Good morning, and welcome to THL Credit's Earnings Conference Call for its First Fiscal Quarter ended March 31, 2019. It's 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 Advisers 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 and include the factors included in the section entitled Risk Factors in our most recent quarterly report on Form 10-Q as updated by our periodic and other filings with the Securities and Exchange Commission. Although we believe that the assumptions on which any forward-looking statements are based 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 Q1 earnings presentation that we may refer to during this call. The webcast replay of this call will be available until May 19, 2019, starting approximately two hours after we conclude this morning. To access the replay, please visit our website at www.thlcreditbdc.com. With that, I will turn the call over to Chris

Thanks Sabrina and good morning everyone. Let me say at the outset that we believe we have made significant progress transitioning the BDC to a highly diversified first lien floating rate vehicle. We expect the majority of this transition to be completed by the end of the year. As a result of our execution, we believe that our portfolio substantially is at less risk today than it did a year ago. We have ensured to the best of our ability alignment with our shareholders while we have executed our plans via fee waivers and reduced fees and share repurchase at the BDC and share purchases by our advisor. As we continue to build out a more diversified pool of senior secured floating rate assets and assuming we get approval in June, and have successfully admitted our credit facility, we expect to take advantage of modestly higher leverage in 2020 to drive increasing ROE for our shareholders. Now, let me summarize our financial results for the quarter and provide an update on our progress as our March call. First, our investments income of $0.21 per share, or $0.22, excluding one-time items for the quarter was in line with our Q1 dividends of $0.21. Secondly, NAV for the quarter declined by 2% to $8.96 per share due to an additional mark down taken on our position in LAI. We marked our original investment in LAI down in Q4 and indicated that the Company was in a sale process on our March call. In Q1, we stepped in to support the business with an additional $10 million investment to address liquidity needs ahead of the sale, which we expect to close next week. The mark down this quarter on our original investment reflects our expected sale proceeds, we expect to exit the new…

Thanks, Chris. Good morning, everyone. Turning to few portfolio highlights. As on March 31st. a portfolio of $498 million was 67% invested in first lien senior secure debt 16% to Logan JV. As a reminder, the Logan JV is 95% invested in first lien assets. The remaining 17% of the portfolio was held in a second lien subordinated debt, and other income producing and equity holdings. Copperweld and C&K together represent over half of the 17% or $33 million. Please refer to Slide 13 and 14 in our earnings presentation, which highlights these trends over the last two years. The Logan JV continue perform well and credit quality remains strong the $349 million portfolio of 133 issuers continues to generate and attractive to yield for our shareholders. We expect to continue to grow Logan as we cycle out of non-core concentrated positions at 16% of the portfolio today we see the upper end of the future at 20% plus or minus at this time. As I mentioned on our March call, our long-term expectation is that this is a 11.5% to 12% yield for us. We are near the lower end this quarter as repayment activity in the broader markets have continued to be fairly muted as it has been over the last few quarters, which has slowed some of the accretion of OID and prepayment penalties. Some of this also related to timing of deployment within the quarter compared to timing of equity contributions. Total non-accruals as a percentage of the portfolio at fair value and cost increased to 5.9% to 12.44% respectively as LAI was moved to non-accrual in Q1. As Chris mentioned, we expect the sale and LAI to close next week bringing non-accruals back in line with last quarter. Charming Charlie and Loadmaster will be other…

Thank you. [Operator Instructions] And our first question comes from a line of Leslie Vandegrift with Raymond James. Your line is now open.

Hello. Good morning. My first question on LAI, I'm just curious and I know you discussed the sale next week. The extra 10 million that you put in the quarter, I guess, why was that needed this quarter to push it over the line and also on the mark. How close do you feel that last quarter's mark is to what you are going to get on sale for this?

Hey Leslie, it's Chris. I appreciate the question. The business needed incremental capital and we wanted to stabilize it to ensure a smooth sale process, that was the if you will the sources and uses of the $10 million. And we feel very good about the market as it relates to - our expectations as it relates to the proceeds next week.

Okay. And then on OEM, you talked about looking to sell by 2020? Is that something that you are actively involved in, sale process already or just an outlook that that might occur?

No. Again, I appreciate the question. We are very active, we are the majority owner of the business. Each one of these credits that has gone through stress as a lifecycle if you will. We need to restructure the balance sheet, stabilize the business and then hopefully either provide guidance or capital to start to show growth and EBITDA. We are at the later stages to that cycle and OEM and based on where we sit today we feel 2020 exit is reasonable. This is subject to market conditions and continued performance. But as we sit here today, we feel like we have taken care of three of the four main items to position the business to be transitioned Leslie.

Okay. And then last question on the portfolio Loadmaster. You talked about Charming Charlie as well both of improving and marking the quarter. So what were the improvements in Loadmaster that led to that?

Loadmasters it’s in the energy space, it’s got a few different initiatives and projects that we have been supportive of. We are reflecting in our mark confidence that these are going to start to pay dividend. I don't want to go into too much specifics, because it's a privately held business, but again, it's not the largest position in our portfolio, it’s fairly small one on Loadmaster, but we have continued to back the team that we put in place and feel good about how it's proceeding.

Okay. Thank you.

Thank you. And our next question comes from the line of Christopher Testa with National Securities. Your line is now open.

Hi, good morning guys. Thanks for taking my questions. Aside from the three non-accruals obviously, LAI is going away. So you have those, you have Copperweld and OEM. Is there anything else that is considered legacy investment as well?

Hi Chris, It's Chris, I appreciate the question. A little difficult to answer that, listen to anything that is above a 2.5% position I considered to be a legacy investment that we are trying to reduce and diversify. And the good news is the vast majority of those credits are either stable or are marked up for the quarter, so that is a positive. With that said, to the extent we can reduce our exit, so we are pushing forward on that. The three main that we highlighted, OEM, Holland, and Charming Charlie, are key areas of focus for a variety of reasons. The team that we have put in place at Charming Charlie has been excellent. They have done everything that they can to position this business for growth and a turnaround. So for that we applaud them. With that said, as we said in our prepared remarks, the store remains on non-accrual and it's extremely difficult headwinds in the retail sector, which is not some immune to just Charming Charlie the entire industry. The OEM and the others, we are working extremely hard to, to move forward and exit. The good news and what we are trying to send a signal to the market is, as we have executed our plan, we are still originating leading key credits, we have originated over $500 million of investment since 2018. Yet, we are doing it with a much smaller balance sheet in the BDC, but we are doing it in such a way where the balance sheet is massively diversified. The fact that we are able to execute and win these transactions and hold market target positions less than $10 million inside of the BDC, that is the right answer and that is the trend that we are excited about. And it's one of the reasons why, coming into this last quarter that we finally feel comfortable putting in that 10B51 program to take advantage formulaically of the in our opinion a disconnect between our stock price and our book value.

Okay, now I appreciate that answer Chris thank you. And I know you guys had previously discussed not using the reduced asset coverage really until the portfolio is cleaned up which you said is probably 2020 event. Just I guess looking at this in the context of, let's say you are still struggling with some of the legacy credit issues and things don't go as planned. Would you consider still using the reduced asset coverage, because it's going to afford you to basically drive higher sharp ratio investments and free up the 30% basket more to grow Logan or is that just, where you draw the line and you say, there's no way we are going to use the increased leverage, until that is all cleaned up?

Yes. The last thing this portfolio needed was increased leverage historically. So we are not going to move forward with that until we believe the equity base is stable and a stable equity base requires a handful of these investments to increase that diversification. So again, we are asking the share holders like one of the few BDCs that are going to the shareholders and asking. We believe it will pass, we think it should pass. But we are not going to implement that until we believe our equity basis is stable enough to ensure an appropriate level of leverage to drive ROE. The good news, as we sit back and set our dividend at that 21 trends which again cutting the dividends is a disappointment. But we set the dividend at a level with a new management team where we feel like as we sit here today, we can still cover it at that 105% to 110%. The fact is, if we continue to execute, we move ROE, that is got upside associated with it, we feel good about but we are not going to press the portfolio until it's ready.

Got it,, okay that is fair. And I know THL the platform completed its first middle market CLO. Just a couple of questions on that. Are you expecting the platform to do more middle market CLOs relative to probably syndicated, and do you feel that the middle market CLOs are further augmenting, your sourcing for some larger borrowers and more diversification within the TCRD?

Yes. Exactly. I appreciate the question and thanks for bringing that up. Our goal along when we look at the BDC. The issue historically was, it was a small single asset that was somewhat forced into concentrated positions and as accredited investor that is a bad idea. We have worked extremely hard to diversify the number of pockets and the increased private capital alongside that BDC. So we can now build a more diversified appropriate portfolio. We are very, very good at brought the syndicated CLOs, we are very, very good at direct lending, putting that together to middle market CLOs is an incremental leg to the stool, if you will of the advise now we anticipate that being a very large part of our platform going forward. So between the BDC or private funds and our middle market CLOs, we feel confident that we can execute our strategy on originating unique assets between $10 million to $40 million of EBITDA and maintaining that diversification that is required improving portfolio construction going forward.

Got it. And one more if I may and I will back in the queue. You guys have executed on a good deal, the repurchase authorization and kudos on that. Just would you expect to reauthorize another repurchase program, if you indeed exhaust this one and the stick remains at a pretty significant NAV discount?

Yes. Listen, we hope that the gap between our book value and the stock price narrows as we continue to execute. But if we are sitting in the future, if we spent the $15 million and we are still at these levels, this is a very interactive use of capital for our shareholders that we would anticipate continuing to move forward. I hope that is not the case, but it is we'll reevaluate after this $15 million of spend and to the extent we need to spend more, I'm sure we will.

Got it. Those were all my questions. Thanks for your time today.

Thanks Chris.

And our next question comes from the line with Kyle Joseph with Jefferies. Your line is open.

Hey, good morning guys and thanks for taking my questions. Most have been answered. But Terry, just wanted to get a sense for it looks like you had a nice tick up in the dividend income in the quarter, it sounds like that was related to Copperweld. Is that a decent run rate going forward knowing, you guys continue to plan on growing Logan and what not?

Yes. We are pleased with Copperweld performance and I would expect the level that we are at now, we'll continue as long as we continue to hold the investment for both, certainly for Copperweld and I would say the same for C&K.

Got it. That is my only question. Thank you.

Thanks Kyle.

Thank you. And our next question comes from the line of Leon Cooperman with THL Credit. Your line is now open.

Hi, thanks. I'm not with THL Credit, but I'm investor. Anyway, I'm just curious if I took a penny here, the $0.02 here that you guys mentioned. It sounds to me like 12 months out from now if things go according to what you expect, you should be earning at a rate of almost $1 a share. Did I read it right or is that - did I hear right or is that not correct?

Lee look we don't provide guidance that far out. But as we said in our last call, we set the $0.21 dividend at a level where we feel very confident and we try to rebuild credibility with the street that we can achieve this. Obviously, the fee reduction we put in place that is $0.02 a quarter right there. That feels good. We have laid our incentive fee for the rest of the year, which is obviously a benefit to the shareholder as we continue to finish cleaning the portfolio if you will. But our expectations are, in 2020, we are going to close the chapter of this old book on the BDC, and we are going to opens up a new one, which is going to have hopefully higher ROE. And more diversified portfolios - shareholder value.

If you have any guess at 896 book value on the book value decline, or you think there is further vulnerability?

It's hard to project. What we try to do Lee is I highlight the three key credits in the portfolio. We mentioned Charming Charlie first for a reasons. We have supported the team, I think we have got a fantastic management team. But as you know you are an investor in the broader markets, the retail sector is extremely tough. And that is a credit that we look at and, we evaluate on a daily basis. The good news is, last quarter, we were able to extend the runway, what a business like this needs is runway, we were able to get that runway extended. But yet, Charming Charlie is very tough given the industry, but I think the team that we have got in place has done excellent. OEM just a big position. The business itself is okay. But it's a $38 million position for us. So we are monitoring that daily, the good news is we put capital and that business is stabilized, we have got a new management team. And we think it's turned in the right direction, but it's still very, very large for us. That is why it's on our radar screen.

Just so I understand is $11.6 million left in the buyback program. Are you planning to implement that before the vote, independent to vote or is that contingent upon the vote?

It’s not contingent on the vote Lee.

It’s not contingent on the vote.

The vote on leverage?

Yes.

There's no correlation between us buying stock back at the discount and whether or not the shareholders gives us the incremental leverage.

Okay. And then the last philosophical question. The market cap is coming a little over $200 million. The expectation when this vehicle went public was totally different than it is now. Are you a viable economic entity, does it makes sense to be public with $200 million market cap and a big discount NAV, which prohibits you from raising capital. And I assume the cost of management - to the shareholder is probably about 3% or something like that. So does it make sense or should we really, focus on shrinking the cap and ultimately you are trying to minus shareholders and let them invest elsewhere?

Lee, I appreciate the question. I know it's one that you know talk about on these calls. So first, I think the cost to the shareholder is a bit lower than that, given the new fee concept that we put in place so I will start there. Secondarily as it relates to the size of the BDC, I'm not going to disagree with you, the size of the BDC is small. And if it was the only part of our platform that existed. I think you are right. It doesn't make sense. The good news is, is that we have, you know, billions of dollars alongside the BDC, that are able to enable us to execute our strategy. At $200 million market cap , we couldn't execute our strategy if it was a standalone entity. The good news is it's not. And we have raised a tremendous amount of capital privately away from the BDC in the middle market earlier. So I think the fact that it's part of a larger platform, the economics still make sense. We still believe that we are providing a very interactive return that we can provide a very attractive return for our shareholders. And given the fact that the stock continues to trade at a substantial discount, we think it's attractive entry points for folks to come in, and hopefully participate in a stable dividends and hopefully, some capital appreciation as a as a portfolio transitions out moves closer to book.

My own $0.02 for what is worth, as long as you have confidence in the outlook and the numbers that $0.21 was really $0.22 and you add different changes that you outlined, there is $1 out there and a $1 out there worth more than $6.74 a share, and I think the best thing you do for shoulders continue to buy back stock. And ultimately wind up the whole company if the market does not want to pay attention in the end. And I cannot think of a company management that has done more to support its shareholders and you guys, so I applaud you there. I'm not happy with the performance. But I have to say you guys have been stand up and have done everything you can to support the shareholders.

Thanks Lee, we appreciate it. And we don't disagree. That $0.21 again, we are trying to turn the page, we establish credibility and start a new chapter.

Good luck.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Chris for any closing remarks.

I want to thank everyone for joining the call today. To recap we have made significant progress transitioning the BDC to highly diversified first lien floating rate vehicle and expect to complete this repositioning by the end of the year. We believe that our portfolio is substantially less risk today than it did a year ago. We have been served with the best of our abilities, the alignment with our shareholders, execute our plan was reduced fees and fee waivers and share repurchase of BDC and by our advisor. Thanks again for everyone's time and questions. We look forward to providing another update next quarter.

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