Good day, ladies and gentlemen, and welcome to the TCG BDC Second Quarter 2017 Earnings Call. At this time, all participants are in a listen-only. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to turn the call over to Daniel Harris, Head of Investor Relations, you may begin.

Thank you, Michelle. Good morning and welcome to TCG BDC’s second quarter 2017 earnings call. Last night, we issued an earnings press release and detailed earnings presentation with our second quarter results, a copy of which is available on TCG BDC’s Investor Relation website. Following our remarks, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. This call and webcast is the property of TCG BDC and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today, do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risk and uncertainties, including those identified in the Risk Factor section of our prospectus and other SEC filings that could cause actual results to differ materially from those indicated. TCG BDC assumes no obligation to update any forward-looking statements in any time. Lastly, past performance does not guarantee future results. And with that, I’m going to turn it over to Michael Hart.

Thanks, Dan. Good morning, everyone and thank you for joining us today for our quarterly earnings call, which as you know, is our first as a public company. I’m joined today by our management team, including our President, Jeff Levin; our Chief Risk Officer, Tom Hennigan; our CFO, Venu Rathi; and our Head of Originations, Grishma Parekh as well as other members of the team. I’d like to begin by welcoming our new and old investors as well as the analyst community to the call today. The second quarter represented not only another period of solid operating results, but the achievement of two important strategic initiatives. I’ll touch on a few of the highlights and provide a little historical perspective on our business. I’ll then turn it over to my colleagues to provide a more in-depth look at the financial results. Today, you’ll hear from Jeff, Tom and Venu, but on future calls and presentations, you’ll have an opportunity to hear from other team members at different times, and of course today during Q&A. Yesterday after the close, we reported second quarter net investment income of $0.47 per share, up from $0.46 in the previous quarter. We paid a second quarter dividend of $0.37 per share and the board on Monday of this week approved the third quarter dividend, which again will be $0.37 payable to shareholders of record on September 29th, and payable with payment date of October 18th. All components of our business contributed to the strong operating results, including the continued solid performance of our core portfolio, a record level of investment opportunities sourced by our origination team, and the continued scaling of our strategic partnerships. However, before we delve further into the operating results for the quarter, as I mentioned, I did want to take a…

Thanks, Mike. I will spend some time addressing the overall market environment as well as our capital deployment during the second quarter and then hand it over to Tom Hennigan, our Chief Risk Officer. The leverage finance markets continue to be extremely robust during the second quarter with significant new issue volume, spreads remained tight with leverage high, while purchase prices continue to be at or near all- time peaks in the context of LBOs. To provide a few specifics, volumes in the first half of 2017 was the highest ever for a first or second half of any year with our pricings having represented approximately 60% of volume. Although re- pricings, dividends and opportunistic refinancings declined close to 50% from Q1 to Q2, the second quarter was still the second highest on record, after Q1 being highest. LBO activity increased in Q2 and collectively LBO and M&A activity drove about half of new issue volume. However, I want to note that LBO and sponsored portfolio company- backed acquisitions drove about 80% of our Q2 investments, highlighting the benefits of being a direct originator of loans versus investing in syndicated deals, either broadly syndicated or middle market. And lastly, I want to highlight sponsor activities that are central to our business. Given the substantial amount of dry powder held by private equity firms, sponsors continue to be very active in combined LBO and private equity- backed acquisitions totaled over $50 billion in the second quarter, the most in 10 years. Average equity contribution was about 41%. This is higher than in any full year since 2009. And to further my point earlier about the benefit of direct origination in our platform, equity contribution by sponsors in our Q2 LBOs was almost 52% and equity purchase multiples for our deals was…

Thanks Jeff. Our portfolio as of 6/30 remains highly diversified and defensive. First lien loans account for 74% of the portfolio and that includes about 10% first lien last- out. No single debt investment accounts were greater than 3% and the top industries are noncyclical and account for only 11% to 12% of the total portfolio. And the portfolio was 99% floating rate. So it’s well positioned for potential increases in interest rates. Of note, our investment activity in the second quarter was centered around borrowers with limited cyclicality in areas such as technology and telecom, insurance brokerage and health care with limited government reimbursement risk. Of the total investments we funded in the second quarter, the mix of first lien versus junior debt was in line with our historical portfolio composition. The net additions from the NF merger were primarily first lien about 90%, while new investment activity was slightly weighted towards more junior debt. In addition, our repayments and loan sales including strategic sales of the JV were more heavily weighted towards first lien. All totaled up, portfolio mix was largely unchanged compared to 3/31. At June 30, the weighted average yield on our first lien and second lien debt investments was 8.6% based on amortized cost compared to 8.3% as of 3/31. This increase is primarily due to the raise in LIBOR, the increase in yields from our first lien debt positions largely offsets the decline in yields in our first lien last- out portfolio. In terms of credit quality of the portfolio, credit tasks were generally stable during the quarter. Second quarter nonaccruals as a percentage of the total portfolio were essentially flat versus first quarter at under 1% and 2080 remains the sole borrower on nonaccrual status. So weighted average risk rating as a portfolio…

Thanks, Tom. We ended the second quarter with total portfolio investments of $1.7 billion, up by $327 million since the prior quarter. Outstanding debt as of June 30th was $605 million and our net assets were $1.1 billion. Turning to the liability side. As of June 30th, our debt-to-equity ratio was 0.54 times as compared to 0.87 times as of March 31st. The decline was largely attributable to cash proceeds received from our initial public offering that were used to pay down the outstanding borrowings. This reduction in leverage provides us with significant capacity to grow the portfolio. Over time, our targeting at debt-to- equity ratio of between 0.65 times to 0.75 times. Post recent amendments, our credit facilities currently have three to four years of remaining revolving periods. And as of June 30th, we had approximately $351 million of unused total commitments under our credit facility, which provide us with ample capacity to move into target debt-to-equity range over time. Turning to the financial results for the second quarter. Our total investment income was $39 million or $0.47 per share, up about $5 million from the prior quarter. The increase compared to the first quarter is due to strong asset growth, higher prepayment fees and higher interest and dividend income from our investment in the JV. On page 11 of our earnings presentation, you will find a breakout of total investment income. On our, on, net expenses were $17 million for the second quarter compared to $15 million in the first quarter, primarily driven by higher management fee and incentive fee. In addition, our interest expense increased due to an increase in average outstanding borrowings as a result of significant origination activity and increase in the LIBOR. Our expenses for this quarter also included a onetime cost as related…

[Operator Instructions] Our first question comes from Rick Shane of JPMorgan. Your line is open.

Really, just one thing. The originations during the quarter were particularly strong. I just want to think about that in terms of how we calibrate our model going forward. Should we see that as a pull forward or should we see that as sort of incremental to how we’re thinking about the year?

Hi, Rick, this is Mike and thanks so much for your call. Let me talk about that a little broadly. It was a very good quarter for us from an origination standpoint. But a couple of things have to happen, as you know, for those to come into fruition and that is the market volumes have to be there and particularly in for us, the composition of what that market looks like. And as the second quarter evolved into more of an event driven financing market where re-pricings EBITDA and we saw more LBO in acquisition finance activity. That’s much more in our sweet spot and I think that contributed to why we were successful to a larger extent. The other point is that where we are as a business, we’re putting larger dollars to work on in an individual transaction. And so that was not the case in each situation, but keeping well within our diversification targets, we’re now holding 40s and 50s were those numbers used to be 20s and 30s. And so that speaks to the aggregate number a bit. And then as you know, there are always a bit of luck in this business. When you’re looking at opportunities in that realm where you’re often times working in auctions, you have the -- you have to satisfy the double probability of you winning the auction and your sponsor winning the asset. So that contributes to what invariably is a bit of a lumpy business and I think, it will continue to be. But we feel good about the core numbers that we talked about earlier, because of the coverage that we get and the connectivity we have with our sponsors.

Okay, fair enough. And we look forward to chatting with you guys, over the years to come.

Terrific. Thanks a lot, Rick.

Our next question comes from Jonathan Bock of Wells Fargo Securities.

Mike, I just want to parse through the unrealized losses a bit here for a moment. So we understand that you mentioned that it’s because of -- would arguably say, somewhat of a technical movement to where, one that wouldn’t highlight concern, but then when you sit and look at your watch list investments increasing, particularly categories of four and five, fairly sizably, it doesn’t necessarily compute when we start to read that in those watch list investments rate with those ratings that there is underperformance relative to your base case. So can you help us understand what, one would argue, I mean, lot of BDC managers argue markets aren’t a problem until next quarter, it’s really a problem. So help us understand the difference, and why these marks are not necessarily negative.

That’s a very specific question that we spent a lot of time on. So we’ll go through the specifics of it and Tom will take you through that.

Sure. Jonathan, in regards to the risk ratings, the number five category, there were no new additions to five. The increase in the dollar basis is simply due to two factors; Slight increases in valuations for those loans; and then secondly, the addition from the NF acquisition, it was largely overlapping positions. The four category had two net additions relatively small borrowers, one with mid- single digits exposure and an another in the low teens. And again those are not transactions, one is kind of -- both were kind of on the fringe between our three and four categories, but based on our internal methodology, they calculate to a four. So we have no reason to overwrite those, but certainly not credits were concerned with.

And then next, Mike, the fee waiver, an additional $0.04 this quarter. Can you walk us through just the mechanics here, because clearly, we’re looking for steady and stable coverage of the dividend going forward. What were the mechanics of just dis-waiver and I imagine it gets ex-sponged on a go-forward basis?

Jonathan, are you talking about the management fee waiver?

Yes, correct.

Yes, that will continue to be waived through the third quarter with an expectation that it will commence back to the original 1.5% on October 1st. At that time, it’s also expected that the incentive fee reduction will go into effect from 20% to 17.5%.

Just a small check there, then regarding the rapid ray up, I mean, congrats on very strong fundings in addition to -- in the portfolio, in addition to the middle market credit fund. Let’s just start with what you’re originating for the CGBD balance sheet of the $470 million in deals that you did this quarter, what percentage were you the lead agent on? And what percentage were you in fact a partner with Antares? Or other direct originator?

In terms of partnering with Antares, I’d have to get back to you, I don’t have that information handy. In terms of a joint lead arranger title, it’s in a -- there are several deals in our quarter where we were a joint lead arranger. I can follow up with you with the exact number. The business throughout the past couple of years has really transformed where everything we do is direct with sponsors, and we’re joint lead in many of our transactions. And as you know, it’s a club market as well. So our second quarter is consistent with what we’ve been doing over the past couple of years, which is all direct business and the mix is really a combination of joint lead business and deals that are club transactions. But I can follow up with the detail.

Only because we often find a certain level and this isn’t to say that joint lead deals are bad. I mean, good managers can club up. But remember, folks always love to see true differentiation on originations that you were able to source in whole specifically given your size. The last question I have relates to the middle market credit fund. So I would imagine there is probably a change in leadership at a Canadian partner that you are working with, and I’m curious as to how and if that affects your potential JV on a go-forward basis?

Hey Jonathan, this is Grishma Parekh, good to hear from you. We have not disclosed publicly our Canadian partner for the joint venture. There has not been a change in leadership at our Canadian partner to our knowledge, and I’m pretty sure that there hasn’t been on an absolute basis. We will certainly follow-up to the extent that anyone from the management team isn’t aware of that, but I think it may just be misinterpretation of who that Canadian partner may be just because we haven’t disclosed that publicly.

Hey Jonathan, I want to follow up on one other point, on your question about joint lead versus club type transactions. The level of diligence that we conduct and the impact that we have on the documentation doesn’t change, whether we have a joint lead title or it’s a club deal across three, four, five lenders. So want to make that distinction as well, but we will follow up with the detail for you.

[Operator Instructions]. Our next question comes from Ryan Lynch of KBW. Your line is open.

The first one just goes back to kind of your commentary about the competitive environment that you outlined. Some investors may or some investors in these markets may say that it’s a good time to be pulling back on portfolio growth during these time periods of heightened competition. So just how can investors get comfortable with the strong $325 million of portfolio growth on the balance sheet as well as the $ 250 million of strong growth in the middle market credit fund given the despite the backdrop?

Well, listen, I’ll offer a few points of commentary and my colleagues can chime in. We have between our own direct origination as well as what I like to call almost synthetic origination footprints across our platform that give us coverage and insight into probably close to 350 financial sponsors. What we’ve found in targeting where the bulk of our origination goes in sort of the EBITDA 15 to 50 and the dynamics that occurred in that market. I mean, the numbers speak for themselves in terms of the volumes and how that broke down with respect to repricings and acquisition financing and LBO opportunities, that the volumes were there and given that the bulk of those situations are looking for providers that are speaking for the entirety of the financing, whether or not they ultimately go that route, limits the level of competition there to a certain degree. And we’ve seen that. We by no means think it’s uncompetitive but we also have worked with many sponsors this quarter where taking that last basis point or that last half eternal leverage was not their goal. It was moving quickly, it was having certainty around financing and those were the dynamics that came into the makeup of our overall origination portfolio. So we feel very good about the quality of the situations that we underwrote this quarter. We like the relative pricing that we received. We have tended to see a bottoming of the spread compression and certainly a capping on the overall leverage that we’ve seen put on our investment opportunities. And that isn’t to say, the structures or definitions or add-backs don’t become challenging, and you have to be careful about that in terms of what you’re accepting on those. But overall, it’s not a market that’s in our view more competitive than it’s been over the course of the last six to nine months. Jeff, Grishma?

Yes, I was just going to add a couple of things to Mike’s comments, which was when we’re on the road with new investors and the research analyst, we try to emphasize, I think, three words that really describes our BDC, which were extensive, diversified, and disciplined. It’s how we built the BDC over the last several years and it really continues to be the source in which we invest currently. And so Q2 is a continuation of that. As you look at each of the loans that we originate in, invested in, they are in defensive sectors. We maintained a high-level of diversification, and we are really disciplined in the parts of the capital structure that we chose to play in as well as the type of credits and the type of sponsors that we really leaned in on. The second is, when we make investments and particularly when we are looking to make investments in a market like this, we ask ourselves constantly, which is what is our strategic edge. Do we have a strong sponsor angle? Is this a particular private equity firm that we know incredibly well that we trust in their sector, expertise and in their performance and how they’re going to be behaving across cycles. Do we have, do we institutionally have excess knowledge and sector expertise that we can bring to the table that is differentiated. And then, is this investment going to continue to support our fundamental strategy in today’s market, just to focus on defensibility. And all of those things were met with these investments that we made. And then, and the final two points is, if you look at our portfolio, 75% to 80%, we’re supporting repeat sponsors and about 45% or so were positions that we already know that were in our portfolio today. So it is, so while it’s been a robust quarter, it hasn’t been any more of a deviation from our fundamental investment strategy.

And then, I’m trying to get my head around, how I should think about the middle-market credit fund growth from an asset level going forward, you guys had about $250 million of growth this quarter. So out of that $250 million of growth, how much of that was due to dropping down assets from the NFIC Acquisition, and how much of that growth was also due from you all dropping down or selling down assets from your balance sheet and do will we expect any more sales from your balance sheet into the middle market credit fund, maybe some little over yield investments or is that pretty much finished with going forward?

Sure, this is Tom. The asset drop downs two buckets: One, there were $30 million of assets that were on the TCG balance sheet as of 3/31 that we sold to the JV, and there is another $53 million of loans as part of the NF merger that were more suitable for the JV’s yield profile. So we sold those loans to the JV. So in the aggregate $83 million of loans essentially from TCG. Within the TCG portfolio going forward, it’s not something we’re actively pursuing right now but there certainly are additional triggers within that portfolio loans that would fit the JV yield that in the future we’ll consider selling.

And then just one last one. There is very strong other income in the quarter about $4 million. I’m just trying to think about that going forward. Do you expect that to drop back down to more than $2-ish million level you guys have been running at or as you guys are ramping up the portfolio to [point capital] from the IPO and other capital raise, should we expect that to maybe stay higher in this $4 million area going forward?

Yes, I would think about that number as being on the high side this quarter, Ryan. It’s not a number that we’re looking to drive significantly larger. There are certain opportunities obviously. We pay close attention to the call protection that we have embedded in our portfolio. There have been certain situations where syndication of positions were helpful in driving it, but neither of those are critical to our overall objective. The numbers that we had looked in the two range were more or less representative of what falls out of business is brought is what we’re running here. But there is not an area of focus there to grow at expansively.

I understand that’s a difficult number to predict but I appreciate the commentary. Thank you for taking my questions today.

Thank you, Ryan.

There are no further questions. I would like to turn the call back over to Daniel Harris for any closing remark.

Thanks for joining our first public earnings call since our IPO, and we look forward to speaking with all of you in the future. If you do have follow-up questions at any point, feel free to give Investor Relations a call. Thank you.

Thanks, everyone.

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.