MidCap Financial Investment Corporation 8.00% Notes due 2028 (MFICL) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call for its fourth fiscal quarter ended March 31, 2012. [Operator Instructions] It is now my pleasure to turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Thank you, operator, and good morning, everyone. I'm joined on the call this morning by Jim Zelter, Chief Executive Officer; Ted Goldthorpe, President and Chief Investment Officer; Eileen Patrick, Executive Vice President of Corporate Strategy; and Gene Donnelly, Interim Chief Financial Officer. I'd like to advise everybody -- everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation, and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloic.com. At this time, I'd like to turn the call over to Jim Zelter.

Thank you, Elizabeth. This morning, we issued our press -- earnings press release and filed our annual Form 10-K with the Securities and Exchange Commission. I'll begin my remarks today with some financial highlights for the quarter followed by a review of some other recent business highlights. Following my remarks, Ted will provide a brief overview of the current market environment and we'll then review investment portfolio activity for the quarter. Eileen will then discuss some of our recent strategic accomplishments. And finally, Gene will discuss our financial results in detail. We will then open the call to questions. Consistent with our philosophy of improving transparency and disclosures, we have posted a financial supplemental presentation on our website this morning. Gene will briefly discuss this presentation in his remarks later this morning. Moving to financial highlights, we are pleased to report fourth quarter net investment income per share of $0.21 for the quarter ended March 31, 2012. Net asset value per share rose 5% to $8.55 at the end of the March quarter compared to $8.16 at the end of December 2011. The increase was driven primarily by unrealized appreciation. During the quarter, we invested $147 million and received proceeds from sales and prepayments of $340 million. Our investment portfolio ended the quarter at $2.68 billion at March 31 compared to $2.70 billion -- $2.78 billion at the end of December. In addition to reporting earnings, we made a couple of other important announcements this morning. First, we are extremely pleased to announce that we have entered into a new 4-year $1.14 billion facility, senior secured credit facility. This facility replaces our existing facility and bears an interest rate of LIBOR plus 225 basis points, which is 75 basis points lower than our existing facility. The new facility has a 4-year maturity of May 2016, which includes a 3-year revolving period that ends in May 2015. This new facility provides us with substantial long-term liquidity and at a very favorable rate. Second, we are also very pleased to announce today that we have named Greg Hunt as Chief Financial Officer and Treasurer of Apollo Investment Corporation. Greg has an extensive finance background and has been the CFO for several companies, including a number of Apollo Global Management private equity portfolio companies. We are excited to have Greg on the senior management team of Apollo Investment Corporation. We'd also -- we and the team would also like to thank Gene for serving as Interim CFO and Treasurer for the company for the last several months. Moving to some other recent highlights. In our last call, we said that we were considering raising additional equity capital. We spoke with many of you and heard your concerns and concluded that raising equity through either a marketed transaction or a rights offering was not -- was currently not in the best interest of our shareholders. Apollo Global Management then decided to make a $50 million common equity investment in Apollo Investment Corporation and net asset value. Our investment advisor is waiving the base management and incentive fees associated with equity capital for a 1-year period. We believe this investment and the fee waiver demonstrates explicit support from Apollo for this flagship private debt vehicle. Also in early April, we announced that we made an investment in the senior loan vehicle managed by Madison Capital. This investment helps us achieve our objective of expanding into additional investment strategies and having greater exposure to proprietarily originated senior secured loans; an asset class which we believe will be an important part of our portfolio going forward. Eileen will discuss this investment in greater detail. Turning our discussion to our dividend. The Board of Directors approved the $0.20 dividend for our shareholders of record as of June 14, 2012. Based on our closing price, share price yesterday and annualized dividend, our stock currently offers a dividend yield of 11.8%. With that, I will turn the call over to Ted to discuss the current market environment and our investment portfolio.

Thank you, Jim. The U.S. leverage finance market for the March quarter was strong due to better economic data, easing concerns on Europe and improved investor confidence. Despite strong new issuance, credit spreads tightened during the quarter as many fixed income investors rotated out of treasuries, seeking higher return in other fixed income asset classes. At March 31, the yield of the BofA Merrill Lynch CCC index was 12%, down 220 basis -- 226 basis points since December 31. Since the end of the quarter and particularly in May, the credit markets have softened somewhat as concerns about Europe have worsened. This quarter ended through yesterday, the yield on the CCC index has risen 67 basis points to 12.6%. Moving to our investment strategy, we believe that BDCs are very well-positioned to fill the void that exist in today's lending environment due to increased regulation and capital requirements for banks and other capital providers as a result of the credit crisis, as well as due to having permanent capital unlike other debt providers. Given this opportunity set, we acknowledge the need to broaden our investment strategy, including enhancing our proprietary origination efforts and increasing our exposure to senior secured debt. We expect to benefit from the increasing spreads between illiquid and liquid risk in today's marketplace. We're methodically working to transition our portfolio, but we will continue to monitor the high-yield market as well. In addition to diversifying more investment strategies, we intend to better leverage the Apollo Global platform, improve the utilization of our 30% investment bucket and strike a better balance between portfolio liquidity and volatility. Many of you have asked what the portfolio will look like going forward. While we don't know with certainty, I will provide you some potential ranges of our portfolio composition. Looking ahead 2 or 3 years, I expect our exposure to subordinated debt to decrease to about half the portfolio. First lien, stretch senior or other loans could be around 20% to 30%, equity around 5% or 10% and other investments, which can include our energy or collateral-based lending of around 10%. We're constantly optimizing our portfolio and looking to sell positions opportunistically and reinvest in other strategies. In fact, our recently established energy team in Houston has made 2 energy investments subsequent to quarter end. Moving to our investment portfolio, given the liquidity in our portfolio and our intention to broaden our investment strategy, during the quarter, we prudently sold some of our lower-yielding investments at or near par and reinvested those proceeds into other strategies, which we believe have more attractive risk return. With that said, during the quarter ended March 31, we invested $147 million in 4 new and 7 existing portfolio companies. We also received $218 million of proceeds from selected sales and $121 million from prepayments. Approximately 94% of the proceeds from sales and prepayments were from second lien, subordinated and equity investments. The yield on new investments was 11.4% and the yield on investments that were sold or repaid was 10.1%. This resulted in an increase in the overall yield of our debt portfolio to 11.9% compared to 11.7% at December 31. We will continue to rotate out of our -- some of our subordinated debt investments into other strategies that have more attractive risk-adjusted returns. We estimate that our current portfolio has approximately $1 billion of investments that could readily be sold at or near our current mark in today's environment. Before I discuss the specific changes to our portfolio for the quarter, I'd like to briefly discuss the portfolio activity for the full year. The full fiscal -- for the fiscal year ended March 2012, we invested $1.5 billion and we received $1.6 billion from sales and prepayments, of which more than half was coming from prepayments. We do not expect this high level of prepayments to continue in fiscal 2013. I will now take you through some specific portfolio activity for the quarter. Regarding new portfolio companies, we invested $20 million in the first lien bank debt of Aventine Renewable Energy, which is the fifth largest ethanol producer in the United States. We also invested $15 million in the notes of SOPHIA Finance, which is the leading provider of ERP software solutions and professional business services to higher education institutions throughout North America. We also invested $11.3 million in the dip term loan facility of Eastman Kodak, which provides imaging technology products and services to the photographic and graphic communications worldwide. During the quarter, investments were made in the following existing portfolio companies: $45 million in the second lien bank debt of Asurion Corporation, $26 million in the senior unsecured term loan of Lonestar Intermediate Super Holdings and $14.6 million in Intelsat, and we invested approximately $12 million in other existing portfolio companies. Notable exits for the quarter included our investments in N.E.W. Holdings LLC, National Healing Corporation and Babson CLO, amongst others. I'd now like to review some general portfolio statistics at March 31. We continue to be well diversified by issuer and industry with 62 portfolio companies invested in 30 different industries. The company's total investment portfolio had a fair market value of $2.7 billion, with 4% in first lien senior secured loans, 26% in second lien senior secured loans, 60% in subordinated debt and 10% in common and preferred equity measured at fair value. As I previously mentioned, the weighted average yield on our overall debt portfolio at current cost at March 31 rose to 11.9% compared to 11.7% at December 31. The weighted average yield on our subordinated debt portfolio rose to 12.7% compared to 12.6% from the prior quarter. And the weighted average yield on our senior loan portfolio rose to 10.2% compared to 9.7% at December 31. Since the initial public offering of Apollo Investment Corporation in April 2004 and through March 31, 2012, our invested capital was totaled over $8.8 billion and 166 portfolio companies in transactions with more than 100 different financial sponsors. At March 31, the weighted average EBITDA of our portfolio companies continued to exceed $250 million and the weighted average cash interest coverage of the portfolio remained at over 2x. Regarding our risk rating, the average -- the weighted average risk rate of our total portfolio improved 2.2x compared to 2.3x measured at cost at December 31, 2011, and 2.1x compared to 2.2x measured at fair value at December 31, 2011. With that, I will turn the call over to Eileen to further elaborate on some of our recent strategic accomplishments.

Thank you, Ted. As discussed last quarter, our core strategy is to provide myriad finance -- private financing solutions to middle-market companies. We continued the process of broadening our investment footprint, thinking to generate the best risk-adjusted relative value for our shareholders. Let me highlight some of the progress that we recently made. As discussed in our last call, we strategically reviewed the financial services landscape and determined that we wanted to have greater exposure to smaller proprietarily originated middle-market senior secured loans, an asset class which we believe provides attractive risk-adjusted returns as many traditional lenders have become less focused on lending to this space. Historically, our almost exclusive focus has been to provide financing to larger middle-market companies. We believe smaller, middle-market senior secured loans can provide investors with more spread without sacrificing credit quality. We analyzed building this capability organically versus developing a strategic relationship with an established player in the space. We quickly determined that developing a strategic relationship with a well-established lender was the better way for AINV best gain access to this market segment. To that end, in April, Apollo Global Management announced the strategic relationship with Madison Capital Funding, who is a leading middle-market senior lender with an outstanding track record and reputation. Madison typically makes senior secured loans to companies having EBITDA of $40 million or less. Apollo Investment Corporation made an equity investment in a senior loan vehicle managed by an affiliate of Madison Capital Funding. The fund was initially populated with approximately $250 million of loan and our equity investment was $40.4 million. Given the yields on the underlying assets and the structure of the vehicle, we expect to generate mid-teen returns on this investment. We feel this investment leverages the strength of our respective platforms. This investment is not only evidence of our strategic expansion. It also illustrates better integration of AINV into the global Apollo platform. This investment is expected to be part of a broader relationship between Madison Capital and Apollo Global Management. We are already in the process of working on a second similar investment with Madison, which we currently anticipate will close later this calendar year. We will continue to look for additional investment opportunities that maximize the benefits associated with the permanency of our capital. We will provide you with transparent updates regarding our progress. I will now turn the call over to Gene, who will focus on our financial performance during the fiscal fourth quarter.

Thanks, Eileen. Before I discuss the financial results, as Jim referenced earlier, I'd like to mention that we posted a supplemental financial information package on our website. This supplemental package contains information about the portfolio, as well as the company's financial performance to date. We welcome any suggestions for making our reporting more informative and easier to follow. And consistent with our efforts to enhance transparency, Greg and the team will seek to enhance disclosures where appropriate. I will now discuss Apollo Investment Corporation's financial performance for the fiscal fourth quarter. I'll begin with some March 31, 2012 balance sheet highlights. Our total investment portfolio had a fair market value of $2.68 billion compared to $2.78 billion at December 31, 2011. At March 31, net assets totaled $1.69 billion with a net asset value per share of $8.55. This compares to net assets totaling $1.61 billion and a net asset value per share of $8.16 at December 31. The increase in NAV for the quarter was driven by unrealized gains. On the liability side of our balance sheet, we had $1 billion of total debt outstanding at March 31, down from $1.21 billion at December 31. Based on our total net assets at March 31, the company's leverage ratio decreased to 0.6:1 debt to equity as compared to 0.75:1 at December 31. Given the new revolver that we announced today, we currently have no debt maturities until October 2015. Our new investment was -- 1 new investment was placed on nonaccrual status in the March quarter. Accordingly, our portfolio had 3 positions in ATI on nonaccrual status compared to 2 positions in ATI on nonaccrual status at the end of December. At March 31, nonaccrual investments represented 0.1% of the fair value of our investment portfolio compared to 0.2% at December 31. On a cost basis, these investments represented 1.9% of our investment portfolio at December 31 versus -- at March 31 versus 1.7% at December 31. As for operating results, gross or total investment income for the March quarter totaled $85.2 million, an increase from $83.8 million for the December 2011 quarter and down from $94.7 million for the comparable March 2011 quarter. Expenses for March 2012 quarter totaled $44.2 million. This compares to expenses of $45.3 million for the quarter ended December 31 and $44.7 million for the comparable March 2011 quarter. Net investment income totaled $41 million or $0.21 per average share. This compares to $38.5 million or $0.20 per average share for the December 2011 quarter and $50 million or $0.26 per average share for the comparable March 2011 quarter. Also during the March quarter, we received proceeds from the sale of investments and prepayments totaling $339.7 million. There were net realized losses of $300,000 associated with these sales and exits. These quarterly results compared to net realized losses of $275 million of the December 2011 quarter and net realized losses of $1.6 million for the March 2011 quarter. The portfolio's change in net unrealized appreciation totaled $76.5 million for the quarter ended March 31, 2012. This compares to net unrealized appreciation of $300.2 million for the December 2011 quarter and net unrealized appreciation of $63.6 million for the comparable March 2011 quarter. Notable contributions to the unrealized appreciation for the March 2012 quarter included our investments in Ceridian, TL Acquisitions and Intelsat, among others. Contributors to unrealized depreciation for the quarter included our investments in Texas Competitive Electric, PlayPower and ATI, among others. In total, our quarterly operating results increased net assets by $117.2 million or $0.60 per average share versus an increase of $63.7 million or $0.32 per average share for the December 2011 quarter, an increase of $112 million or $0.57 per average share for the comparable March 2011 quarter. Let me now turn the call back to Jim, who will provide a few remarks before we open the call to questions.

Thank you, Gene. As you heard from our team this morning, we were selective investors in the fourth quarter, a trend which has continued in the current quarter. We have begun to show signs of progress in repositioning our portfolio and we will continue to highlight various benchmarks of success in the future. Our new credit facility provides us with substantial long-term liquidity and flexibility to execute our strategic objectives. With that, operator, please open the call to questions.

[Operator Instructions] Your first question comes from the line of Arren Cyganovich with Evercore.

If you could talk a little bit about the rotation out of the subordinated debt positions in your release, you talked about expanding your investment footprint. Can you talk about the footprint side of it? What does that mean exactly, geography, where you're at in the capital stack? That kind of information would be helpful.

Sure. Well, geography is really focused, really, on the U.S. I'll have Ted talk a little bit about some industries. But what we're really trying to do is we have with the breadth of subordinated debt in our portfolio, even though we have larger companies with large EBITDA, we are trying to, for the most part, take our attachment point, where we start to have exposure to the leverage of a company, up higher in the capital structure. So if your typical mezzanine or subordinated paper today was starting in the mid-4s, going to the mid-6s, we'd like to bring that up higher in the capital structure, and I'll pass it along to Ted, but Aventine is a good example of that. So we're just -- we think that the marketplace is going to remain choppy and the higher market will continue to open and close sporadically. But we really -- in terms of just taking our current portfolio, trying to trade equal yield for a better risk-adjusted yield, which is higher up the capital stack.

Yes, just to echo Jim's comments, I think the big run up in the high- yield market in the first quarter, I think our view is that there's -- that subordinated debt, particularly through the secondary market, probably offered less attractive opportunities to move it up the capital structure. So as Jim alluded to, a big focus for us right now is focusing on companies -- focusing on attachment points that are much higher in the capital structure, and number 2 is focusing on companies with more hard assets or hard collateral for us to lend against.

So is the shift more of a longer-term shift that you mentioned about getting, lowering the sub debt to about half of the portfolio over time, is this a longer-term view? Or is it just in light of the current environment?

No, no. We've been pretty clear with the variety of the changes we made over the last quarter or so, which are broad. We were very -- we've been very clear about, over time, diversifying our portfolio away from the reliance on subordinated debt. And subordinated debt is going to play a big part, as Ted mentioned. We foresee it over the next 24 to 36 months playing -- going from 85% of our portfolio to approximately around half of our portfolio. And there's many examples where you want to be an opportunistic investor in that space. Names like Univar, names like Altegrity, those are good situations where you can really price appropriate risk. And as we've been consistent saying that whether that's what we're doing with Madison, what we're doing in the energy space, trying to have a greater exposure to senior secured credit or a greater exposure to collateralized or enterprise loans that have a higher attachment point, that's a strategy that we want to have a consistent message, not only last quarter and this quarter, but I would just say in the next 8 to 10 quarters, you should expect that to be part of our continued effort to give you examples of how we've been able to express that in the portfolio.

Your next question comes from the line of Rick Shane with JPMorgan. Richard B. Shane - JP Morgan Chase & Co, Research Division: What's going on here is a portfolio rotation, is the way you're describing and that totally makes sense. On a practical basis, what that means is you're both a buyer and a seller in the market and we saw that in the first quarter. And I think it's interesting that -- and noteworthy that in the first quarter, when spreads were tight and it was an attractive time to be a seller for both the fundamental and technical reasons that you described, you were effectively net sellers into the market. And you were net sellers of about $200 million and I apologize for this long prelude to the question. The -- being in a position where you were both a buyer and seller, there's always this timing differential, which is that there are going to be periods where it's more attractive to be a seller and that's going to reduce your interest income and create -- delever the balance sheet and then there are going to be periods where you can build that back up. What do you think when you look at this is the company's tolerance? I mean, is $200 million plus or minus net on a quarterly basis a rough place of where you will be? Now we're in a market where spreads have widened back out a little bit, and I think you've, from an investment perspective, described it as a little bit more attractive, you're now within a leverage limit that makes sense. Should we be looking in environments where spreads are wider, you might reduce exposure a couple hundred million bucks a quarter and carry that drag and then in periods where spreads tighten or widen back out, add a couple hundred million dollars a quarter?

I think -- I mean, to answer your question, I think, right now, we feel great about how we're positioned. We took our leverage down quite a bit this quarter. With Apollo putting money in, it takes our leverage down more. I think we were able to still hit our NII targets. And so from our perspective, I think we're very well-positioned. And so we're going to continue to opportunistically look to sell low-yielding investments in our portfolio or things we don't like the risk reward of. And quite frankly, over the last couple weeks, it's become a little bit more of a buyer’s market out there, and so we're opportunistically looking to add stuff where we see appropriate.

What we all said, I think you're just -- you're honing in on a really accurate assessment of what we're trying to do. If we can, in a quarter like this last quarter, get our leverage down, make our NII, but sell $200 million of what we think are assets that don't hit our hurdle, if you would, that's a great quarter for us. So as Ted said, we're really happy. But yes, we're not trying to become market timers by any means. But certainly, we want to use the permanence of our capital and our leverage as an advantage, not as a disadvantage. And we've talked in the past about going from 25 to 26.5 and it's now where we've essentially delevered the book a little bit or we can be playing offense. But I think your number's probably a good number. Do I see us doing more than 200 or 300 on a net basis where we're going to be selling? The numbers get more challenging if we really have our objectives of NII. So I think we really hit a sweet spot there in the first quarter. And certainly, there are things that, when we think about prepayments, and Ted alluded to it, I don't suspect that we're going to be on pace of having the prepayments anywhere near what we had in 2011 -- or this past fiscal year. I believe, and we've run some numbers, that we're going to be a much, much smaller number to that. So you've honed in on exactly what we're trying to do and that if we can maintain that with a little bit of a balanced market and if we can't, we'll be a better buyer. Richard B. Shane - JP Morgan Chase & Co, Research Division: Got it. That's very helpful. And then one -- just one quick housekeeping question. I scanned through the K and I didn't see the recent developments or a recent development section. Is the way we should look at the $50 million offering or $50 million investment now, take the $50 million, divide by 8.55, which is now the stated NAV for the quarter and that's the number of shares that we should be adding in?

That's correct.

That's correct, yes. Richard B. Shane - JP Morgan Chase & Co, Research Division: Okay, great. And there's no other cost, no other noise with that?

That's correct.

Your next question comes from the line of Greg Mason with Stifel, Nicolaus. Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division: Could you talk a little bit more about the Madison agreement? You put in $40 million of $250 million of assets. That kind of feels like a $210 million of leverage above you, a 5x levered vehicle, that seems a bit high. Could you walk us through a little bit of that structure? And then what your expectations are for your yield on your $40 million investment there?

I mean, I think you have the math right on the leverage. I don't know that it would be high when you think about it in the context of middle-market, CLO equity to be a comparison point. I think the other -- we're fairly transparent about targeting mid-teen returns on our equity investment.

I would add, Greg, let me just give a little color on that. The average company in the portfolio, in our minds, when we think about relative risk-reward in the marketplace right now and we think where some of the second liens or mezz are coming today in the marketplace around the 10% number, but with that attachment point of leverage starting around 5x and going up to the high 6x and even 7x, when we think about that type of return and compare that to buying a diverse portfolio of senior secured loans where the total leverage on these companies is around 3x and our attachment point is 0 to 2.5x, 2.75x, we believe that it's just a lot more prudent if structured properly with nonrecourse debt to us. And there's a great alignment of interest where the Madison, they have a variety of capital where they are owning the same assets we are without any kind of markup, if you would. We just believe having their 10-year infrastructure and track record and looking at the loss given defaults, again, vis-à-vis where we're buying or can buy subordinated debt today, that looks to us as a very, very attractive investment for our shareholders. Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division: Great, makes sense. And then on the new credit facility, I was surprised by the decline in pricing. Is there any additional changes in terms of it being tighter on the type of assets you can put in there or diversification buckets? Or is it just kind of the exact same facility with lower pricing today?

Yes. The only real changes, we had a great group of banks, very supportive to us. They wanted to change and adjust some of the advance rates that would be -- help them out in terms of their -- some of their internal classifications or ratings. Pretty consistent with what our peers have done out there, and so we've been very surprised and excited as well. We think it's a great facility. It really shows the overall support that we have in the banking community. But it's very similar to what our peers have been able to achieve as well. So a very receptive market and we're very appreciative. Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division: And based on those new slightly lower advance rates, would it be still fair that you can use the full amount of the credit facility today? Or are there any limits based on the borrowing base and advance rates?

There are some slight limits in terms of not being -- in terms of our equity, advancing on equity, things like that. But it's virtually from a practical standpoint, we have access to the facility. Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And then one final thing, we're about halfway through the calendar second quarter. Could you talk about what your investments and repayments look like quarter-to-date and kind of what the near-term pipeline looks like for you guys?

Greg, we've historically and currently, we prefer not to get into detail on that. I think we're showing a lot of disclosure by our additional information on our website. But we're not prepared to go down the backlog calendar right now until we are able to consistently prove that, that backlog comes to fruition. I think it's fair to say that we're seeing less prepayments this quarter, and there's an overall lower level of activity overall. But other than that, in any kind of specifics, I think it would be mistake.

[Operator Instructions] Your next question comes from the line of Kannan Venkateshwar with Barclays.

The one question I had was the Madison facility, I mean, can we take that as a template for similar facilities in the future? And how big do you see these kind of assets growing to? I believe this is part of that asset bucket. So in that sense, do you foresee this ever reaching that 20%, 25% kind of a limit that others -- other peers seem to operate at?

Well, our view is that we're fortunate in that our 30% assets, we have a lot of liquid assets in that bucket. We've got several hundred million of room today, and this is a good example of optimizing the portfolio because even what we think is a realistic loss given default and we overlay that, the returns on the Madison facility are in excess of what we're getting today. So I think it would be a natural assumption, as people are building their models, to think that we're going to methodically increase our exposure to these things. But any good portfolio manager is all about diversification. So we're going to be thoughtful, but we're very, very pleased with the relationship so far and I do believe not only will it result in similar transactions like this, but I think you'll find a broadening of the proprietary sourcing that Ted has alluded to. I think this is one avenue we'll be able to source product that makes sense for us on, on balance sheet mezzanine opportunities. So again, we're going to be thoughtful about it. There's a prudent pacing. But certainly, for the next year or 2, we've got plenty of room to run.

Your next question comes from the line of Mickey Schleien with Ladenburg. Mickey M. Schleien - Ladenburg Thalmann & Co. Inc., Research Division: I just wanted to touch on the pace of investments and divestments in the last quarter because you did point out that you made your NII target despite a net reduction in the size of the portfolio. But if a lot of the divestments occurred at the end of the quarter then that could roll over into the current quarter and put some pressure on you, so could you give us a sense of the timing of the originations and sales during the quarter?

Listen, it's a great point you're bringing up. If you sell them all on the last day, you get the benefit to it. I don't -- nothing strikes me as timing that would be out of the ordinary course of business. So I think it's a sort of a quarter run rate, not predicting what we do this quarter. But we're very focused on making sure we understand the short-term and long-term impact of activity. So there was nothing in particular about that in terms of timing that would have a seasonal effect or an exponential effect on our earnings.

At this time, we have no further questions. I'd like to turn the floor back over to Mr. Zelter for any closing comments.

Well, thank you very much for everybody who's on the call today. We appreciate the support and the patience. We've done a lot of work. The team has worked very hard this past quarter. I again want to thank Gene for his work as our Interim CFO and we're excited to continue the open dialogue with our current members, but also a lot of our new members that have been added and Greg and Ted and others. So we look forward to the continued dialogue and support in the future. Thank you very much.

Thank you. This concludes today's conference call. You may now disconnect.