PennantPark Investment Corporation (PNNT) Q3 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the PennantPark Investment Corporation's Third Fiscal Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers’ remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr. Penn, you may begin your conference.

Thank you, and good morning, everyone. I’d like to welcome you to PennantPark Investment Corporation’s third fiscal quarter 2017 earnings conference call. I’m joined today by Aviv Efrat, our Chief Financial Officer. Aviv, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.

Thank you, Art. I’d like to remind everyone that today’s call is being recorded. Please note that this call is the property of PennantPark Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone numbers and PIN provided in our earnings press release as well as on our website. I’d also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today’s conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these 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 at www.pennantpark.com or call us at 212-905-1000. At this time, I’d like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

Thanks, Aviv. I’m going to provide an update on the business starting with financial highlights, followed by a discussion of the overall market, the overall portfolio, investment activity, the financials, and then open it up for Q&A. For the quarter ended June 30, 2017, we invested $89 million and an average yield of 10.6%, about 65% of our new investments were in first lien secured debt and 24% was in second lien secured debt, which is in line with our strategy of developing a lower risk more secured portfolio. We believe that PNNT stock should be able to provide investors with an attractive dividend stream along with potential upside as the energy markets stabilizes and our equity co-invest mature. NAV increased to $9.18 per share up from $9.09 per share last quarter. With regard to the overall market, the economic signals have been moderately positive. With regard to the more liquid capital markets in particular the leverage loan and high yield markets, during the quarter end June 30 those markets experience trend. As high yield and leverage loan funds saw inflows due to the market's belief in a stronger economy and benign interest rate environment. We remain focused on long term value of making investments that will perform well over an extended period of time and can withstand from business cycles. Our focus continues to be on companies and structures that are more defensive, have low leverage, strong covenants and high returns. As credit investors one of our primary goals is preservations capital, and we preserve capital, usually the upside takes care of itself. As a business one of our primary goals is building long term process, our focus is on building long-term trust with our portfolio companies, management teams, financial sponsors, intermediaries, our credit providers and of course our shareholders. We are first call for middle market financial sponsors, management teams and intermediaries who want consistent credible capital. As an independent provider, free of conflicts or affiliations we've become a trusted finance partner for our clients. Since inception PennantPark entities to finance companies backed by 181 different financial sponsors. Our portfolio is constructed to withstand market and economic volatility. In general, our overall portfolio is performing well, we have cash interest coverage ratio of 2.6 times and a debt to EBITDA ratio of 5.1 times at cost by our cash flow loans. During this past quarter, we continued to optimize our capital structure. We paid off $71 million of expensive, 6.25% baby bonds, and we right sized and amended and extended our low cost long term credit facility. These steps will reduce our cost of debt capital. We are pleased that we have diversified funding sources with several features that reduce overall risk to the company. We have 250 million of long term unsecured bonds, and only utilized about 17% of our new long term $445 million credit facility. Additionally, we're utilizing the expanded capacity under the new SBIC legislation. SBIC financing creates financial cushion and now we have exempted really from the SEC to exclude SBIC debt in our BDC asset coverage debt and SBIC accounting is cost accounting now mark to market accounting. With assay yields coming down over the last several years we're looking to create attractive risk adjusted returns in our portfolio. We have a three-point plan to do so. Number one, we are focused on lower risk, primarily secured investments, thereby reducing the volatility of our earnings stream. Investment secured by either our first or second lien are about 77% of the portfolio. Number two we are focusing on reducing risk from the standpoint of diversification as our portfolio rotates, we intend to have a more granular portfolio with modest bite sizes relative to our overall capital. And number three, we look forward to continuing to monetize the equity portion of our portfolio. For example, we exited the second half of our position in the common equity Adolf Cosmetics during the quarter as well as our equity investment in PAS. The sales of these equity positions generated $30 million in cash. Due to all these factors, we remain comfortable with our target regulatory debt to equity ratio of 0.6 to 0.8 times. We are currently at 0.5 times the regulatory debt to equity. On an overall basis, we are targeting overall GAAP leverage of 0.8 times. As of today, we are currently at 0.8 times overall GAAP leverage and our net leverage debt minus cash is 0.69 times. During the past year we've had the opportunity to restructure most of our challenged energy names. Our two investments related to oilfield services, American Gilsonite and US Well, have started performing better as drilling activity has picked up. Increased values on those two names helped our entity this past quarter. With regard to our two E&P names, Ram and ETX, generally these companies are positioned to weather a period of prolonged lower energy prices, and should benefit from the gradual improving environment. Even if the two E&P investments were marked to zero our NAV would have been $7.54 as of June 30th. This indicates the potential upside value to our stock as we monetize those and other investments over time. We believe it will take more time for us to maximize the recovery of our overall energy portfolio. Despite the great recession in credit prices PennantPark Investment Corporation has had only 12 companies going non-accrual out of 187 investments since inception over 10 years ago. Further we are proud that even when we had those non-accruals we've been able to preserve capital for our shareholders, through hard work, patience and judicious additional investments in capital and personnel in those companies we've been able to find ways to add value. We constantly monitor our deals and re-underwrite them in the face of new information in situations where the best long-term value for shareholders is created by taking control of the companies and providing capital on expertise we do. Based on values as of June 30, today we have recovered about 82% of capital invested on the 12 companies that have been nonaccrual since inception of the firm. We currently have no investment on nonaccrual. To highlight our expertise and working through difficult situations to maximize value this past quarter we exited our investment in PAS. PAS was a subordinated debt investment we originally made in 2010, to back us sponsoring the acquisition of a provider of OEM and aftermarket aerospace and gas turbine engine components. In 2011 and 2012 due to operational issues, EBITDA declined significantly and the company violated covenants. The company change in management and restructured its operations. In 2013 the company did a financial restructuring or we converted our subordinated debt to equity and invested more equity. In 2016, we were also able to buy some first lien debt at a substantial discount from a lender. The financial results rebounded nicely and the company was purchased by a strategic acquirer in May of 2017. As a result of the exit we received all of our money back and more recovering $0.112 on the dollar of our invested capital. It might be helpful to highlight our long term track record over 10 years including great recession. Since inception PNNT has made 187 investments totaling about $4.3 billion and an average yield of about 13%, including both realized and unrealized losses PNNT lost only about 40 basis points annually. In terms of exits in addition to debt and equity PAS as discussed, we exited our remaining position in e.l.f equity. Three and half years ago we invested 33 million in the second lien debt and 3.4 million of equity in e.l.f. Over that time frame we exceeded the debt at an IRR of about 13% and $3.4 million of equity was cash out over $26 million representing multiple invested capital of 7.7 times, and an IRR of 89%. We had a solid quarter of additional attractive exits including Infineon debt which generated IRRs of 17%, Alegeus subordinated debt which generated an IRR of about 14%, first lien debt of A2Z Wireless or Atlantis Holdings an IRR of over 14%, subordinated debt of Randall-Reilly had an IRR of over 12% and first lien debt of Sotera at an IRR of about 12%. In terms of new investments our focus is on senior oriented cash paying secured assets, and virtually all of these investments we have known these particular companies for a while have studied the industries for a strong relationship with the sponsor. Let's walk through some of the highlights. We invested $17 million in the first lien term loan for ACC of Tamarac and Hometown Cable which provide cable television, internet, phone and alone services to residential and commercial customers in Florida. Twin Point Capital is the sponsor. Cano Health operates primary and specialty care health facilities in Florida, we purchased 9 million as an add on first lien term loan. Intended Capital is the sponsor. We invested $22 million in the first lien term loan of Hollander Sleep Products, which produces and sells bedding products, Sentinel Capital is the sponsor. Infogroup is a marketing services provider for enterprise level customers. We invested $20 million in the second lien term loan and 2 million in the equity. Court Square capital is the sponsor. Turning to the outlook we believe that’s a remainder of 2017 will be active due to growth in M&A driven financings. Due to our strong sourcing network and client relationships we are seeing active deal flow. Let me now turn the call over to Aviv, our CFO to take you through the financial results.

Thank you, Arthur. For the quarter ended June 30, 2017 recurring net investment income totaled $0.017 per share. In addition, we had $0.04 per share of other income and $0.02 per share from the fee waiver. We also had a one-time $0.05 per share charged to amend and extent our low-cost credit facility, which resulted in GAAP net investment income of $0.18 per share. Looking at some of the expend categories. Management fees totaled after waiver $6 million, general and administrative expenses totaled $1.6 million, interest expense totaled $6.7 million and the one-time credit facility amendment charge was $3.9 million. During the quarter ended June 30, unrealized loss from investments was $1.7 million or $0.02 per share. We also had unrealized losses from our various debt instruments of $2.1 million or $0.03 per share. We had about $10 million or $0.14 per share of realized gains. Consequently, NAV per share went up $0.09 from $9.09 to $9.18 per share. As a remainder our entire portfolio, credit facility and senior notes are mark-to-market by our board of directors each quarter using the exit price provided by independent valuation firms, securities and exchanges or independent broker dealer quotations when active markets are available under ASC820 and ASC825. In cases where broker dealer quotes are inactive we use independent valuation firms to value the investments. Our overall debt portfolio has a weighted average yield of 11.8%. On June 30, our portfolio consisted of 53 companies across 26 different industries. The portfolio was invested in 42% senior secured debt, 35% in second lien secured debt, 11% in subordinated debt and 12% in preferred and common equity. 85% of the portfolio has a floating rate. Now, let me turn to call back to art.

Thanks Aviv. To conclude we want to reiterate our mission, our goal is to generated fact of risk adjusted returns through income coupled with long-term preservation of capital. Everything we do is aligned to that goal. We try to find less risky middle market companies that have high free cash flow conversion. We capture that free cash flow primarily in debt instruments and we pay out those contractual cash flows in the form of dividends to our shareholders. In closing, I'd like to thank our extremely talented team of professionals for their commitment and dedication. Thank you all for your time today and for your continued investment and confidence in us. That concludes our remarks. At this time, I would like to open up the call to question.

We'll take our first question from Casey Alexander with Compass Point Research & Trading.

Thank you for the presentation, that answered lot of questions, but first of all you took out the 6.25% baby bond, can you sort of go over your credit cost going forward as your debt structure stands right now?

Certainly, and you should see that cost coming down, we estimate if you -- obviously it’s a moving target going forward but about 4% -- 4.1% perhaps is the overall cost of the financing that you can look at us going forward.

Secondly, net of cash you’re clearly below now your target leverage ratio which leaves some room for investing. Can you share with us what your kind of seeing in the current quarter, both from an opportunity and from a sales and repayment standpoint?

Yes. Casey, we don’t know until obviously end of the quarter, we’re pretty busy right now and we do have some cash on the balance sheet and we are getting some repayments along the way. So, I guess the model flat portfolio, the model slightly up portfolio. I think we’re kind of somewhere between flat and slightly up, we'll have to see where it all kind of comes out in the wash based on using the cash as well as based on the repayments that we’re getting.

Okay. Great. And certainly, we understand that you want to be patient and maximize the value of the energy investments that you have. Have you given any thoughts to potential extension of the fee labor that ends at the end of the year?

Yeah. Look the board is always thinking about the fees in general, as a general proposition and I think not giving anything away of course if that portfolio continues to underperform, if that piece of portfolio continues to underperform it would full sense to align everything with that.

Let me ask you a different question then, again I understand that PennantPark was formed a long time ago and that the standard fee structure was established long time ago, when the fee structure was the norm for the market and yet overall market fee structures have changed. Has the board given any consideration as opposed to the fee waiver, just pushing some of the fee structure closer to what is kind of the current norm?

Yes, the board, as I said the board is always considering and obviously every year there’s a formal framework but it’s a discussion all the time. And as we get to the formal annual review I’m sure they'll consider something more permanent as well.

And we’ll take our next question from Douglas Mewhirter from SunTrust.

Hi. Good morning. Looks like the high exit activity generated some, I guess call protection or OID. In your current portfolio assume you have a mix of older and new investments, what percentage of your portfolio is young enough or you still have sort of embedded call protection, which would create the possibility of additional fees on excess prior to maturity.

Dough, it’s a good question. We don’t have it at our finger tips, we can get back to you, if I had to cough it and kind of estimate, I think we still have, I guess half the portfolio having reasonable call protection if not more and every time we do a new deal of course that recessed. We typically buy deals at a discount at par, we typically have call protection and every once in a while, we have these equities co-invest which pay off like e.l.f and e.l.f is unusual, we can’t count on that. But we have nice equity comps and if you look at our equity comps, portfolio overtime it’s been a nice generator of gain. So, I'd say lazy as I am talking about it, I'd say at least 15%, but we can get back to you with a more precise number. But again, every time you do a new deal, you reset it, you’re buying at 98 or 99 or 97 and you’re setting up a non-call period of some point or a call premium period of some point and then also potentially having to comp that. So, it’s something that we think, I guess you’re trying to model other income, because we kind of have like recurring income which we say is like the interest income from the portfolio and then you have other income which is the prepayment penalties etcetera, it's usually between you know $0.02 is the low and $0.04 is reasonable. Sometimes we've had $0.06 or $0.07 you know is other income recurring or not, we can all debate that but we tend to at least have $0.02 a quarter of other income that seems to recur from prepayment penalties.

And we will take our next question from Ryan Lynch from KBW.

Good morning, thank you for taking my questions. The first one echoes your comment about the current portfolio debt to equity of about 8 times or so, you guys have about a $100 million of cash right now, so you guys certainly have some ability to pour that cash, but it looks like from a leverage standpoint you guys are maybe going to be set for a little bit, but does give you a little bit of room to grow the portfolio. Then if I look at the earnings this quarter you know $0.18 of NII earnings now, if you add back the non-recurring debt cost as well as add in some level of higher incentive fees, obviously the lower -- the one time debt cost lower incentive fees I get you know core earnings of about $0.20 per share for the quarter which includes $0.02 of fee waivers which are set to expire at the end of the year and so that's right on top of the dividend so basically the earnings would equal the dividend excluding any sort of fee waivers. So I'm just wondering about looking longer term and in 2018 if the fee waivers do expire should we expect basically earnings to be just right in line with the dividend or were there any ways to drive earnings above the dividend because the dividend set right now is about a 7.8% dividend yield on your book value and so I'm just wondering that's why I wonder are there any drivers to make dividends or make earnings go ahead of the dividends outside the fee waivers or just because the fee waivers right now seem to be a critical component of earning.

Yes, I wouldn't overall obsess over the fee waivers going away in January, in my mind they're going to probably continue until we get some major off uplift in energy or until the board comes in with a more permanent structure. So, I think you're right we're looking at is maybe $0.20 or maybe $0.21 of kind of run rate earnings versus an $0.18 dividend. We think that's a nice solid way to run the portfolio at this point. You know thinking that NAV at some point is going to start growing again and again, we think the stock is very cheap relative to us valuing those energy names. As I've said if you wrote off the two E&P names to zero your NAV would be like 7.50 and there's also downside protection on the dividend because of the way the incentive fee does work much below $0.18, dollar for dollar it's coming out of the incentive fee, so that $0.18 dividend is very-very well protected. So, as you think about the investment opportunity here we think it's relative to NAV, you have a lot of upside and we think your $0.18 is very well covered both from income as well as having a nice downside protection element in terms of how the catch up of the incentive fee works, so we think it's a nice asymmetrical downside protected upside opportunity for shareholders.

Okay, that's good commentary and then over the last several quarters you guys have done a good job of exiting some of the equity investments realizing from nice gains during those exits. If I look at your active portfolio today, it looks like it's around 12% of your overall portfolio today and you mentioned continuing to look to exit those equity investments going forward, obviously I know that those are hard to predict and very unpredictable when those line exit but do you have any target of where you like to get that 12 percentage of your equity portfolio down to?

Look overtime we think it will be great to get to 5% to 7%, we think it's always smart and to some extent that's equity co-invest which are doing well for us, sometimes you get equity by way of debt conversion, which is the not the greatest way to get equity but it happens in our business from time to time like PAS was a good example on that. But look it would be great to get it down to 5% to 7% of the portfolio. And if you look at that the equity portfolio you can see some of the names where there were some nice mark ups on cost and to the extent those names are owned by sponsors and a bunch of them are is just a matter of time before they are going to look to realize those gains and should provide some nice liquidity gains for us and we will look forward to rotating those proceeds and to cash paying secured debt instruments.

And we will take our next question from Chris York with JMP Securities.

Same on the topic goes the equity portfolio and then maybe looking at the marks there. You talked a little bit about the potential to exit some of these investments. Are there also any of these companies moving in the other direction where they could provide income to the comment if you do not exit them?

It’s a great question, the way it typically works with these sponsor companies is, if they don’t exit the equity -- if it's not an M&A sale they will do a refinancing and potentially dividend and which is prevalent in this market today for good news or bad news. So, in certain cases we will get a dividend along the way which will help income. So, for instance prepaid legal or legal shelf is a name where we have turned several dividends along the way I think the equity is marked well above cost. So, we have got income along the way on that and then it’s a question of what's the next step for that company as an example.

And then I wanted to ask a question about the pipeline and or maybe even probably about the investment strategy or lending which at work. So are you guys opposed to making new investments in energy companies today in light of your current industry exposure and then maybe your recent experience because we have these increased expenditures in the energy industry and we have also seen a couple BDCs tipping their toe back into lending niche.

We are not going to make any new investments in energy. We may invest in these existing companies that we already have to help them, and to help them take advantage of opportunities but we are going back to our core sponsor driven non-energy base which is performed excellently over 10 years. The biggest mistake we made over the last 10 years has been a foray into energy lesson learnt. We are going back to non-energy sponsored deals where our track record has been excellent even through the greater recession. We are going to play Gilsonite U.S. well through and maximize value there, those are starting to percolate, those are the two oil field services related businesses, and we are going to maximize value there for our shareholders and ride that and then at some point we hope to ride our E&P names back, Ram and ETX but just to be clear we've enough energy exposure, thank you very much, and we're going back into what's worked well with us over a decade including the great recession, which is non-energy sponsored driven by us or doing it with sponsors we know, where they’re injecting a ton of equity beneath us or we have very good free cash flow and where our track record has been excellent over decade.

Got it and just wanted to where you guys stood on that one. And then may be this is for Aviv, I don’t see a breakout in the press release for the calculation of non-GAAP or your core net investment income per share, so how are you calculating this, because number appears to exclude the revolver amendment cost but doesn’t adjust for the consequential increase in incentive comp.

That is correct and if you do exclude the increasing incentive fee, core NII will be going from $0.30 down to $0.21 or so, that is the correct statement that you made.

The way to look at is really run rate, run rate is probably $0.20, $0.21.

And our next question comes from Ric Shane from JPMorgan.

Two things, one during the tight spread environment and activity among private equity sponsors, just curious how much you’re expecting as we move through the year in terms of repayment activity. I am assuming you think it's going to remain heightened.

A lot of easy wins or re-fis have already worked their way through, we think it's exciting. This is anecdotal and just kind of thinking about what we've seen in the last month or so, since quarter end, we think its subsiding. But look our attitude and we've been public about this, when people pay us back, we say thank you. If the people do not pay us back, and we paid the price, so we underwrite to get paid back, that’s fine. There is always another deal that walks in the door, we have plenty of origination fire power, we've invested in our platform over the last few years, we have an LA office, we have a Chicago office, we have a Houston office, we have a London office, we have a beat-up office here in New York. We are seeing plenty of deal flow that fits our bucket, we’re being selective as you would imagine in this environment we are moving up capital structure, but we don’t sit here, we feel really good about where we stand and where the hand we have at this point, we don’t feel like we are on the hamster wheel where we have to originate to keep a certain level of AUM, we've really nice deal flow, we're being picky and selective, and we're keeping our bucket full with we think attractive risk adjusted returns and we like where we are from a leverage standpoint. It gives us proper defense and proper offense so, we have become like the hand we dealt doing right now.

As we talk about before, handing that money is pretty easy, getting it back is a lot harder.

And we will take her next question from justice from Kyle Joseph from Jefferies.

Good morning guys, thanks for taking my questions, just a follow up on Rick's, I think he talked about how you anticipated deal flow for the remainder of the year being strong. Will you also anticipate repayment levels being elevated as a result?

Look as I said, we don’t know how that -- we never had been good at predicting. We think we're going to get some reasonable repayments and we think deal flow is good, so would you model a flat to slightly growing portfolio, that’s the way we think about it. But it’s a lumpy business as you know, we had a really busy investment committee this past Monday and we had a lightened investment committee the prior Monday. So that give you like from week to week from day-to-day it just depends on the deal flow. We are seeing ample deal flow in that, we think that’s really due to the investments we’ve made in our team, in our infrastructure to develop new relationships, to get new looks and more looks while still trying to maintain our discipline. As I went through the four deals I highlighted this past quarter, as I went through it in the prepared remarks, two of those sponsors are brand new relationships for us and two of the sponsors are long-term relationships we've had for many, many years. So, we are seeing the benefits of more looks from more sponsors around the country and we feel good about the flow that’s coming in, we are just being really picky about what we put in the portfolio. Our sponsor driven track record over a decade including recession has been excellent including where we do some equity co-invest and that’s where we are focused on, that’s where we have the most value, that’s where we can provide the most value to our shareholders and to our sponsors and that’s kind of what we are doing.

Got it. And then you laid out sort of the three-pronged strategy given the asset yield compression we’ve seen over the past few years. At the same time your yield has been pretty stable year-over-year, can you give us a sort of an update on where you anticipate the overall portfolio yield trending?

Yeah, look and we said this before, as part of the strategy of moving up capital structure, we expect that yields will -- the over yield will come down in this past quarter, end of June the average yield of the new investments was 10.6% whereas the average yield in the portfolio is still over a 11%. So over time we would anticipate we are happy to reduce risk and feel very comfortable about capital preservation and take a little less yield if that’s the tradeoff. We have a reasonable sized equity portfolio to write and to monetize over time, we should provide some lifts and some ups, while we are making the rest of the portfolio lower risk.

Got it that’s helpful and then one last one from me you guys if anything have been experiencing stable or better credit over the last few quarters, that doesn’t -- that isn’t necessarily the case for others in your industry. Can you give us an update to your outlook for credit in that symmetries whether it’s revenue and EBITDA growth that you are seeing from your portfolio companies overall?

Yeah. So, our portfolios are broadly representative of the economy and what we are seeing is representative of that which is it’s a slow growth portfolio which is just fine for us. EBITDA is up single digits, low single digits on probably a blended basis. That’s fine, we like that kind of profile and so, we feel pretty good, we think the outlook is fairly positive for the economy over the next two or three years, on the other hand we always underwrite assuming a downside case, assuming a recession early on so, we think we are prepared for the worst and hoping for the best.

And we'll take our next question from Jonathan Bock from Wells Fargo Securities.

Good morning and thank you for taking my questions, Art, I appreciate the three-point strategy, it makes complete sense whether moving into first lien diversifying your book, monetizing expositions etc. Can you explain why there isn’t a fourth point that’s buyback stock given that you're at 0.5 debt to equity and have a significant amount of cash on the balance sheet.

So great question, we are very focused at this point and hopefully in the future maintaining our investment grade credit rating. So, the point, number one, is something we're comfortable with, we think that's a good place to be right now from both a defensive and offensive standpoint. Rating agencies don't like stock buybacks, we've done stock buybacks in our history, we are totally focused on being shareholder friendly, for instance in this quarter we as you know, the upfront fee on our credit facility gets deducted in terms of how we calculate income from the standpoint of our incentive fees. So, this is just kind of in discussions with the agencies and maintaining our rating and trying to be very shareholder friendly and understanding also that as we move up capital structure and go to lower risk capital structure our yield's probably going to compress as well. So, we're trying to balance a number of different factors. We're always talking about buybacks with the board, it's something we talk about regularly and it's something that's always on the table.

And just your point about talking to the board and I'll kind of maybe rehash Casey's question about permanence of fee structure and waivers in light of incentives and just discussions that you've seen us as well as many others talk about for a number of years and the institutional sentiment has changed dramatically. You're the chair of the board, so can you explain what the hang up is in having to bring it to the board when you yourself control the board's agenda particularly on the item and management fees.

Me and every other member of the board's talking about it all the time. Every year there's a formal process. It's talked about more than once a year and it's something we evaluate and then they evaluate all the time. Last year there was evaluation too because if you look at our track record the biggest chink in our track record, the biggest mistake we made in 10 years including the great recession has been the investments in energy. We elected and the board elected to not earn a dime on our energy portfolio which was 16% at the time, today it’s a little less than that which has continued and the idea behind it being let's play through the energy, the energy program and then when we come up for air and there's a longer term, when it's clear in terms of what's going on, a permanent structure can be put in place. But you know the board's going to evaluate it all the time. I evaluate it all the time, the board's going to evaluate it all time.

And we'll take our next question from Rick Shane from JPMorgan.

Hey guys clearly had a little bit of a senior moment on that last question, wanted to follow up on the comment about doing smaller, more granular deals within the portfolio. I'm curious if that suggests that you're going to be participating in syndications in any way and more importantly how you should think about that in terms of accretion of any origination fees or if those would be going away.

Yes, so it’s a good question you can see what we did this past quarter we did a $70 million loan, we did a $9 million add on, we did a $22 million loan and we did $20 million loan. So, kind of the 20 to 30 to 35-byte sized relative to the portfolio seems to make sense right now. And most of this stuff is self-originated, I mean occasionally if there is a syndicated deal, widely syndicated where we have an edge either through the relationship or through knowledge we may participate when we think its accretive and fits our kind of where we are trying to be. But you can see both in this vehicle as well as PFLT most of what we are doing right now is self- originated.

So, no change in terms of accretion of these going forward?

No change.

And that concludes today question and answer session. Mr. Penn at this time I am going to turn the conference back to you for any additional or closing remarks.

Thank you everybody for participating today. The September 30 quarter is our quarter for our 10-K so reminder that we usually do the call a little bit later than normal because we have to prepare our 10-K so think about mid-November as kind of the next time we will be doing the quarterly conference call. We really appreciate everyone's participation today. Have a good rest of the summer.

This concludes today's call. Thank you for your participation. You may now disconnect.