Good day, ladies and gentlemen, and welcome to the Q1 2015 Fifth Street Finance Corporation Earnings Conference Call. My name is Ian and I’m your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Robyn Friedman, Vice President of Investor Relations. Please proceed, Ma'am.

Thank you, Ian. Good morning and welcome to Fifth Street Finance Corp's first quarter 2015 earnings call. I'm joined this morning by Leonard Tannenbaum, our founder, Todd Owens, Chief Executive Officer, Ivelin Dimitrov, President and Chief Investment Officer and Richard Petrocelli, Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our January 9, 2015, press release and is posted on the Investor Relations section of Fifth Street Finance Corp's website, which can be found at fsc.fifthstreetfinance.com. Please note that this call is the property of Fifth Street Finance Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call may include forward-looking statements and projections. 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 these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website or call Investor Relations at 203-681-3720. The format for today's call is as follows. Len will provide introductory remarks. Todd will provide an overview of our results and outlook, Ivelin will discuss the portfolio and Rich will summarize the financials. Then we will open the line for Q&A. Due to time constraints during the Q&A session, analysts will be limited to two questions. I will now turn the call over to Len Tannenbaum.

Thank you, Robyn. Before we begin, as you saw in January the board promoted Todd Owens to CEO upon my resignation after over six and a half years at the helm of FSC. Going forward, I will remain involved with the Fifth Street platform in my role as Chairman and Chief Executive Officer of Fifth Street Asset Management an affiliate of FSC. My resignation and Todd’s promotion was a strategic decision that came as a result of both my increased responsibility as CEO of FSAM following its IPO in the fourth quarter of last year and the need to have a CEO solely dedicated to FSC. Prior to his appointment as CEO, Todd served as its President and remains a member of FSCs board of directors. Additionally, the board promoted Ivelin Dimitrov to President. Ivelin will retain his position as Chief Investment Officer and the member of FSCs board of directors. I want to congratulate both Todd and Ivelin on this well-deserved promotion. With these appointments, all managerial and operational positions at FSC will be handled by Todd and Ivelin. I am confident in their ability to successfully lead FSC going forward and steer the company in a positive direction for many years to come. I would now like to turn the call over to our new Chief Executive Officer, Todd Owens.

Thank you for that introduction, Len. I would like to take the opportunity to thank you for leading FSC since its IPO in 2008. Len and the Fifth Street team have built an impressive business with a strong brand and a solid foundation. I am excited to become CEO and I look forward to growing our business and driving value for our shareholders. As part of the management transition, Ivelin and I together with the existing team have begun a thorough review of our business. The processes included conversations with our investors, analysts and other constituents, many of whom are on this call. We undertook this strategic review to focus on driving strong, sustainable performance for FSC shareholders. Our review process is ongoing and we have already taken an important first step by reducing our dividend to a level that reflects both the current operating environment and a more conservative dividend policy. As we continue to review FSCs business we look forward to reporting our finances, shareholders and analysts in the coming months. The first quarter of fiscal 2015 was active for FSC and we made progress on several key initiatives. For the quarter ended December 31, 2014 FSC generated $0.23 of net investment income per share which was driven by strong originations to the continuing funding of our joint venture with the subsidiary of Kemper and operating leverage slightly above the upper end of our targeted range. At FSC, we continue to benefit from the expanded infrastructure and experienced investment team of our investment advisor. The December quarter is typically our strongest quarter for originations. As a sponsor-backed origination platform, deal closings are difficult to predict and may vary from quarter to quarter. The December quarter was an example of this volatility as we closed all of the deals…

Thank you, Todd. The strategic review process that Todd described has been an important exercise which allowed us to take a fresh look at our business. As Todd stated, we look forward to reporting back to you as that process continues. Today, I will discuss our speciality lending initiatives as well as the performance of overall portfolio. Notwithstanding the write downs we took in the December quarter, the regular portfolio review reinforced our view that FSC maintains a strong and diversified portfolio of investments. As Todd mentioned, we have continued to migrate the portfolio into more senior secured instruments and feel good about its conservative positioning. From an overall market standpoint the December quarter was characterised by an amount of volatility that’s seen in the relatively benign environment over the last couple of years. We saw certain transactions struggle to get executed and some with the more aggressive issuers get scaled, by [ph] the size of their proposed dividend we get utilisations [ph] or abolish those plans all together. In this type of environment our launched up solution became exceedingly valuable which we deployed on a selective basis to help our sponsored partners execute on new M&A transactions. The one stop product carries an attractive yield profile while preserving the appropriate risk controls due to the first lien position. By virtue of our core investment approval, we have been able to increase our whole size and provide the necessary certainty of closed door partners. Based on the increased level of repayments during the December quarter some of which were self induced as we sought to exit lower yielding portfolio investments in order to rotate into higher yielding opportunities with better risk adjusted returns. We will continue to rotate out of assets and redeploy capital on an opportunistic basis as the…

Thank you, Ivelin. We ended the first quarter of fiscal 2015 with total assets to $2.9 billion, an increase of $281 million from the fourth quarter of fiscal year 2014. Portfolio investments totalled $2.7 billion at fair value, which were spread 137 companies at December 31, 2014. At the end of the December quarter we had $111 million of cash on our balance sheet. Net asset value per share was $9.17 at the end of the December quarter compared to $9.64 at the end of the September quarter. The decline in NAV per share was principally driven by credit related write downs totalling $0.25 per share yield related movements totalling $0.18 per share and a dividend distribution in excess of net investment income of $0.04 per share. For the three months ended December 31, 2014 total investment income was $76.3 million. Net PIK, PIK accruals recorded in excess of PIK payments received was $3.7 million for the quarter or 4.9% of total investment income. Net investment income was $35.2 million for the quarter, a 2.9% decrease when compared to $36.2 million in the same quarter the previous year. We believe we are conservatively positioned, relative to our peers with over 94.3% of the portfolio at fair value consisting of debt investments. 82% of the portfolio invested in senior secured loans, 75% of the debt portfolio consisting of floating rate securities and no CLO equity at quarter-end. The credit profile of the investment portfolio continues to be solid as 97.5% of the portfolio at fair value was ranked in the highest one and two categories. Weighted average yield on our debt investments has declined quarter-over-quarter from 11.1% to 10.4% including the joint venture return and the cash component of the yield making up 9.7%. The average size of the portfolio debt investment was $22.9 million and the average portfolio of company EBITDA was $30 million at December 31, 2014. Our top 10 portfolio company investments represent 28.5% of total assets. I will now turn it back over to Robyn.

Thank you for joining us on today’s call. As a reminder, due to time constraints we will be limiting questions to two per analysts. Senior management is available and happy to answer any additional questions that our analysts or investors may have after our call. Ian, please open the line for questions.

[Operator Instructions] And the first question comes from the line of Terry Ma – Barclays.

Hey guys can you maybe just talk about your capacity to originate new investments going forward giving your debt equity ratios pushing above the high end of your range?

Sure. Let me take that, its’ Todd. I sense that there are really two components of our class, you see major components of our capacity to originate new investments. We expect and intend to be in the market participating and originating new investments. We – the sources of that will be the normal turnover that you would see in our portfolio and that generates you know additional capacity for us to originate assets and then second our ability to expand the joint venture gives us substantial capacity to continue originating loans on a basis consistent with what we’ve done historically.

Okay, great. I’m just a little surprised to see all the unrealized and realized losses both in magnitude and number of investments; can you maybe just talk a little bit more about that?

Yes, this is Ivelin. As we go through the review obviously you know December was a volatile quarter, so I think you saw in the numbers portion of the write down is due to the changing deals profile in the market as of the December quarter. But the portion of it was also due to some portfolio companies that we’ve been working with for the time now and I think you know this is a tenant of how we build the business is always [Indiscernible] appropriately. And so when we went through the portfolio review the board decided that we need to adjust the fair value in those companies. We are still working on them actively as we mentioned we are offering assistance in a number of those cases, one of them is the company of shares [ph] a Canadian Oil Sands exposure so they obviously are going through some difficult times, it’s a project based business, those are long term projects. So we have some visibility but we felt he was put onto mark down our investment there. In a number of other cases, we were still actively negotiating with the sponsors and the management teams to achieve the appropriate results in our investments but that those are ongoing cases and we wanted to make sure that as of December 31 we have marked those investments appropriately.

Okay. Thank you.

Your next question comes from the line of Greg Mason, KBW. Please proceed.

Great, thank you and good morning. I wanted to talk quickly about the non-accruals; I think you said the $12.7 million of income that’s lost. In the queue [ph] it talks about them being all on PIK non-accrual and I think $3.8 million of income loss. So can you just reconcile some of the cash income that’s lost or is that an annual basis, or do you expect those to go on cash non-accrual in the future? Just clarifying that difference.

Sure, Greg, this Rich. The loans we discussed, our Phoenix is PIK only. JTC Education is a cash paying loan transferred as PIK and Express has a component of PIK and cash. And if you look at those in total its $12.7 million per year. And the cash component of that is approximately $5.1 million.

Okay. Great. All right, guys, I appreciate it. Thanks.

Thank you.

Thank you. Your next question comes from the line Rick Shane of JP Morgan. Please proceed.

Thanks, guys. In looking at the origination activity in the December quarter, that’s part of the reason that you are at the high end of your or above the high end of your leverage target. Curious what happened here, is it just with other participants in the market holding back that you had a higher pull-through rate? And how do you manage that going forward now that you’re really sort of constrained?

It was not really a higher pull-through rate. What happened was its very hard to predict when deals will close. And typically what we’re seeing is a greater percentage of deals slip to the following quarter than we saw in this quarter wasn’t really a pull-through rate. These were deals that we expected to close, but usually a percentage of them would have closed in the March quarter and we also kind of got hit the other way this quarter on the front end where a number of deals that we expected to close in the September quarter actually closed into December quarter. And since the end of the year we have continued with our business and we expect our leverage ratio to come down in this quarter.

And how much – how quickly can you divest? That mean, that’s the other element of this. How much control that you have over that in terms of being able to manage your liquidity and your leverage ratios?

This is Ivelin. Some of those exposures that we took down in the December quarter. We had already lined up a club of like-minded lenders that took down those exposures post close. So going into December we knew that we have to close on those deals and we had people lined up to reduced our exposure which has happened in January and is happening as part of our ongoing capital market activity. In addition, as you know we have a pocket within our business that consists of more liquid up from middle market loans. We track the performance of those loans and any time when there is opportunistic trading involved we’ve seen some of those loans straight up and we’d been able to sell that exposure and really pull those assets – really pullout the cash into higher yielding assets. So that’s part of what we’re doing some of the initiatives we’re doing on an ongoing basis.

Got it. I’m going to actually indulge in a third question, but I’m curious, what is the execution on those sales in this environment look like versus your carrying values?

You mean in the sell-downs and the sales in our liquid bucket?

No. You’d said that you’d continue to sell in January and February, curious that, where are those sales are…?

Absolutely. They are right around par for the assets that we sell.

Which is where we would expect and hope them to be so we feel good about the sell downs.

Thank you, Rick.

Thank you.

Thank you for your question. Your next question comes from the line of Christopher Nolan, MLV Company. Please proceed.

Hey, guys. What percentages of assets where in the non-qualifying bucket this quarter?

This is Rick. Approximately 13% of the assets.

Okay. So it’s up from – but that’s roughly flat with the prior quarters, roughly 12% -- 12.9%.

That’s correct.

And what was the reason Rich for the decline in investment yields given that we think with more SLF activity, your yields would be going up?

The SLF only grew by approximately $10 million during the quarter. It’s grown since the end of the quarter. But the yield is driven by two things, by the non-accrual assets and just the mix of the originated assets compared to the repayments.

Great. Okay. Thank you.

Thanks for your questions. The next question comes from the line of Doug Mewhirter of SunTrust. Please proceed.

Hi, good morning. I just had two questions. The first in terms you mentioned that the yields in the previous question what’s the general environment look like? Does it look like you are experiencing some spread widening or more of a buyers market in the deals that are currently in the pipeline or that are projected to be in the pipeline?

Yes. This is Ivelin. As you know in the Middle market things don’t move as fast as what’s going on in the BSL [ph] space, but we’ve definitely seen in the upper middle market spreads widening and we’ve seen certain issuers that we’re just not able to – its really is a flight to quality. Some deals were getting done and it’s a feeding frenzy and everybody’s trying to be in it, and there is other deals that are not getting the same kind of reception. What we’ve found out in this market and we’ve seen that before in our history, it pays to be part of an origination platform when you’re able to source underwrite and perform and manage your own assets. It gives you a long-term horizon. It gives you stability in your origination. It’s also gives you stability in your yields [ph], and we’re able to take advantage in times like this of opportunities where normally would have gone to a lot more aggressive lenders. So we’re able to state then and provide a one stop solution and post close syndicate down our exposure.

Great. Thanks for that. My second and final question, either Ivelin or Rich that you may have covered this in the call, $17 million in realized losses. Was that one or two investments or is it – was it a scattering of multiple sales that were just below cost or just below the cost?

It was largely driven by one asset that was previously on non-accrual that has now been converted to equity.

Okay. Great. Thank you.

And was previously an unrealized, so that was a swing between unrealized and realized.

Okay. Thank you.

Thanks for your questions. The next question comes from the line of Robert Dodd, Raymond James. Please proceed.

Hi, guys. Just coming back to the non-accruals and kind of the whole story of obviously firstly in more security in the portfolio. When I look at the four non-accruals, I mean, two of them obviously firstly with substantial markdowns, I mean, obviously, defaults happen, problems happens, but the two firstly non-accruals now appear to be marked to about 50% of cost. So, can you walk us through again, what the argument is as to why first lien is going to preserve capital better than some of your other investments when it looks like the marks here indicate firstly and frankly not much better than any of the other credit risks in your portfolio when it comes to a problem occurring and what the possible recovery is going to be?

Yes. This is Ivelin again. I’ll take this question. In the review of those specific investments, I mean, obviously the one – one of them is our Canadian Oil Sands exposure, CCG and that’s firstly investment flavored is behind of a revolver provided by a bank that finances the project nature of those cash flows. And so, from that perspective, there is enough asset coverage and there is enough momentum behind the business that as we work through, as we feel we should be able to get to a better results, but as of December 31, based on the trends we’re seeing best over the general environment we’re trading of and felt it was appropriate to market at this level. The other investment that’s firstly and that’s markdown, it’s a company that’s been in the portfolio for a while and that’s one we’re working with. It’s a one of our smaller EBITDA Company as you know over the years we’ve transitioned the portfolio from sub 10 EBITDA companies to now as you see our average is about $30 million. And one of the reasons we did that when you working with smaller companies, its very difficult, you have less triggers to pull on. You have less things to work with it as you’re working with larger companies, you have a more sophisticated team, you have a more sophisticated strategy in place. And that’s why from risk management standpoint we’ve shifted the portfolio towards larger issuers. That being said, actually in both of those companies are – one of the benefits being part of the Fifth Street platform gives us the fact that we have a dedicated workout team, dedicated portfolio management team, and that team right now is on the ground to both of those companies, figuring out next steps and how we’ll achieve maximum recovery.

Got it. Thank you. And just a follow-up, kind of following on Greg’s question earlier that if you can, I mean, as you said, the four here all listed in the Q as PIK non-accrual, so when you tell us the $5.1 million in cash income that you generate, is that income going to continue, because they are on PIK but not cash non-accrual or is there – have they changed to cash non-accrual status early in the New Year?

Robert, this is Rich. When investment pays both cash and PIK, and it’s on PIK’s accrual, what that implies that its not – we’re not accruing the cash income as well as the PIK income.

Okay. So it’s full non-accrual. Okay. Got it.

Thanks for your question. The next question comes from the line of Jonathan Bock of Wells Fargo Security. Please proceed.

Good morning and thank you for taking my questions. Todd, Len, Ivelin, just a question as it relates to new originations, can you explain yourselves and the Board as part of a new originations and making new investments did not see value in buying back your own stock this quarter given the significant discount to NAV?

Jon, its Todd. I’ll take that question. As I said in our observations we are continuing to think about all aspect of our business including share buyback we have had debates with the days with the Board and we continue to evaluate whether that make sense for our business. And we look forward to reported back to you in the future on that.

Okay. Great. Thank you, Todd. And then, one item that I guess is, one up for consideration that also does not make sense, if we see the dividend trend and the NAV trend on a per share basis if Fifth Street FSC, can you explain or also maybe give us your thoughts on why would also be fair to continue to operate under fee structure that allows the manager to be paid more annually despite net share declines and dividend declines for investors?

So I think part of the decision that we’ve made here, Jonathan again as we’ve said in the call was to set the dividend level below where we expect our NII to be and to stabilize the divided and hopefully also to provide more stability to the NAV per share, that was part of the unpinning of the decision process that we went through and resetting a level of the dividends. Again, as we’ve mentioned on the call, we are considering all aspects of our business. I just mentioned. You just asked. And I just mentioned share buyback. But we continue as we have in the past we also evaluate the appropriateness of the fees and are thinking about that as a management team and as a board.

Guys, thank you. We look forward to your answers.

Thank you.

Thanks for you question. The next question comes from the line of Chris York of JMP Securities. Please proceed.

Good morning and thank you for taking for questions. This question kind of follows upon Jonathan’s last one, so given that you increased the core dividend in August could you help us understand what has changed in the financing planning or in the environment over the last six months? Do you now decrease that dividend?

Sure. It’s Todd. I’ll take that, try of that. Again, we alluded to this and commented on it in our questions, but maybe connect the dots, so a little bit better here. What we have discovered on the operating side is that since the dividend raise, that our joint venture has not grown as rapidly as we expect it to. And we have chosen to migrate our portfolio into more senior secured assets and that has put pressure on the portfolio yields. And the result of those two factors principally have met that we have not covered our dividend. When we raise the dividend we expect to be able to cover it and that has not turned out to be the case. As I mentioned in comments also philosophically and by implication the dividend policy that was adopted, is that has been adopted in the past was a little bit more forward looking. We try to anticipate what our earnings were going to be and set a dividend level very close to those earnings. I think what we’re doing, okay, and from a policy perspective now is setting with dividend more in a look back type way and if there is as we hope excess net investment income over our dividend we will find ways of returning that to our shareholders.

Okay. Thanks for that, Todd. That’s it from me.

Thank you.

Okay. Thank you for your question. I would now like to turn the call back to management for closing remarks.

We appreciate everybody’s time and we look forward to continuing this dialogue as we review our business. Thanks very much.