New Mountain Finance Corporation 8.250% Notes due 2028 (NMFCZ) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the New Mountain Finance Corporation First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference over to NMFC CEO, Rob Hamwee. Please go ahead, Mr. Hamwee.

Thank you and good morning, everyone and welcome to New Mountain Finance Corporation's first quarter earnings call for 2016. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; John Kline, COO of NMFC; and Shiraz Kajee, CFO of NMFC. Steve Klinsky is now going to make some introductory remarks, but before he does, I would like to ask Shiraz to make some important statements regarding today's call.

Thanks, Rob. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our May 4, 2016 earnings press release. I would also like to call your attention to the customary Safe Harbor disclosure in our press release and on page 2 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. Any references to New Mountain Capital or New Mountain are referring to New Mountain Capital LLC or its affiliates and may be referring to our investment advisor, New Mountain Finance Advisors BDC LLC where appropriate. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com. At this time, I would like to turn the call over to Steve Klinsky, NMFCs Chairman who will give some highlights beginning on page 4 and 5 of the slide presentation. Steve?

Rob, John and Shiraz will go through the details in a moment, but let me start by presenting the highlights of another solid quarter for New Mountain Finance. New Mountain Finance's adjusted net investment income for the quarter ended March 31, 2016, was $0.34 per share, in the middle of our guidance of $0.33 to $0.35 per share and once again covering our Q1 dividend of $0.34 per share. The company's book value on March 31 was $12.87 per share, a decrease of $0.21 from last quarter. We are also able to announce our regular dividend for the current quarter which will again be $0.34 per share, an annualized yield of nearly11% based on Monday's close. The Company invested $28 million in gross originations in Q1 and had $24 million of repayments in the quarter maintaining a fully invested balance sheet. The overall credit quality of the Company's loan portfolio continues to be strong, as for the fourth consecutive quarter no new loans were placed on non-accrual. Since the inception of our debt effort in 2008, we have had only two issues with a realized default loss, representing less than 0.2% of cumulative investments made to date. I’m also pleased to announce that we’ve established second senior loan to pursue attractive firstly in lending opportunities to the highest quality companies in the defensive growth industries on which we focus. In summary, we're pleased with NMFC's continued performance and progress. With that let me turn the call back over to Rob Hamwee, NMFC's CEO.

Thank you, Steve. Before diving into the details of the quarter, as always, I'd like to give everyone a brief review of NMFC and our strategy. As outlined on Page 6 of our presentation, NMFC is externally managed by New Mountain Capital, a leading private equity firm with over $15 billion of assets under management and 100 staff members, including over 60 investment professionals. Since the inception of our debt investment program in 2008, we have taken New Mountain's approach to private equity and applied it to corporate credit with a consistent focus on defensive growth business models and extensive fundamental research within industries that are already well known to New Mountain or more simply put, we invest in recession resistant businesses that we really know and that we really like. We believe that this approach results in a differentiated and sustainable model that allows us to generate attractive risk-adjusted rates of return across changing cycles and market conditions. To achieve our mandate, we utilized the existing New Mountain investment team as our primary underwriting resource. Turning to page 7, you can see our total return performance from our IPO in May, 2011 through May 2, 2016. In the 5 years since our IPO, we have generated a compounded annual return to our initial public investors of 8.8%, meaningfully higher than our peers in the high-yield index and a cash-on-cash return to our initial public investors of 10.6%. Page 8 goes into a little more detail around relative performance against our peer set, benchmarking against the 10 largest externally managed BDCs that have been public at least as long as we have. Page 9 shows return attribution. Total cumulative return continued to be driven almost entirely by our cash dividend which in turn has been more than 100% covered by NII. We attribute our success to, one, our differentiated underwriting platform; two, our ability to consistently generate the vast majority of our NII from stable cash interest income in an amount that covers our dividend; three, our focus on running the business with an efficient balance sheet and always utilizing inexpensive, appropriately structured leverage before accessing more expensive equity; and four, our alignment of shareholder and Management interest. Our highest priority continues to be our focus on risk control and credit performance which we believe over time is the single biggest differentiator of total return in the BDC space. If you refer to page 10, we once again lay out the cost basis of our investments with the current portfolio and our cumulative investments since the inception of our credit business in 2008 and then show what has migrated down the performance ladder. Since the inception, we have made investments of $3.7 billion in 174 portfolio companies, of which only four, representing just $36 million of cost, have migrated to non-accrual and only two, representing $6 million of cost, have thus far resulted in realized default losses. Approximately 97% of our portfolio at fair market value is currently rated 1 or 2 on our internal scale. Page 11 shows leverage multiple for all of our holdings above $7.5 million when we entered an investment and leverage levels for the same investment as of the end of the current quarter. While not a perfect metric, the asset by asset trend in leverage multiple is a good snapshot of credit performance and helps provide some empirical, fundamental support for our internal ratings and marks. As you can see by looking at the table, leverage multiples are roughly flat or trending in the right direction, with only a few exceptions. Of the four loans that show negative migration of two and a half turns or more, all are rated 3 on our internal scale. The one is to a business that is currently in a sale process, expected to pay off the loan in full. Two others are first lien loans to energy service businesses that, while cyclically challenged, continue to have substantial liquidity. These two loans are carried at meaningful discounts to par, reflecting significant degradation in earnings and prospects, although both are expected to pay their upcoming semiannual coupon and are therefore not near term non-accrual candidates. The fourth loan to a company called Transtar is new to our internal loss list and will be discussed a bit later by John. The chart on page 12 helps track the Company's overall economic performance since its IPO. At the top of the page, we show how the regular quarterly dividend is being covered out of net-investment income. As you can see, we continued to more than cover 100% of our cumulative regular dividend out of NII. On the bottom of the page, we focus on below-the-line items. First, we look at realized gains and realized credit and other losses. As you can see, looking at the row highlighted in green, we’ve had success generating real economic gains every year through a combination of equity gains, portfolio company dividends and trading profits. Conversely, realized losses including default losses, highlighted in orange, have been significantly smaller and less frequent and show that we're typically not avoiding non-accruals by selling poor credit at a material loss prior to actual default. The net cumulative impact of this success to date is highlighted in blue which shows cumulative net-realized gains of $43.9 million since our IPO. Next, we look at unrealized appreciation and depreciation. As you see highlighted in grey, we have $99 million cumulative net depreciation. As further detailed on page 13, this depreciation could be broken down into two broad categories, credit specific and broad market. The credit specific amount of $64 million can be further broken down into the four pieces shown on page 13. We believe a meaningful portion of this unrealized depreciation is recoverable and we expect to see the significant majority of the $35 million unrealized depreciation associated with general market conditions reversed overtime. To put these numbers into perspective, even if we did believe that the full $99 million unrealized depreciation was not recoverable, our annualized return to shareholders over the five years that we’ve been public would still be nearly 9% or approximately 400 basis points over the high yield index over the same contract. This speaks to the fundamental strength of the value proposition inherent in a well-managed BDC. That is, when one is generating asset level spreads, the 1000 basis points over the risk free rate in primarily floating rate assets, there is a lot of excess spread to cover occasional and inevitable credit impairments. The key as always is to keep losses modest, which we continue to do. I will now turn the call over to John Kline, NMFC's COO, to discuss market conditions and portfolio activity. John?

Thanks, Rob. As outlined on page 14, since our last call on March 1, we have witnessed an improvement in the credit market from the February lows. This has been due to a variety of factors, including improved commodity prices, a betting concern about emerging markets and positive fund flows into leverage credit. However, the environment still remains uncertain which is why we continue to pursue our strategy of investing in defensive acyclical businesses. As described on page 15, since our last conference call, NMFC did have one material negative credit migration related to a second lien position in Transtar Holdings, a national distributor of aftermarket automotive transmission parts. The company reported a very weak Q4 and as a result breached its financial covenants. We believe that the weak results were not related to fundamental changes in the industry environment or Transtar’s long term prospects, but were due to several operational missteps that are one time in nature. Transtar paid our interest on March 31 and is operating in a forbearance period granted by lenders. We’re currently in active negotiations with the company and the sponsor regarding a longer term amendment. We look forward to updating you on the results of this negotiation on our next conference call. Turning to page 16, we’re pleased to announce a new $375 million senior loan fund that is structured at a joint venture with SkyKnight Income LLC, an entity associated with a California-based investment firm. SLP-II is a follow-up to our first senior loan fund, which is operated very successfully over the past two years. Like SLP-I, SLP-II seize to invest in first lien senior secured loans issued by high quality companies that are well known to New Mountain. The JV will be capitalized with $100 million of equity capital, $79 million from NMFC and $21 million from SkyKnight. Additionally, SLP-II has entered into a $275 million, five year credit facility with Wells Fargo. We believe that the fund will be fully ramped over the next three months. Once fully ramped, we expect to achieve a mid-teens leverage return on equity. As page 17 shows, NMFC is well positioned in the event of future rate increases as 84% of our portfolio is invested in floating rate debt. Therefore, even in the phase of a material ride in interest rates, assuming a consistently shaped yield curve, we would not expect to see a significant change in our book value. Furthermore, as the table at the bottom of the page demonstrates a meaningful rise in short term rates will generally increase our NII per share with the only exception being a modest rise having a slightly negative impact, as the cost of the majority of our borrowings rise while our interest income does not initially go up given the presence of why work for us on our assets. Moving on to portfolio activity, as seen on pages 18 and 19, total originations were muted in Q1 as NMFC maintained a fully invested portfolio throughout the quarter. Total originations were $27.6 million offset by $24.4 million of repayments and $15.8 million of sale proceeds yielding a net source of cash of $12.6 million. Many of our origination consisted of small add-on originations to support growth of our portfolio companies. Given the limited amount of investment and repayment activity in Q1, our weighted average portfolio yield remained stable at 10.4%. Since the end of the quarter, we have seen our repayment activity pickup, which has allowed us to make some attractive new investments in April. We have seen total originations in April of $51.4 million, offset by $81.7 million in repayments and $8.6 million of sales yielding a $38.9 million source of cash. We expect to use this cash and future sale proceeds to fund new portfolio investments in the quarter. Page 20 shows that the portfolio composition remained very consistent with last quarter. The asset mix is currently composed of 44% first lien, 48% second lien and unsecured debt, and 8% preferred equity, common equity and other. As always, we maintain a portfolio comprised of companies in defensive growth industries like software, business services and education that we believe will outperform in an uncertain economic environment. Finally as illustrated on page 21, we have a broadly diversified portfolio with our largest investment at 3.5% of fair value, and the top 15 investments account for 37% of fair value. With that I’ll now turn the call over to our CFO, Shiraz Kajee to discuss financial statements and key financial metrics. Shiraz?

Thank you, John. For more details on the financial results in today’s commentary, please refer to the Form 10-Q that was filed last evening with the SEC. Now I’d like to turn your attention to slide 22. The portfolio had $1.52 billion in investments at fair value at March 31, 2016 and total assets of just over $1.57 billion. We had total liabilities of 750.4 million, of which total statutory debt outstanding was 609 million, excluding 117.7 million of drawn SBA-guaranteed debentures. Net asset value of 821.8 million or $12.87 per share was down $0.21 from the prior quarter. As of March 31, our statutory debt-to-equity ratio was 0.741. On slide 23, we showed the historical NAV per share and leverage ratios which are broadly consistent with our current target statutory leverage of between 0.7 and 0.821. We also show the NAV adjusted for the cumulative impact of special dividends which portrays a more accurate reflection of true economic value creation. On Slide 24, we show our quarterly income statement results. We believe that our adjusted NII is the most appropriate measure of our quarterly performance. This slide highlights that, while realizations and unrealized appreciation, depreciation can be volatile below the line, we continued to generate stable net investment income above the line. Focusing on the quarter ended March 31, 2016, we earned total investment income of approximately $40.9 million. This represents a decrease of 1.1 million or 2.6% from the prior quarter, largely attributable to a decrease in other income. Total net expenses of $19.4 million, are slightly down from the prior quarter. As mentioned on prior calls, due to the merger of our Wells Fargo credit facilities and consistent with the methodology since IPO, the investment advisor will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF credit facility. This results in an effective management fee of 1.4% for the quarter, which is in line with prior quarters. It is expected, based on our current portfolio construct, that the 2016 effective management fee will be broadly consistent with prior years and it is important to note that the investment advisor cannot recoup management fees previously waived. In total, this results in first quarter adjusted NII of $21.5 million or $0.34 per weighted average share, which is in line with guidance and covers our Q1 regular dividend of $0.34 per share. In total, for the quarter ended March 31, 2015, we had an increase in net assets resulting from operations of $8.1 million. Slide 25 demonstrates our total investment income is recurring in nature and predominantly paid in cash. As you can see, 97% of total investment income is recurring and cash income remained strong at 94% in this quarter. We believe this consistency shows the stability and predictability of our investment income. Turning to slide 26, as briefly discussed earlier, our adjusted NII for the first quarter covered our Q1 dividend. Given our belief that our Q2 adjusted NII will fall within our guidance of $0.33 to $0.35 per share, our Board of Directors has declared a Q2 dividend of $0.34 per share, in line with the past 16 quarters. The Q2 quarterly dividend of $0.34 per share will be paid on June 30, 2016, to holders of record on June 16, 2016. Finally, on slide 27, we highlight our various financing sources. Taking into account SBA-guaranteed debentures and the upsize of our NMFC credit facility from 95 million to 110 million, we had $870 million of total borrowing capacity at March 31, 2016. On May 4, 2016, we closed on a further upsize in our NMFC credit facility, from $110 million to $122.5 million. On that date, we also entered into agreement for the private placement of $50 million of five years senior unsecured notes at a fixed rate of 5.313%. We believe that this deal is a positive step for NMFC as it diversifies our financing profile at an attractive rate, enhances our liquidity, and provides a new source of stable capital with no foreign based requirements. These additions bring our current borrowing capacity to $932.5 million. As a reminder, our Wells Fargo credit facility’s covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time. At this time, I’d like to turn the call back over to Rob.

Thanks, Shiraz. It continues to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters, so long as the adjusted NII covers the dividend in line with our current expectations. In closing, I would just like to say that we continue to be pleased with our performance to date. Most importantly, from a credit perspective, our portfolio overall continues to be very healthy. Once again, we would like to thank you for your support and interest. And at this point, turn the things back to the operator to begin Q&A. Operator?

[Operator Instructions] First question comes from Jonathan Bock with Wells Fargo. Mr. Bock?

Thank you, and good morning and thank you for taking my questions.

Hi, Jon.

Good morning, Rob. One item I want to start with is the new JV. Congrats. Those are obviously very, very advantageous for shareholders and clearly you are on the route to ramp that significantly. The question we’d have is just, you mentioned the speed of ramp in a quarter or two is quick, and two when we think about what this is, it’s an effective CLL, not as much leveraged and certainly it’s something that you have an ability with your JV partner on 50-50 basis to manage. But with raising LIBOR, right, already taking a bit out of the returns in cash distributions that have gone to some CLL equity holders, how do you mitigate the risk that you deploy, you deploy quickly, LIBOR goes up again, the facility likely would not have a four, but some of your first lien assets that you put in this would, because look all things equal, people prefer to have it, they are advantageous, but wondering in terms of the speed of development as it will, the risk of raising LIBOR, could that lower your teen, your mid-teens return’s assumption?

Yeah, it’s a good question, Jonathan. You know when you model it out with LIBOR approaching 50 today, and that have been our assumption, the floors are typically going to be 100 if you have 75. So you are talking about maximum pain point in the event that LIBOR have gone from 50 to 100 and they are going to be stop there. You are talking about the 50 bids, the three to one leverage. If you are talking about a couple of hundred basis points, and we think it, plenty of excess return to cover that, and I think in the real world it’s unlikely that LIBOR goes exactly to 100 and stops there. Obviously, if it goes beyond the 100, we are matched in that sense. I mean it’s something we keep an eye on but I don’t think it has a material impact on the economic value of the underlying entity.

Okay and so if - maybe we take a jump to portfolio activity. So clearly portfolio activity was light in the quarter. But you have already originated $51 million, you had seen $82 million in repayments, and a lot of the repayments Pittsburgh Glass et cetera, come with some big fees. If the portfolio shrinks a bit, we have seen cash flow coverage of the dividends, that’s just cash ex-fee etcetera. It’s still very, very well positioned relative to peers at 80% but slowly trickling down a bit. As we think of just a more constrained liquidity and growth environment, how should we look at the potential for limited growth, more repayments and perhaps maybe a little bit more cash drag than expected and how that affects the stable cash coverage of the dividend, because it’s always great to get your money back, but what we have seen when some BDCs get a lot of their money back all at once that can really create a negative drag that can in some cases harm earnings and at time even harm the dividends.

Yeah, I mean, of the many things that I loosely said at Knight that is pretty far down the list. Just to put it into context, Q1 we could have originated hundreds of millions of dollars. We are completely constrained by our entry in the quarter, as we like to do being fully leveraged. And you know we kind of managed to that mid-7s statutory leverage points. So we do not have any issues even as the markets evolve through April with deploying capital. I think we are in a great position to continue to generate attractive deployments and I feel good about our ability to stay fully invested. Beyond that, I think some of the levers we have to continue to make sure that we more than covered the dividend, which we historically always had is to continue to ramp up the SBA facility which as you know is very high ROE deployments. And again well we don’t go out, looking for those opportunities, we look as always for the businesses that we know very well from our private equity business. But naturally there are things that over the year will likely flout into that category. Certainly the JV will help with the ROE and as you pointed out, I mean if you look at this quarter, we had virtually no fee, and we still covered our dividend yield. And so in most quarters if you look historically, we typically do generate some material fee income certainly this quarterly well. So I am comfortable we have a lot of levers and you know we have always been very religious about A) staying fully invested and B) covering - comfortably covering the dividend. And that’s the one thing I do not expect to be a challenge for us as the year unfolds.

Appreciate that. So let’s just ask about the SBA deployments. So it’s about $117 million on our way to $150 million. How would you describe that ramp, one, and two, have you considered - well you probably obviously considered it. Have you started the process, by which to increase the license to 225…

So yeah, second question first. Yes, we are in dialog to get to that second license and ultimately obviously, we are even looking beyond that to the new statutes that allows a third license. So we think we are very well positioned with the SBA to overtime fully maximize the proceeds from the program. And the first question, the ramp, it’s very tough to predict, because it’s very idiosyncratic, as you have seen last year, we had a couple of quarters where we had two or three SBA eligible investments, and then you have a couple of quarters where you have none, and again that’s because we are not out specifically looking for SBA eligible investments. The whole logic back to two years ago, when we got the original SBA license was when we back tested our cumulative originations, a meaningful minority of those would fit. So we felt comfortable that to going forward that it would look similar, we will be able to deploy the proceeds. However, in any one quarter it’s just hard to know if we are going to get zero or two or three. I think just looking history a little bit of a guide, I’d expect over the course of this to complete the deployment of the first license and hopefully be in to the second license towards the end of the year.

Got it, got it. Great, thank you for taking my questions.

Great, thanks Jonathan.

[Operator Instructions] Our next question is from Jeff Greenblatt with Monarch. Mr. Greenblatt?

Yes, thank you. Good morning.

Hi, how are you?

Good. Actually I had a totally different perspective in the last question which I am somewhat perplexed by his question but maybe I am something. If you do still have an open buyback program, correct?

We do.

Yeah. So why would excess cash be a big problem to the extent you just brought in stock at a discount to your NAV, with reduce your overall gross dividend obligations, so you could maintain your dividend, I mean that’s your ultimate use of cash I guess, if you don’t find attractive opportunities. Am I missing something here?

No that’s very much on the table. We, obviously when the market was particularly out of whack in February, we were able to do a little bit of that, we were meaningfully capital constrained, and windowed in for very long. But certainly if the stock, it starts trading again at a meaningful discount to par and/or we have deer point excess capital, that’s a very obvious use of that.

Okay well then, I want to make sure, I want to look at your page 13 in your presentation for a second.

Sure.

And I just want to again make sure I am looking at it the correct way. You had - and by the way I understand this is as of March 31.

Yeah.

I believe reasonably that the credit markets have improved, since like you said, they have improved since the high end markets have I think 3% of the credit facilities are. If I look at that $64 million of specific credit deterioration, and I believe you said the energy loans were first liens, so that’s your number 2 category, correct?

Yeah.

And you said another company is for sale that you hope to get repaid potentially at par, which one is that?

That’s in bucket for us, so it’s a pretty - it’s a small position with only a modest discount to par given the market is quite aware of the sales process.

Right, okay, that’s what I assumed. So if I look at you, if I take a step back and say, well you have taken basically $1 out of your NAV for this specific credit deterioration about $64 million, so I think that’s roughly your shares outstanding. To the extent that your underwriting is successful and I am starting with the promise that in the past you have said that you look at loan to value as no greater than 50% both on sponsor purchase price and your own valuation. So I take that is meaning that there was a decent chance for your market share just that marks and you have substantial recovery and I take the broad market movements to $35 million is probably moving a little bit new direction in this quarter and overtime it should be proven out to be par. You basically have over $1.5 of code NAV marked down just on these items. So I’m looking into that correctly that if you were successful on the covering this credit deterioration as over time this broad market movements brought your fair back to par. And your NAV hypothetically as of today would be more like 1,440 not that 1,287, is that the way we look at or am I missing something?

No, that’s a reasonable way to look at it.

Okay. So with that in mind and going back to my further comment, since quarter end notwithstanding the appreciation in all of the capital markets including the credit markets, our stock has gone down, effectively it’s gone from I think 1,265 at quarter end to 1,240. So I’m looking at 1,240 against 1,440, I can’t imagine why a new origination would be more desirable than buying that discount to your stock today particularly in variable excess cash. Now, I know previously you had a short window and I think you, I don’t know where your price range was but you only bought 100,000 shares and I think your position much greater. So why aren’t we more aggressively looking at the stock at this kind of discount, not just the discount to the NAV, but the discount to what you guys perceive based upon your analysis as the true value which could be above 14, I mean is that the analysis you’re doing or not and if not what type of analysis are you doing in terms of doing the buyback?

Well, it’s part of it. The 1,440 I think is sort of the right try at the goal post, right. I mean that has been 100% recovery across-the-board which is probably not in the cards. I do think we feel quite about the 99 being some number meaning lower than 99, right. So it’s somewhere in the middle. One analysis, we look at is what if we hold everything at par and look at the just the credit impaired assets at the current market and that gets you the 1,377, so that’s another way to sort of triangulate. So, look at as we get into the window period where we can have control over buybacks slightly because prior to getting the earnings out we were in a programmatic period which we have to setup before the window closed sometime ago and that does not allow us to control the buyback. I think you could very well see the stock continues to not trade in line with what we believe to be true economic value meaningful stock buybacks.

Okay. Then one other question if I could, the $50 million debt raise that you did, I think it’s in the five-year debt raise and I think it was about five and change percent.

Yeah, 5.3

What’s your thought for, I mean obviously - I mean I shouldn’t say obviously, but I’m assuming that the expansion of your bank line is a lower cost in money of the floating, correct?

Yeah, correct. I mean it’s a trade right, it’s two things, it’s more expensive on one hand and the other side of the ledger it’s not floating and who knows what’s going to happen to rates. So, it speaks to our general conservatism around having a sort of hedged capital structure.

Although your portfolio as a show will appreciate if the rates move up to that level on the LIBOR anyway, so you’re going to make it up on the other side through your asset appreciation.

Well, not really, right because floating assets, so they don’t truly appreciate...

Excuse me. I thought you said the pickup, you have a table that shows like a 100 to 200 basis points move up in rates.

Yeah, the yield increases is right, but the asset price tends not to increase.

Okay, but I point the yield increase will offset the cost of money increase structured already?

Yes.

Are you buying a second - a double layer of insurance by locking in the $50 million, that’s really what I am asking if? Portfolio that structured already structured for that.

They are part of that and then the other part is it’s very flexible, its unstructured debt, right. So there is no borrowing base constraint on unsecured debt as opposed to the Wells facility which is asset-by-asset leverage. And third, it does serve a benefit, which is diversifying our leverage growth profile. Which is important, as we continue to aspire to ultimately an investment grade rating that is something the agencies will get. So it really serves lots of purposes and in the spectrum of a $900 million capacity of debt, it’s still pretty small. So look, we’re constantly evaluating the trade-offs between cost and flexibility and other pros and cons, we are not just doing this really nearly, but we thought it was a smart thing to do, may be a slightly deleterious impact and maybe it does, right, just mathematically on this quarter’s earnings, but it positions us best for the long term in our judging.

Yeah. No, I wasn’t focused on the borrowing base versus the unsecured nature, so I get it. Okay, I mean I’m glad you pointed that out. So is that - are those funds basically - is that offering close, or is that additional funds that are going to come in above and beyond what we’re seeing in this presentation?

Yeah, that yield was literally signed yesterday and T plus two or three fund will come in Friday or Monday.

Okay, so that’s going to bring - that’s probably bringing your cash up north of 100 million right now right or?

Yeah, we got transactions in near term process.

Okay. Well as a very long-term shareholder I just want to restate sort of account over the concern of your prior quarter, I have no problem with you using excess cash to buy it at this kind of portfolio, you likely know better than what you may put money out into new, so I’m very supportive of it. Hopefully you guys will continue to do that. And thanks for volume, good work for this quarter

Great, thank you very much.

[Operator instructions] Alright this concludes our question and answer session. I would like to turn the conference back over to Mr. Rob Hamwee for any closing remarks. Mr. Hamwee?

Great, thanks. Thanks operator and thanks everyone for your time and interest, and we look forward to speaking next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.