Good afternoon, ladies and gentlemen, and welcome to the KCAP Financial, Inc. Third Quarter 2014 Earnings Conference Call. An earnings press release was distributed early today. If you did not receive a copy, the release is available on the company's website at www.kcapfinancial.com in the Investor Relations section. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, November 5, 2014. This call is also being hosted on a live webcast, which can be accessed at our company's website, www.kcapfinancial.com, in the Investor Relations section under Events. In addition, if you would like to be added to the company's distribution list for the news events, including earnings releases, please contact Jamie Lillies at (203) 428-3223. Today's conference call includes forward-looking statements and projections, and we ask that you refer to KCAP Financial's most recent filings with the SEC for important factors that would cause actual results to differ materially from these projections. KCAP Financial does not undertake to update its forward-looking statements unless required by law. I would now like to introduce your host for today's conference, Mr. Dayl Pearson, President and Chief Executive Officer of KCAP Financial. Mr. Pearson, you may begin.

Thank you. And thank, all of you, for joining KCAP Financial for a review of our third quarter 2014 results. This afternoon, I will review some of the important highlights and activities from the third quarter as well as provide some context for our direct lending business and the performance of our asset manager affiliates. I will then turn the call over to our Chief Financial Officer, Ted Gilpin, who will provide a brief recap of our second (sic) [third] quarter operating results and our financial condition at the end of the quarter. We will then open the line for your questions at the end of the call. A presentation outlining few of the key accomplishments in the quarter can be found on the IR section of our website. First, let me provide a brief recap of some of the important highlights from the third quarter, which are summarized on Page 3 of our earnings presentation. In the third quarter of 2014, our net investment income, or NII, was $0.25 per share compared to $0.24 in each of the first 2 -- first and second quarters. Our third quarter shareholder distribution was $0.25 per share, unchanged from the second quarter. I would now like to discuss the performance of our loan and securities business and asset manager affiliates in more detail. As I mentioned on our last call, after a slowdown in the second quarter on quality deal flow, activity picked up in the third quarter. Specifically, it can be seen on Slide 4. We invested $22.3 million in new originations from the third quarter at an expected coupon of approximately 11%. We also continued to increase the yield on loans in KCAP Senior Funding by investing in higher yielding middle market loans. In the third quarter, we invested in…

Thank you, Dayl, and good afternoon, everyone. I would like to start by covering some of the higher-level financial information and go into a little more detail on specific metrics. As of September 30, 2014, net asset value stood at $7.67, up 2.1% from $7.51 at the end of 2013 and unchanged from the end of last quarter. The company declared a $0.25 distribution in the third quarter, which is consistent with the level paid in the first and second quarters of 2014. Net investment income was $8.4 million or $0.25 per basic share for the third quarter of 2014, up from $0.24 in the first 2 quarters. Interest income on our debt securities for the 3 months ended September 30, 2014, is $5.4 million or $0.16 per share compared with $5.17 million and $0.15 per share for the quarter ended June 30, 2014, and compared to $3.7 million and $0.11 per share in the third quarter of 2013. As Dayl mentioned earlier, investments, which we have made in our direct lending platform, have resulted in an improved balance across our 3 main sources of net investment income. And as a result, our debt securities portfolio has expanded its percentage of total investment income and today stands at 39% versus 29% of investment income in the third quarter of 2013. Distributions from investments in CLO securities were $4.8 million or $0.14 per share in the third quarter of 2014, which is down slightly from the second quarter of 2014 which was $4.9 million or $0.15 a share and down from $5.4 million or $0.16 a share in the third quarter the 2013. Our asset management -- manager affiliates distributed $3.1 million to KCAP Financial or $0.09 per share in the third quarter of 2014, which is slightly up from the…

[Operator Instructions] And our first question or comment comes from the line of Greg Mason with KBW. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: First, on the asset manager. The incentive fee. Talk about kind of that level and the expected future pace give that we've been out of the reinvestment period for 1 to 2 years on those 5 CLOs, and are they winding down? And what will that do to the incentive fees you've been receiving?

Yes. It's Ted. Yes, so I think through 9/30, we had approximately $4 million of incentive fees for the first 3 quarters. Obviously, if they get called or when they pay down, that will come forward and actually increase at the call date. They have been going out longer than we expected. So if we can continue essentially the rate we have now we've had for a while to the extent that they lengthen out in terms of their life, then we'll continue to get that when they get called. There'll an be increase when it gets called. Remember, we don't have to distribute everything out of the asset managers. So depending on when those calls come and when the increase comes, it will either get trapped there for a while or we'll make that determination at the time. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: Great. And that leads into my next question. I know you used to report the EBITDA of the asset manager. I don't think we've seen that a while. Can you talk about how that is trending relative to the dividend that has been realized on the income statement?

Yes. I mean, I think on an EBITDA basis, I think it's fairly similar to what it has been. As you know, they had -- so yes, I don't think much changed -- assets under management remained about the same. As I just said, the incentive fee hasn't been a whole lot different than it's been in the last 4 or 5 quarters, although it's trending up as more of them pay. So I don't think that's changed, I mean so -- to answer your question. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then one question on the risk retention. How do you guys plan to -- or how can you balance potentially having to own 5% of a CLO, which on an equity basis could be up to half of the equity, yet kind of by SEC guidelines, you won't be able to own more than 25% of the equity and not consolidate. So have you talked about how you balance that under the new risk retention rules?

This is Dayl, Greg. The couple -- there are numerous ways to deal with that. One is to own -- continue to own 25% of the equity, which would be about half of that 5%, and then have some sort of vertical strip to represent other, 2.5% of the 5%. And we're looking at how that gets structured and the ability, obviously, to potentially leverage the vertical strips, so that will be mostly AAAs -- the vast majority will be AAAs. But yes, it's still unclear in terms of how that's going to play out. But we think we're well positioned given the fact that we have the balance sheet in order to do that and a lot of managers out there who do not have the ability to do that. And we certainly -- we run some different scenarios in terms of what that does to overall return on capital, and it's all going to depend upon how you structure that and how that gets leveraged. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then one more question and I'll hop back into the queue. On the recent equity raise that you did, is your expectation to put more of that capital into the CLO part of your portfolio or to diversify away from that?

I think overall, I think we'll probably be more into the direct lending business. I think as CLOs get called, the old positions will wind down, and we'll reinvest that money in new positions. But it's -- yes, cash is obviously fungible, and so there's a lot of different ways you can go. But our intention would be to deploy a lot of that combined with some additional leverage potentially into the direct lending business. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: So that leads to my last question. If you're going to do more direct lending, obviously, the new capital had a 12.5% dividend yield on it. Your average portfolio yield excluding the CLOs you said was 7.8%. So can you just talk about how you cover the new cost of that equity capital with what you're seeing in the market today?

Well, I think, it's going to have to be, obviously, as we talked about, we have a lot more debt capacity today than we had prior to that raise, and we retired very expensive -- high interest debt. So when you look at the overall cost of capital, it should be much lower as we layer in addition debt. A lot of that debt is going to be a lot lower cost than what we had historically.

And our next question or comment comes from the line of Chris York with JMP Securities.

Can you give us an update on your current warehouse CLO and the likelihood for a third transaction at your affiliates for the remainder of the year?

We started warehousing for another CLO. It's in the early stages. Really too early to comment on what we -- when we think that actually closes. We'd like to close something in the fiscal year. But we're not going to rush into something if we can't raise the capital at attractive levels to make the returns work. As you remember, last year, we sort of went through the same exercise and we delayed because of other intervening events, the Volcker Rule and other things that sort of disrupted the market for a while. So what we thought was going to close in the fourth quarter of '13 closed in 2014. And that deal ended up being an attractive transaction. So we're not going to rush into anything, but we are warehousing and we plan to complete another CLO soon.

Sounds good. And then as I they think about the run rate for your dividend income from your asset manager affiliates, bumped up about 100,000 and 3.1%. How should we think about that run rate given some volatility potentially in 2015 and the potential for another CLO as we just talked about?

I think -- I would think the best thing to do is just assume that it's relatively flat. I mean, we -- as I said before, we may get lumpy incentive fees. We may not distribute them out. And as we've said before, mostly new CLOs we've been adding and been replacing assets as they have fallen off, at some point, that will switch and they'll start becoming additive again. But I think at this point, it's safer to assume that it's pretty flat.

Got it. Okay, and then you have about $11 million in non-earning equity. What is your potential to exit these investments and rotate that capital into yielding assets?

Yes. We finalized those that are minority equity positions. We've taken together with debt investments that we've made. So those are a function of the exits of the sponsors selling those businesses and we're taking dividends in those businesses. And we don't control that process, and so it's sort of hard for us to foresee that playing out. As you can see, a couple of those investments have gone up in value based upon the performance of the company and deleveraging events. So we think they're marked appropriately. But we -- again, as a minority investor, we don't really control the exit.

Got it. And then lastly here, what is that -- I mean, we talked about the retirement of some of your bonds and lowering your debt cost of capital. What is the likelihood that you've received a credit facility or pursue a credit facility?

Well, that's one of the things we've been talking about. We've been talking about several other different potentials or sources of debt capital but nothing that we can really comment on concretely today.

[Operator Instructions] And I'm showing we have a follow-up question or comment from the line of Greg Mason with KBW. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: I want to talk a little bit about the CLO equity investments. First, on the 2 new ones, the 2014-1 and 2, it kind of appears that there's almost an immediate write-down, right? The cost basis of 2014-2 this quarter of $10 million, that's at 8.5 fair value already. Kind of same with the last quarter, 2014-1, $12 million, 9.5 this quarter on a fair value basis. So can you talk about kind of the out-of-the-gate write-downs for those?

Yes. Sure. I think the issue there is that we're essentially buying them at par. They may not be where they actually end up going out or what their worth right off the bat. But as you know, we have sort of lowered our percentage investment in the CLO equity. We still like the return of it. And it obviously enables the asset managers to gather asset management fees. So where we put the whole package together, we're very happy with the return. That's just the nature of CLO equity at the moment. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: Got it. And then just the income that you're getting off the CLO equity, it's obviously a meaningful cash flow, 20-plus percent type of cash returns. But we are seeing some depreciation on the fair value side, and we had our first realized loss. It looks like Katonah V finally was done at about $3.3 million type of realized loss. So how should we think about kind of the push/pull of taking into strong cash flows but leaking some of it out the back with unrealized losses and kind of now, our first realized loss, just the total return on those CLO equity pieces?

Yes. Let me comment on Katonah V first. Katonah V was a fund that was not managed by Katonah since KCAP owned Katonah. It was sort of an earlier Katonah iteration. And so that was submanaged out to another manager who did not do a particularly good job of managing it, and as a result, the equity ended up being 0, which is unusual. But we didn't control that situation. So that was a sort of legacy asset. That was to offset to a large degree by our sale in the quarter of the DDs and Katonah 2007-1, which had about $9 million realized gain. You have to look at that as well and some of the single B pieces that we may have may also eventually have realized gains as well.

But to your point, I think you're right. It's one of the anomalies with CLO equity. It's residual cash flow, so we receive cash flows along the way. Some of that's a little bit of return of principal, some of that is actually return. They're modeled to an IRR, like old deals for maybe 18% or more. We've certainly received the 18%, if not much more than that, on them. But they will trend down. What we get back in principal sort of comes off their value by the end. And you should see, I guess, in general, that will plateau, flatten out. But I would assume that you're going to see 60%, 70% values on those equity at the end depending on where they are, and that's what you'll get as return of principal, what's it called. But you're right, over time, you're getting an accelerated cash flow. We're trying to make up for that like in other pieces like the BB, like Dayl mentioned. But that's sort of the nature of CLO equity.

But over time, as you do new funds, the value of the asset managers should go up as well. So you're adding to your NAV there as you continue to grow the business. Greg M. Mason - Keefe, Bruyette, & Woods, Inc., Research Division: Yes, definitely. Is there a thought of using kind of the effective yield method versus the cash flow method, where that kind of -- a portion of the cash flow does pay down the cost basis, so you don't have the losses over time?

We're aware that some take that stance and use the effective yield method. I think going back in time at the time that the accounting was started on these, I believe that was -- it wasn't neither efficient or fail [ph], it wasn't a piece of debt. It was not a piece of real equity, and the proper accounting treatment was to treat it as just the cash in as your return. I think changing that, midstream is a tough proposition. So I mean, we've discussed it. I think that either methodology now is acceptable in the marketplace. I don't know if there's a real impetus to change it.

I'm showing no further questions or comments at this time. So with that, I'd like to turn the call back over to management.

Thank you all, and we will talk to you with our year-end numbers in 2015. Thank you very much. Take care.