Good morning, ladies and gentlemen, and welcome to the KCAP Financial Incorporated Conference Call. An earnings press release was distributed yesterday. 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. As a reminder, this conference call is being recorded today, Thursday, March 10, 2016. This call is also being hosted on the live webcast which can be accessed at our company's website at www.kcapfinancial.com, in the Investor Relations section under Events. 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 everyone for joining us for our year-end earnings call. Today, I will review some of the important highlights and activities from the fourth quarter and year-end as well as provide some context for our direct lending business and the performance of our Asset Manager Affiliates. We will then turn the call over to our Chief Financial Officer, Ted Gilpin, who will provide a brief recap of our third quarter operating results and our financial condition at the end of the year. We will then open the line for your questions at the end of the call. At that point, Dan Gilligan will join us, our Head of Portfolio Operations to answer questions specifically those related to Trimaran, and our Asset Manager Affiliates, and the CLO equity. To start, let me provide a brief recap of some of the important highlights in the year-end, which are summarized on Slide 3 of our earnings presentation. For the year ended 2015, our net investment income was $0.65 per share and our tax distributable income was also $0.63 per share sorry. As a reminder, we also reported a non-GAAP metric resources available for distribution; resources available for distribution were $0.73 per share for the year-end. Our fourth quarter declared dividend distribution was $0.15 per share compared with the $0.21 paid in the third quarter of the year. I would now like to discuss the performance of our loan and securities business and Asset Manager Affiliates in more detail. Turning to Slide 4, during the year, we invested approximately $75 million in new originations. This is primarily funded by repayments and sales of placeholder assets. These new loans had a yield generally comparable to the assets they replaced. Our credit quality of the portfolio continues to be strong with only one…

Thank you, Dayl. Good morning, everyone. As of December 31, 2015, our net asset value stood at $5.82, down from $6.33 at the end of the third quarter of 2015 and down from $6.94 on December 31, 2014. Volatile markets in the latter half of 2015 resulted in a full-year realized and unrealized depreciation of $42.3 million or approximately $1.15 per average basic share. $36.2 million of that depreciation was unrealized. The company declared a $0.15 distribution in the fourth quarter of 2015 which is down from $0.25 per basic share in December of 2014. Net investment income for the three months period ended December 31, 2015, was $5.3 million or $0.14 per basic share down from $6.5 million or $0.18 per basic share in the third quarter of 2015 and down from $5.5 million or $0.15 per basic share in the fourth quarter of 2014. For the year ended, December 31, 2015, net investment income was $24.2 million or $0.65 per basic share compared to $20.1 million or $0.59 per basic share for the year-ended 2014. Taxable distributable income for the year ended 2015 was $23.3 million or $0.63 per share compared with $26.8 million or $0.78 per share for the year ended 2014. Resources available for distribution, a non-GAAP measure which is net investment income plus the taxable distributable excess cash on CLOs, plus cash distributed by the AMAs in excess of their taxable earnings for the full-year 2015 was $27 million or $0.73 per basic share versus $33.3 million or $0.97 per basic share for the full-year 2014. At this point, I would like to discuss the details of our results for 2015. First, investment income on our debt securities for the three months ended December 31, 2015, was $5.7 million or $0.15 per basic share compared…

[Operator Instructions]. And our first question comes from the line of Adam Waldo with Lismore Partners. Your line is now open.

Yes, good day, thank you for taking my questions. With respect to available liquidity as you think about this all in, you're just above the statutory minimum for BDCs at year-end, but you've also indicated you have sufficient liquidity to repay the convertible outstanding that matures on -- in mid-March. Can you give us any visibility into how much incremental liquidity you see coming in over the next few quarters? Do you have much visibility into the maturities of your existing portfolio that would give us some visibility on additional liquidity that could be used for either debt repayment of share repurchases? And then I have a follow-up.

Sure. Thanks for the question. We have a fair amount of liquid assets in the portfolio may be $10 million to $15 million, some of those may be coming due, some may not. Some of the illiquid stuff we do expect to pay off those one in particular large position, we thought was going to pay off in the first quarter but we're working through and should pay off perhaps by the end of March, if not in April. So we're not concerned about liquidity at this point. We have positive cash flow. And as I pointed out to people having followed us for a long time, we survived the 2008/2009 financial crisis. And we're a lot more constrained back then than we are today in terms of our capital structure and everything else. And so we know how to manage the liquidity and we've done it effectively.

No, I'm aware of that and I actually followed you back then, although I've just recently become a shareholder. The other question I have is with respect to kind of visibility in the NII stream, and then how you are thinking about the calls on capital here as between share repurchases and socking away liquidity for the next round of debt maturities. We are pretty late here in the first quarter. Do you feel quite comfortable that NII for the quarter should cover the distribution level at the fourth quarter run rate of $0.15?

No, we don't really comment. That's a forward-looking statement. But I think we will know Nomura over the next few weeks but when we set the dividend in the fourth quarter, the Board looked forward 12 months to see what they expected that we expected the performance of the company to be over the next 12 months and that $0.15 dividend was set based upon that 12 months look forward, and then nothing has really changed since then that we think would change that. So, that's as far as we sort of go in terms of guidance. But I think we reset in the fourth quarter as we said to be in line with NII and we're confident that over the course of the year that's how we will play out.

Fair enough. And then with respect to then the calls on available liquidity here as we go through 2016, is the first call on capital share repurchase, given the huge discount to NAV? Or should we think about socking away surplus liquidity over the course of 2016 for debt maturities in 2017?

We don't have any debt maturities in 2017.

I'm sorry my mistake.

The next debt due in October of 2019.

Okay.

So we will see whether we want to use our liquidity resources to invest back in the market or we want to repurchase shares or we could save it to delever too, so.

Yes, as I commented earlier, I mean, when we've had this question in the past and we were concerned about leverage and our leverage ratio is pretty tight right now and want to do is get off-sides on your leverage ratio. And so, until we see the markets for credit assets stabilize and improve, unless we can find some other ways of deleveraging, I'm not sure this is something that's prudent to undertake a share repurchase or which might cost us with further selloffs in credit market to violate our leverage restrictions.

Understood. So the first call on capital would be further deleveraging. Is that fair?

Based upon the current environment, correct.

Thank you. [Operator Instructions]. Our next question comes from the line of David Chiaverini with Cantor Fitzgerald. Your line is now open.

Thanks, good morning. A couple questions for you. The CLOs -- so the AUM is at $2.7 billion, and you mentioned about how the environment is challenging for new issuance. I was just curious if you're unable to issue any more CLOs or if your CLO AMAs are unable to issue any more CLOs this year, where would the AUM stand at the end of 2016 if no new issuance occurs? Would it stay flat at $2.7 billion or are there any CLOs that are expected to be called in the coming quarters?

It's unlikely that any of the CLOs will be called in the current environment just because of where CLO equity is trading or not trading but is quoted. There's not a lot of trades going on. And the fact that the NAV of a loan market has gone down, it's unlikely that someone is going to call, any CLOs. That being said, we only have about $500 million left in $1.0 CLOs. So, it's not that significant. I think you can sort of see that the absence of the loan market, there was no reduction in the fourth quarter in the AUM. So, these things are not paying down because there is not a lot of refinancing going on. So, it's impossible to project what the fourth quarter AUM is going to be because you just don't know what repayments are going to look like. But given past experience when you have a market like this, CLOs tend to not have a lot of assets pay off and so they tend to be pretty steady state. So it's -- that's the bad news. Good news is it's hard to issue any CLOs because its hard issue any CLOs there is not a lot of refinancing going on and so the old CLOs don't delever as fast. But again there is no way of predicting that current time.

That's good color on that, thank you. And then a follow-up, more of a housekeeping question. So, the dividend that was declared in the fourth quarter and the X dividend date was in the first quarter. Should we think of that $0.15 dividend payment as the first quarter dividend? So that, for the full-year, we should expect $.60 of -- assuming that the dividend remains unchanged -- that there would be three additional X dividend dates in 2016. So the full-year would be $0.60, assuming the dividend is not changed?

Yes, that's correct.

Thank you. And our next question comes from the line of Matthew Larson with Morgan Stanley. Your line is now open.

Hey guys. My question was actually answered, appreciate it.

Sure. Thank you.

Thank you. And our next question comes from Yehuda Katz, a Private Investor. Your line is now open.

Hi, just a couple of questions on two of your large positions. The first is your loan to the AMAs -- the first loss warehouse. What would happen if that CLO looks like it's not going to get issued? Would there be a first loss as of today?

Yes, so again there is a loan from KCAP to Trimaran and Trimaran uses that loan to finance its first loss in the warehouse. If you were to liquidate warehouse today it would be the first loss. But again would be a relatively small one offset by some of the carriers in that and Trimaran has the financial resources to repay the loan in full in addition to that. So but if we were to liquidate it right now in a dislocated market there would be some losses.

And can you guys comment on about how large that loss would be?

It’s not significant, it's probably $1 million something like that. So it changes from day-to-day given the loan market. But again that's a loss down at Trimaran that was not impacted of the ability to repay the loan. The loan would still get repaid at full because Trimaran has other cash resources other than the warehouse, so.

So you can also see in our subsequent event footnote that we have taken down that warehouse slight. So the loan is not $23 million anymore they have repaid $7 million of that loans and the loan currently stands at $16 million.

Yes, and the reason behind that is given where the loan market is today, you don't necessarily seem to have a big warehouse to get a CLO done. And the loan market was trading at par and above you really needed to have new issue loans which you're able to buy in the low par and then new issue market today you can buy loans in the high 90s. And so you don't need a big warehouse and so doing some derisking at Trimaran.

Okay, thanks. That's helpful. The other question is only large CLO 1.0 position left, which was opened in 2007. You guys are still marketing that at about $20 million. Can you kind of walk us through what assumptions, what cash flow assumptions are baked into that and when it gets called, and what you guys recover when it does roll off?

Yes, just Yehuda, we do 100% of the equity, so we control the call, we control how that works. But I'm going to actually let Dan Gilligan answer that question, because he is the most closely involved with the CLO valuation.

Sure. This is less more likely leverage CLO 1.0 that we do own around $31 million notional. So these are traditional 2% CDR, 75%, 80% recovery with haircutting of defaults that are distressed assets in the pool. So this deal is performed well over its lifetime and we do control the call on that. So we've been happy with how it's played out through the lifestyle and it's passed, it’s slightly deleveraging but we're also reinvesting below par assets until we bump up against maturity issues. So it's a bit accretive to the funds, buying in assets in the mid-to-high 90s and getting prepayments at par.

Yes, this is one of the few one 1.0 CLOs because it's we achieved at the initial rating has some ability to reinvest even though its passing through investments. So it's not de-levering very quickly. And as Dan said the leverage here is 8 to 1 instead of 10 to 1 so it's a less leverage, less risky deal with the last deal done sort of before the market shut in January 2008.

So do you guys just find getting a little bit more granular and kind of sharing with us when that reinvestment period is over, how much cash you're looking to in the model, you’re looking to get from it every year and then kind of what you expect to recover when it rolls off?

I think it still has a healthy cash flow 4% to 5% of quarter. And if it gets called in the next three years that the cash flows discounted today, plus the residual values how we get to the fair market value, so that's kind of spot on where we think it's going to shake out.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Dayl Pearson for closing remarks.

I don't really have any closing remarks other than to thank everybody for participating on the call and we will talk to you again in May. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.