Monroe Capital Corporation (MRCC) Q1 2019 Earnings Report, Transcript and Summary

Welcome to the Monroe Capital Corporation’s First Quarter 2019 Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain Forward-Looking Statements, including statements regarding our goals, strategy, beliefs, future potential, operating results or cash flows. Although we believe these statements are reasonable based on management’s estimates, assumptions and projections as of today, May 8, 2019. These statements are not guarantees of future performance. Further time sensitive information may no longer be accurate as of the time of any replay or listening. Actual results may differ materially as a result of risks, uncertainty or other factors, including, but not limited to the factors described, from time-to-time in the Company’s filings with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements. I will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation.

Good morning, and thank you to everyone who has joined us on our call today. As always I’m joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening we issued our first quarter 2019 earnings press release and filed our 10-Q with the SEC. We had another strong quarter, we generated adjusted net investment income of $0.35 per share in line with our first quarter dividend of $0.35 per share. This represents the 20th consecutive quarter we have covered our dividend with adjusted net investment income. Our continued dividend coverage is testament to the overall Monroe Capital firm platform scale, our unique origination capabilities and our credit underwriting and portfolio management process. At quarter-end, our investment portfolio had a fair value of $596.9 million, a $43.3 million or 8% increase from the prior quarter end, and included investments in 80 companies across 21 different industry classifications. The increase in the size of the investment portfolio was primarily due to an increase in new deal fundings during the quarter. In the quarter we had $70.1 million of investment fundings partially offset by $20.1 million of sales, repayments and prepayment activity. This new deal momentum and asset growth is the direct result of our proprietary deals origination team located in multiple offices throughout the U.S., our broad industry vertical coverage of the following areas. Business services, healthcare, technology, software, specialty finance and of course the middle market TE community. Incidentally our investment manager platform Monroe Capital had a record first quarter with over $1 billion senior secured debt funded in 26 transactions. This was the highest activity level in any first quarter experienced by our platform manager, Monroe Capital. During the quarter MRCC completed an amendment an extension of our revolving credit facility with ING Capital as agents which increased the maximum amount of borrowings under the facility from $200 million to $255 million, extended the maturity to March 2024, reduced our required asset coverage covenants to 1.5 to 1 from 2.1 to 1 and decreases pricing from LIBOR plus 275 to LIBOR plus 237.5. We believe this amendment will give us ample room to continue our portfolio growth, increase our regulatory leverage and drive improved returns for our shareholders. In addition, on March 20th, we completed a registered direct offering of $40 million in additional principal amount of our 5.75% notes due in 2023, which we will refer to as our 2023 notes. After this issuance there are now a total of $109 million in 2023 notes outstanding. As of March 31st, our largest position, not including the investments in our and MRCC senior loan fund joint venture which we refer to as SLF represented 3.4% of the portfolio in our 10 largest physicians excluding our investment in the SLF was 28.5% of the portfolio. Our portfolio was heavily concentrated in senior secured loans and specifically first lien loans 93.4% of our portfolio consists of secured loans and approximately 90% first lien secured. We are pleased with the construction, diversity and the senior secured nature of our investment portfolio at this point in the credit cycle. As of the end of the first quarter, our SLF had experienced portfolio growth $191.2 million in fair value and nearly 10% increase from the $174.3 million at fair value at the end of the prior quarter. The weighted average yield in the SLF portfolio was stable at 7.6% when compared to the end of the prior quarter. As of quarter end, the SLF had debt outstanding on it leverage facility of $121 million at a rate of approximately 5% or LIBOR plus 225. As we have discussed in the past, MRCC is well positioned for future interest rates increases most all of our loan portfolio is invested in floating-rate debt with rate course. Given the current LIBOR level, we have surpassed the level of the LIBOR floors on all of our loans and therefore MRCC is situated to meaningfully benefit from an increase in short-term interest rates going forward. In addition, we have $115 million outstanding fixed rate debt from our SP8 debentures at attractive rates and $109 million outstanding in fixed-rate debt from our 2023 notes, which will allow a significant interest rate arbitrage on any increase rates in the future. We have worked purposefully to create approximately $224 million fixed-rate liabilities going into the next credit cycle. The recent amendment and up size of our revolving credit facility coupled with the increase in 2023 notes provides us with both a significant amount of additional borrowing capacity to help fund and fuel our growth and flexibility to take advantage of the reduced asset coverage ratio requirements, so that we may implements regulatory relief from the Small Business Credit Availability Act. We have purposefully positions MRCC to be able to proactively take advantage of organic growth as well as any inorganic growth opportunities that may be presented to us. I’m now going to turn the call over to Aaron who is going to discuss the financial results in more detail.

Thank you, Ted. During the quarter, we funded a total of $66 million in loan investment. Additionally, we funded $4.1 million in equity to the SLF, this growth was offset by sales and complete prepayments on two deals and partial repayments on other portfolio assets, which aggregated $29.1 million during the quarter. At March 31st we had total borrowing of $370.3 million, including $146.3 million outstanding under our revolving credit facility, $109 million of our 2023 notes and SP8 debentures payable $115 million. Future, portfolio growth grow predominantly be funded by the substantial availability remaining under our revolving credit facility, which was increased due to the amendment an extension, we closed on March 1st. As of March 31st, our net asset value was $259.1 million which was up from the $258.8 million in net asset value as of December 31st. Our NAV per share increased from $12.66 per share at December 31st to $12.67 per share as of March 31st. This increase was primarily a result of unrealized mark-to-market valuation adjustments. Turning to our results for the quarter ended March 31st, adjusted net investment income or non-GAAP measure was $7.1 million or $0.35 per share, a decreased when compared to the prior quarter. At this level per share adjusted NII covered our quarterly dividend of $0.35 per share. The reduction in our adjusted NII was largely the result of an increase in incentive fees paid during the quarter as incentive fees were no longer materially limited by the terms of our investment management agreement due to the improvement in our net earnings. We believe that the full quarter impact of portfolio investments made during the first quarter, coupled with the continued portfolio growth in the second quarter should continue to increase our core per share NII. We continue to believe that our adjusted NII can cover our dividend assuming no other material changes in our portfolio. Looking to our statement of operations, total investment income for the quarter was $16.2 million compared to $14.8 million in the prior quarter. The increase in total investment income for the quarter was primarily a result of an increase in interest income principally due to portfolio growth. While we experienced some prepayment activity in the quarter due to the over vintage of these loans, there is no appreciable amount of prepayment penalty due. Moving over to the expense side, total expenses for the quarter of $9.1 million included $4.4 million of interest and other debt financing expenses. $2.5 million in base management fees, $1.3 million in incentive fees, net of voluntary fee waivers of $0.3 million and $0.9 million in general, administrative and other expenses. Total expenses increased by $2 million during the quarter, primarily driven by an increase in interest and other debt financing expenses as a result of the growth in our borrowings to support the growth of the portfolio as well as an increase in incentive fees. As our first quarter incentive fees were no longer significantly reduced. Regarding liquidity as of March 31st, we have approximately $109 million of capacity under our revolving credit facility. At the end of the quarter, we had fully drawn all of our available $115 million SP8 debentures. As of March 31st, the SLF and investments in 55 different borrowers aggregating $189.6 million of fair value with the weighted average interest rate of approximately 7.6%. SLF had borrowings under our non-recourse facility of $121 million and $49 million of available capacity under this credit facility. We would expect the SLF to continue to grow over the next few quarters. I will now turn the call back to Ted for some closing remarks before we open the lines for questions.

Thank you, Aeron. We were very pleased with the quarter, stable, adjusted net investment income covering our dividend and stable NAV. Since going public with our IPO in 2012, we generated 47.3% cash and cash return for our shareholders based on changes in NAV and dividends paid since our IPO assuming no reinvestments of dividends. We believe this performance compares very favorably to our peers and puts MRCC in a small group of BDCs that have delivered this level of consistent performance for shareholders. Based on our pipeline the both committed and anticipated deals, we expect to continue our new investment momentum for the remainder of the year with growth in both our core portfolio and within the SLF. We believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders and other investors for the following reasons. Number One, our stock pays a current dividends in excess of 11%. Number Two, our dividend is fully supported by consistent adjusted net investment income coverage for the last 20 straight quarters. Number Three, we have a very shareholder friendly external advisor management agreements in place that limits incentive management fees payable in periods where there is any material decline in net asset value. And Number Four, we were affiliated with a best-in-class external manager with offices located throughout the U.S., over 100 employees and approximately $7.7 billion in assets under management. MRCC is one of the very few BDCs that has the access to direct proprietary deal flow through its platform manager, which over the long-term should results in differentiated returns an increase in shareholder value. Thank you for all your time today and with that I’m going to ask the operator to open the call for questions.

[Operator instructions] And our first question comes from Tim Hayes from B. Riley FBR. Your line is now open.

Hey, good morning everyone. Thanks for taking my questions. Can you just expand on the competitive environment, when the activity remains strong the pipeline sounds robust and the yield seem to be holding up. So it doesn’t really seem like you are struggling to find good deals or being able to put capital to work at the yield you are looking for. So just curios if you can comment a little bit more on the competitive environment and then does that relates to structure and credit if you are continuing to see some of your competitors loosing up on underwriting standards.

Hey, Tim good question. Probably the biggest question I get when I tour the world speaking to CIOs for LP funds. The market is competitive, by no structure the imagine is as an easy market to navigate, I think for private credit platforms. We have got an increased amount of competitors, there has been an increased amount of capital raise and because of the competitive pressures, if you look at all the staffs that LCD puts out, Standard and Poor's and any other agencies what we have seen is we have seen an increase in leverage from kind of the four, 4.5 turns to over five turns and the average LBL today in the middle market. Upper middle market is over six turns and pricing has come down in the last 18 months and documentation is worse, covenants are worse and EBITDA adjustments are worse. There is much more in a way of EBITDA adjustment. So, the general market I think is competitive and is difficult and we have been credit shop, we have been doing this for 15 years. So we have got some perspective on history as well as pre-crisis during crisis, post-crisis and you know in our business credit is really the driver of our business. We are fortunate that MRCC is part of an overall platform, very large platform. We have probably about 350 borrowers in our overall platform and my guess is probably a third of our deal flow comes from within our own platform, which is a significantly advantage that other platforms don't have. So we looked at about 2000 investment transactions last year and up the 2000 investment transactions we look at as a platform, we did about 75 of those. So about 3% of the overall look to book ratio is I call it or the amount of transactions that we look at, do we actually have the closing? No. I’m comfortable at 3% that everything is in place on our side from a credit standpoint, from an underwriting, from a portfolio review that we are doing the right things as good asset managers in protecting our capital and being good stewards for our shareholders. I can't comment on what other platforms are doing. I think that there are some platforms that have raised a lot of money in the last few years, particularly newer platforms that are trying to create scale and it is very hard I think to create scale in an environment where you have got bad loan documents, high leverage, relatively low pricing and EBITDA adjustments and bad definitions of EBITDA. So, I think if you look across the industry and I do this every once in a while, I was talking to my team yesterday, the consistent theme is that the platforms that tend to be affiliated, the BDC platforms tend to be affiliated with best-in-class larger scale managers and what I mean by that is we have got 20 origination sourcing professionals located throughout the U.S., looking at individual deals and creating a proprietary flow upon which we can invest in. And if you look across the Board the BDC platforms that have access to that type of origination capacity and sourcing tend to be the ones that perform the best and the platforms that tend to be sub scale or not affiliated with a best-in-class asset management firm, I think are the ones that are struggling. So for your first part of your question is on corporate, overall competitive environment. I think that answers that. The second part of the question, you talked about structure and credit and that is all about discipline and you know I will tell you the market has become much more undisciplined in the last two years, particularly the last 18 months, because of the amount of capital has been raised and some of the new arrangement in the space and we are not wavered. Our weighted average attachment points for leverage still remains around four turns and in an environment where companies are being bought and sold for 10 to 12 turns. So from a discipline standpoint, if anything going into this cycle, we are very, very conscious of what can happen, late this year, early next year, we have rotated out of some cyclical industries, we are avoiding some industries altogether. And we are really I think taking up the position of now making sure that our portfolio is defensible and that our net income is defensible and we are very focused on our dividend and making sure that we can be a consistent provider of stable cash flow to our shareholders. So hopefully that answers your question.

It defiantly does. I appreciate all those comments Ted. And then can you size your pipeline today and maybe just touch on how much you would say is sponsor versus sponsor and senior versus junior maybe average EBITDA of the companies you are looking at and then you touched on leverage multiples a little bit, but just wondering if those are consistent with the portfolio average.

Yes. So the last was the easiest. Our leverage multiples are very consistent with the portfolio average. Those are numbers that I see every month and we are seeing in that the same kind of around four, between four and probably 4.5 turns from an average portfolio. Leverage standpoint, pipeline standpoint I will tell you that we have got a very significant pipeline and we always do, is a platform we put a billion dollars to work in Q1. That is how much you actually got funded versus what was on our platform. Obviously, we have got exempted relief, so MRCC shares generally pro rata, based upon suitability across the Broad in that pipeline, so that is a significant advantage with MRCC has. We got a very significant pipeline by going forward, historically first quarter is the lowest pipeline because we just come off of a year-end where our fourth quarters are always pretty big. if you look at our fourth quarter, I think we grew the BDC 12% in Q4 of 2018, I think you see that we grew it another 8% in total assets in Q1. So if you look at the last two quarters, we have had a 20% growth which is pretty darn good in the environment that we are in today. But going forward, I would expect you know depending upon the overall deal environment, credit environment, we are not going to vary off of what we have done in the past. So to the extent we can continue to find good deals. Many of these are proprietary deals, where we are dealing with sponsor's that we have got relationships with. Number Two, we deal with companies our own portfolio, which is a huge advantage that most don’t have. And Number Three, unlike many of our other competitors, we do non-sponsored transactions as you know and these non-sponsored transactions are all 100% proprietary to the firm based on relationships we have. So any given important time as a platform, we like to be 65%, give or take sponsored 35% non-sponsored, in high velocity times, high transaction times like we have now a property market that those numbers tend to move around a little bit. We are probably closer to 80/20 today, sponsor and non-sponsor, but that is only because the sponsor have an inherent advantage when M&A cycle is hot. You know they are able to move quickly, they are able to bank deals themselves and then refinance post close. So I would expect the current level of sponsor, non-sponsor to stay about where it is, this year and as time goes on I would expect it to kind of revert back to the mean for us a more 65/35 overtime. Interest rates and rates we are charging, we don't really see much deterioration there, frankly, because we are not going to allow it to happen. The good news is we have a choice. Aeron and his team of investors every day has a choice whether to do a deal or not do a deal. We happen to be lucky enough as a platforms that we have got a very large pool to chose from. If we didn’t have large pool to chose from then I would say that Aaron and his team would be under a significant pressure on maintaining the interest rates and maintaining leverage, but that is not the way we are wired here or the way we set up.

Okay. I appreciate all those comments.

Thank you. And our next question comes from the line of Leslie Vandegrift from Raymond James. Your line is now open.

Hi, good morning.

Hi Les.

I wanted to begin by asking about a couple of the new ones in the first quarter you had [indiscernible] services and mine body. These were larger tranche loans when you look at the total size, but the BDC took a smaller part of it. So how much of those ones that the overall Monroe platform do?

Yes. So good question. Unfortunately it’s not something we really disclose publically, but you can assume in all of those cases that there are multiple other Monroe Funds that have investment alongside as there usually are for deals in the BDC and so that is the case for those deals.

Okay, and on the more directly originated once for the quarter, they are really focused on media and business services, is there something that makes those industries particularly attractive right now?

Yes. I mean, I don’t read too much in that Leslie. Again, it’s more of a opportunistic, timing tends to be more opportunistic in closing of transactions, but I will tell you that today we see some particularly good proprietary non-shops relationship transactions coming out of several industries and business services and media technology software, you know those tend to be areas where we have got a fair amount of traction due to some of our firm relationship I will call it that other platforms don’t have.

Okay thank you. And just your [share] (Ph) income at the end of the quarter?

Yes. It’s basically on a per share basis unchanged, it’s around $0.49 per share.

Thank you. And then just last. It seems a bigger portion of your portfolio recently in first quarter and few quarters running up into that seem to be moving in to higher pick income portion of a coupon, is there a particularly behind market related, specific credit related.

Yes, I think it’s a combination of things, I think some of it has to do with just trying to be market competitive in certain industries where you can add a little pick component in order to stay competitive. In other instances, it’s just a matter of us managing in at least a one case a difficulty deal where it made sense and prudent to reduce the cash burning on a company as it was going through turnarounds. So we have moved a little of our income to pick and we usually also increase the total rate associated with that as a trade-off. So sometimes we will do that for a portion of our income on a difficult deal. That is really what changed it this quarter. It wasn’t a materially big jump from last quarter.

Okay. Thank you. That is all my questions.

Thanks Leslie.

Thank you. And our next question comes from Bob Napoli from William Blair. Your line is now open.

Thank you. Good morning. Ted you mentioned talking about growth, looking at inorganic growth opportunities, is that something new and did you have any - have you been looking at inorganic opportunities are you just talking about loan portfolios?

I knew you would pick up that comment Bob, so that is a good question. You know me and you know that there is going to be more consolidations in this industry as time goes on. As fact that everybody knows and I believe the stronger platforms, will be in a position to act as a consolidator as opposed to consolidate. And like everything we plan to grow, continue to grow our platforms thoughtfully and on an opportunistic basis, I believe there will be some things that come our way over the next few years and we want to be in a position that we can take advantage of those opportunities when and if they are presented.

Okay that makes sense. Just a follow-up on credit quality and it may look like pretty stable quarter from a credit perspective, what is your feel Ted on the quality of the portfolio today and just the non-accruals that do you expect resolution any update on Rockdale or the resolution of the non-accrual loans that you have today?

Yes. The answer to your first question is I’m comfortable that we have a stable portfolio. We have got some pickup in NAV and that was primarily as Aaron mentioned as a result of mark-to-market adjustments that occurred in the fourth quarter and you know some mark-to-market adjustment that occurred in the first quarter. Overall, if you look at our portfolio, it’s very stable and I’m happy about that. Going forward, every month we look at kind of a portfolio review, I like where we are at given where the market is at. I think it gives us a little bit of room to be creative in terms of dealing with companies both on our sponsored, but also non-sponsored. We have a stable portfolio, we can do some things around the non-sponsored side that can create some upside value with warrants, with equity co-invest with things like that. So I’m comfortable where we stand today. The second part of your question relates to non-accruals, we have a couple of those. Aeron mentioned on our last call, Rockdale, we feel good about where we are on that, we expect resolution on that in the near future. That is something that as Aeron mentioned on the last call, we have got an insurance company, insurance companies exit because they retain money for as long as they possibly can and we are trying to do everything we can within the boundaries of good portfolio management, good legal management in a existing process currently going on to extract some of that money from the insurance company. I feel good about where we are on that. So I expect that one to get resolved here in the near-term, a couple of the other ones that we are working through. We don’t have exact timeframe on yet, but we feel good about where we are on the credits and we are going to continue to work to collect every dollar that we have in these things and some may take a little bit longer than others, but I think Rockdale we have got some decent visibility on the end zone there.

And understand on the non-accruals, there really wasn’t any change this period, we have added nothing to the non-accrual status and so that is stable.

Thanks Ted, thanks Aaron. I appreciate it.

Thanks Bob.

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

Hi, good morning. Thank you for taking my questions. Just wondering with spreads tightening again and you guys having a lot of unrealized depreciation last quarter, I guess I’m just wondering why now those not more on the quarter, because your internal rankings were consistent, your non-accruals didn’t really depreciate much more, there are some other individual credits that were mark down that kind of offsets some of the spread tightening effect.

Yes. Good question Chris. The answer is yes, we have one name in particular that took a smaller mark this period, which was ATH. That is really only material mover on a single name basis and that movement was offset as you pointed out by some mark-to-market improvement on the general portfolio due to spread tightening as well as the investment in the SLF, which also benefits from that. So that was really the one name that saw any material decline.

Yes. And that name just to be more clear is that was a compliance in the mortgage servicing business and general the mortgage servicing rights on a fair value from dollar in the industry and so what we did and our third-party valuation firm did more importantly is they looked at industry norms for valuation of mortgage servicing rights there. You know I don't believe that there is any deterioration in the overall enterprise value or the value of the Company, but when you value particular companies based on underlying rights or commodity items its right to do what they did. So we took the adjustment on that, but at the end of day as you mentioned, we have no additional non-accrual and I believe our portfolio is stable.

Got it and the ACH do they do agency servicing or do they also do more specialized high-tech servicing.

They are not really like a special service or a high-tech servicer, they do both [indiscernible] servicing as well as sort of other prime mortgage servicing. They are not special servicing.

Okay. So their suite of amortization as really just sensitive to interest rate, there is not much for credit requirement for this?

No, I mean look there is definitely - there has been a change in management, we have put a new management, there is some things that could be done on the operating basis to make a company more profitable and better, we feel we have done all that and from here it looks really good in terms of the company's valuation. We feel solid in the future should be very strong, because we have done a lot to change the management team there and how they approach the business and it looks good in the future even if we have a protracted slowdown in mortgage originations, which appears to be the case right now. We still think there is value being created in the business.

Got it. Okay that is helpful thank you. And I know this is something that we discussed previously, but the issues in the syndicated market of collateral dilution and covenant why maybe way down kind of core 50 million EBITDA market and obviously that is where the SLF is investing. Just wondering if you could kind of just provide some detail on, if you are seeing an increase and running into sort of issues in that sort of core middle market, if that has picked up speed, if it’s actually lessened and some of the more aggressive money is pulled back, I’m just curios what you are seeing in terms of that SLF opportunity with those things.

Okay. I will speak to the market and our portfolio and then I’m going to have Aeron speak to specifically to the SLF. The market in general as I mentioned earlier, when Tim asked the question. We are doing what we have always done, the market may bother to weave a little bit. But fundamentally we are staying all of our loans at covenants, our loans have multiple covenants, we are very focused on covenants, we are very focused on EBITDA definitions, we are not buying into a lot of the depth noise, that is not realistic. We are very focused on add backs. So if you look at your portfolio on a general basis it’s the same underwriting that we have done over the last five years. Aeron why don’t you comment on the SLF, because that is a little bit difference in terms of the average borrower size.

Yes. So the SLF is a combination of buying in to club transactions which are very much like the ones that we closed as agent, as well as some middle-market small syndications and larger middle market syndications. So as such there are some deals in that portfolio that will be covenant light, it’s by no means the majority, it’s the minority of the deals that we are doing. And you know as you would expect from a platform like ours, we approach the syndicated market very much like we approach non-syndicated Asian market, which is we are very diligent on deals and credit. And so when we are willing to except the covenant light loan it's first of all a loan that is typically been purchased across multiple portfolio in our CLO. Second of all we are trying to limit the covenant light loans we do, to industries that we know very well and have a great deal of confidence in how this companies will perform in the downturn. And you know we trying to stay away from heavily cyclical business in particular when it’s in businesses that are covenant light. So we are participating in some degree in the covenant light market in the SLF but it’s by no means the majority and in fact it's a minority, a small minority of what we are doing.

Got it. Thanks, that is good detail and last one for me and I will hop back in the queue. Just what was the $10.7 million transfer from senior secured unit trench?

Yes. So occasionally we will have deals where we update on what is happening with the revolver in first half and so as we reviewed ESG and that became a unit tranche loan, because there is first out there. And so we are a last out, and that is usually the characterization of how we look at those names. So that is what has happened for that particular name. You don’t need to hop back into the queue Chris because you are the only one in the queue, so if you have another question go ahead.

No, that is all for me, but thanks for your time today. I appreciating it.

Alright. Thanks very much.

Thank you and we do have one more question from Christopher Nolan from Landenberg Thalmann. Your line is now open.

Good morning guys. The new bank credit facility at $400 million is quite large. Is the plan to use that as your primary funding vehicle going forward for the next several quarters?

Yes. So the $400 million side include accordion. So we aren't paying for all that capacity today. we just have it built in, so that if we want to expand it we can and so we think it’s prudent to do that. And so it shouldn't be signals to you that we are necessarily expecting to drop the $400 million, I think that is very unlikely given our current equity base given where we expect to be. But as for future, yes. For now, I think our expectation is that we will use the revolving credit facility to fund our deal growth. And then as we always do, we will look as time goes on at where we are on our capital base and what our needs are and If it makes sense, we will consider additional bonds and if it make sense and the stock price is at the right level, we will consider equity offerings and everything else. But for now the near-term growth will be likely funded through the draws in the revolver.

Now is it fair to say that you are expecting the prolonged [indiscernible] environment.

I think that we always want to have a mix of what we have on the revolver and what we have in fixed rate notes and you as you will recall we are fairly match funded on the revolver and our loan portfolio. So rather than try to speculate about where rates are going by making a large statement in converting our entire book for example to a bond book. At fixed rates, we made the determination that we would rather not try to predict rates, because they have gone up and down and we would rather have a mix of our liabilities from a combination of covenant oriented revolving credit facilities, the borrowing basis and no covenant, longer term fixed-rate liabilities and that gives us the most flexibility and the most comfort as we look at the way that we have constructed our balance sheet.

Okay. And then final question. What is the good quarterly run rate for operating expenses going forward?

Yes. I mean I think with kind of where we are, I think I don’t expect any material changes to things like SG&A here. The biggest mover as you know is the interest expense based on the size of portfolio, which is easy for you to estimate and whatever happens with regards to incentive fees based on our performance and our marks in the book. We have been relatively consistent on the SG&A side, operating expenses over last several quarters.

Okay. that is for me. Thank you.

Thanks Chris.

Thank you. And I’m not showing any further questions at this time. I will now just turn the call back to Ted Koenig, Chief Executive Officer for any further remarks.

Thanks everyone for joining us on the call today. I think as Aeron this quarter we are very happy with our performance of the portfolio, we are happy with where we are NII, with NAV and I think this quarter is a good indicator for the future, we have got lots of things that we are planning internally here to try and continue to grow our business and to grow our value for shareholders and we look forward to speaking to you again on the next quarter call. So, everyone have a good day and we will speak to you soon. And as always, if anyone has any individual questions, please don't hesitate to reach out to Aaron, he is happy to talk to you on an individual basis. Thanks again and have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's programs. You may all disconnect. Everyone have a great day.