companies placed on non-accruals. Total non-accruals as a percent of the portfolio, our cost increased slightly quarter-over-quarter from 1.7% to 2.7% as Loadmaster's revolver was moved to non-accrual as Jim mentioned preserving the cash. We also reversed the Q2 income that was re-accrued on that loan and on the revolver in Q3. At the end of the quarter, 75% of the companies in the portfolio on a fair value basis were rated either 1 or 2 credit scores which means they are performing at or above our expectations, 21% were rated 3 that performed below our expectations the payments accounts. As a reminder, we don't view 3 rated [indiscernible] to be at risk of payment default, but rather reflect recent performance trends which ebb and flow periodically. Certain circumstances for these credits were effectuated amendments which have also included additional financial support from sponsors. There were no investments for the 4 credit score and only 2% or 4% of the portfolio with a 5 credit score at the end of the Q3, one of which was Tri-Starr which was realized post quarter-end. Weighted average yield on the debt and income producing portfolio including Logan was 11.6%. The portfolio remains well positioned from an interest rate perspective with 96% of the portfolio on floating rate loans as of September 30…

Thank you. [Operator Instructions] Our first question comes from Lee Cooperman from Omega Advisors. Your line is open.

Thank you very much. What would the $0.26 of net investment income be if you accrued your normal fee which you've been very gracious and foregoing?

It's around $0.21 or $0.22, Lee.

Excuse me?

About $0.21 or $0.22 if we adjust the full fee under our existing fee schedule.

Which brings me to the second question, given the change in the environment - look, let me first complement you guys, you guys have gone anyway try to support the entity as much as you can. But my concern or question is whether the environment has sufficiently changed that the rational for the business has changed or is this roughly about a 3 percentage point quest of running the business? And if you're investing at 9% and 10%, obviously you will get some amount of leverage into the system, but you're going to return 7% or 8% to the investor that wasn't envisioned initially and we continue to have this erosion in book. Tell me what you're going to look like a year from today if your plan is executed as you expect and hope kind of your exploration goal?

Yeah. Thanks Lee. I appreciate the question and the comment. We are working hard to continue to execute on what we think is a path forward. And again, as we've said before and I'm not trying to dodge the question, I think as we sit back and work to execute here, there's still a few more questions we need to have answered different ways and come back with a strong degree of conviction and do the math around the question you're asking us to do. I think we've signaled to the market with our intention to continue to waive the incentive fee through Q2 of 2019 that between now and then we should be able to come back and do that. I think the rough math that you're doing makes sense. With that said, our ability to increase our leverage, adjust our fee construct is to your point the market has changed to what we can have the right balance between what makes sense for us to run the fund with an ROE that makes sense for our shareholder. We're still looking and thinking if we can get that done and we expect and hope to have that question-and-answer within the next six months.

Thank you. Based on whatever you guys have done to-date, assuming it be very rational, if we conclude that the vehicle doesn't make a lot of sense, you'll take the logical steps in terms of returning money by the shareholders?

Lee, we've locked $10 million in stock at the beginning of the year and we did the math in another program continue to buy, I think that's the strongest signal that we've got alignment with all shareholders on what we wanted to do to drive value.

Right. A fair statement. Thank you.

Thanks Lee.

Our next question comes from Leslie Vandegrift from Raymond James. Your line is open.

Good morning. Thank you for taking my questions. You mentioned the co-investment release with the other THL CLOs now that you know have the ability too. Is that the ability to co-invest in the CLOs or ability to co-invest in the same loans that the CLOs are doing?

It's the ability to co-invest in the same loan. So, if you think about our platform, we continue to grow private capital over and above the BDC. As an example, I think over the last 12 months we've probably booked roughly $400 million of exposure. That gets booked between the BDC, our private funds and now our middle market CLOs. Our goal as you can see one of the mistakes that we made historically and the BDC was running too concentrated with portfolio. So, it's my job or senior management team's job to expand the number of wallets enable us execute our plan, but also maintain the needed diversification. The exempted release enables us to execute that that much easier.

And you talked about the strategy and what kind of launch you're moving towards in routine in the portfolio and to over the next few quarters. Do those CLO loans match that or are they even higher up against the structure, maybe some unit tranche. What's the typical profile of those loans that are going into the CLOs?

Yeah. If you look at our CLO portfolio and our middle market CLO, the overlap on our middle market CLO book and our BDC book is probably only about a third. You're right, a traditional CLO portfolio was higher that's a higher quality, lower yielding senior secured assets. We have some in the direct lending space that toggle between the two, but it's around a 100% correlated.

Okay. Thank you. And you mentioned a dividend from the common stock of Copperweld in the quarter. Is that something one-time or expect to repeat, and if so, kind of at that asset level?

Sure. Leslie, this is Terry. Thanks for the question. We began the dividend last quarter about $240,000 per quarter, so $1 million over the course of the year. We would expect it to continue so long as we continue to hold the investment in the portfolio.

Okay, perfect. And on the Loadmaster update, you said some of the second quarter income was reversed. How much…

Yeah. We had a receivable booked in June 30 of about a $115,000 related to Q2 interest. And we - again when we put the loan on non-accrual in Q3, we reversed that receivable, didn't book income in Q3. So, the net impact was about $225,000 to $235,000 impact Q3 on NII.

And Leslie, this is Chris. The only thing I'd add on that I know this might seem counterintuitive given that we've put the investment on non-accrual and took a markdown. There actually is good opportunity going forward for Loadmaster. The management team has done an excellent job in positioning the business for some future business. And from our perspective, as a debtholder and the equityholder here in this restructured balance sheet, the business needs capital. And it made sense for us to provide long-term value to free-up that capital and not take current income. So, it made - like I said, it might seem counterintuitive, but we don't feel it actually reflects our point of view long term on where Loadmaster is going. It's - when a business needs capital, usually that's a good thing because they've got some stuff coming out in their horizon that could be accretive.

Thank you for that color on that. On - you've talked about the sponsored deals and that's part of the new strategy to get into those. Have you been working with kind of different sponsors each deal? Do you have maybe a few sponsors that you'll work really well with, so you've done them? Just kind of looking for the concentration there?

Yeah. It's a pretty diversified group. I think we've closed transactions over the last 10 years with 76 different sponsors going over $2 billion to $2.5 billion of transactions across the platform. I think as with every direct lender, there is a handful of sponsors that we have deeper relationships with, but that was until we have any concentration with any one sponsor.

Perfect. Thank you. And my last question. You were talking about in the prepared remarks evaluating the dividend as like you and the board do annually as every other BDC, but do you reevaluate it at this point or in the normal course have always evaluated it versus that one?

Hey Leslie, you broke up there and it's an important question. Do you mind repeating part of it please?

Of course. Sorry. My headset probably is dying on me here in the middle of earnings of course. On the dividend level, you talked about reevaluating the dividend. Is that in the normal course of business as you and other BDCs do annually or in the sense of your outlook going forward you need to reevaluate the dividend?

I think it's a fair question. I don't know if everybody has their BDC from our perspective. We have a question about our dividend and a discussion internally with the board every quarter. So, I wouldn't believe that this is anything new in a normal course of how we evaluate the business, evaluate the balance sheet. I think our commentary here as it relates to our dividend vis-à-vis the incentive fee waivers what we've highlighted given the fact that we've agreed to continue to waive the incentive fee as we execute our business plans for June. That it - come June, we feel like we should be in a position to see where the balance sheet is so we can make a lot of decisions as it relates to what the asset mix should be, how stable our equity base should be, what we should do with the potential for incremental leverage. So, there is a lot of decisions that need to be made once we get our plan executed. And our dividend and our fee construct would be both on the table.

Okay. Thank you. And just last portfolio question. Mortex Fiber maturity was December 2018. So, coming up here subordinated loan and it was marked down last quarter and this quarter again, some remarks. Is there any outlook there for a repay in the quarter?

Mortex, I think we believe Mortex was a slight mark-up this quarter, there wasn't amendment. So, let's say that they extended that maturity date possibly. We can chat offline if need to something, are you looking at the right at July on that front.

Got it. Yes. And last quarter was at December 2018, I apologize.

And again not to get into many specifics, this is a slot for that transaction and the response have been very, very supportive of the business as they work further on transition. We look at that financial support from a sponsor, but we have to take into consideration the performance of the business which is why we might see some variability and mark from quarter-to-quarter.

Okay. Thank you for answering my questions this morning.

Okay. Operator, any other questions?

I'm showing no further questions at this time. I would now like to turn the call back over to Chris Flynn for closing remarks.

I want to thank you everyone for joining the call today. Our goal in today's call as it has been since mark would be to provide a clear path and foundation and what we believe is the right plan to improve performance of our stock and to provide you an update, to reiterate what our plan is. We want to monetize our non-cash generating equity investments which will be accretive to our earnings power and grow Logan to offset the contraction associated with higher quality first lien investments, improve diversification going forward with our existing portfolio when possible, to continue to take steps to align ourselves and our shareholders, while we execute our plan via incentive fee waivers under the 10b5-1 share repurchase program at our advisor. I want to reiterate that the BDC remains our priority for $16 billion plus platform. We believe this plan of action will result in improved performance of our stock. Thank you. We look forward to updating you on our progress the next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.