Main Street Capital Corporation (MAIN) Q3 2015 Earnings Report, Transcript and Summary

Greetings. And welcome to the Main Street Capital Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenny Zhou. Thank you, Ms. Zhou. You may begin.

Thank you, Bob, and good morning, everyone. Thanks for joining us for the Main Street Capital Corporation third quarter 2015 earnings conference call. Joining me today on the call are Chairman and CEO, Vince Foster; President and Chief Operating Officer, Dwayne Hyzak; and Chief Financial Officer, Brent Smith. Main Street issued a press release yesterday afternoon that details the company's third quarter 2015 financial and operating results. This document is available on the Investor Relations section of the company's website at mainstreetcapital.com. A replay of today's call will be available beginning about an hour after the completion of the call and will remain available until November 13th. Information on how to access the replay is included in yesterday's press release. We also advise you that this conference call is being broadcast live through Internet webcast that can be accessed on the company's webpage. Please note that information reported on this call speaks only of today, November 6, 2015, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening. Our conference call today will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and they are not guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income. Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies was derived from third-party sources and has not been independently verified. And now, I'll turn the call over to Vince.

Thanks, Jenny, and thank you all for joining us today. I will comment on the performance of our investment portfolio, discuss our recent dividend announcement and conclude by commenting on our investment pipeline. Following my comments, Dwayne Hyzak, our newly promoted President and Brent Smith, our CFO, will cover operating performance in more detail and comment on our third quarter financial results and originations, recent announcements, our current liquidity position and certain key portfolio statistics in our expense ratio, after which, they will take your questions. We were pleased with our operating performance during the third quarter in terms of earnings results. Our lower middle market investments are primary area of focus appreciated by $17 million on a net basis, with 18 of our investments appreciating during the quarter and 10 depreciating. Our middle market loans appreciated by roughly $16 million during the quarter on a net basis, and our private loans depreciated by $8.3 million during the quarter. Lastly, our investment in our External Investment Manager and our other investment assets depreciate by $700,000 on a net basis during the quarter. We finished the quarter with a net asset value per share of $21.79, a sequential decrease of $0.05 a share over the second quarter. We estimate that roughly $7.5 million of our middle market depreciation during the quarter was technical in nature rather than due to the company specific credit issues, the various leveraged loan indices experienced similar declines in valuation. Excluding this impact, our net asset value per share would have appreciated during the quarter by roughly $0.10. Our lower middle market companies with nearly $113 million of cash on their balance sheets collectively continue to exhibit highly conservative leverage ratios on a relative basis, which Dwayne will cover in greater detail. Earlier this week, our Board declared regular monthly dividends for the first quarter of $0.18 a share in each of January, February and March of 2016. The ex dates for these dividends are December 28th, January 20th, and February 18th, respectively. These dividends represent an increase of 6% over the monthly payout of $0.17 a share in the first quarter of last year. In addition, our Board declared a semiannual supplemental dividend last month payable in December of 27th a $0.005 a share. The ex date for this dividend is December 15th. This December will represent our fourth consecutive calendar year of special dividends, beginning with the 2012 dividend declared in the fourth quarter of that year. We continue to expect that we will pay supplemental dividends in addition to our regular monthly dividends as long as we are in a significant undistributed taxable income position. Also during the third quarter we reached an important milestone, excuse me, with our regular dividend paid on September 15th of -- this past September we had paid cumulative dividends in excess of our October 2007 IPO price of $15 a share. As of today, I characterized our investment pipeline is strong posturing us to exceed our combined lower middle market in private loan origination target of $250 million to $300 million for 2015. We continue to seek and receive significant equity participation in our lower middle market investments and as of quarter end, we owned an average of a 36% fully diluted equity ownership position in the 96% of these investments in which we currently have equity exposure. We have recently started to finance our new lower middle market in private loan investments with exit proceeds for our middle market portfolio. Our middle market portfolio was percentage of our total investment portfolio declined by about 1% in the third quarter relative to the second quarter and we expect that this trend will continue over the next few quarters. We used our middle market portfolio to help optimize our leveraged target in the past, but since we have now achieved our targeted leverage range, prudent rotation out of our middle market portfolio should accelerate. As of today, we have an unusually high number of existing lower middle market investments in various stages of discussions with potential acquirers, some have valuations materially in excess of our carrying values. And then they result a completed transactions, these discussions reinforce our view that markets are conservative on an overall basis. Our officer director group has continued to be regular purchasers of our shares investing approximately $600,000 during the third quarter. With that, I’d like to turn the call over to Dwayne to cover our portfolio performance in more detail.

Thanks Vince and good morning everyone. We’re pleased to report another quarter during which we generated both distributable net investment income in excess of our recurring monthly dividends and significant contributions from our lower middle market portfolio. As we discussed in prior quarters, we believe that the primary driver of our success continues to be our focus on the underserved lower middle market and specifically on investment strategy of investing in both the debt and equity in the lower middle market and acting as a sponsor and a partner to the management teams of our lower middle market portfolio companies and not just the financing source. Last quarter, I provided some additional details behind the dividend income contribution from our lower middle market companies to demonstrate one of the significant benefits of our lower middle market investments. This quarter I’m providing additional details behind our historical exits of lower middle market equity investment in an effort to give additional color on another benefit of our lower middle market investment strategy. In future quarters, we will continue to try and highlight different benefits of our lower middle market investment strategy. The third quarter of 2015 represents the end of Main Street’s eight full years as a public company. During this time period, we have exited 33 of our lower middle market equity investments. Of these exits, 23 have resulted in realized gains with these gains totaling approximately $82 million, while [China] [ph] resulted in realized losses with these losses totaling approximately $8 million. In addition, when you compare our realized gains on these exits to our fair value marks, two quarters and four quarters prior to exit, the actual value achieve on the exit of these equity investments exceeded the fair value marks two quarters prior to exit by approximately 27% and four quarters prior to exit by approximately 56%. We believe that our historical realized gains and a related comparison of these realized gains to our prior fair value estimates are helpful when evaluating the benefits of our lower middle market equity investments and when evaluating the current fair value estimates of these investments. Consistent with prior quarters, the contributions from our lower middle market portfolio continue to be well diversified with 44 of our 68 lower middle market equity investments having appreciation as of September 30th with a median appreciation of approximately $2.6 million and with 30 companies on our lower middle market portfolio are approximately 70% of our investments and flow through entities for tax purposes contributing to our dividend income over the last 12 months. We believe that the diversity of our lower middle market portfolio is very important when analyzing the dividend income, net appreciation and realized gains from our lower middle market equity investments. And we believe that this diversity provides support for the strength of our historical performance and visibility to the recurring nature of these benefits in the future. As Vince previously mentioned, we continue to have ongoing exit activity discussions given the nature of our large and diversified lower middle market portfolio with advanced activity in several situations driven by the current robust nature of the M&A market and the quality and attractiveness of our lower middle market companies. Now turning specifically to our investment portfolio at quarter end and our investment activity in the third quarter, we are pleased to report that our overall portfolio performance remains strong. And the portfolio continues to improve its diversification each quarter, which we believe provides significant benefits to our shareholders. Our investment activity in the third quarter included total investments on our lower middle market portfolio of $39 million primarily as result of our investments in two new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of approximately $33 million. We also had a net increase in our middle market portfolio of approximately $29 million and a net increase in our private loan portfolio of approximately $18 million. As a result, at September 30th, we had investments in 198 portfolio companies that are in more than 50 different industries across the lower middle market, middle market and private loan components of our investment portfolio. The largest portfolio company investment is approximately 2.8% of our total investment income and approximately 2.5% of our total portfolio with the majority of our portfolio investments representing less than 1% of our income and our assets. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday but I’ll touch on a few highlights. Our lower middle market portfolio included investments in 71 companies at quarter end, representing approximately $856 million of fair value which is greater than 23% above the cost basis. Consistent with our investment strategy, approximately 70% of our lower middle market portfolio at cost was in the form of secured debt investments and approximately 90% of those debt investments held a first lien security position. As Vince mentioned, we hold equity positions in 96% of our lower middle market portfolio companies with an average fully diluted equity ownership position of approximately 36%. At the lower middle market portfolio level, the portfolio is median. Net senior debt to EBITDA ratio was a conservative 2.0 to 1 or 2.1 to 1 including portfolio company debt which is junior in priority to our debt position. As a complement to our lower middle market portfolio, in our middle market portfolio we had investments in 86 companies representing approximately $670 million of fair value. And in our private loan portfolio, we had investments in 41 companies representing approximately $252 million in fair value. Our middle market and private loan investments provide significant portfolio diversification and generated additional net investment income to fund our dividends. The total investment portfolio fair value at September 30th was approximately 108% of the related cost basis. And we had four investments on non-accrual status which comprise approximately 0.2% of our total investment portfolio fair value and 3.0% at cost. In summary, Main Street’s investment portfolio continues to perform at a high level and continues to deliver on our long-term goals. With that, I'll turn the call over to Brent to cover our financial results and liquidity position.

Thanks, Dwayne. We are pleased to report our total investment income increased by 17% for the third quarter over the same period in 2014 to a total of $42.6 million, interest income increased by approximately $6.5 million, dividend income increased by approximately $1 million, and fee income decreased by approximately $1.4 million when compared to the prior year. The amount of income that is less consistent or nonrecurring in nature was approximately $0.7 million, or $0.01 per share, in the third quarter of this year, which was lower by $0.04 per share compared to the third quarter of 2014. Third quarter 2015 operating expenses, excluding non-cash share-based compensation expense, increased by $2.8 million over the third quarter of the prior year to a total of $13.1 million. The increase was primarily the result of a $2.3 million increase in interest expense due to the issuance of our investment grade notes in November of 2014 and approximately $1 million relating to compensation and other general and administrative expenses. These increases were partially offset by an increase of $0.5 million in the cost allocated to our external investment manager. The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, which we believe is a key metric in evaluating operating efficiency, was 1.3% on annualized basis for the third quarter. It continues to compare very favorably to other BDCs and other investment options. Our increased total investment income and the continued leverage of our efficient operating structure resulted in a 13% increase in distributable and net investment income for the third quarter of 2015 to a total of $29.5 million, or $0.59 per share, exceeding our recurring monthly dividends paid for the third quarter by over 12%. Our external investment manager relationship with HMS Income Fund benefited our net investment income by approximately $1.8 million in the third quarter of 2015 to a $1.1 million reduction of our operating expenses for cost charge to the external investment manager for services provided to it, and $0.6 million of dividend income from the external investment manger. We recorded a net realized loss of $1.3 million during the third quarter, primarily relating to the restructuring of a private loan debt investment, partially offset by realized gain relating to the exit of lower middle market investment. And as Vince discussed, we recorded net unrealized depreciation on investment portfolio of $7.6 million in the third quarter, primarily relating to $15.6 million of net depreciation on our middle market portfolio, $8.3 million of net depreciation relating to our private loan portfolio and $3.1 million relating to our other portfolio. This net depreciation was partially offset by net appreciation relating to our lower middle market portfolio of $17 million and $2.4 million of net appreciation relating to our external investment manager. Additional details for the change in our net unrealized appreciation can be found in our earnings release. Our operating results for the third quarter of 2015 resulted in a net increase to net assets of $20.7 million, or $0.41 per share. On the capital resources front, our liquidity and overall capitalization remained strong. At the end of the third quarter, we had $35.3 million of cash, $4.6 million of marketable securities, and $251.5 million of unused capacity under our credit facility. Today, we have approximately $25.2 million of cash, $5.7 million of marketable securities, and $262.5 million of unused capacity under our credit facility. As we look forward to the fourth quarter of 2015, we currently expect that we would generate distributable net investment income of $0.58 to $0.61 per share during the quarter. This estimate is $0.04 to $0.07 per share above our previously announced monthly dividends for the fourth quarter of $0.54 per share and would result in the fourth quarter monthly dividend payment an approximately 89% to 93% of our expected distributable net investment income. With that, I will now turn the call back over to the operator so we can take any questions.

[Operator Instructions] Our first question comes from the line of Bryce Rowe with Robert W. Baird. Please proceed with your question.

Thanks. Good morning.

Good morning, Bryce.

Hey, Vince, you mentioned in your prepared remarks the potential for the middle market portfolio, I guess as a percentage of the total portfolio start to decline, just wondering what your expectation is on an absolute basis? Do you think you'll start to monetize that portfolio and use proceeds to fund the private loan and lower middle market portfolio, or will it kind of stay flat from an absolute perspective?

No, it’s going to decline from an absolute perspective. In fact, it already had started to, so that’s absolutely what we expect to occur.

Okay.

Both absolute and relative, Bryce.

Got it. Okay. And then kind of follow-up to that, Vince. You described the pipeline for private loan and lower middle market as strong. I think it’s been kind of described as average last couple quarters. So wondering how you think about the origination pipeline relative to some of the M&A discussions that are going on with your current investments and how that might kind of net out over the next couple quarters?

Yeah, it could net up, it could net up pretty well. I don’t think that we would -- assuming it takes 90 days for the near-term pipeline to resolve itself on the new investment front and also some of these discussions depend on whether or not they precipitate in actual exits. There is probably -- there are probably been net growth but not too much. So, yeah, actually if we do have some exits, we would use the exit proceeds to fund new investments prior to middle market, right that middle market rotation. I think the exit activity if it all happens, it about equals the near-term backlog.

Thank you, guys. Appreciate it.

Thanks, Chris.

Thank you. Our next question comes from the line of Robert Dodd with Raymond James. Please proceed with your question.

Hi guys. A housekeeping one, first of a kind. The dividend income in the quarter, $6.9 million was pretty high. I mean, that’s kind of at the level we saw fourth quarter last year when you get S1 distributions, et cetera, et cetera or Escrow distribution, tax distributions. Was there anything unusual in there like a benefit from a dividend recap, or is this just the continuation of the Lower Middle Market businesses maturing and paying dividends and we should still expect a Q4 uptick maybe from that level?

Go ahead, Brent.

Yeah. Sure. The dividend income of $6.9 million that you are referring to in the quarter, there's really nothing unusual in that dividend stream. It was just a matter of, either the company's underlying performance. Obviously, we have several companies performing very well that has discretionary cash flow in addition to receiving our taxable distribution. But there really wasn't anything unusual in this quarter’s dividend income.

One thing that does happen, Robert, during the third quarter is the 2014 tax returns are due. That’s kind of the extended due date, mostly will get filed then. So there is better visibility on exactly what our contractual cash distributions are. So sometimes, you see a little bit more activity in Q3 and Q4 as a result of that.

Right. Got to get a little bit of catch-up. Okay. And then just on kind of the bigger question with multiples in the Lower Middle Market being high in some segments. We’ve seen kind of barbell and I think I asked you about this in the last couple of quarters as well. Distribution in terms of valuation, as those companies get a little bit bigger and the multiples increase substantially because obviously, if your opportunities are still strong and you don't like to pay high multiples for them. On the other hand, some of your businesses are seeing very, very high multiples. Is there anything shifting in the marketplace as to who gets what kind of multiple win?

Yeah. Robert, when you look at the outliers from a valuation standpoint or from an increase in value of, I would say that each of those situations is pretty specific to the company. They have done something that is probably a combination of significant growth since we invested, but either more importantly the outlook for their future growth is extremely robust. And as a result, they started getting inbound increase from private equity and other strategic acquirers, seeking a relationship with a company and that’s really when you start seeing the outlier performance from an appreciation and valuation standpoint in those companies. Across the board, if you look at the Lower Middle Market as a whole, I’d say that there is a little bit of an increase in valuation across the board. But it wouldn’t be a situation where it’s a significant increase over a year ago or two years ago.

Got it. And then last one if I can. On energy, not your exposure rather the opportunity side, now that prices been down for a while, are you seeing more opportunities on some of the Lower Middle Market service providers maybe kind of rationalizing on what they expect and what they need for capital going forward? And is that going to be one of the opportunistic sectors that you would be looking to expand in over the near term?

On the service side, Robert, it would have to be really compelling. I mean, kind of what we're hearing is that there is still a bid/ask difference between what the owners of the companies want or thing they should versus what new investors are offering up, or on the joint venture side that tends to what you see first as a company that’s in king of tough shape, forming a joint venture or acquiring in some form or fashion, maybe using some of its equity, the company's that’s in tougher shape in the same industry. We are seeing a lot of that right now and the company that is kind of the worst shape and its owners just aren't quite ready to capitulate and throwing the towel. They are trying to stay independent as long as they can. But it’s kind of typically as what you see at this point in the cycle. So that’s really what we are looking at, looking at some of our energy exposure and saying what does it make sense to opportunistically combined with because now is the right time to do that. We probably would not be looking at new service type, energy service type investments. I don't think that our investors, our lenders and our revolver particularly don’t want to see us having much more in a way of energy exposure, particular on the service side. They have a pretty full plate themselves typically. So if we did see something really compelling, we probably would want to rotate our existing energy name, which is tough to because you know you might be taking a realized loss in order to out. So, I don't expect much thereof than maybe some joint venture activity. Dwayne, would you add particularly if any?

No, I think you covered it. It’s like we saw, several years ago. I mean the benefit of having a permanent capital provider in Main Street for a lot of our companies in that area. They will see opportunities and they will be in a unique position that if they find the activity or the opportunity attractive enough, they can actually act on it because they’ve got a supporter from a financial standpoint in Main Street. But a lot of other private companies, they don’t have that benefit.

Got it. Thank you, guys.

Thank you. Our next question comes from the line of Christopher Nolan with FBR & Company. Please proceed with your question.

Hey guys. Given the rotation from middle market and to lower middle markets, should we start seeing a bump-up in yields going into 2016?

That is certainly the objective.

Okay.

Yeah. I mean, we -- little -- lower middle market is just, it’s lumpy in terms of your ability to originate it on a regular basis. And on a net basis it can be tough to grow at times because you have access that you got to redeploy in addition to coming up with new originations. But when you are able to originate it and actually close some of that pipeline, your yields are almost always several 100 basis points higher.

Great. And Vince, given the discussions about possibly you acquired some of these lower middle market companies. Should we read from your comments that because we’re approaching year end you could see a bump up in some of this realization activity as people try to close deals for accounting year end?

Actually, if you’re an individual, Chris, and you're selling your company, you’d rather close in -- after -- in January, so your tax liability would be deferred for another year. So that tends -- that can tend to push closings to the beginning of the year. You might document at the end of the year, but you close them at the beginning of the year. In addition, you get a nice accounting cutoff if you can close something in January as opposed to November, December. So I’m not aware of any, sound like we are dealing really with than I’m aware of public company counterparts that want to get something booked. There is always, if you deal with the private equity counterpart with one of its portfolio companies, always kind of wondering if, one of our companies might be the catalyst that it needs to file an IPO. These IPOs are getting filed, that can be done on a solid basis. We could actually be negotiating with someone that's in registration, it wouldn’t surprise me. But, in general, if I’m closing the deal, I’d rather close it early January and get a nice clean cutoff. But so that’s what I would expect.

Okay.

But we’re holding -- we liked our companies. We’re not really trying to sell. We’re holding firm on the valuation we expect to achieve. And the counterparty does their diligence. They either hit our number, if they don't they don’t than we hold onto it, we’re kind of happy either way.

Great. Final question is capital ratios. Where you guys -- where do you think your capital ratios are maxing up for you, consider spending with equity based?

Yes. Sure. As we’ve talked about on the last couple of conference calls, we’re really kind of -- our targeted leverage ratios we are really taking the lead from SMP on that and obviously, with our investment grade rating, they have certain criteria. We want to stay well below those, which we are currently. I mean one of their main one is debt excluding SBIC debt to equity. They want you below 0.85 times. And at the end of the third quarter we’re 0.56. We have a total debt to ATE ratio of less than 1.5 and 1.85 at the end of the third quarter, so we have a lot of run rate there. But historically, we’ve always managed a conservative balance sheet and that up to 10 even. I would say, we’re approaching our internal targeted leverage metrics within 5% or 10% .So I think we’re just going to wait to kind of see how the middle market rotation plays out coupled with our lower middle market and private loan investment needs and just kind of reevaluate whether there is an equity need or not as we move forward.

Great. Thanks for the color, Brent.

Thank you. Our next question comes from the line of Vernon Plack with BB&T Capital Markets. Please proceed with your question.

Thanks very much. And Vince, building on some of the earlier questions, I know that middle market percent is at a fair value. I think its 38%. I’m trying to get a sense for where that could go? And I don’t know if there are any -- I guess I’m trying to understand what perhaps at a lower level could be and are there perhaps some constraints from -- as it relates to a revolver in terms of how low that number can be? So just trying to get more color there?

Yeah. So our middle market rotation will probably be in the near term in this $50 million to $100 million range Vernon. And one thing -- but the only thing that constraints that is if we have a cost basis on a loan of 99 because we got it for a point of OID, forget about accretion over time. I’m not in the bid for what is 98. We’re not inclined to take a loss. So in the middle market, the middle market pricing activity when you see the reported bid as out there everyday, it's been week. And we’re not inclined to be taken advantage of in terms of taking realized loss as just because of a weak market technically. So that would be our constraining factor in which case some of the exit activity doesn't happen and some of the originations do, than we’d be taking about our takeaway revolver up or maybe doing a modest equity offering, something like that. So those are the opportunity. So we could add on to our investment grade senior notes.

Okay. Great. And one follow-up, totally different topic and Vince, I know that you have been quite involved in this but any update or thoughts regarding progress related to pending or possible BBC legislative changes?

As a matter of fact, there was some interesting activity yesterday. There was a senator that proposed a vote in the Senate on our family of funds Bill that it passed the House. And the protocol that they’re operating under is when one side of the other ones is proposing some legislation, even ours is bipartisan, you typically period up with some other legislations, my understanding that the other side might want. And we achieved a pair of bills that both sides were happy with but an amendment was offered up to the paired bill that wasn’t acceptable by the Senator that proposed the bill for a vote, and so nothing happened and the request has withdrawn. So that’s kind of literally how close we are and this happen yesterday. So, we almost got something done, who knows if it will probably happen again. There is some talk to may be pending our -- on the SBIC side pending it to may be something in appropriations. So yes, it is kind of day by day situation, but it has bipartisan support and we’re just -- we’re kind of crossing our fingers and seeing if there's anything we can do, we will fly up and try to do it so. I say 50-50 something happens in the next 12 months.

Okay. Appreciate it, Vince. Thanks.

Sure.

Thank you. Our next question comes from the line of Bryce Rowe with Robert W. Baird. Please proceed with your question.

Thanks, Dwayne. I had a follow-up on some of the information you provided about the lower middle market. You talked about 33 lower middle markets exits over the last eight years and you gave some good information on exit values versus mark in two and four quarters prior. Just curious if of the 33, how many exits occurred at a value less than a fair value mark to do our four quarters prior?

Yeah. Bryce, so when you look at the activity and their comparison to the two or four quarters prior, the amount of excess that were below the mark were pretty minimal, if you look at four quarters prior to exit. We had three that had a lower exit value than the value four quarters prior. And two of those were situations that we had to realize loss. If you look at it two quarters prior you just had a harmful three and it was all exits where the exit resulted in a realized gain.

Great. That’s helpful. Thanks, guys. I appreciate it.

Thanks Bryce.

Thank you. Our next question comes from the line of Christopher Nolan with FBR & Company. Please proceed with your question.

Hey, guys. On HMS income, the Department of Labor is going to be changing the rules on the ability for advisers to recommend non-traded BDCs. How does that impact HMS income and thus, the revenues you guys look out from that going forward?

Yeah. That’s an interesting issue in terms of how it would impact us, kind of couple comments. Number one, the initial offering period together with a six-month extension that you're allowed to have if you're considering a follow-on period will expire, I believe by December 1 or December 2nd. So they will be officially out of the market and will not be fundraising. And then what they are going to try to do is they declared effective in terms of a follow-on offering with the SEC. And then proceed to begin resigning selling agreements with the different independent broker-dealers and sponsors that they work with, who are selling the products or distributing the product over the last few years. And that probably takes a few months before you get those agreements resigned because they have due diligence requirements that they’ve got to undertake, et cetera. So it’s a lot more efficient, a lot easier than the first go around but that’s the stage that they are in. So, as a practical matter, they are going to be done to the next few months other then maybe some immaterial amounts. And then the labor department issue is something that their industry is spending a lot of time on. And I think the consensus is that the labor department rule is going to come out but it is going to come out in -- which is the fiduciary standard. But it is probably going to come out in a -- of some modified form and it's unclear what the modification is going to be. But it is probably going to be somewhat less severe than the proposal that they rolled out a few months ago, so that’s kind of what we are hearing. But if a relatively severe proposed language went into effect, my understanding is that that probably over half, maybe well over half of the sales to 401(k)s and IRAs retirement type plans would not be permissible. So it would have a real chilling effect on them and some of the non-listed BDCs that are out there.

Okay.

And I guess potentially some listed BDCs to the degree that you are getting a commission and the ultimate buyer was IRA, or formal care, something like that.

Great. Thanks for the color, Vincent. A – Vince Foster: Sure.

This concludes our call today. I’d like to turn it back to management for final remarks.

We don’t have any final remarks. We will look forward to speaking to you again and taking your questions in late February. Thanks.