Good morning, and welcome to THL Credit Incorporated Earnings Conference Call for its third fiscal quarter ended September 30, 2019. It is my pleasure to turn the call over to Ms. Sabrina Rusnak-Carlson, General Counsel of THL Credit Incorporated. 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 Chief Investment Officer; and Terry Olson, our Chief Operating Officer and Chief Financial Officer. Before we begin, please note 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 annual report on Form 10-K as updated by our quarterly report on Form 10-Q and 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 on our 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 Q3 earnings presentation that we may refer to during this call. A webcast replay of this call will be available until November 15, 2019, 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 will begin today's call with an update on our Q3 financial results and we’ll then move on to the progress we've made in managing and repositioning our portfolio. Our net investment income for the quarter was $0.22 per share versus our dividend of $0.21 per share. Our NAV was $8.34 per share as of September 30, representing a modest decline of less than 2% quarter-over-quarter. The NAV decline with primarily isolated the one credit Holland which we've highlighted on our last few earnings calls as a credit that we're closely monitoring. Our interest in the Logan JV, were also marked down this quarter largely due to market technicals in the syndicated market. And we took a small mark down on our equity holdings and OEM. These changes were offset by the incremental NAV gain on our sale of Copperweld and a 5% accretion from our stock repurchase. Holland is a first lien investment and one of our three remaining energy credits. The business continued to face market headwinds this quarter due to overall reduced M&A activity in the energy space and was marked down accordingly. Aside from the markdown in Holland, we continue to believe the fundamentals of our portfolio are moving in the right direction. We're very pleased with the results of our Copperweld exit this quarter. Copperweld is one of our control equity positions was originally an unsponsored deal that we took through and restructured in 2016. With managerial changes and the retention of an advisor, operations were stabilized and EBITDA grew, positioning the company for a sale. Cash proceeds received in dollars escrow totaled $35 million which were 1.6 times our original investment and a $1.5 million mark up from June 30. The total return on this investment, including interest…

Thanks, Chris, and good morning, everyone. First, some highlights on our investment activity. 2019 has been a strong year for originations across THL Credit’s platform. The broader THL direct lending platform has closed over $500 million of commitments across 18 new investments of which the BDC has participated in 12. During the third quarter, the BDC closed two new first lien investments in company’s data and Simplicity, which together will follow on investments made during the quarter totaled $19 million. Historically, the fourth quarter of the year tends to be the most active in terms of deal flow. However, this year we're seeing deal activity actually slow pretty much over the second half of this year. And this is likely due to increase market volatility in the larger, broadly syndicated, loan market and record high purchase price multiples for LBO transactions. The quality of deals we're seeing has declined a bit, as leverage has crept up a bit. We continue to maintain a strong credit discipline first lien sponsor-led transactions in industries where we have a favorable outlook. During the quarter, we recognize proceeds from realizations totaling $68 million, which included the sale of our second lien and control equity investment in Copperweld, as Chris mentioned earlier, the repayment of our first lien loan in Fairstone, the repayment of science first lien term loan, and the conclusion of the liquidation of our Charming Charlie position. Lastly, I'll touch upon the Logan JV, which continued to perform well and represented 20% of the portfolio at 930. The $350 million portfolio of 132 issuers continues to generate attractive returns for our shareholders. We believe the long-term yield expectation continues to be in the 11% to 12% range, absent any market conditions. In Q3, we saw a further decline in LIBOR that has contributed to some yield compression. Logan was marked down by $2.3 million or $0.07 per share for the quarter due to broader market movements. The syndicated loan market has been fairly choppy over the past six months. And we continue to believe that that will continue over the next three months. Overall, the portfolio continues to perform well and credit quality remains strong. There was one loan on nonaccrual status as of 9/30 with a cost basis of $2.4 million, representing less than 1% of the Logan portfolio. With that, I'll turn the call over to Terry to give you some more information on our Q3 financial results. Terry?

Thanks, Jim. Good morning, everyone. First, a few portfolio highlights. As of September 30, our portfolio of $404 million was invested 67% in first lien senior secured debt and 20% in the Logan JV. As a reminder, the Logan JV is 97% invested in first lien assets. The remaining 13% of TCRD’s portfolio was held in second lien subordinated debt, and other income-producing and equity holdings. You can see slides 13 and 14 in our earnings presentation, which highlights these trends over the last two years. The weighted average yield on the debt and income-producing portfolio, including Logan, was 10.1%. Nonaccruals as a percent of TCRD's portfolio at fair value and costs decreased to 2% and 3.2% respectively, with the liquidation of Charming Charlie in Q3. Loadmaster was the only company on nonaccrual as of September 30. No new names were added during the quarter. Moving on to the financials for the third quarter, as Chris mentioned, our net investment income was $0.22 per share. And looking at some of the components of our $12.8 million of investment income this quarter the income of $8.8 million decrease this quarter from last primarily due to the portfolio contraction and some tightening spreads – LIBOR sorry. And the dividend income was $3.6 million and reflected dividends from Copperweld, C&K and the Logan JV. The decrease in other income quarter-over-quarter is related primarily to the onetime $1.5 million exit fee we realized in connection with the sale of LAI in Q2. On the expense side, total expenses for the quarter were $5.9 million, compared to $6.5 million in Q2. The decrease was primarily due to lower interest in fees. On borrowings as we paid down a substantial portion of our revolver in Q3 with proceeds from the realizations Jim mentioned. Moving onto a few balance sheet items, our cash balance of $14 million at September 30 was higher than normal just due to the timing as it included proceeds from the realization of science, at quarter end, escrows and other receivables increased in Q3. With the liquidation of Copperweld and Charming Charlie, we expect to receive proceeds from the finalization of the Charming liquidation in Q4 and most of the remaining Copperweld proceeds are expected in early 2020. The realized loss of $7.7 million in Q3 was primarily related to Charming Charlie, net of realized gain on the sale of Copperweld. And this net realized loss was offset by a corresponding change in unrealized appreciation. From a leverage and liquidity perspective, leverage levels were lower in September 30 at around 0.7 times with the repayment of the three positions in Q3. And we anticipate increasing leverage back to that 0.75 to 0.8 times range in the near term. With that, I’ll turn the call back to Chris for some closing remarks.

Thanks, Terry. We appreciate the opportunity to update you on our continued progress in Q3. We believe our continued diligence. Execution of our plan is a clear pathway to more stable, predictable returns. Thank you and we look forward to your questions. With that, I’ll turn the call back over to the operator to start the Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Lee Cooperman with Omega Family Office. Your line is now open.

Thank you very much. Just the three – few questions, Chris, if I may. I missed it if you said something, but is the cash flow covering dividend if you took your incentive fee per your arrangement, that’s number one. So are we still subsidizing a distribution or we no longer have the need to subsidize the distribution? Secondly, if you had to take a stab at the question, if you took all the questionable assets and wrote them down to what you thought was a reasonable level, what impact would that have on the book value? And third, I think you’re doing the right thing in buying back stock, but you’re obviously shrinking the size of the company, you’re shrinking your footprint. Are we economically viable as a kind of entity we are structured presently? Those three questions, any help you can be would be appreciated. Thank you.

Thanks, Lee. I appreciate the questions. The first as it relates to the incentive fee, as it relates to our dividend, I’ll be honest, I don’t recall the last time we actually took an incentive fee on the BDC. So it’s been quite some time. So if we pro form that in on our existing results, the earnings per share would be less. It’s about a $0.03 or $0.04 reduction. But given our existing structure that we have as it relates to our fees and the look back over time, we’re not anticipating taking an incentive fee given the losses that we’ve incurred during the portfolio for the remainder of 2020. So we think the dividend itself is sized accordingly and is okay. To the extent, the portfolio itself has been diversified enough to enable us to add more leverage, I think, the leverage that we put on the system would enable us to potentially earn an incentive fee in the future and still cover the dividend as outlined. Your second question as it relates to the assets, we obviously value these assets and what we believe to be the fair market value each quarter. Fortunately, we’ve got two names that are sizable. As it relates to the overall concentration around those, you see them, we’ve highlighted them and it’s not that we’re not being transparent, its whole event, our both areas of focus. And folks can do the math on what that risk is. But we value those assets every quarter on what we think the fair value is. And then I think your last question regarding the economic viability of the BDC itself. As a standalone entity, I think, you’re right it would be difficult for, as we were sitting here only managing a $500 million vehicle for…

Yes, I think as I’ve said frequently in the past, nobody I know of this gone more out of their way to support what they brought to the public than you guys. But on the other hand, we’ve done a very poor job. What I was really referring to is the cost of running a public company, which is being absorbed by the shareholders as opposed to the $10 billion, or $15 billion, or $17 billion, in your private company. But we don’t have to belabor that now. That was the point I was trying to make. I think they were just marginalizing ourselves as we shrink.

Lee, I don’t disagree we need to get bigger, not smaller. But as there is still a dislocation between our book value and our stock price we’ll continue to aggressively buyback stock and accrete that to our shareholders as a good use of capital. But you’re right, the long-term ultimate goal is risk to get bigger not smaller.

Okay. Thank you. And good luck.

Thank you.

Thank you. And our next question comes from the line of Paul Johnson with KBW. Your line is now open.

Thanks. Good morning guys. Thanks for taking my question. First, I just wanted to ask you on [indiscernible] from slightly smaller this quarter was that due to the non-accrual in the JV?

Hey Paul, you’re fading out a little bit. I’m sorry. We were having a hard time hearing you. Can you can you repeat that?

Sorry about that. Can you hear me now?

Yes.

Okay, I was just asking on the distribution from the JV this quarter was slightly lower than previous quarters. Was that due to the non-accrual – the new non-accrual in the joint venture? And also would you expect that to pick back up in the future?

Yes Paul, this is Terry. I appreciate the question. There was a non-accrual last quarter that obviously is rolling through there and obviously the impact of it decreasing LIBOR has put a little bit of pressure on the earnings, which you can see in the yield we stated just being under 11%. So look I think that will go – we think we’ll probably operate closer to 11%, 11.5%. But I would expect probably stabilization of that number in the zip code of what we paid this quarter.

Okay, thanks. And then lastly just on your progress and the rotation, you guys have made pretty good progress over the last several quarters in rotating out of that non-core stuff. How would you describe, I guess, how you stand today in that process? I mean, do you believe that you substantially completed most of that or you expect to have – do you have any sort of transactions on the horizon to continue to expedite that? How would you describe that?

Yes, Paul, I appreciate the question. I think we’ve made very, very good progress. I mean it’s not as easy as just saying, do you want to exit these names? You actually have to take time. We’ve got a handful of names that are still concentrated that are performing in our – we’re on our process of working through or reducing those. But the two main areas of focus as we said in the call were our OEM and Holland. And we’re pushing forward as fast as we can to turn those investments into cash.

Okay, thanks. Those were all my questions.

Thanks, Paul.

Thank you. And our last question comes from the line of Matt Jayden [ph] with Raymond James. Your line is now.

Hi guys. It’s actually it’s Robert here. Can I just – on the timing during the quarter of the repayment it looks to me like they were late in the quarter. So could I assume you’ve got the normal dividend from Copperweld this quarter, but we should expect that to go away next quarter, would that be fair?

Yes, Robert, this is Terry here. Yes we took a dividend in Q3 similar to prior quarters and we do not expect a dividend in Q4 given the investment is gone. With respect to the first statement between Copperweld and science it’s about 42-ish million dollars of proceeds. Those science closed in the last day of the quarter, I think, Copperweld was few days before quarter end, so it was very back ended.

Thank you. And then you’ve given comments on OEM in Holland and C&K because obviously that’s a good asset, it’s been doing well, also been paying you a dividend. Is there any outlook you can give on that, whether you’ve had – there’s been incoming expressions of interest or anything like that or if you expect to exit that in 2020 as well?

Our expectation is to be out of that investment in the first half of 2020. Along the way we will continue to receive a dividend. The company continues to perform well and be able to support the dividends maintaining on a quarterly basis.

Got it. Got it. And then you call the pipeline – well not technically about the pipeline, but you said the disruption in the market is maybe reducing deal flow a little bit. I mean, we’ve heard that in particularly in the upper ends of the syndicator market, there has been disruption. And that has created maybe more incoming enquiries to private lenders rather than syndicate us. So can you give us any – I mean, are you seeing that as well, that there’s less activity in the syndication markets and the syndication inquiries? But is there any effect showing up more so in the private markets that obviously you guys are more exposed to?

Yes, thanks Robert. I appreciate the question. I think that statement is true, but not necessarily reflective of our traditional origination source. So if you think through larger issuers, they have the ability to go to the syndicated market or to a much larger direct lending platform. These are businesses that are average EBITDA let’s say north of $50 million to $100 million. This syndicator market is a bit choppy, to use Jim Fellows’ description. And therefore some of those assets are moving into more of underwritten or buy and hold strategy on the direct side. Our core investment focus is on smaller businesses that $10 million to $40 million in EBTIDA. Our average EBITDA in our portfolios is right around $20 million. They traditionally don’t have the access to the syndicated markets anyway. So the fact that that market may be closed periodically does not really affect our traditional resources. What we’re seeing on our side is we’re trying to see some price discipline if you will. As you see larger issuers pricing GAAP out, we feel from a relative value standpoint, you should see increased pricing on our issuers as well. And that has not played through yet. And that’s why we’re being patient with our capital and we’re going to wait until we see good value on assets that we like and execute accordingly. So a little bit of a bifurcation if you will, versus the broader market and what I’d say, the core middle market. But those are the comments as it relates to the question that you made.

Got it. Thank you. I appreciate it. Those are my questions. Thanks.

Thank you.

Thank you. And this concludes today’s question-and-answer session. I would now like to turn the call back to Chris Flynn for any further remarks.

Thanks, everyone. We look forward to providing you with another update on our progress in 2020.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.