PennantPark Investment Corporation (PNNT) Q1 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to the PennantPark Investment Corporation's First Fiscal Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speakers' remarks. [Operator Instructions] Hello, this is the operator. I need to get your information. Let me get your first and last name, please. Hello, is there anybody on the line? Please pick up your handset. Hello, is there anybody there? Hello?

[Technical difficulty] -- 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 Web site. 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 the 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 Web site 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 portfolio, investment activity, the financials, and then open it up for Q&A. For the quarter ended December 31, 2018, we invested $194 million in primarily first lien secured debt at an average yield of 9.5%. Net investment income was $0.18 per share. We are pleased that our current run rate net investment income covers [technical difficulty]

Hi, this is the operator. I see that you're holding for today's PennantPark earnings call. Can you hear me? Hi, this is the operator. Can you hear me?

[Technical difficulty] -- to both NAV and income per share. We're looking forward to continuing this program over the coming quarter. As of September 30th, we had taxable spillover of $0.30 per share, which provides further dividend cushion. With a generally stable underlying portfolio and substantial spillover, we believe that PNNT stock should be able to provide investors with an attractive dividend stream along with potential upside as our equity investments mature. As you all know, the Small Business Credit Availability Act was signed into law in late March 2018. Our shareholders have just approved the reduction of the asset coverage test from 200% to 150%. In connection with this reduction, we have reduced our base fee from 1.5% to 1% on gross assets that exceed 200% of PNNT's NAV at the beginning of each quarter. Over time, we are targeting a debt-to-equity ratio of 1.1 to 1.5 times. We will not reach this target overnight. We will continue to carefully invest, and it may take us several quarters to reach the new target. Since our $250 million notes mature in less than a year we announced that on March 4th, 2019 we will prepay the notes at 100% of principle amount plus accrued and unpaid interest as well as a make-whole premium. To enhance our liquidity we are in advanced discussions on an additional $250 million credit facility to complement our existing $445 million credit facility and our $150 million of SBIC II financing. We have paid off the remaining $30 million loan from the SBA on our SBIC I. In addition, our SBIC III application is still pending approval with the SBA. Our primary business of financing middle market sponsors has remained robust. We manage relationships with about 400 private equity sponsors across the country, from our offices in New York, Los Angeles, Chicago, Houston, and London. And we have done business with about 180 sponsors. Due to the wide funnel of deal flow that we receive relative to the size of our vehicles, we can be extremely selective with our investments. In this environment, we have not only been extremely selective, but we have generally moved up the capital structure to more secure investments. A reminder about our long-term track record; PNNT was in business in 2007, and is now focused on financing middle market financial sponsors. Our performance through the global financial crisis and recession was solid. Prior to the global financial crisis, in September 2008, we initiated investments with ultimately aggregated $480 million. Average EBITDA in the underlying portfolio companies was down about 7% to the bottom of the recession. According to the Bloomberg North American High Yield Index the average high-yield company EBITDA was down about 40% during that timeframe. As a result, we had few defaults and attractive recoveries on that portfolio. The IRR of those underlying investments was 8%, even though they were done prior to the financial crisis and recession. We are proud of this downside track record. We've had only 12 companies going non accrual out of 214 investments, since inception over 11 years ago. Further, we are proud that even when we have had those non-accruals we've been able to preserve capital for our shareholders. Based on values as of December 31st, today we have recovered about 76% of capital invested on the 12 companies that have been on non-accrual since inception of the firm. We currently have no investments on non-accrual. Since inception, PNNT has made 214 investments totaling about $5.3 billion, an average yield of 12.3%. This compares to an annualized loss ratio including both realized and unrealized losses of about 30 basis points annually. This strong track record includes both our energy investments as well as our primarily subordinated debt investments made prior to the financial crisis. At this point in time, our underlying portfolio indicates a strong U.S. economy with no signs of a recession. We remain focused on long-term value and making investments that will perform well over an extended period of time, and can withstand different business cycles. We are a 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 are a trusted financing partner for our clients. In general, our overall portfolio is performing well. We have a cash interest coverage ratio of 2.8 times and a debt-to-EBITDA ratio of 5.0 times at cost on our cash flow loans. With regard to our energy related portfolio, we are pleased that we continue to make progress monetizing those investments at reasonable values. We started 2018 with four investments in energy with the stated goal of monetization over time. We held these investments over the last several years during the energy downturn with the goal of maximizing value over the long run. We believe we are starting to see the fruits of that strategy. Last quarter U.S. Well Services announced the merger with MatlinPatterson Acquisition Corp. That merger closed on November 9, 2019. As a result of the transaction our loan was refinanced. We hold equity in the public company with a current value of $7 million. As a result of the transaction the company has significant liquidity to execute its business plan. With regard to ETX, in the fourth quarter '18, the company's shareholders provided additional financing to support ETX's Eagle Ford opportunity, and pivot from its historical focus, the results of which have been disappointing. The new funding was in the form of senior preferred equity. RAM is focusing on its Austin Chalk position in East Texas. The company has commenced a limited drilling program. The early results have been strong on an absolute basis and relative to other operators in the area. We are encouraged by their performance. RAM plans to solely focus on the development of the Austin Chalk asset and monetize all other assets over time. In terms of new investments, we've known these particular companies for a while, have studies the industries, or have a strong relationship with the sponsor. Let's walk through some of the highlights [technical difficulty]

Hi, this is the operator for today's PennantPark call. Can you hear me? Hi, there. This is the operator for today's conference call. Are you able to hear me? I am sorry. I am not able to hear you. I'm going to try again in a few minutes, but I do need to gather your information for today's call.

[Technical difficulty] -- is the sponsor. We purchased $26.4 million of the first lien term loan of ProVation Medical. The company is a provider of clinical productivity software for healthcare professionals. Clearlake Capital is the sponsor. Turning to the outlook, we believe that 2019 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, Art. For the quarter ended December 31, 2018, net investment income totaled $0.18 per share. We had about $0.01 per share of other income. Looking at some of the expense categories, management fees totaled $7.1 million, general and administrative expenses totaled $1.1 million, and interest expense totaled $6.3 million. During the quarter ended December 31st, unrealized loss from investment was $20 million or $0.29 per share. Unrealized gain on debt instruments was $6 million or $0.09 per share. We had about $9 million or $0.12 per share of realized gains. The accretive effect of our share buyback was $0.02 per share. Our income -- net investment income rather, covered our dividend. Consequently, NAV per share went from $9.11 per share to $9.05 per share. As a reminder, our entire portfolio, credit facility, and senior notes are mark-to-market via our Board of Directors each quarter using the exit price provided by independent valuation firms, security and exchanges, or independent broker-dealer quotations when active markets are available under ASC 820 and 825. In cases where broker-dealer quotes are inactive, we use independent valuation firms to value the investment. Our overall debt portfolio has a weighted average yield of 10.9%. On December 31, our portfolio consisted of 56 companies across 26 different industries. The portfolio was invested in 48%, firstly in senior secured debt, 34% in second lien secured debt, 4% in subordinated debt, and 14% in preferred and common equity. 90% of the portfolio [technical difficulty]…

Good day, this is the operator. Can you hear me? Good day, this is operator for your PennantPark earnings call. Can you hear me? Hi, this is the operator for your PennantPark earnings call. I'm sorry; I'm having a hard time hearing you, but in need to gather information for today's call.

[Technical difficulty] -- 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 questions.

[Operator Instructions] And first, we'll hear from Casey Alexander with Compass Point Research & Trading.

Hi, good morning. I have two questions, one that's a little more specific, and then one that is a little more market general. First of all, on the specific side, could you take us through the actual puts and takes on the investment gains and losses in the quarter, as there's -- looks like there's some tides going in both directions, and I think it would be helpful, both on individual names that had significant moves as well as how much or to what degree there were marks taken that were directly related to the volatility of the credit markets and commodity markets in the fourth quarter.

Thanks, Casey. Was that your first question?

That's the first question, yes.

Okay. So, look, overall about 15% of the portfolio is broker-dealer quoted. Clearly the broker-dealer quotes were a little soft as of December 31st. Wasn't a lot of trading as far as we could tell. I don't have like a quick quantification of how much that was, but it's about 15% of the portfolio. In terms of substantial unrealized winners and unrealized losers, at least on a mark-to-market basis, I'll just give you some of the names. The winners included RAM Energy, AKW, and BlackHawk Industrial. And some of the markdowns included Superior Digital and ETX. I mean those were kind of the handful of the five biggest movers up and down over the course of the quarter.

Okay, great, that's helpful. Thank you. Secondly, and this is more -- well it's sort of general and specific. Obviously everybody knows that there was a lot of volatility in credit markets during the fourth quarter. Love to hear how it impacted your originations, and how you feel it impacts the originations that you're doing? How it may have impacted or changed your pipeline, and your thoughts around that, because it clearly was a volatile market, but you guys had a very successful origination quarter?

Yes, so I'll give you -- hopefully a two-level much of a longwinded answer, but we think it's important for you and others to understand maybe the differences between the various types of markets. There's the broadly syndicated loan market, which takes its cue from volatility in ETFs and CLOs, and that was where you saw some mark-to-market real movement in December over a two or three-week time period. That's where deals get financed, where companies generally have over $50 million of EBITDA, so where they generally come to get financed. Investors basically make their investment decisions based on a one-hour bank meeting. There's generally no covenants, these are covenant-light deals. Generally there's more leverage, they're higher levered than the deals we do. And we generally shy away from that end of the market. We focus, today, mostly on the self-originated middle market which generally doesn't really move. It's a much more placid environment. And if a two or three-week time period of volatility in the broadly syndicated market did not and does not have an impact on that private self-originated classic middle market world. Deals just get done and they get done as indicated, and that just motors on. If we were to have a situation where the broadly syndicated loan market were to be extremely volatile over, let's say, three to six months or longer, all the new deals that would normally have gone to that market, they start to work their way towards people like us. Syndicators of those deals start to test market and pre-market those deals. People like us spend a lot of time on due diligence. We don't make decisions after one-hour meetings; we spend a lot of time on diligence. We negotiate covenants in all cases; we reduce leverage from where it would ultimately or where it would've happened in the broadly syndicated market. And all of a sudden if that were to happen, people like us could be financing larger companies than we are, and still doing the type of diligence and getting the covenants that we like to get. So, there's no real immediate impact over a two-three week time period. Over a three to six-month time period you'd start to see an impact. And that would also ultimately impact the middle market as the markets kind of mesh together, and as all of a sudden people like us finance companies with 40, 50, 60 of EBITDA in the same manner we'd be financing companies today that do 20 to 30 of EBITDA.

All right, that's great [technical difficulty]…

Hi, this is the operator for today's PennantPark earnings call. Can you hear me? Hi there, this is operator for today's conference call. Can you hear me? I need to gather some additional information for today's call from you. I'm sorry; we didn't get that on the recording. If you're able to hear me can you please try picking up your handset or check your speakerphone?

[Technical difficulty] -- on a go-forward basis?

So the way I just -- I think I understand the question, just for everybody, weighted average yield?

Correct.

Yes, look, as we continue to pivot to a more senior more secure portfolio that can be leveraged more than one-to-one. And we've been -- we've said publicly for eight years as the law was being discussed, that first lien assets you could leverage prudently more than one-to-one. Non-first lien you probably wouldn't want to leverage more than one-to-one, even if you could. So, we are pivoting. We're continuing to pivot to higher in the capital structure, lower risk lower reward investments that we could leverage more than one-to-one. So, we, today, for the first time came out with our target of overall 1.1 to 1.5 times, and we believe that with the enhanced leverage and even with a lower yield we can generate a very stable, steady, and we think growing ROE for our shareholders.

Art, can you tell us what the yield was on your new investments this quarter?

Yes, we talked about it in the call. Let's get it for you, 9.5%.

Okay. So, that's below certainly where you've been historically. If I understand you correctly, are you lending then to larger companies or are you looking for lower levels of leverage? Can you just give us a little insight into what you're looking at in terms of lower risk assets?

Yes, so one way to reduce risk is to lend to slightly larger companies. The other way is what we've been doing a lot of, which is moving higher in the capital structure. So moving higher in the capital stack to a more first lien senior secured area of the capital stack.

Okay. And following up on Casey's question about unrealized appreciation, just conceptually can you tell us whether some of that has been recuperated so far this quarter given the rebound in the loan markets?

Yes, I mean, certainly the 15% of the bulk that's broker-dealer quoted, likely to see some ups in that. Again, I don't have a real number for you, but you know that should be better. In terms of the names that I enumerated earlier, yes, I mean, those each quarter get valued independently and there -- because most of them are equity securities there and most of them have idiosyncratic individual reasons that are either good or not so good for their movement, you know, hard to give a blanket statement. We know U.S. well, equity for instance, which is publicly traded is up a couple of million dollars since quarter end. So that is kind of a more daily mark to market kind of thing, and the rest of the names, I didn't right now -- private liquid and every quarter we go through the independent evaluation process and whatever is going in those underlying companies will drive the mark.

Thank you for that. Art, looking at RAM energy, you marked up the equity, was that related to the strategy that you discussed in your prepared remarks or was that simply the waterfall effect and movements of cash flows?

Yes, so it's a good question. We mentioned the Austin Chalk formation in east Texas. They've been drilling some very successful wells there and the early results are promising and we're very encouraged by those results. More work and development are needed, but they've found a very nice you know, there're 14,000 acres in the Austin Chalk area. They have got some nice JV partners, who are in and around that area including Magnolia, Geo Southern, and EOG. So they're surrounded by nice strategic players who are partners with them in some of the drilling, and the initial wells have had good results.

And with that success, Art, is there any insight as to your potential to start to monetize some of this investment, you know, let's say this calendar year?

Yes, it's a good question on timing. We think of these things as long-term, and if we continue to have nice wells we may decide to -- because those have very good returns on investment, you would continue to maximize the opportunity, you'd continue to operate for a year or for two years, something like that to really prove out the geography. So probably 12 months is early if things are going well. If things are going well you want to maximize that opportunity. So we'll see where we go, but the early results are very promising, and we're hopeful that they'll continue to get very nice results there, and we'll have an opportunity to get our money back. So that's the goal.

Okay. Just a few more housekeeping questions, if I may, I see you retained the equity in SBIC I even though there is no debentures in that subsidiary, is your intent to use that equity to eventually fund SBIC III is that the plan?

That's a good question and you have a sharp eye, but that would be the idea, we're not allowed to undo SBIC I until the SBA gives us permission to do so. So even though we've paid off all the debt we do not yet have SBA permission to unravel that SBIC. Once we do, you know, we will -- as we look hopefully to get SBIC III going, we will -- we'll use that equity over at SBIC III.

Okay. So for the meanwhile, it's sort of trapped, I guess, in that subsidiary.

Yes.

A couple more, your other income as you noted, I think it was about a penny per share usually runs higher than that, but you had an active quarter for -- in terms of portfolio velocity. Was there something -- was there a reversal or something unusual in the quarter that caused the decline in other income?

No, I mean, a lot of that's driven by prepayment penalties and refinancing fees when something gets taken out -- we just didn't get that kind of income this quarter whether it was -- we had refinancings, but we didn't get the prepayment -- there weren't prepayment penalties associated with it, But it was much lower than normal, typically it's been $0.02 to $0.03 per share; sometimes it's $0.05, sometimes it's $0.01, but typically it's been $0.02 to $0.03 per share and it was just a little light this quarter.

So you're still comfortable with a sort of $0.02 to $0.03 run rate?

Yes, yes. Some quarters, it may be higher, some quarters it may be lower, but I think that's a nice mean or median to be thinking about.

Okay. And lastly -- and I appreciate your time -- last quarter you estimated the make-whole premium for the redemption of the notes to be $2.5 million to $3 million is that still the number you're working with and are you still expecting to report that about the line, or could it be below the line?

Yes. So it's a great question, and thank you. The exact make-whole on the bonds will be something like $2.1 million and that will be -- we report, when we have these one-time events like this we report -- obviously, we have to report a GAAP NII and then we also report a core NII and the core NII usually excludes one-time fees, in this case of the make-whole of $2.1 million. So we will obviously disclose GAAP NII and we will disclose a core NII. One additional other point, just to be clear -- I want to be totally transparent with people, because we're negotiating another $250 million credit facility, which will probably happen this quarter, which will have some upfront fees, those upfront fees are likely to be around $2.9 million. So $2.1 million for the make-whole, on the bonds, $2.9 million for the new credit facility. You know, again, strategically, overall we're pivoting both our underlying investments to hiring the capital structure as we go to more than one-to-one leverage and we're also pivoting our financing. And so, these are all one-time costs that we're incurring. The $2.1 million for the make-whole, potentially, the $2.9 million for the credit facility that are one-time in nature, as we pivot both the left side and the right side of the balance sheet. So next quarter, again, we will of course disclose GAAP NII, and we will disclose core NII, which will exclude those two one-time events.

And just to confirm, Art, on that point, because you used fair value accounting on your debt liabilities you're required to take that fee for the origination of the credit facility.

Yes.

Upfront, right, you can't amortize it?

Yes, so we can go into a dissertation of mark to market of liabilities. We like it due to the matching, we also like it in that once we pay that upfront fee everyone knows very clearly what the cost of the financing is, everyone can model it, and we also like the matching, which helps in times of turbulence.

Yes.

So, just as a matter of course, mark to market liabilities and we take the upfront fees at inception of these loans.

Okay. That's really helpful. That's it from me. I appreciate all your time this morning, thank you.

Thanks, Mickey.

[Operator Instructions] And next from Jefferies we have Kyle Joseph.

, :

It's a great question, Kyle, and we can give you a sense of how we think, because we don't exactly know, and a lot of it will take its cue from what's going on the left-hand side of the balance sheet, like, what's our underlying asset composition, how much first lien is it, how much non-first lien is it. And we've already stated that first lien can be prudently leveraged more than one-to-one. If it's not first lien we wouldn't do it anyway. So a lot of it will take its cue on the left-hand side of the balance sheet, and where we see the best risk-adjusted returns. There may be a time in the next couple of years where we say, gee, second lien is the place to be because it's so great for these attributes. We can get really great returns and low-risk, and we may pivot to left-hand side of the balance sheet in one direction, which will then have ramifications to the right-hand side. So we gave a fairly wide range of 1.1x to 1.15x debt to equity to kind of give a wide range based on a number of different scenarios with what's going on the left-hand side of the balance sheet. Now, to the right-hand side of the balance sheet, we have the SunTrust facility, we have SBIC II and we're negotiating a third credit facility of $250 million as we speak. That will be short-term. We are hopeful that one day we get SBIC III, there's no assurance. It may not happen, but we're hopeful. We certainly have had an excellent track record on SBIC I and SBIC II and the SBA should be very happy with the performance that we've generated for the government, but there's no assurance we get an SBIC III. Other options over the long run could include bonds, it could include other credit facilities, but I think kind of in the short-term, this new credit facility we're negotiating at a potential SBIC III should be fine for now.

Got it, that's helpful. And then I know you guys have no non-accruals, you talked about some portfolio companies getting marked up, some getting marked down, but could you give us a sense in terms of revenue growth trends or EBITDA growth tends you guys are seeing and whether there's been any change over the last few months?

The U.S. economy still appears to be strong, and as a general proposition, clearly, there are certain pockets of weakness. Labor costs have gone up, and I've heard some companies that have labor -- logistics costs have gone up in some cases. So there are some pockets of weakness, but the U.S. economy is generally strong, I think we're seeing probably mid-single digit EBITDA growth has a broad and general statement in the portfolio.

All right. Great, thanks very much for answering my questions.

Thanks, Kyle.

And moving on, from J.P. Morgan, we have Rick Shane.

Hey guys, it's Melissa on for Rick today. I'm wondering if there was any impact of timing of exits or originations during the quarter. Put another way, were exits either front-end loaded, or originations back-end loaded?

It was generally -- a good question, Melissa, and thanks for calling in, it was generally flat throughout the quarter. We've had some good originations, so I mean, I think a run rate of $0.18, $0.19 is a fine way to model it before you add any other income or anything to it. So that gives you what you're looking for, hopefully that does.

Sure. Yes, it does, thanks. And then I guess, I'm wondering if the 9.5% average yield on new originations in the December quarter is good run rate for sort of the new sort of more senior mix that you're targeting?

It probably is. I guess, the weighted average yield on the portfolio overall is upper 10s right now. I think we've said over time, over the last year or two, as we've been pivoting more towards senior secured that that weighted average yield is going to come down and right now it's upper 10s. That may come down to 10.5% to 10% over time and as we move up capital structure and as we take advantage of the higher leverage.

Okay. Got it. And if I may, the US Well Services equity stake, is that something that you are sort of locked into for any time period or is that something you can pull the trigger on at any point if you decided…

Yes. Yes, it's a good question. We have a lockup probably about -- half was -- when the deal happened, half was restricted for six months, the other half for 12 months or probably three months into it if that gives you a sense on the exact date, but we have seen three months probably on the first piece.

Yes, perfect, thank you.

Thanks, Melissa.

Next question is from Jim Young with West Family Investments.

Hi, a couple of questions. First, could you talk about your share repurchase program? It looks like you bought a million shares in the fourth quarter at $7.5 million, so did you buy all of the stock in early October or -- can you just share with us a little bit your thought there? And it doesn't appear that you bought anymore back in late December.

Yes, it's a good question. We did the buybacks in our window, which is called a month after earnings. So unfortunately, we do not take advantage of the volatility at the end, but that's kind of how we've done it over the course of time.

So in December were you in a blackout period then?

Yes.

Okay. And then the second question is can you just share with us your great thoughts about the credit cycle, how you've experienced several cycles throughout your career. You alluded a little bit to the underlying thing in the U.S. economy, but can you just share a little more about how you're thinking about this cycle and how it's unfolding?

Yes, it's a great question, and something we think about all the time, and we were very public three or four years ago saying it's getting long in the tooth, which is why we've been generally moving up capital structure and you know, how we underwrite credit, I mean, we underwrite these days assuming there's going to be a recession next year, and we've been underwriting that for the last three years assuming there is a recession next year. So if you were to look at our credit memos, you'll see some nice downside cases, EBITDA down 10%, down 20%, down 30%, trying to handicap how these companies are going to perform, we look what happened in the last recession, we look at customer concentration, supplier concentration, the levers management compose, should there be weakness, whether it be working capital or CapEx. So, we're very aware and cognizant that there might be a recession down the corner. Again, we don't see any signs of it, but we underwrite it as if there will be, and turn it back to clock a time to 2007, then we were doing mostly subordinated mezzanine debt, and we did our original IPO in April of '07. By June of '07, we were starting to see some weakness in the underlying portfolio companies, and we made a conscience decision then to continue to invest, but only invest in companies and industries that we thought were recession-resistant only situations were we thought the leverage was very reasonable, where we could get good covenants and good yields. So, we raised the bar quite a bit, starting September of '07 proactively, and again, this was mostly secondly in the subordinated debt. And then it's interesting that vintage of deals that we did between, let's say, June of '07 and September of '08, performed very well, because we had proactively raised the bar, even though they were done before September of '08 when the financial world blew up, and even though there were subordinated debt in most cases we had proactively underwritten in a more cautious conservative fashion, which meant the EBITDA was down only about 7% on a blended basis of portfolio when the average, your company American EBITDA was down about 40%. So fast-forward to today, we are not seeing any weakness currently in the economy, and we'll be happy to share that with all of you in next quarter or the following quarter, whenever that is, but we are not seeing. That said, we are underwriting assuming there is a recession next year, and the vast majority of what we're doing is senior in the capital structure. So we think we are as well-positioned as we could be. At this point in time in the credit cycle and we still see some attractive risk adjusted returns, and as you could tell, right now we are okay giving up a little yield if we feel very good about the credit, and about the ability of the credit to perform well over time. So that's how we're thinking about it.

Great, thank you very much.

And ladies and gentlemen, that does conclude our question-and-answer session. I would like to turn the floor back to Art Penn for any additional or closing remarks.

Thanks everybody for being on the call today. Our next quarterly call will be in early May, and we appreciate all your interest in our company. Thank you so much.

And ladies and gentlemen, that does conclude our conference for today. Thank you again for joining us. You may now disconnect.