Oxford Square Capital Corp. 5.50% Notes due 2028 (OXSQG) Q4 2015 Earnings Report, Transcript and Summary

Hello, and welcome to the TICC Capital Corp Fourth Quarter 2015 Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jonathan Cohen. Mr. Cohen please go ahead.

Thanks very much. Good morning, and welcome everyone to the TICC Capital Corp fourth quarter 2015 earnings conference call. I'm joined today by Steve Novak, our Chairman, Saul Rosenthal, our President and Chief Operating Officer, and Bruce Rubin, our Chief Financial Officer. Also we have with us several members of our investment staff. Bruce, could you open the call today with a discussion regarding forward-looking statements?

Sure Jonathan. Today's call is being recorded. An audio replay of the conference call will be available for 30 days. The replay information is included in our press release that was released earlier this morning. Please note that this call is the property of TICC Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. I would also like to call your attention to the customary disclosure in our press release this morning regarding forward-looking information. Today's conference call includes forward-looking statements and projections, and we ask that you refer to our most recent filings at the SEC, for important factors that could cause actual results to differ materially from these projections. We do not undertake or update our forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website at www.ticc.com. And with that I'll turn the presentation back over to Jonathan.

Thanks Bruce very much. As I'm sure you've seen in our announcement yesterday, we have continued to move forward with certain changes in fees and governance that we intend to make us best in class in those regards. One of those changes is having an independent board chairman. TICC is now one of only few BDCs that will have an independent chairman. The Board has chosen Steve Novak to be that chair. I'm going to turn the call over to Steve in a minute but for those of you who don't know Steve he has a long history with the Company and we believe he is very well suited for that role. Steve has been an Independent Director of the company since 2003 and has chaired both the Valuation Committee and the Audit Committee. Steven has spent more than 35 years on Wall Street most of it on the buy side as an analyst and portfolio manager, he has a CFA. He founded two registered investment advisory and build a sales side research group. He has been an investment banker and has served on a number of corporate boards over the years including servicing our On-Board Chairman or Board Chairman several times before. In summary I couldn't speak more highly of Steve for this role and with that introduction, Steve let me turn the call over to you.

Thank you Jonathan, good morning everyone. I'm very pleased to be assuming the chairmanship particularly at this critical juncture for the Company. I have joined the call this morning specifically to update you on some of the activities of the board. As you may know the Board formed a special committee many months ago comprised entirely of independent directors and that committee has been hard at work. In January, we commenced the shareholder outreach program and contacted the 20 largest institutional holders. We had a number of constructive meetings and took their feedback to heart. We also worked with our financial advisor Morgan Stanley to conduct a comprehensive review of the BDC industry generally as well as of our peer group. We had a particular focus on fee structures and corporate governance. We had one goal in mind to adopt a best in class approach. In our view usual and customary isn't good enough anymore. The result of that work is that yesterday the Company announced that TICC management and consultation with the special committee agreed to institute specific fee reductions to a level that we consider truly best in class. We are very pleased to achieve these changes. In terms of the fee waiver which will take effect April 1 - in another month or so are as follows. And I would call your attention to the 8-K that we filed this morning which has been in detail. First the base management fee was reduced from 2% to 1.5%. Second, TICC Management is agreed to forgo the payment of any base management fees on funds received in conjunction with any capital raisers until those funds are invested. In addition, the calculation of the Company’s income incentive fee will be revised to include a total return requirement that will serve to limit TICC’s obligation to pay TICC management and income incentive fee if ITCC has generated cumulative net increases in assets resulting from operations during the quarter for which the fee is calculated and the 11 preceding quarters. We have shortened the number of quarters since April 1, 2016 due to unrealized or realized net losses on investments. In the event TICC’s net investment income exceeds the minimum return that TICC stockholders require to achieve to be achieved before TICC management is entitled to receive an income incentive fee, which as many of you know minimum return is commonly referred to as preferred return or the hurdle rate. Fourth, the income incentive fee will incorporate catch up provision. Lastly, the hurdle rate used to calculate the income incentive fee will change from a variable rate based on the five year treasury note plus 5% to a fixed rate of 7% in line with the majority of the industry. Finally, after these changes take effect under no circumstances will the aggregate fees earned from April 1, 2016 by TICC management in any quarterly period be higher than a those aggregate fees that would have been paid prior to the adoption of these changes. We are pleased to have accomplished the fee waiver with TICC management and to have enhanced our corporate governance practices. We also intend to continue our dialog with shareholders at the appropriate time. With that I turn the call back over to Jonathan.

Thanks very much Steve. For the fourth quarter of 2015, TICC reported GAAP total investment income of approximately $18.8 million representing a decrease of approximately $4.3 million from the third quarter’s $23.1 million figure. Fourth-quarter GAAP income from our portfolio was earned as follows; approximately $10 million from our debt investment, approximately $8.5 million from CLO equity investments and approximately $300,000 from all other sources. Income from our debt investments was down $4.1 million, income from our CLO equity investments were down approximately $100,000 and all other income was roughly even from the prior quarter. TICC also reported GAAP net investment income of approximately $4.5 million or $0.08 per share for the fourth quarter of 2015, down from the third quarter’s $0.18 per share. We note that in the fourth quarter of 2015 we recognized approximately $2.6 million of incremental expenses primarily related to engagement of legal and financial advisors to the Company's special committee. Our core NII, which approximates our cash income is substantially higher than our GAAP NII due to the accounting for CLO equity investments under GAAP. And for the fourth quarter, it was $15.3 million or $0.26 per share. This core NII represents that portion of our estimated annual taxable income available for distribution to common shareholders that we estimate to be attributable to the quarter. For the reconciliation of core NII, which is a non-GAAP number to NII calculated in accordance with GAAP, we refer you to the earnings release we issued earlier today. The Company's Board of Directors had declared a distribution of $0.29 per share payable on March 31, 2016 to stockholders of record as of March 17. For the quarter ended December 31, 2015, we also record net realized capital losses of approximately $4.2 million and net unrealized depreciation of approximately $67.6 million. Our CLO positions suffered significant price declines in the quarter, $43.9 million of that net unrealized depreciation associated with our CLO investments. As a result of this realized and unrealized losses, we had a net decrease in net assets resulting from operations of approximately $67.3 million or $1.14 per share for the quarter. Our weighted average credit rating on a fair value basis stood at 2.2 at end of the fourth quarter of 2015 compared with 2.2 at the end of the third quarter of 2015. As a reminder, our credit ratings system is based on one to five scale with a lower number representing a stronger credit quality. At December 31, 2015, our net asset value per share was $6.40 compared to a net asset value at the end of the third quarter of $7.81. During the fourth quarter of 2015, we made additional investments totaling approximately $20.7 million in senior secured loans. Also for the fourth quarter, we received proceeds of approximately $207.9 million from repayments, sales and amortization payments on our debt investments. That level of activity which was particularly high for our portfolio resulted primarily from sales initiated by us in order to fund the repayments of debt and to repurchase our common shares. As of December 31, 2015, the following weighted averages yields were calculated. The weighted average yield of our debt investments at current cost stood at approximately 7.1% compared to 7.2% as of September 30, 2015. The weighted effective yield of our CLO equity investments at current cost stood at approximately 11.3% compared with 11.3% also as of September 30, 2015. The weighted average yield of our cash income producing CLO equity investments at current cost was approximately 27.4% compared to 25.4% as of September 30, 2015. We note that the cash yield calculated on our CLO equity investments is based on the cash distributions we received or were entitled to receive at each respective period end and excludes the CLO equity investments which have not yet made their inaugural payments. I would note that at December 31 we had one investment on non-accrual status with a cost base of approximately $15.5 million at a fair value of approximately $13.5 million. That loan was purchased for a total of approximately $10.7 million in separate purchases during 2011 and 2013. 2015, and particularly the fourth quarter of 2015 was a period of significant change for our Company. Over the past six months, we've taken decisive actions to better position TICC for future and to create additional value for our stockholders. We've reduced the Company debt by $150 million, which was equal to 29.7% of our consolidated debt as of September 30, 2015. We repurchased approximately 8.5 million shares of our common stock at a weighted average price of approximately $5.79 for a total of approximately $49.3 million which represents 14.2% of all of our shares outstanding at September 30, 2015. And we've taken what we consider to be dramatic steps to realign the management and incentive fees paid to our external investment advisor. On that last point specifically and Steve as discussed earlier, we’ve taken time over the last few months to speak with many of you and we’ve conducted significant analysis of the BDC industry and of our peers. The waiver now in place directly aligns with that feedback and analysis, and reflects what we believe is the best in class approach across the BDC industry. Under this waiver, we have effectively reduced our base management fee paid to TICC management by 25% from a rate of 2% to 1.5%. And we have implemented a total return hurdle and catch-up provision with regard to the calculation of that income incentive fee. Additionally, and as Steve noted, we have moved from a variable hurdle rate to a 7% fixed hurdle rate for that income incentive fee and we have implemented a policy of not charging any management fee on newly raised capital until it is invested. In total, we believe that these changes represent significant overall fee revisions. We also believe that our concurrent deleveraging and significant share repurchase programs are similarly significant in the context of our market. Going forward, our core focus continues to center around rotating out of lower yielding corporate loan assets held on a more leverage basis and into higher yielding assets held on a less leverage basis. We took a significant step in that direction with the sale of approximately $145.5 million of syndicated corporate loans during the fourth quarter at a weighted average sales price of 98.5% of par. At the same time, we are working to appropriately balance the sometimes competing goals of maintaining a strong and stable dividend, maintaining a stable net asset value and managing the overall risk of the company’s investment portfolio. We remain committed to taking steps in order to increase value for our shareholders while continuing to navigate what is a highly challenging market environment. We believe that the steps we have taken over the past year are in certain ways broadly analogous to those we undertook in 2007 through 2009 prior to and during the last credit crisis. During that period, we dramatically deleveraged our balance sheet and rotated into more attractive risk adjusted total return assets. I would now like to turn the call over to Deep Maji, who will discuss market overview for us. Deep?

Thank you, Jonathan. During the quarter ended December 31, 2015, price declines persisted in the syndicated corporate loan market. The continued weakness across the commodity sector coupled with credit issues in other sectors continued to weigh on market sentiment. The S&P/LSTA Leveraged Loan Index closed at 91.26% on December 31, 2015 compared to 94.21% as of September 30, 2015. As of March 1, 2016, the S&P/LSTA Leveraged Loan Index stood at approximately 89.5%. According to S&P, the trailing 12-month leveraged loan default rate by a number of loans at the end of February 2016 rose to 1.7% from 1.2% at the end of December, the highest level in over two years. Against this backdrop, we continued to see a meaningful bifurcation in the loan market as trust names particularly in the oil and gas sector fell further as oil prices continued to fall during the quarter. Concurrently, near par loans experienced weakness as well as lower liquidity going into year-end as outflows from bank loan ETFs and mutual funds persisted and CLO issuance slowed. According to Morgan Stanley, the average price of the underlying collateral loans in CLOs at the end of December was approximately 93% of par, down 1.25 points from the previous month and down approximately 3 points from the September 2015 levels of 96% of par. Price dispersion also increased across CLO collateral as approximately 15% of loans were trading below 90% and 8% below 80% as of year-end compared to 11% and 5% respectively at the end of September. Consequently, post price of CLO equity NAVs dropped approximately 30 points in the fourth quarter of 2015. As of December 31. 2015, Wells Fargo estimated median NAVs for 2013 and 2014 CLOs are now in single digits and median NAVs on 2012 and 2015 deals was less energy exposure of approximately 20% of par. As NAV declined during the quarter, this was partially offset as collateral managers were able to selectively take advantage of market technicals through active portfolio management to increase collateral par value. According to Lpc data studied by Wells Fargo, US CLOs still in their reinvestment period purchased $5.1 billion in loans in November at a median price of 99 versus $3.4 billion in sales at a median price of 99.3. Consequently during the quarter, the market continued to see CLO equity tranches trade at a significant discount from a cash price perspective. The combination of further depressed NAVs, the expectation for an increase in actual defaults and ratings downgrades combined with weakness in the broader markets resulted in CLO equity trading at lower levels, which has contributed to lower marks on our CLO equity portfolio and for the CLO equity market as a whole. Addressing our CLO related investment activities, we note that after six years of very successful activity in the CLO market, we had a very challenging 2015 pursuing this strategy, particularly from a mark-to-market perspective. We are among the very first BDC and institutional investors to identify the outstanding long-term opportunity of investing in CLO debt and equity in 2009 after the credit crisis. Since then, we have deployed total capital of approximately $562 million and have produced a total weighted average IRR in excess of 15%, which includes our current non-exited CLO positions as of December 31, 2015 at their then fair market values. Looking at our exited CLO positions only, we have produced a total cash on cash realized weighted average IRR in excess of 30%. That performance is reflected in our overall investment performance from 2009 to 2015, which we will discuss shortly.

Deep, thanks very much. With regard to the setting of our net asset value and the fair values at which we mark our portfolio of assets, we believe that this is an area that is long deserved and is now receiving significantly greater attention within the BDC space. We are proud of our strong track record of accurately and appropriately marking our efforts to market over many years. This is especially true within the CLO market where bid ask spreads on CLO equity have widened out considerably. We note that we marked down those CLO equity positions we held during the fourth quarter of 2015 by approximately $43.7 million and that we realized $2.7 million of losses on CLO equity sales in that quarter. Our weighted average CLO equity mark at December 31 stood at [indiscernible]. We believe that the dislocation in the market over the last year has changed the way that investors view CLO participation by BDCs. Specifically, we recognized that investors may now regard that CLO exposure as a meaningful negative and that that sentiment has continued into 2016. With that in mind, and in view of the somewhat circuitous loop between investor perception and total return prospects for BDCs, we have taken steps to begin to reduce the relative importance of our CLO investment strategy within TICC. While that initiative has been slowed by the disruption across the corporate credit markets and within the CLO equity market, we remain committed to rotating out of CLO equity over time at TICC. At the same time, we remain highly focused on continuously managing the value of our investment portfolio. As such, we have no near-term plans to sell CLO assets at current market prices that we believe do not reflect the value of our CLOs projected cash flow payments, which are expected to be received prior to the maturity of those investments. We believe that our CLO investment strategy has produced on an historical basis very strong GAAP and cash returns for TICC. I would like to turn the call over now to Hari Srinivasan, who is going to talk about our sector exposure and our leverage position. Hari?

Thank you, Jonathan. It is worth addressing a decision we made several years ago about how we were going to allocate the company’s investment, not only among the different types of investments, but also among different types of issuers of corporate debt. In that regard, we made a multi-year decision to avoid direct oil and gas exposure as well as other commodities such as coal, metals and mining and energy exposure broadly and have run a 0% [ph] direct balance sheet exposure to these sectors for some time. We have additionally endeavored the minimized oil and gas and energy exposures we hold on a derivative basis to our CLO equity holdings and have thus generally focused on those CLOs with lower levels of these exposures. We expect to maintain that position over the near to intermediate term. Over the past several years, in order to finance our investment strategy, we have operated with relatively high levels of overall debt, but we note that the majority of the outstanding debt has been on a non-recourse basis to TICC. That dichotomy was largely a function of our 2011 and 2012 CLOs and TICC funding financing structures, which were non-recourse of TICC, but consolidated on to our corporate balance sheet under GAAP accounting. During the past year, we have chosen to significantly delever our balance sheet. I will turn the call over to Jonathan.

Thanks very much, Hari. Lastly, I want to discuss the issue of TICC’s investment performance over the past several years and for 2015. We certainly had a disappointing 2015 led principally by unrealized mark-to-market losses, both on our CLO equity and our corporate loan investments. At the same time, we are proud of our total longer term returns since the implementation of our current investment strategy in 2009 during and in the immediate aftermath of the credit crisis. During the seven-year period from January 1, 2009 to December 31, 2015, the year we’ve just reported results for, we produced a total return to our shareholders of approximately 74% based on NAV appreciation plus dividends and a total return to stockholders of approximately 276% based on share price appreciation plus dividends. That longer term track record notwithstanding the market disruptions that have recently occurred and the significant changes we have implemented, which were very much the result of our 2005 to 2015 operating results. We are expecting to produce significant improvements going forward. With that, I would like to turn the call back to the operator, who can poll for questions.

[Operator Instructions] And the first question comes from Jonathan Bock with Wells Fargo.

Good morning and thank you for taking my questions and thank you for your commentary on the CLO market and as well as evaluation process, found that very helpful. Jonathan, starting first – I’ve got a few here, but starting first with the dividend, just a couple of questions that the shareholders and institutions likely have, is it your intention to keep the dividend at the current level that’s not covered by earnings and thus maintain the NAV diminution that’s occurring as a result of paying a dividend in excess of those earnings?

Thank you, Jon for that question. It isn’t the Board’s intention. I don’t believe to maintain the dividend at any particular level based on anything other than the operating performance and the cash flow and the distributed investment income that the company produces. So during the fourth quarter, we generated an estimated $0.26 per share of core NII, which is effectively distributable or taxable NII. So as you noted, there is obviously a difference between GAAP net investment income and the distributable income, essentially the cash that we received and are therefore responsible to distribute. The Board’s view I think is that they will continue to review our quarterly performance and our forward projections, both on a GAAP basis and on a tax basis and are going to set the dividend in concert with those things.

Make sense. I know unfortunately I wasn’t a part of the review process, but I do believe that BDCs often get significant NAV discounts when they over-distribute dividends relative to what is their true NOI and not on distributable basis, that’s just an opinion. But moving next, I noticed and perhaps it's just legal lease and this is all going to be fixed, both Steve and Jonathan, you mentioned that this is a waiver for fees, can you explain why it's not permanent?

Certainly. It is an ongoing waiver, Jon and in the absence of any change to the underlying investment contract, it will continue, presumably in perpetuity. The reason why these changes haven't yet been included within the investment advisory agreement is that the board is required to conduct a full 15(c) review process in the context of making any change of any description to that contract. Presumably, that's something the board will be looking at fairly shortly.

And Jonathan, if I may just add, we’re about to commence -- we normally commence that 15(c) process at around this time of the year. We wanted to get this in place immediately so we did it by this means.

Got it. That's totally fair and I appreciate that. And then, so as I look at best in class, I completely understand when we think of cumulative look backs, et cetera, are very, very important for those BDCs that operate under a true direct origination model, but if I think of a closer comp to you, which owns primarily BSL and CLO equity, what I see is American capital senior floating with a true fee of 80 basis points on gross assets with no incentive fee. So, can you explain how this fee structure that you have presented to us is superior to what one would believe or a shareholder would actually put forth to you as a closer comp given the collateral that you now manage?

Sure, Jon. Thank you. The collateral that we manage is shifting. So if you look at the very substantial sales that we conducted during 2015, and especially in the latter portion of 2015, that was primarily our more liquid syndicated corporate loan investments. Going forward, our objective and our investment focus is going to be on significantly less liquid assets, more proprietary assets. As you know, the origin of TICC, which was originally called Technology Investment Capital Corp was in the bilateral loan market and we are increasingly starting to look at less leverage or less liquid rather leverage loans, where we think we’ve got more of a proprietary competitive advantage.

Got it. And then I guess the next question that shareholders would likely put forth is to another that’s changed the fee is, NAV is down significantly this quarter. Could you explain why you chose to make this fee starting as of April 1 and not perhaps retroactively include the NAV losses in your NOI incentive fee going forward, because shareholders today obviously, as a result of the NAV decline, experienced some pain. Is there a reason you decided not to include fourth quarter in that fee look back?

Sure, Jon. The process by which we came up with this waiver agreement was a lengthy one. We looked at the rest of the industry, we looked at competitive, our competitive position within this market. We looked at a great number of things. I think what we’ve ended up with is something by virtue of the new management fee at 150 basis points in consideration of the total return hurdle, which is as you have noted, I think historically is very much a best practice within this market, by our decision not to charge any management fee -- any base management fee on new capital raised, whether that is debt or equity by the establishment of the 7% fixed hurdle rate as opposed to the variable hurdle rate, which was a bit less than 7% that we have historically maintained. All of these things in concert I think brought us to a point that we were comfortable with I hope and believe the special committee were comfortable with and we’re happy with where we've ended up.

Okay. I understand. And then just a few more and then I can hop back in. So Jonathan, I think I saw professional fees increased quarter over quarter, I'm just going to venture a guess, would that relate to just general legal proxy and advisor expenses tied to the BSP Transaction and the strategic review give or take. Is that where they came from?

Sure. That was primarily legal and financial advisory services, provided to the special committee during the quarter.

Got it. And then the question is, so I understand there is a coming proxy contest at your annual meeting, where shareholders are requesting termination of the external management agreement with TICC management. So the question I’ve got is, do you intend to use shareholder capital to defend the external manager against the loss of the contract and if you do, is that an appropriate expense for the shareholders to bear when the external manager could pay for it itself?

Jonathan, we honestly haven't had that series of discussions yet. We're still a ways off from the annual meeting and the prospect of a proxy battle is something that we have not yet turned our attention to.

Okay. And then, finally, Steve, the special committee had outlined that previously TICC is an external manager, whether it was scale, whether it was operating ability, et cetera, strategy. That was the time in 2015 to sell and in fact, sell to benefit street partners, which is a very adept and well-known middle market credit manager. The question I have is why has it changed, because at the end of the day, the same team sets in place, albeit at a lower price, but if you were recommending moving the assets or recommending moving the BDC or selling the external manager just a few months ago, citing that the status quo, which is the current management team is in place is the reason to move to BSP, why is it different now?

Jon, this is Jonathan. Why don't I sort of just offer my perspective on what we heard from the special committee and from our ongoing dialog with the Board? Firstly, I think the market has changed pretty dramatically, since we began well over a year ago the discussions that you are referencing. The market has moved from one where I think scale was more important in terms of sourcing transactions, sourcing deal flow to a market where we believe competitive advantage is being defined by other factors. This is a market that is significantly dislocated, this is a market where positions cannot be exited at par values, nearly as usually as they could have been a year or year and a half ago. And this is a market that we historically -- a dislocated market that we’ve historically tended to perform well in. We’ve rotated the portfolio meaningfully. We’ve engaged in one of what -- I believe what is one of the very largest share repurchase programs in the BDC industry, bought back over 14% of our market capitalization thus far, and we’ve substantially de-leveraged our balance sheet. So the existing manager is doing a great many things to try to address the value issues, the value creation issues that you’ve spoken about and you’ve spoken about historically. So that’s -- anyways, that's the management's perspective. And I think Steve is probably going to let it lie there.

Okay. And Jonathan, thank you for that. So I guess the only other question that I had and I know you mentioned a lot of the creation that occurred was a result of your ability to buy in CLOs in 2009, which was also the date you referenced kind of, as you talked about your performance. I know TICC history goes well beyond that. One question as it just gets to share repurchases again, because it’s an important item and we all believe and appreciate the fact that you’re returning shareholder capital. Do you expect that to continue in light of the fact that you have BSL collateral that could be sold and you could essentially continue to return capital to investors in the future that what you have in the past?

I do intend or I do expect rather Jonathan for the board and the management to continue to look much more closely at share repurchase opportunities on an ongoing basis than we have in the years past. So I think that in this market environment and in an environment where TICC shares are trading at a discount, even a relatively modest discount to NAV in the future, the share repurchase option needs to be much more seriously pursued than we or our BDC peers have in the past. And that was really the advantage of the 10b5-1 plan that we were able to implement last quarter. My sense is we’ll look to utilize that mechanism prospectively more in the future.

Yes, thank you. And that comes from Mickey Schleien with Ladenburg.

Good morning, Jonathan. Wanted to ask you what the legal or regulatory requirement is for holding the shareholder meeting, the annual shareholder meeting in terms of timing?

Thank you, Mickey. I believe that the legal and/or regulatory requirement associated with the holding of a shareholder meeting is that it would need to be held by December 31, 2016.

Okay. And you haven't scheduled it yet, correct?

Correct, we have not.

Okay. My next question is, with all the downgrades we've seen in the leverage loan market, which may be tripping some tests in CLOs, how are your existing CLO investments performing in relation to potential cash flow diversions, if any?

Sure, Mickey. Thank you. Our CLO equity positions continue to perform well. They are cash flowing, they were all cash flow fully with no diversion to their top of their respective debt stacks as of December 31 and the CLO market overall putting aside our specific portfolio continues to generate very strong cash flows. Part of that is a function of a widening corporate loan environment where you are able to potentially arbitrage a fixed cost of capital against a variable use of proceeds and enjoy the benefit of that widening overtime. Obviously, the offset to that and the offset -- it could offset all or more than all of that benefit is that you’ve got the prospect for greater CCC downgrades, you have got the prospect for greater defaults and you've got the prospect going forward for lower recovery rates. So those are the various things that we’re thinking about in the context of the management of our CLO equity book.

Okay. Thank you for that Jonathan. My last question is, I see in your deck that most of the CLO portfolio is now callable, approximately two-thirds, I suppose that's because of your new strategy to rotate out of CLO. I just was curious, of those that are callable, in how many are you in a position to control the call?

Sure, Mickey. As you know, part of our strategy, certainly not all of it, but part of our strategy historically has involved assuming controlled positions greater than 51% positions in our various CLO equity tranches. That gives us the ability to call these instruments and certainly of those instruments we do enjoy the benefit of a call. That said, in the current market environment, we’re not looking at a call strategy as particularly desirable from an economic perspective.

I understand. Those are all my questions. Appreciate all of your commentary today and that's it for me. Thank you.

Thank you. And this does conclude the question-and-answer session. So I now would like to turn the call back over to management for any closing comments.

Great. Thank you very much. I would like to thank everybody on the call today. I would like to thank you for your interest in TICC Capital and we look forward to continuing these discussions. Thanks very much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.