Good morning, and welcome to the Prospect Capital Corporation fourth fiscal and fiscal year earnings conference call. [Operator instructions.] I would now like to turn the conference over to John Barry, chairman and CEO. Please go ahead.

Thank you, operator. Joining me on the call today are Grier Eliasek, our president and chief operating officer, and Brian Oswald, our chief financial officer. Brian?

Thanks, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward-looking statements within the meaning of the securities laws that are intended to be subject to Safe Harbor Protection. Actual outcomes and results could differ materially from those forecasted, due to the impact of many factors. We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, see our earnings press release, our 10-K, and our corporate presentation filed previously, and available on the investor relations tab of our website, prospectstreet.com. Now, I’ll turn the call back over to John.

Thanks, Brian. To provide new and even continuing investors more information on our company than we can fit into a short August earnings call, we are holding a separate webinar overview of Prospect at 2 p.m. Eastern today. Investors can access the webinar through the investor relations tab on our website, prospectstreet.com. During that event, Grier will be taking investors through our overview corporate presentation that is also available on our website. In the same location on our website, investors can also access our more detailed archived analyst and investor day presentation from July 10 in New York. That is a five-hour webinar that includes senior members of the Prospect team presenting our multiple origination strategies and in-depth case studies to provide investors deep dive information about Prospect’s business. You might think of it as all you wanted to know about Prospect but forgot to ask. Now, on to our financial results for the quarter and fiscal year. Our net investment income, or NII, in the June 2013 quarter was $92.1 million, or $0.38 per weighted average share, exceeding our prior guidance of $0.31 to $0.35. Net investment income for the quarter increased 43% year over year. $0.38 of net investment income per share for the quarter exceeded $0.33 of paid dividends by $0.05, or 15%. Our net interest income for the June 2013 fiscal year was $324.9 million, up 74% year over year. Our $1.57 of net interest income for the year exceeded $1.28 of paid dividends by $0.29 or 23%. We just announced three more shareholder distributions extending through March 2014, giving investors 8 months of visibility on future dividends. The March 2014 dividend will be our 68th shareholder distribution and the 45th consecutive per-share monthly increase. Our August 20 closing stock price of $11.07 represents an 11.9%…

Thanks, John. Our business continues to grow at a solid and prudent pace. As of today, we’ve now reached approximately $4.9 billion of assets and undrawn credit. Our team has increased to more than 80 professionals, representing one of the largest dedicated middle market credit groups in the industry. With our scale, longevity, experience, and deep bench, we continue to focus on a diversified investment strategy that covers third-party private equity sponsor-related lending, direct non-sponsor lending, Prospect-sponsored operating buyouts, Prospect-sponsored financial buyouts, structured credit, real estate yield investing, and club and syndicated lending. This diversity allows us to source a broad range and high volume of opportunities, then select, in a disciplined, bottoms-up manner, the opportunities we deem to be the most attractive on a risk-adjusted basis. Our team typically evaluates thousands of opportunities annually, and invests in a disciplined manner and a low single digit percentage of such opportunities. Prospect originations in recent months have been well-diversified across our seven origination strategies. Our non-bank structure gives us the flexibility to invest in multiple levels of the corporate capital stack, with a preference for secured lending and senior loans. Prospect’s approach is one that generates attractive risk-adjusted yields, and our debt investments were generating an annualized yield of 13.6% as of June 30. We also hold equity positions in many transactions that can act as yield enhancers or capital gains contributors as such positions generate distributions. Originations in the June quarter were a record $799 million, representing the fourth quarter in a row with originations of approximately $750 million to $800 million. Originations have exceeded $3 billion in the past 12 months. We also experienced $322 million of repayments in the June quarter, as a nice validation of our capital preservation objective. As of June 30, we were up to…

Thanks, Grier. As John discussed, we’ve grown our business with low leverage. Net of cash and equivalents, our debt-to-equity ratio stood at 55.7% in June. We believe our low leverage, diversified access to matchbook funding, substantial majority of unencumbered assets, and weighting towards unsecured fixed-rate debt demonstrates both balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of fixed-rate liabilities, extending 30 years into the future, while most of our loans float with LIBOR, providing potential upside to shareholders as interest rates rise. We’re a leader and innovator in our marketplace. We were the first company in our industry to issue a convertible bond, conduct an ATM program, develop a notes program, issue an institutional bond, and acquire a competitor as we did with Patriot Capital. Shareholders and unsecured creditors alike should appreciate the thoughtful approach, differentiated in our industry, which we have taken toward construction of the right hand of our balance sheet. As of June 2013, we held more than $3.6 billion of our assets as unencumbered assets. The remaining assets are pledged to Prospect Capital funding as a AA-rated $567.5 million revolver with 18 banks and with $650 million total size accordion feature at our option. The revolver is priced at LIBOR plus 275 basis points and revolves for 3 years, followed by 2 years of amortization with interest distributions allowed. We started the June 2012 quarter with a $410 million revolver and 10 banks, so we’ve seen significant lender interest as we’ve grown the revolver. Outside of our revolver, and benefitting from our unencumbered assets, we’ve issued at Prospect Capital Corporate multiple types of investment grade unsecured debt, including convertible bonds, a baby bond, an institutional bond, and program notes. All of these types of…

Thank you, Brian. I think we’re ready for questions if there are any.

[Operator instructions.] And our first question comes from Troy Ward of KBW. Please go ahead.

Can you give us some color on the H&M and Wolf transaction? Just some background. It looks like in April you transferred all the assets of H&M to Wolf Energy, which is 100% controlled by you. But the fair value assigned to the assets was $44 million, so we took a loss of about $19 million. And then one month later, after you’ve had this investment for six years, one month later, somebody approaches you and pays $66 million, which was basically the original cost basis, plus or minus a couple, for assets that you just valued at $44 million. So now that $66 million of repayment looks like a $20 million gain because we just took a $20 million loss, but it’s really just shareholders getting their original principal back. Can you give us some color on why these assets were transferred to Wolf? And why were they valued at $44 million when they were sold a month later for $66 million?

First, you have the big picture correct. There are some technicalities with respect to accounting for this transaction which could take maybe 20 minutes to discuss here. So why don’t I ask Brian to give a brief précis right now, and then maybe you can discuss this at greater length with Brian offline. Because I suspect there will be follow up questions and technical discussions that may not be of equal interest to everyone here. Go ahead, Brian.

This asset, first of all, we haven’t owned it for 6 years. We had a loan on this asset and what actually happened that generated the loss was that we foreclosed on the assets. When the foreclosure came through, we were forced to follow the accounting literature for troubled debt restructurings, which, when you have a foreclosure you have to. And we had valued this asset back in March at $44 million. So that forced us to take about a $19 million loss at that point in time. I’d say about two or three weeks later, someone who had bid $44 million at the foreclosure sale came back with an offer at $66 million. There was a lot of substantial evidence to point to the $44 million when we valued it at that, but the person who actually came in to buy the asset has substantial assets in the region already, and this filled in some gaps that they had between their property. So that’s why it was advantageous for them to buy the properties from us. So they bought it at $66 million, we received repayment of the $44 million that we had booked as an asset when we transferred the assets, and then we had also recognized a gain for the payment on a net profit interest that was also assigned to that property. So I think the important thing here is that both the realized loss and the realized gain both happened in the same quarter. So it really was a net about $7 million.

I would add to that that the sale came together very quickly. We had been determined to get [unintelligible] control of that asset for a while. The wheels of justice can move slowly in the court system, but eventually they did work in the right direction. And we obtained [unintelligible] control. We knew these assets would be priced in the marketplace. West Texas has a lot of drilling going on focused on crude oil and going to the other working interest parties, which it ended up the buyer was just a natural to do, which was not going to happen until we had control. So a deal came together very quickly once we had that control.

Brian, can you talk about, it said in the release, obviously if you just look at the raw numbers it looks like roughly $20 million over cost basis, but the capital gain you took was $11 million and change. Did the other $9 million or so go through the income statement? And is it baked into NII this quarter?

No. This asset is resident in an operating company that has other operations, so Prospect didn’t receive the proceeds. Wolf Energy received the proceeds. I guess it’s about $57 million or so is what we have received so far. There are still assets down at H&M. We only sold certain of the assets. They were not all of the assets. There are still assets down there that are being operated that will generate future income and may be sold in the near future.

So were the proceeds similar to Gas Solutions? Are the proceeds just now sitting in an entity controlled by you that are going to be dividended up through the income statement in the future?

A little bit differently at this company, because this company has not generated sufficient earnings and profits that, if they were to declare a dividend, it would be a dividend rather than a return of capital. So no, I don’t believe that there will be dividends declared from Wolf. So it’s not the same. At Gas Solutions, they generated sufficient earnings and profits where there was a need for them to record them as dividend income. So it’s not the same, no.

So what came through the income statement this quarter related to this transaction?

There was advisory fees, about $4 million of restructuring and advisory fees, and $991,000 of net profit interest from the amount that was due prior to the foreclosure.

Okay, and moving on, in the 10-K, it said that you had a 24 and change dividend from RV Industries for the year. But it didn’t say how much was in this quarter. I think some came in the fourth quarter last year. Can you tell us how much came in from RV Industries in this quarter? Just trying to figure out where core number is here. And then what was the genesis of that dividend?

RV is a profitable company, so they are generating earnings and profits all the time. So we generally get a dividend from them every quarter. I believe the dividend in the fourth quarter was about $11 million.

And how much of that was generated in the quarter? You put additional debt down there. Was it a [cross talk]?

Yeah, this is all generated from earnings. We just put additional cash down so they would have sufficient cash to make the distribution. They had already generated the earnings. They’d been using the earnings to actually pay off other debt that they had outside of our system. So they had third-party debt that they used the cash to pay off.

So how much debt did you put down at RV this quarter?

I think $14 million.

You put $14 million down and you dividended $11 million back up?

Yes.

Which is out of earnings and profits. RV is looking at a series of potential add on acquisitions and we’re still determining whether or not we’ll use third-party bank debt, term debt, revolving debt, and our own debt, what combination of those three sources we’ll use for add-on acquisitions.

Just to add, we see RV being a profitable company and generating net income and E&P on a sustained basis, so that we take regular people in our company, you even call them recurring dividends, which I think is the number you’re looking for. Brian, is there a, in effect what Troy asked for, a core dividend amount, base case, sustainable, that is independent of paying down debt, Prospect replacing M&T debt with our debt, that is a sustainable level of dividends? I think that’s what Troy’s looking for.

Yeah, we expect to see $3 million to $4 million of dividends a quarter.

So Troy, does that fully answer your question?

It does.

And obviously for more deep dive background, you have Brian’s number.

The next question is from Robert Dodd with Raymond James. Please go ahead.

Just following up on that RV question, my math says about $13 million in dividends in the quarter, comparing the prior Q, and $23 million in terms of follow on from the follow on additions. Can you clarify that? And then also, if this is previously retained earnings that dividend is up, why did the equity value of RV only drop $700,000 when you dividended up $13 million of previously retained earnings?

The business is doing well. The answer, RV posted another strong quarter. TTM, EBITDA, and profitably continue to ramp from March to June. So the third-party valuation process determined that the enterprise value of the business has grown.

On fee income, or other income, $21 million in the quarter. I know $4 million of that is from Wolf, so the $17 million from other sources. High origination number, obviously, in the quarter, but was there anything in that number, because it looked somewhat larger than I would have expected, even for $800 million in originations in the quarter. So beyond Wolf, were there any other large restructuring fees tied to any of the new originations, or anything else you can call out?

And then just finally, on the market you’re seeing in terms of demand, we’ve seen a lot of numbers from other competitors where repayments have essentially been running in line, or in some places higher, with originations. Obviously you had a lot of repayments, but you also had a large number of originations. So are you seeing any appetite or other of your portfolios to repay early? You gave us some pipeline numbers, but color-wise, what are you expecting to see out of the market in the second half of the year, just general activity. Any color there would be helpful.

We’d expect for repayments to pick up in a bull market, and we’re currently in a credit bull market. And you saw an uptick in repayments in the June quarter compared to the March quarter. The March quarter, again, was taking a little bit of a breather from a hyperactive tax-driven December quarter. Generally, our loans are five years in length, and they tend to pay off in 2.5 to 4 years, and at the earlier end, during bull market activity, and at the later end, on average, during more of a downturn. So repayments, though, can happen in a lumpy fashion. Having said that, just like originations can be lumpy, it’s almost remarkable, our originations have been in the $750 million to $800 million range in each of the last four quarters, given how bottoms up lumpy can be. And the same really goes for repayment. Sometimes we get visibility further in advance. Sometimes not so much, and it can depend upon exit activity of the owner related to selling the company. For refinancings, we fight hard to stay in quality credit. Obviously if we have concerns, we’re happy to get paid off. But for quality credits, we look for ways to sustain the credit. The best new customer is an existing customer. And the credit, especially this season, is to be very powerful origination process for us. So we work hard to stay in quality credit. It doesn’t mean we meet every ask for recapitalization activity, enhanced leverage, etc. But you’ve seen us support our existing book. Deals like Capstone, Progression, which are $200 million plus holds, just to pick two of those, are great examples of that, where we’ve kept up with tremendous growth and profitability for each of those businesses, sustaining the credit, meeting the objectives and needs of the business owners, to support them along the way. I hope that helps. I can’t give you a conveyor belt answer on repayment.

The next question is from Jonathan Bock of Wells Fargo Securities. Please go ahead.

John, just one big picture question first. Kind of looking at the stock price, obviously now sub a 12% yield. Is it kind of fair to say that the stock is somewhat undervalued or underappreciated at these kind of price levels?

I love the question. I’m wondering if there’s a CEO in America who does not believe his stock price is lower than it really fairly should be. So I’m going to join that crowd. Why that’s the case, I’m not exactly sure. I happen to think it’s an excellent value where it is. I’m sure you already knew that. I believe that the main thing we need to do as a management team is spend more time communicating the fundamentals of the company to the investment community, starting with people like you and Troy and Greg, and Dr. Robert. We’re trying to do that, as you know. And we hope that over time, as people understand our company more thoroughly, that the stock price will reflect that information. Sometimes I also think that there’s a conglomerate discount, which I’m sure many of the people on the phone call are aware of. And I think what we need to explain to people is we’re not a conglomerate. We have multiple allied, parallel, yield-driven value investor strategies, all of which work out of the same wheelhouse, and all of which benefit from the significant deal flow that PSEC has and that leverage the expertise of the team. So, better communication, more continuous communication, is going to be an additional strategy that we are going to employ. I hope you thought the analyst day was a step in the right direction.

Absolutely. And I guess the question is, as you’ve looked at the stock, perhaps undervalued, seeing the dividend yield is at 12%, I guess the one thing that gets hard to reconcile if it is such a good value, why sell more shares via an ATM program when you have either available cash or available liquidity on the credit facility?

Well, what happens is we have a big origination team that is constantly originating. There’s always a large book of incoming originations at a significant spread, even the 12%. Remember the 12% is our marginal cost of capital. We have this large book of originations coming in on a continuing flow. Telling our origination people, stop, start, stop, start, is not, we believe, the best strategy for the company, for its market presence, for the ability of our origination people to compete. So, while we tapped the gas pedal a little bit, sometimes push it a little harder than at other times, we might look more carefully, for example, at a lower yield in senior secured first lien opportunity when we are awash in liquidity. We might look at it harder than when we’re not. We believe in what I would call smaller adjustments to our path and our strategy. And we also recognize that, while we like having the dividend yield be much lower than it is, our marginal cost of capital, when you take into account our revolver, which is very inexpensive, and when you take into account the cost of the other debt instruments that we have, our marginal cost of capital does enable us to do transactions sub-10% which are accretive to earnings and potentially accretive to the NAV and the stock price. That said, we look at each deal on a deal by deal basis, and only do transactions that are additive. Lastly, were we to turn off the ATM for an extended period of time, it would be 60, 90 days in general before we would observe that we need to shut down or slow down originations, or we need to put the ATM back on. And what we see is that from time to time, there are dislocations in the marketplace where the entire credit markets get repriced. Those are coincident with repricing of our stock. So it’s like the moment you get a call from Filene’s Basement, we’re marking everything down 75%, it’s right at the same moment your credit card company calls you and says, by the way, we just cut off your credit line. So we want to be able to be there when the bargains service in connection with market dislocation, even if our ATM shuts down. And by the way, it doesn’t have to shut down. We just choose not to sell stock below NAV. I don’t believe we have for years now. Is that helpful?

Yes, I appreciate it. It’s just a general question that lots of people ask, in a tighter spread environment, as it relates to essentially raising the equity book at a point when at least we would hear it’s rather difficult to originate quality credit. So no, I appreciate your candor in that regard.

A couple of other things. The amount of stock that actually gets sold through this ATM is a very modest amount on a daily or almost daily basis. Every sale is accretive to the NAV. And we believe that we can make a profit off of each share that we sell. As well, this is an inducement to these credit providers to provide credit. So there are a number of other less immediately apparent reasons for keeping it in place. But I would tell you that we do restrain the amount that is sold that way on any given day, week, month. So I think it’s now, at this point, fairly low. I don’t have the exact percentage of our equity capitalization that is augmented on a monthly basis that way. Brian, do you have it? It’s fairly modest nowadays.

We issued about $140 million to $150 million over the last quarter. Let me add some items to try to help answer the question. Year to date, in the calendar 2013 year, we started the year in an underlevered situation, because we wanted to make sure we had lots and lots of dry powder to meet origination requirements in the December quarter, given all the tax-driven activity, people calling up needing to close by 12/31, etc. Year to date we’ve issued at a pace of about 1.5x to 2x debt versus equity. So I think we’ve been prudent to walk up that leverage while still keeping it overall in the modest category. And on a daily basis, the ATM has been in the range of 10-15% above book. We use that as a way to reward credit providers to our company, and that’s a major derisker, to have 18 banks in our credit facility. We more than any other BDC by a country mile. And this program helps to attract significant credit to our company, acting as an anchoring point when we hit the next recession. I would also say that in current year 2012, we experienced significant growth. We about doubled our business. We do not expect to double our business every year, ad infinitum. Mathematically that becomes sort of impossible after a while, as the dollar sizes get larger and larger. And we do expect to continue to grow, but we expect the rate of growth to decline. And so the need for equity at the same level should decline as well. So I think these are all positive signals for equity investors. On the point of the stock price, and kind of where we’re trading, there are a lot of different catalysts we can talk about for…

With [APH], the amount of structuring fees that came in from APH this quarter, do you happen to have that number? I noticed it was $4 million for the year. What was it this quarter?

Probably at least half, because we closed the Pembroke Pines deal, which is our largest multi-family investment, in the June quarter, which represents about half of our real estate book. So I would say probably about half in the June quarter.

And then one question that we’ve posed to a lot of CEOs as it relates to risk [unintelligible] today. Obviously a number of people talk about risk and as it has increased, in general, just in sponsored back lending, I understand that you have many multiple ways to skin a cat and earn a return, but wanted to turn to maybe a few of your specific transactions that you originated this past quarter. And just wanted to take a look at one in particular. Arctic Glacier. So this would have been a deal that you provided subdebt financing at a 15% coupon, about 5x leverage through the subdebt. Today, HIG dividend recap is roughly half their equity investment. You step up your second lien senior position and the covenant light loan at L plus 1000 with a $1.25 floor, and leverage in excess of 6x. So how would people choose to say that the all-in return is lower, leverage is likely higher, and the sponsor’s taking money off the table? How do you view that in light of the fact that you’re getting a lower return, at what some people would say is that the risk in this loan has increased?

And I remember you asking about Arctic when we closed that a year ago. Arctic is a company which the sponsors managed well of the past year. They’ve optimized operations, they’ve taken a lot of cost out of the system. They’re also looking at a pretty robust pipeline of add on acquisition opportunities. You’re right, getting paid 15% sounds good at a high level, and a lower [unintelligible] point, but you missed a piece that we did trade into a secured position, which we were lacking before, in the mezzanine context. So we have a true…

I was always under the impression that loss rates on second lien senior collateral was generally the same as mezzanine just per Moody’s reports. So are you saying the second lien position could provide….

I think that needs to be dissected. And I’m glad you asked this, because there’s a lot of confusion when people look at deals and how they’re announced in BDC books. For example, sometimes people report it first lien, but it’s really a last out first lien that we would classify as a similar credit profile to a true second lien that’s a senior second lien without a subordination. So we do not have payment subordination this deal. That means the first lien cannot block us. And that’s a major derisker, as opposed to the prior situation where you had a payment block possibility if there’s a downturn. So I think on the scale, there’s some positives, some negatives overall. The bottom line is we evaluate each such deal as a brand new credit, a brand new situation. And if we’re not comfortable, we’ll take the payout, which of course happened to the tune of about $322 million in the past quarter.

And last question, as it relates to the CLOs, looking at the recent deals that you’ve done, what is the weighted average spread in general that you are kind of modeling those deals towards, or the weighted average coupon that you’re modeling those deals towards today?

We model out in the range of a low to mid teens IRR. That [has been modeled], underwritten deals across 13-14% IRR range. But we use very conservative assumptions. We use default rates well in excess of what the market is experiencing. We model in recovery rates well below reinvestment spreads declining where they are today. Our base case, if you will, is what others would say is a downside case, in some cases extreme downside case, but we’re happy to do that. And then what happens is reality comes in much better than what we model out and so we end up with the higher return. And this book has seasoned. We’re entering our third year now on [unintelligible] business, and we already have deals coming up which are, the call period is expiring, and we’re looking at calling deals and booking a substantial gain, substantial IRR, well above what we modeled out, or just straight out refinancing the AAAs, which are perhaps lower in certain deals in the current environment than the existing pricing of the AAAs.

Maybe I’ll rephrase it. What is your expectation on the collateral pool of the [unintelligible] deal as well as CISC deal today? What are you estimating in terms of the weighted average coupon on the BSL loans in the book?

I’d have to go back. Off the top of my head, I don’t remember that particular deal, but we’re modeling out reinvestment spreads that decline in the range of [debt plus 350]. And basically the way we look at it is you’ve got a reinvestment period of four years. Typically the liability stack has a two-year noncall attached to it. And when you think about it, when spreads are declining, that is a signal of a positive economic activity in which default rates are more benign. We model out increasing default rates and declining spreads, which typically are not going to go hand in hand. But those are the two risks you worry about, things being too bad, i.e. defaults and losses, or things being too good, i.e. declining spreads. Right now there’s a little bit more risk on things being too good in a declining spread, and that’s why we have been insistent upon controlling the call. A lot of players in this market are smaller vehicles, they can’t write $30-50 million checks on deals like we can. Other BDCs have very small 30% baskets to manage these types of assets. They can’t write the larger checks, we can. So by controlling the call, we can optimize the exit. When things get too good, the decline in spreads, that’s fine, we’ll just refinance the AAAs, or just call the entire deal outright. And that’s what we’re evaluating on some of our more seasoned deals.

And with the tightening spreads in general, these are the last two, one, are you modeling in LIBOR floors as part of your assumptions? And then two, BSO collateral obviously is highly competitive in a rather frothy lending market today, which is essentially what the CMOs are buying. And more importantly, beyond that, I think covenant light buckets within these securities could be between 40-60% of the entire portfolio. So how are you kind of judging risk as it relates to the fact that we’re relatively peaked in terms of spreads and getting tighter, and the fact that leverage is high and covenant light deals are extremely high relative to history and these two in particular have rather significant buckets with which to own covenant light loans?

Obviously if we had our druthers we’d prefer loans to covenants, whether held directly on our own or through our collateral manager CLO book. But when we look at the risk profile, leverage stats, credit stats of today’s loans compared to seven years ago, in the 2006/2007 arena, today’s market still compares favorably. It surprises many to know that the highest returning CLOs were during the so-called credit bubble of ’06 and ’07. They think, gosh, that doesn’t make any sense to me. I would have thought these guys would have [unintelligible]. Nope, the exact opposite. Because you printed cheap AAAs, you had option value for many years into the future. And you could enjoy the benefits of volatility in that option value as markets went to a wider spread environment. So we’re looking very carefully. The thing we watch very carefully is, when you’re ramping the CLO, we do all primary issuance. By the way, a lot of CLO equity is trading for some pretty hefty numbers on the secondary basis. We have steered clear from that. We like to underwrite collateral on a primary basis. We reduce risk by having no CCCs. Zero. Completely clean baskets, when you start. We’re monitoring very carefully the mix between primary and secondary issuance. We don’t like paying a premium for loans that obviously have limited prepayment attached to them, whereas in a primary issuance you can get [unintelligible] through OAD of a point or two or sometimes three, depending upon market conditions. So we obviously prefer that, all other things being equal. But then you’ve got to monitor the ramp, and you don’t want to have money laying around when you’re paying the liabilities and cash sitting around [unintelligible] leisurely pace. So all this goes down to a very very detailed…

The next question is a follow up from Troy Ward of KBW. Please go ahead.

In August you recapitalized CP Energy, $94 million. A press release was put out. And repaid, I’m assuming, your $18 million loan. A couple of questions. Are you now in control of CP from an equity standpoint? And will there be any large one-time structuring fees or other fee income generated from that buyout in the quarter?

Yes, we have control, but this is, importantly, management are our co-investors in the deal, and have significant equity ownership. I think our fees are in line with typical fees charged in the 2-3% range on structuring fees. [We have] 1.5-3% of their typical up front structuring fee, and there’s nothing that’s out of that historical norm on this particular deal.

So it would be the 3% on the $94 million?

I don’t know off the top of my head, but it’s in the range of 2-3%.

And then a follow up on Robert’s question from earlier, on the dividend fee income. If I look back over the past five, six quarters, and kind of back out the one-time income from Gas Solutions and other chunky payments that hit the dividend and other income lines, you’ve really been in the $12-17 million range. This quarter it’s almost $36 million, and the only pieces I’ve outlined in my notes are Wolf Energy accounting for about $5 million and the real estate property, [APH], accounted for a couple of million. That still leaves, call it, $27-28 million combined in those two lines. Can you let us know if that’s a run rate, or if there’s other big, chunky pieces in there that I’m just not accounting for at this point?

While Brian tracks that down, I’m confused why people are suddenly backing out APH as nonrecurring. That is a highly recurring model with our private REIT.

I wasn’t backing that out. I understand why that part, $2 million of it, is higher. Absolutely. I was just trying to whittle it down to the part I don’t know. I figure maybe $15 million previously was recurring, and now maybe an extra 2-2.5 from the real estate. But again there’s still probably a $10 million in there that I can’t account for, that I’m not sure is reoccurring.

I think you said dividend income at the beginning, but you really are talking about other income, right?

Yeah, it’s actually both.

Dividend income was only $14 million for the quarter.

And then 21 for other, so the combined was like 36. So it’s really a combination of those two line items. I’m still $10 million over what it feels like should be a recurring number.

The recurring comes substantially from structuring fees, and we generally get structuring fees on most of our new originations. So that’s where substantially all of the other income in that… I think you need to model in based on originations that we’re going to have, 1-2% on all of our originations.

Well, Brian, one way to think about it is of the $21 million that Troy’s asking about, we had $800 million roughly of originations. If you have an average fee of 2%, you’ve got $16 million there. And therefore now, whittling this down, the missing piece is $5 million which may or may not be recurring? How far off base am I, saying that?

Well, the missing $5 million is from H&M.

You’ve got your $21 million right there, Troy. $16ish from structuring and originations, and $5 million from H&M.

Well, we want to thank everybody for coming on the call in the middle of August. Have a wonderful rest of the month, and we’ll see you three months from now. Thanks, all.