Prospect Capital Corporation (PSEC) Q2 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the Earnings Call for Second Fiscal Quarter ended December 31, 2009 for Prospect Capital. All participants will be in a listen-only mode. After today's' presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. Now, I would like to turn the conference over to Mr. John Barry, Chairman and CEO. Mr. Barry, the floor is yours, sir.

Thank you, Mike. 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. This communication is not a proxy statement or a solicitation of proxies and does not constitute an offer to sell or a solicitation of an offer to buy any securities. For additional disclosure, see our earnings press release, form 10-Q and other documents filed previously with the SEC. Now I will turn the call back over to John.

Thank you, Brian. With the three months ended December 31, 2009, our net investment income was $16.9 million or $0.29 per weighted average share outstanding. For the six months ended December 31, 2009, our net investment income was $29.2 million or $0.54 per weighted average share outstanding. Our net investment income increased 37% and our net investment income per share increased 19%. From the quarter ended September 30, 2009 to the quarter ended December 31, 2009. We closed our acquisition of Patriot Capital Funding on December 2, while the full quarterly benefit to the Patriot acquisition are not expected to be reflected until the March 31, 2010 quarterly financial results. We did recognize a gain on the Patriot acquisition of $5.7 million. We also recognized $7.5 million of interest income from the acquisition through the end of the quarter, including $4.6 million of interest income from the acceleration of purchase discounts upon early repayments of three loans, repayments of three revolving lines of credit and a sale of investment position. These early repayments have been total PAR repayments comparing favorably to the discount on our purchase of the Patriot portfolio. We have additional liquidity available that can be deployed into other accretive investments beyond the Patriot acquisition and are currently moving forward a pipeline of potential additional portfolio and individual investment opportunities that aggregate more than $3 billion of assets. We estimate that our net investment income for the current third fiscal quarter ended March 31, 2010 will be $0.24 to $0.32 per share. If we have significant early repayments out of the Patriot portfolio, we have the potential to exceed this range as we continue to recognize the deferred value of the discount associated with our purchase of the Patriot portfolio. We expect to announce our third fiscal quarter distribution in March. In December 31, 2009 quarter because of a desire to eliminate excise taxes for the 2009 calendar year included two, not just one record date, thereby causing a second dividend payable and a second associated deduction from our net asset value deduction during the quarter, absent such timing differences, net asset value per share on December 31, 2009 would have been $10.47. Valuation changes virtually all on a mark-to-mark unrealized basis on our equity positions due to trailing 12-months EBITDA changes in the 2009 recession comprised approximately 56 per share this past quarter. So far in 2010, we have seen increases in backlog, increases in order bookings and increases in other leading business indicators in a number of our portfolio companies. Thank you. I will now turn the call over to Grier,

Thanks John. At December 31, 2009, our portfolio grew to 55 long-term investments with a fair value of approximately $648.1 million compared to 29 long-term investments with a fair value of $510.8 million at September 30, 2009. This increase in investments was driven by the acquisition of Patriot, net of post closing monitorizations from the Patriot portfolio. On December 2, we acquired the outstanding shares of Patriot common stock for $201.1 million. Under the terms of the merger agreement, Patriot common shareholders received 0.363992 shares of our common stock for each share of Patriot common stock, resulting in 8,444,068 million shares of common stock being issued by us. In connection with the transaction, we repaid all the outstanding borrowings of Patriot in compliance with the merger agreement. On December 2, Patriot made a final dividend equal to its undistributed net ordinary income and capital gains of $0.38 per share. In accordance with the recent IRS revenue procedure, the dividend was paid 10% in cash and 90% in newly issued shares of Patriot's common stock. The exchange ratio was adjusted to give effect to the tax distribution so that our purchase consideration for Patriot was not effected by this distribution. The merger has been accounted for as an acquisition of Patriot by Prospect in accordance with the acquisition method of accounting as detailed in ASC 805 business combinations. The fair value of the consideration paid was allocated to the assets acquired and liabilities assumed based on their fair values as of the date of acquisition. As of the acquisition date, the fair value, the identifiable net assets acquired exceeded the fair value of the consideration transferred and we recognize the excess as a gain. A gain of $5.7 million was recorded by Prospect in the quarter ended December 31, related to the acquisition of Patriot. During the quarter, from the acquisition of Patriot on December 2 through December 31, we recognized $7.5 million of interest income from the assets acquired from Patriot. Included in this amount is $4.6 million resulting from the acceleration of purchase discounts from the early repayments of three revolving lines of credit and the sale of one investment position. During the quarter ended December 31, 2009, one additional investment scale products has repaid its outstanding debt to us. Earlier in the quarter, we had purchased additional debt in Resco at a 40% discount to PAR and subsequently received a full PAR repayment of all of our debt at the closing, generating a 16% cash on cash internal rate of return on our overall investment. Gas Solutions continues to generate free cash flows with no third party debt. We are discussing opportunities for a potential monetization of our position and we recently hired a new senior executive to help drive further revenue and profit growth. As we discussed earlier, we currently have an investment pipeline of potential opportunities which totals more than $3 billion. This pipeline includes investment opportunities across multiple strategies, including sponsor financings, direct loans, operating company buyouts and strategic financial portfolio acquisitions. We generally announce specifics related to such transactions only upon successful consummation, if a particular transaction opportunity with the public company counterpart happens to become publicly known through counterparty communications which may be self-interested or distorted, one should not interpret that publicity to mean that we are solely or primarily working on such publicly disclosed opportunity to the detriment of other potential opportunities. Primary investments opportunity in the marketplace is increased recently and we are currently evaluating a robust pipeline to potential investments some of which has the potential to close this quarter. These investments are primarily secured investments with double-digit coupons, sometimes coupled with equity upsides or co-investment or warrants and diversified by sector. As compared to competition in 2006, before the credit dislocation began, we see far fewer competitors in our target middle market and are reaping the benefits from having significant access to capital in the current environment. We have a dispassionate and disciplined investments process in which we work on multiple transactions, because the completion of any particular transaction cannot be guaranteed. We price analysis, data, facts, logic and other rational methods for deal assessments. We also seek to manage diligence, legal and related costs, our perspective investments to protect shareholder value on a probability weighted basis. Thank you. I'll now turn the call over to Brian.

Thanks, Grier. On June 21, we completed a first closing on an expanded, syndicated revolving credit facility. The facility includes an accordion feature, which allows the facility to accept up to an aggregate of $250 million on commitments. With that initial closing with two vendors, we have added four additional vendors to the facility and currently have commitments totaling $210 million. We continue to solicit additional commitments from other vendors to grow the facility. Multiple vendors are performing due-diligence towards committing to our facility and potentially additional independent facilities. The facility has an investment grade Moody's rating of A2. We're also working with other lenders to reduce the cost of debt financing and extend the duration of the facility. As of December 31, we had $10 million of borrowings under our facilities. With the pledging of additional assets from the Patriot acquisition, we have additional credit availability in excess of $100 million not including further leveragability of additional collateral that we could add to our facility with additional transaction activity. Our virtually un-levered balance sheet is a source of significant strength in comparison to many of our over-leveraged competitors. Our equitized balance sheet also gives us the potential for future earnings upside and we prudently grow our existing revolving credit facility. I have additional secured facilities and evaluate turn-debt solutions driven by our investment grade facility ratings above the corporate and facility level. We are pleased with the increase in desire of counterparties to provide us additional credit at significantly more attractive pricing that's compared to what the capital markets offered a year ago. Now, I will turn the call back to John.

Thanks, Brian. We also understand that there is lot of interest and prospects proposal to acquire Allied. Yesterday, we increased our offer in a letter sent to Allied. The terms of our offer and our response to set forth in a press release we issued yesterday. On this call, we will be referring you to the information in our press release on this topic. We can now answer any questions.

Your first question comes from [Jasper Burts] - Macquarie Capital.

Just to begin with, looking at your guidance it seems really wide, is that just because of uncertain way of prepayment on the Patriot deal or is there something else going on there?

There's a couple of factors going on there [Jasper] where; one is the repayments of the Patriot portfolio, but also it's a wider range because of the pace of originations and new deal deployment, as always it is difficult to guide towards specificity on specific timing of closings there. And that sort of size ranges, it's actually fairly consistent with what we've done for quite some time now.

In terms of your credit facility went for an expansion on that and also taking on additional debt, can you give any more color on either one; we'll hear more about your current credit facility and also what types of debt and what rate other vendors are looking at?

We're looking to close that facility either the end of this quarter or to the beginning of next quarter, we don't believe we will go all the way out till June maturity date or end of our revolving period on the debt. So I'd expect that we would announce consistent with our timeframe.

Okay. In terms of ramping up leverage, you said you have over $3 billion pipeline, you said that there is some more primary market opportunities, could you break that down above how much of that pipeline is primary market, how much is to secondary and how much has driven higher portfolios they might be looking to snap off?

I don't have the exact breakdown for you [Jasper], but at least half of that is secondary market portfolio purchases.

Your next question comes from Chris Harris - Wells Fargo Securities.

Just looking at your legacy business here, if we strip out the income you receive from Patriot and it looks like there is about $4 million sequential decline in interest income, I was just wondering if you can maybe talk a little bit about what was driving that?

There is one big factor that comes into that, I mean we did from a two loans on a non accrual status this quarter, but we are putting those two notes on that accrual status, we also reversed a significant amount of interest that had been in previous quarters about $2.5 million of revenues. So, that accounts for a large portion of the decrease in interest income on our legacy assets.

And then follow-up here, the credit line, you guys have mentioned here that the credit availability is about $100 million, a little north of that, subject to the collateral. What do the lenders want to see here to really get that borrowing capacity up? I guess that is question number one; and then a follow-up to that is, how might that affect your origination activity on a go-forward basis?

This is Grier answering your question. As we had additional collateral from the utilization of the existing borrowing base, then the borrowing base goes up, so it is actually an iterative calculation and it is not as if you have say $100 million of current availability, all you can draw is $100, you take the proceeds from that to the extent you deploy that, those proceeds into our borrowing based eligible collateral, then that's how you get the size increased to what you can draw closer to $210 million level we have currently. What was the second part of your question again Chris.

Maybe, how is your future origination activity might be impacted depending on wanting to increase your leverage capacity?

We are in the midst of increasing our leverage capacity in three important ways. One is by increasing the size of the existing revolving credit facility. Two is by working on additional credit facilities and adjectives answering that, but one of the things we are very pleased with over last year from a risk management standpoint is in increasing diversity, not just diversity of our asset base by industry name, but also a diversity of lenders having gone from one lender to six lenders in the past year in our existing facility. But having diversity of facilities on top of that is also a worthy adjective that we are pursuing. And then thirdly, in turns of expanding our credit, we are working primarily in the insurance and private placement market on accessing term capital, and having achieved investing grade status for at a corporate level, investing grade at our facility level and having the least leverage balance sheet of our peer group of any meaningful size in our industry, we are perceived as a very attractive counterparty from a credit standpoint. So, in terms of origination, we think by growing that credit we will be able to deploy a significant amount of capital, $3 billion of course needs to be probability weighted, it is difficult to say a precise probability and how much of that would get over the goal line at the end, but some portion of that would get along, but we are working and expect to have and to increase our access to capital over time.

Well, to me the biggest change has been when we went out to extend and expand the Rabo facility almost to year ago. There was dramatically different market and so we have early 2009 deal. Here we are a year later; many of the people who told us they were out of the market, their management didn't want them booking new loans to feed the companies especially to business development companies are now back in the market and are talking to us and presenting us with significantly improved terms, which we have shared with Rabo, we want to continue to do business with Rabo. So, we're always optimistic, we are more than the usual optimistic that we will be extending and expanding that particular facility with banks significantly ahead of time that we will be adding insurance company lenders to that facility and that we may or may not close the additional facilities that our independent to that facility depending on timing, terms and needs. But I'll say that for our company anyway the availability of credit on attractive terms has improved substantially since a year ago.

And one final one here if I could, on the Allied offer here and I know you guys might be limited on what you can say, but obviously this newer offer is significantly higher than where you were before, just kind of curious as to why you assigned an expiration date of next week for the Allied board to respond, why didn't you kind of leave that as an open-ended offer?

I think you know, we've written letters to the Allied board Chris, which we've been published have issued press releases as has Allied and had filed documents with the SEC with respect to our interest in an offer to purchase Allied, as has Allied. So, there is a lot written information out there. As I think you also know, proxy solicitations are extremely highly regulated in ways that I'm not going to suggest to you or anyone that I'm fully or even partially expert. So, we are not comfortable on this phone call at this time adding to or subtracting from our filed papers. We are speculating about the future.

Your next question comes from Arren Cyganovich - Ladenburg Thalmann.

I was just looking at the monthly accretion from Patriot in the quarter and I guess if you take out the 4.6 of prepayment, it leaves a little under $3 million. Is that around what you would expect for the March quarter monthly of around $3 million?

Yeah, just a little over $3 million per month.

And then also, last quarter you mentioned that you are close to completing a portfolio acquisition and I just wanted to hear if you had any follow-up on what was going on with that?

Sure, as I said earlier, we work on a multiple transactions at any given point of time, broken up by strategy but also within a particular strategy including strategic acquisitions. We are working on generally speaking multiple ideas and transaction opportunities at any given point in time, and that applies to portfolio purchases as well. In this particular case, we spent a fair amount of time on one opportunity and I put out some disclosure related to that on the concerns that perhaps there may or may not be discussion in the market place about it through third party communication. So, we wanted to do that to be protected to the business and we have declined to move forward on that particular opportunity. I would like to just add that we are very friendly with the people at that company and we feel that we understand their assets and their portfolio reasonably well. There are some questions that have blocked us from reaching a final agreement, but we remain good friends and we are still hopeful that may be if there wasn't a transaction that could close in December, may be it could close in February, maybe it be could close in March. We stay in contact with the people and we continue to pursue that transaction and others.

It's a fair point, we take the long view in this business and in the case of for example; Patriot, we first started working on that deal going back to August of 2008 and it had a year gestation period, sometimes deals have that gestation period, sometime shorter, sometimes longer than that, it is the nature of the business

A quick question on your portfolio disclosure. There were a couple of small securities that showed default interest, but they were still occurring. Can you explain what was going on there?

Which particular?

I think there was one called Borga?

That's one of the investments that we've acquired of the Patriot portfolio. Fairly small investments, but we have got one benefit of having substantial financial covenants, we really did not pursue nor did Patriot, the covenant-like, covenant-knot structures to our deals, if there is a RRR in particular transactions, and the ability to offer a greater return on investments. We're seeking to maximize value and maximize returns and that's on contrary that we would have liked, generally speaking.

It's still paying though.

Well, as the Borga, let's say a couple of things about Borga. Borga is a company that was in the Patriot portfolio and now it isn't ours. It is a well-run company; it has a nice niche, building something that suddenly nobody wants. Steel structures to be used for agricultural and industrial purposes and if you can imagine probably the last person in the country you'd want to have such a company, since you can't ship these things very far and you identified the (inaudible) area you'd be spot on. And if you knew all about the drought and the smelt there and closing of the dams and so on and so forth, you would wonder how this company has stayed in business. The company is well managed, the company does have a niche, there is a need particularly in the dairy industry for the steel buildings, people have held off buying them in the last year and a half, but the sales are picking up again. Some of the competition has left the business, the company is not in default, but we're happy it is not payment default; it's in technical default, we're happy to collect the default interest and also support the company.

With respect Just one quick last question. Have you noticed that the NAV is a little lower, because of the double record dates in the quarter? Is that supposed to revert in the March quarter, is it essentially giving you a benefit in March quarter?

We have not disclosed precise timing of when the record date determination would be.

Your next question comes from Robert Dodd - Morgan Keegan.

Just a question about gas solutions, which is obviously been a really good performance for you for the last several years. You said still on the blocks, so if you could give us a little bit more of an update on that and then also the hedges that they put in place are very well timed a couple years ago and they all come off at the end of April. So what is the kind of financial position in terms of ability to pay you the same level of dividend?

Hey Robert it's good to hear your voice again. Before I start, I believe in giving credit where credit is due, and it was Grier who focused on this and wanted to push the edges and I think we would have gotten them anyway, but the timing could not have been better, as I think anybody familiar with the business knows. I think people in our business know, financial assets, we are not supposed to fall in love with these things, they are not children's, they are always for sale at an appropriate bid and what has happened in the case of Gas Solutions is that, the value of the company in the eyes of other people has increased tremendously two years ago when we put up for sale, then it decreased somewhat, while the commodity markets declined, now it's increasing again, as the people are not familiar with the main value of Gas Solutions is the spread between natural gas and West Texas intermediate. If you look at the propane curve, you will see a good proxy for the value of Gas Solutions, which is why we use the propane curve to edge. What we have done is we have continued our conversations with a number of interested parties. And we have let them know that we see a lot of value here and so there may be a value gap between where we are and where they are, rather then be dependent on our own abilities up here in New York, which I think everyone knows are quite limited to maximize the value of Gas Solutions. We have a wonderful management team there, but we have supplemented it now, we have Bob Bourne who has come in from Energy Transfer, which is a major midstream company backed by Energy Spectrum and he has got tremendous relationships with Houston Gas Pipeline and many of the midstream operators down there, they had a meeting with Exco just a day or two and Mark Hull, our person who keeps an eye on that, said, we go to a meeting with Exco and there is a small deal on the table and when we leave with Bob, there was a big deal on the table. So, we are very excited, because I think anyone in our business knows, the ability to attract AAA managers, these portfolio companies and really drive results is what makes the business exciting, fun and also wealth building for our shareholders.

And we had also spot propane as $1.35, which is very close to our hedge press.

Grier has the propane hedge thing on his screen every second.

Your next question comes from James Bellessa - D.A. Davidson & Co. James Bellessa - D.A. Davidson & Co.: On this issue of two record dates with the dividend in the most recent quarter, I know that in the June quarter, you didn't have a dividend record date. So, I think it just catch up getting you back on track where you should be and I would maintain record date towards the end of each quarter as a regular pattern rather than trying to jerk that around, I don't know that it is artificially depressed your NAV and when you look back through that period where you did not have a record date in the June quarter?

It's a fair comment, Jim. As you might be aware new NASDAQ rules came into play last year requiring a 10-day period in between the calendar dates and between the declaration date and the record date. We have for many years had a policy of waiting until later in the quarter to make our declaration. So, we would have as much information as possible on the quarter from time-to-time that resulted in a record date, a couple dates after the end of the quarter. It's a fair comment you make, we just wanted to make sure that folks have the appropriate disclosure what was going on.

Your next question comes from Greg Mason - Stifel Nicolaus & Company. Troy Ward - Stifel Nicolaus & Company: This is actually Troy, can we just have a quick discussion on taxable income in the quarter with all the moving parts with Patriot, there is obviously some numbers there are not going to be included in the taxable income. So, could you give us what the taxable income for the quarter?

Well, I'll give you a general discussion and see if Brian has those numbers. Generally speaking, because of the tax-free stock for stock merger with Patriot, the discount associate with our purchase of Patriot and potential PAR or greater than a purchase price payoffs is non-taxable income as we recognize that accretion overtime and it's worth mentioning, I'm pretty sure we talked about this in the last call, but we are just repeating that by the way we have accounted for this transaction is by basically valuing the book at pretty close, we made a very small gain on it, but small relative to the overall purchase price here and the book we're assuming. So, basically said, look an auction was run, we were the winner of that auction process, fair value is basically close to what we paid for and it ended being a little bit greater, because we signed the merger agreement in August and then time occurred obviously from August and December when the actual closing occurred and that is when the value of our purchase is calculated based on where our stock price is trading at that given point in time. So, that's the point of view we've taken on these matters, we understand there can be some discretion in that accounting and we're taking a very conservative view towards that accounting. I don't know if Brian has the specific breakout on his fingertips, the taxable versus non-taxable portion. Brian?

Yes, there is two components that are non-taxable with two significant components. The first is; the actual gain that we recognized on the Patriot acquisition that would be non-taxable and also the accretion that we recognized during the quarter again would not be taxable. So, the sum of those two numbers is right around $10 million. Troy Ward - Stifel Nicolaus & Company: 5.7 and 4.6, so because that's non-taxable, per the rules, it doesn't have to be paid out, isn't that a significant advantage to able to retain that capital?

It is and as you know in our business model there is a very, very high taxable income payout required to maintain your tax-free rig status of 90% and then 98% to avoid an excise tax, which is repeated unless you catch up. So, if you can achieve non-taxable income that's a good thing and that's something we saw early on in the Patriot potential and it's also a benefit for our shareholders with those pay taxes anyway and that portion from a tax standpoint as opposed to GAAP is construed as a return of capital distribution, which is a big positive because our shareholders that would otherwise have to pay taxes do not have to pay taxes on that portion and it's a benefit that is I think (inaudible) to what unit holders of some after limited partnerships might enjoy. Whereby, because of depreciation shields a good portion of the distribution they receive are return of capitals as opposed to on capital from a tax standpoint and therefore there is no taxation related to that portion and potentially rising tax rates environment we think that's the big cost associated with these types of transactions and one of the reasons I mean we think close the deal for over pay for something just for that reason by its one of the attractive aspects of these types of deals and one of the reasons why we're looking at other potential opportunities.

And by the way Brian Oswald is really the person uses lot of credit making sure that was structured to achieve that goal which we do think is a significant benefit. Troy Ward - Stifel Nicolaus & Company: It sounds like if this capital just paid out as return of capital to the shareholders in the form of dividend then obviously the capital is not going to be retained. At one point that taxable earnings start to grow closer to the dividend if you're not retained in the capital.

It's a little hard to project that because there is lot of moving parts associated with the future other types of deals are like to similar to the Patriot acquisition both public companies as well as private companies for that matter on a stock for stock basis, it's hard to project that. Troy Ward - Stifel Nicolaus & Company: And then quickly on the non-accruals for the two that you mentioned, I don't know if you mentioned the names of the Deb Shops and Iron Horse. Iron Horse actually had a maturity date at the end of the year is that more of the functional rights on non-accruals versus underlying distress I mean I think one of the pieces is actually held at 93. Is that a company that maybe doing a little better than maybe we would think because it's non-accrual?

I think the non-accrual is really related to some working capital needs for that business associated with an industrial company that is somewhat captive to the commodity cyclicality towards the tail end of 2009, natural gas prices were the lowest price in many years. And iron ores which is Energy Services Company in the Western Canada Sedimentary Basin in Alberta slowed its activity in conjunction with that sharp decline in natural gas prices. Since that time, natural gas prices have increased and activity and revenue and bookings and leading indicators for Iron Horse have increased as well. So we will be revisiting that non-accrual decision potentially in the future. Troy Ward - Stifel Nicolaus & Company: Do you think there is a timing difference between when it was put on non-accrual from when you did the evaluation they put it $0.93 at PAR?

March interval.

They were both on December 31st. Troy Ward - Stifel Nicolaus & Company: And then one follow-up on Chris' comments.

Let me just answer that. There is substantial collateral value associated with this investment, we own a significant amount of energy services equivalent and we do have the benefit of reviewing leading indicators as well sometimes there is a decision since they were the past from an accrual standpoint, but valuations, I'll factor in all the information including on a looking forward basis some of these leading indicators.

Hey Brian, do you want to add anything to Iron Horse?

As Grier said, the prospects for the business, they're backlog is up. I think things have improved significantly since the December the 31st date and we will see how their operations perform in the first quarter and their ability to continue to pay interest.

I'd like to say something. It's ironic that here we have a company Iron Horse Coiled Tubing, which anybody who has been listening to these calls is probably just dying to get the latest installment of the serial story of Iron Horse where the company did very, very well, so well, that the former CEO thought it was time start competing with his biggest customers. What a smart idea, I know he didn't tell us and so, of course the customers found out and they cut him off. This was may be about a year and a half ago that we discovered that the revenue streams were starting to dry up and other customers were not stepping in here. Now, here we are valuing that investment looking at whether its on accrual or non-accrual or whatever and we have the new CEO in charge there, and a new Head of Sales, these guys have turned down jobs that at least one of them, at EnCana. They are very excited, they are motivated, they now have two frac spreads, when they had at 1.1 and was 0. They are building a backlog of business and everything. Finally, finally it looks like we are turning the corner of this company and I understand from the accounting point of view, we have the market down and we have to put it on non-accrual. So let's Mr. Optimism here believes that this company is on-track finally to achieve the promise that we've always thought it should have and I want to mention David Belzer, on our team has spent many hours flying out there to Madison Ave, in Alberta to get all these issues resolved and so we are quite hopeful. Troy Ward - Stifel Nicolaus & Company: And then one follow up on Chris's commentary on the debt facility, if you think (inaudible) borrow an extra $100 and add those assets, what's the typical advance rate you are getting on those assets?

Currently it's just under 50%, but one of the things we're doing with our facility extension is looking to increase our advance rate. We're looking to increase tenure of the facility to increase our advance rate and to reduce our spread on borrowings all the above. Troy Ward - Stifel Nicolaus & Company : Do you have, is there an advance rate separate from senior or second lien or are you getting any advance on second in this facility?

That's a sort of a hybrid, you might say weighted average advance rates, because we do have junior debt positions in our current borrowing base. Whether or not newly originated junior debt would get advance within the facility is one of the topics of discussion.

I wanted to just add another point to here which you might find interesting about Iron Horse, notwithstanding that we have $13 million, I believe is $13 million, $14 million of fair market value of equipment there and alone it may be $18 million to $19 million, maybe it's $20 million now. The entire loan goes on non-accrual. We're not allowed to say the limit, but we could just sell this equipment and get everything back on the bottom on the most senior $13 million or $14 million. So paying such a lugubrious picture of the situation, you are not allowed to do that. It is the case right (inaudible) and I think the liquidation part for the equipment is $10 million or $11 million and the fair market value is $13 million or $14 million. So needless to say first it's frustrating to us to see that be a significant factor in the accruals and evaluations for our company, but the thing is that's what we had linked in, whets what is BDO and it's our business for Grier and myself to work very hard, David Belzer to try to do the best we can to help these companies perform.

Your next question comes from [Jasper Burts] - Macquarie Capital.

Two more quick questions, and then I'll hop off again. I'm sorry if you already addressed this, but could you just walk us through what that realized losses on investments was again?

It was primarily or entirely due to the moving of the coal investment at Yatesville into an other than temporary impairment. We have closed down the operations temporarily there until the coal prices recover and as such it's considered another than temporary impairment, and as such we've taken all of the unrealized losses we had previously recognized and moved them into the realized loss position.

Okay, excellent. So that's why you stated an increase in unrealized appreciation cost?

Yes

The secret that coal has been very, very difficult for us as for other people, so that's the appropriate treatment for that.

And that's the Colberg asset now?

No, the Yatesville, sorry about that, yeah Colberg was conquest.

Okay, and then just one last question, can you provide with the EBITDA on Gas Solutions in this most recent quarter was?

We don't have that handy will see about giving that at point in the call.

We may have it later on in the call, we have to go look it up.

The next question comes James Bellessa - D. A. Davidson.

On this amortization of the purchase discount for Patriot, I thought you told us originally was like little over $17 million a year, now you are telling us it's about twice that amount of more, what happened and how come it's increased?

I would not say that it's increased, what is happened, and what we recognized during the quarter as we had some investments which prepaid early and accelerated the amortization of that discount over a very short period or three specific assets which were repaid during the quarter

I understand that, but I thought that we heard that on a going forward basis, you are looking for $3 million a month or more amortization?

So not amortization, interest income and amortization.

I see, okay. And then finally there were few, I think there were a couple small suits filed yesterday, at least I saw them on your website. How come, why are these important, are they (inaudible)?

It's amazing, but I'm actually prepared to talk about this, just kidding. We make investments, definitely in the private market, Jim. We make an investment, the normal process that we follow with discipline, is that somebody comes to us and they want to have us invest in their company buy their company loan and money and whatever. So, we say to the people fine, based on run through of the information that you given to us and we do a little desk due diligence and a little checking and say these are the kind of terms that we will be prepared to extend to you. Those are of interest we can go the next step, if they are not on interest then everybody can avoid spending a lot of time on this. And we can part as friends and maybe you'll bring us another deal, which often happens. So, then when we have an agreement on terms we said fine. Now, we're just not going to believe everything you've told us, right? We have to go win its trust but verify. We have to go in and we may need to hire consultants we may need legal help, our people will be traveling with your premises and we will start to incur expenses. Now, if you're just telling us a story, which has been known to happen and we could be wasting all these expenses that we're incurring. So, we are not going to take that risk. You're self interested to get a loan, fine, we're self interested to make sure that we don't dig any dry holes. So, our documents provide potential borrowers, potential companies being sold to us, pass our expenses in new event that our due diligence turns out to show that the story that they told us was not quite true. Now, in the case of loans that's a fairly standards, some of our competitors don't do that but we do. When you buy a company it's harder to get that, because of the seller will typically say, well, all these people want to by my company and none of them are asking me to pay their expenses in the event that this doesn't turn out and even due diligent doesn't prove out what I'm saying. So we still attempt and usually in the case of purchasing private companies and this is also the case when we purchased Patriot, thanks to Grier renegotiating this. We agree for some reimbursement to us of expenses that we've incurred in the event that we do not close because the diligence is that material, significant material variance to what we have been told. So, we had this company down in Kentucky, Sequoia run by Stanley Ditty. Stanley is a very nice man, I think this fellow, I think it's Burleson, his partner, very nice people extolling the benefits of their company all the wonderful things that they are doing, and we said fine, we will buy the company for, I think was 4.7 times EBITDA, which was a good price. When we do the due diligence there was a significant gap between what Stanley Ditty and Burleson told us at Sequoia and what was indisputably the case. So we did not close, we told him he owed us whatever was 50, 70, 85, 90,000, I don't the exact number is and they declined to pay. Well, actually because of the fact that the representation were breached we were entitled to get all of our expenses, which I think were like $90,000. If it was (inaudible) mistake it was maybe half of that. So it seems to think that we're just going to sit here and have him say, well, no, I'm not going to pay you, come find me. Well, we'll be patient, we will give him the year and half and then will come find him and that's what we are doing. Stanley sold his company to somebody else so I suspected he is not so thrilled with what that person bought and so now he has the money and we feel he should pass. And some people might say we'll for $90,000 that's not material to prospect. Well, we think every penny of our shareholders money is material, just as a matter of policy, as a matter of attitude. So we intent to collect it from Stanley, by the way we had another guy (inaudible) and sued us and he now has agreed that he is repaying to us every single penny of our legal expenses and more. And if you want to go look up what happens to people who think they can drift us around, the population of people who are getting away with it continues to be zero.

And the finally, this interest income that you are getting from the portfolio investments on Patriot, are they going through your interest income line item or are they going down through other income?

Sorry which portion are you talking about, the accretion?

No, not the accretion; the interest income from the portfolio investments that Patriot brought to you?

It's combined in in the same line item as Prospect bought.

Your next question comes from Dan Mazur - Harvest Capital.

A couple of quick ones, I just want to see how much accelerated amortization is included in that 24 to 20 part of $0.32 outlook for next quarter, it's pretty wide range for you guys, so imagine you might not be sure, but what you have embedded in there right now?

For sometime we haven't broken out the components of our guidance and so we're going to decline to do so here to be protective.

Okay so it sounds like you have at least one that will be included on what you've done already and then just the second question maybe if you could just kind of walk through H&M, I think your prior (inaudible) some goes 90 days, you usually put it on non-accruals I figure there might be something unusual at this one, so maybe you can just kind of walk through why you feel a bit about that why accruals spill in and looks like you feel pretty good about fair value or your cost basis?

That's right Dan. H&M is primarily a crude oil production company and as I said earlier in the call, natural gas prices have gone through substantial directions as have crude oil over the last 18 to 24 months and natural gas has been pushed on a bit more and crude oil has still been $70 to $80 per barrel range here recently. So we think it's a valuable company, it's a valuable asset in West Texas recent comps of trades of assets in the Permian basin have been substantial there are specific drilling obligations with this company associated with its leases requiring for certain numbers of wells to be drilled over certain time period. So there is a discussion on highest invest use of capital to build value that cost an adjustment in the interest payment to us. Wherein as I'm sure you can imagine significant discussions about that with the ownership of the company and what to do going forward strategic direction, our team are quite pleased with recent wells drilled with the value build in this type of a business on a proved reserve basis. So we think it's a valuable business, a valuable asset, we're senior secured across all of that collateral and we'll see what occurs with it going forward. I'd also add that we have a substantial equity position in that asset as well.

Okay and that I presume, given out that outlook, you assume that's going to continue to accrue and the outlook for next quarter?

We don't make projections on accruals for particular investments, but we do feel pretty good about the production reserve ramp of this company and the commodity prices.

And your next question comes from Tony Reiner - Dominick & Dominick. Tony Reiner - Dominick & Dominick: I've missed a bunch of the calls sort of if these questions have been asked, I apologize. There was a question before as to why you set the record date early. I'm curious as to why we didn't launch a tender at the old term and sort of get a read on that, and get a data point or a piece of information on that regard. I'm just so anxious to get to the bottom line price?

As we indicated before, we've filed documents, we've mailed documents, we've published documents, we have press release documents as has outlined and there is a huge amount of information out there as result of these activities. And I think you also no proxy solicitations are highly regulated and accordingly we're not going to be adding to or subtracting from our documents on this call. Tony Reiner - Dominick & Dominick: There has been a lot and I appreciate the fact that there has been a great deal of language and there all sides have been very thorough that help us and we appreciate that thorough certainly better than not. But one of the things I wasn't answered or is clear as to the rationale behind some of the moves, and so I'm just asking for a little bit of the thought processes or rationale?

Well, Tony, let me just reiterate that this is an extremely highly regulated there may not be any higher more carefully regulated area of the economy I can think of one right now and there we spent time preparing our written documents which we published, which anybody can read. I'm just not comfortable here today on a phone call with you adding to those documents subtracting from them enhancing, enlarging what there. We've said what we mean the documents speak for themselves.

Your next question comes from Jim Stone - PSK Advisor.

I'm relatively new to the company so my questions may be relatively simplistic. As we look at your projections or guidance on payments for the March quarter, the dividends. Could you give us a rough feel how much of that is an actual cash transaction deal and how much is non-cash or payment and kind or whatever the total?

You are talking about the guidance.

In the guidance, right. I'm looking just relatively broad brush, sure, that's the feel.

Sure. As a general matter, we have very little the way of so called payment in kind types of interests in our portfolio in virtually all sort of deals done to date of the cash variety. Now the accretion related to Patriot, an amount that's separate from that, cash received on interest, there is a non-cash portion of that recognition. However, to the extent we have a repayment, the only portion that would be recognized would be the discount of course, the balance would be return of our principle. So we'd have cash substantially received in excess of the interest we would recognize and that was the case last quarter with the Patriot portfolio in which we had repayments well in excess of the income recognized associated with the discount.

Okay, but can you give me some board brush feel of is it like half or three quarters is cash the rest is non-cash transactions?

I think it's about 5% of our income.

Okay. But I'm still trying to get a gross feel for that on the guidance, whether it's a quarter or third whatever would be non-cash because it's the …

Let me try this with an example, if you have a $100 loan that you purchase for $0.50.

No, I understand the discount and the accretion and I'm just…

You can essentially have cash received well in excess it could be more than 100% of the income be cash. Cash is fungible, there is cash associated with income, there is cash associated with principle repayment as well. I guess it's a wrong way saying it depends, Jim.

Okay. Along the same line, I'm trying to get a feel, if you look at, say, January 01, '09 versus December 31, '09, again a broad brush feel for what's responsible for the change in the net asset value and I'm thinking part of it may be the dilution caused by Patriot or whatever?

Patriot, we expect to be accretive over time. I would say it's in two general categories from January 1, 2009 to 12/31/2009, is the number one, changes in our portfolio of valuations, it is primarily associated with the economic cycle that we have been in, painfully obvious to all of it. Secondly, issuance of additional shares at a discount to prior net asset value per share.

Okay. Well, let me put that in maybe more laymen's terms. If you look around at our competitors, we are in the group that is competing with each other. If we've got a portfolio of loans at 12%, 13%, 14%, and then the FAS 157, some one walks in the door and says, these are all going to be repriced at 17.5%, you are going to take a significant hit on the value, the NAV value of your portfolio, even though these are performing loans, even though we hope will payoff, so that's one hit to the NAV. The second hit is when you issue shares below net asset value in order to be sure that you have the liquidity to be able to pay your bank off a 100%, which we wanted to be sure we had. Some other people took some risk in that category and I think that they had followed the strategy we followed. Thirdly, when you look at buying something like Patriot, it's the gift that keeps on giving, right? You issue the shares below NAV in order to be able to buy Patriot and then when you buy Patriot…

That comes back, I understand.

But it take out, but my point is it takes a long time and that's why the NAV right now does not reflect what we believe will be the benefit of owning that Patriot portfolio at discount now. I have to add, due to things default in there and don't pay us back, well then the accretion we are hoping to get, we would not get, but we believe that this is a gift that keeps on giving with deferred in a sense with the deferred asset.

Okay and then my last question relates to the, I should say, dividend is not the correct term there, but…

Distribution.

Distribution, right, which is obviously considerably more than what we are looking at is income and I'm wondering what a venture you are looking at, that's maintainable because the following things were expecting to have happened.

Sure, well, one important consideration when you are studying our company and studying the broad context of other similar types of companies, if we have a balance sheet today which has virtually no indebtedness. We chose to capitalize ourselves that way in fact to expand our equity base over the past year, as a sign of strength given the uncertainty of the credit markets, one strategy other companies have pursued to their determent has been the borrow long [lynch].

No, I'm well aware of that.

Right, so borrow short (inaudible) with your liquid assets, that was Patriot Capital in a nut shell. Now as the credit markets are improving, the ability to drive longer term facilities with more flexible terms becomes more and more attractive, so our attention is to draw more upon credit and to drive positive spread income over time. Virtually none of that is reflected in the current staff shot, the numbers you see, because we have not leveraged even to relatively a modest extent, our existing all-equity funded pool of assets.

If I can short circuit that a bit, as I'm hearing you say, basically as we leverage it out then our earnings will come up to what we are currently distributing? Is that a short hand or is that too simplified?

This is John Barry speaking. I think it's a little too simplified, because first we have never made any predictions about other than giving guidance and announcing dividends, Jim, at the time that they are declared by the both.

I understand that, but there is an implied in the stock and the stock value that things will continue or they won't continue, and on Prospect of course with the 30% or 40% decline that's had over the last month or so. The market seems to be saying that it probably won't happen so that's what I'm trying to understand.

I think the first correct word is inference, not implication.

Okay

It's an inference that you may be making and certainly it's hard to make it. We do not imply, infer, predict we never have, what we tell people is look at our track record, that's one thing. What Grier has said is, by the way with respect to the market I might take a look at the market as a whole. When I look at the market, I compare us to the market as a whole I don't view us as like the loan guy out there on the track.

I understand.

Okay. Well there have been certain things happening in the market in the last few couple of weeks, which you might want to get at this point.

I'm well aware of it with marks to prove it.

Okay so let me go to the next point, Jim, and that is what Grier is saying is the traditional model for these business development companies, was put all of your equity capital to work, then borrow at much lower rates and you are getting in effect a turbo charge for your net investment income and what Grier is pointing out is our gas tank is full. Okay we haven't used our credit; we have the ability to do that. But we can't do it then go from saying our gas tank is full; therefore we know we are going to go win that race.

Your next question comes from Rob Schwartzberg - Compass Point.

Good morning gentleman, I'm little new to this story and perhaps you covered this, but I thought that the Patriot acquisition was when it's fully ramped up going to add as much as $0.10 a quarter across the board and you did $0.25 in the September quarter, so that to me would mean that you would be somewhere around the $0.35 per quarter run rate, when it's fully integrated, and then it looks like your guidance is $0.24 to $0.32. So can you walk me through again what the difference is from, is it somehow less accretive or maybe you can help you with that?

Sure, I think we had said to folks there is somewhere in the range of $0.09 per quarter in the past associated with that book. With our guidance, we try to be as careful as possible in what we put out there. And there is a reflection there of some that is going on in the existing book and some of it really to Patriot not expecting any early repayments or accretion beyond that.

We had few cents of some new non-accruals that we talked about earlier, Iron Horse for example being one of those and we're optimistic about the leading indicators for some of those deals; but we wouldn't necessarily factor that into our guidance.

But still in a nut shell, if there is somewhat of a reduction from the run rate that you thought it has more to do with your legacy book than it has to do with Patriot, is that fair to say?

I think that's a fair comment and it was one aspect that we haven't included there as I said in reference to an earlier question is by adding positive spread income from prudent leverage, we would very careful about leverage as a company, which has been the undoing of others, then it actually accrete to the bottom line we really haven't factored that into too much at all in the future.

Okay, but it's not so much of change in expected funding cost or anything like that on a go-forward basis?

No, not at all. On the contrary, we're managing towards objective of reducing funding cost, but we met our extension and the first half of 2009, it was probably the worst time in five years, ten years, you could imagine to be working on an extension given where the credit markets were. The credit markets as John pointed out earlier have improved substantially since that time, there is a lot of more optimism when we talk to existing perspective lenders about really to help with their balance sheet, but also their outlook on the markets in general and we're driving towards the lower cost in the future.

I still feel like there is something, I mean it's a relatively as a couple of people mentioned, it's pretty wide range of guidance 24 to 32, but particularly in the context of the fact that you are running a 25, I know you did made this accretive acquisitions one would expect that it would certainly be higher than 24 for the next quarter?

Well, it's a fair point, Rob many of peers have stopped issuing any guidance whatsoever. We've maintained that in to be helpful folks and we do have a range associated with it in. If we put on the books in new originations for example that could have significant positive impact.

And by the way, I agree with your strategy of being as on lever as possible. So, congrats to you on that.

Your next question comes from [Allan Young - RC Management].

You referred to some potential synergies with the (inaudible) acquisition, can you quantify that all?

Sure, most of the synergy has been in reduction in G&A expenses, associated with areas like DNO insurance, board costs, legal costs associated with running their business, they are hiring third party investor relations firms.

IT vendors

IT vendors

How much any idea that you can share?

Let's see like getting that number none. And we will publicize that on the call, if we can get back for you right away.

Am I correct, an earlier question the answer was that the OID accretion from PCAP is earning about $3 million on a monthly basis is that right?

That's inclusive of the interest income, cash rate interest income out of the block.

So, that's cash paying interest plus OID accretion.

Correct.

Can you break out it just a specifically the OID part?

The OID portion I think we messaged is somewhere in the range of 4 to 5 million per quarter.

4, 5 million per quarter, okay.

Let (inaudible) that's for monthly, but that assumes again that running forward to within really repayments we have really repayments then we can have cynically faster accretion. And again, accounting wise, it is either from other (inaudible) accounts, we think more aggressively others might say, hey I bought something for $50 that would market 100 bucks, let me take 50 bucks in as an income seen all a day one. We are not big fans of that approach.

You are treating it as though you bought a bond at a discount and you are advertising it over the remaining period to maturity?

Exactly right.

Kind of bigger picture, of the 650 million portfolio what percentage of that runs off on an annual basis?

Our weighted average maturity is let me say, 3-3.5 years.

3-3.5 years, so that would be one?

It's concentrated more towards the back-end.

Any idea over the next 12 months what runs off, dollars amount $50 million?

That's a probably not a bad estimate, as Brian mentioned there seems to be a little more back-end and we do have amortization of the existing book, but not necessarily rapid amortizing structures that we had, that we put on. In some cases what we do to be protective is we will have a cash sweep mechanism since that payments come back, it was an interesting exercise that we talk about a lot is restructuring deals on the nature of amortization in general, we are big fans of a credit standpoint of having more capital come back as soon as possible. But anyone knows it's gone out and solicited and structured and closed a credit facility, you can shoot yourself in the foot if you have too much schedules in early on, because then if impose then to heavier fashion and company goes through anything and as a principal payment, boom it's knocked out your borrowing dates. I wish I hadn't done that. So, that doesn't mean you have not scheduled in, but you might want to think of having that portion scheduled, but then a portion would be subject a mandatory cash sweep based on cash availability. So, that ends up being, not all the time, but we at large will actually end up.

We currently have about $100 million available on the revolver and we are as an advance rate, I think again securities with a market value of some $300 plus million, is that right?

That's correct. As I said earlier in the call, as we take the proceeds of the (inaudible) draw and redeploy it into eligible collateral and then add that back in the pool, their fashion, our borrowings against availability goes up and we can then draw more.

So, you invested 100 and it gives you another 50 borrowing capability?

We invest the 100 into eligible collateral, somewhere in that range.

That's currently priced at LIBOR plus 400 and you are looking to reduce that?

We are looking to reduce that, yes

Term capital, if you have an advance rate on your existing portfolio, what would term capital, which I presume would be secured, what would they look to as collateral?

The term lenders right now are sense of the market is, it's a little choppy to envision unsecured term given interest rates, yield curve, etcetera. For us, more of that market will open up and we're monitoring that carefully. Right now, the market seems to be much more geared towards warning, security warning and collateral warning, to be (inaudible) with the revolving bank vendors. And therefore; paying back and also the same covenants, borrowing based calculations, advance rates and alike, but that could change over time.

And then finally, if you are looking at new investments in the marketplace, I know it's tough to generalize, but just what kind of spreads for LIBOR are you seeing when you put new money to work?

We're seeing on our senior secured and deals somewhere in the range of 11% to 14% coupons that's might (inaudible) senior as well. So, we're talking about 1000 to 1400 basis points over LIBOR and then on a measuring basis, for true January debt somewhere in the 15% to 18% range, maybe with some warrants as well. The other factor in addition to where we said on the capital structure is the size of the borrower, one niche area that we like is the $3 million to $10 million EBITDA range company at which there is a far lessened competition and it's still a great environment in the cost $10 to $30 million EBITDA range as well, but a tad more people involved at that company size. We will really like that lower middle market niche, which is something that Patriot had pursued successfully in its history as well.

Let me just add something related to the origination and so people are wishing as in fact we are wishing that we had a crystal ball and we could tell how many deals we've closed each week, each quarter. In fact, just to give you an example, one of our very good originators had nothing; it was likely to result in a term sheet anytime soon three weeks ago. And so, now this week he has four or five deals that are going to term sheet, going through approvals, it's $150 million to $200 million. A lot of time and efforts go into these transactions, some went away from us and came back and that's the nature of the lumpiness of the business that we have. We now have to give this pressure more resources so that he is able to move forward and close these things and that's really the explanation, part of the explanation at this point having a wider range then we would like to have.

So I can just kind of, big picture again, I can see maybe $50 million of existing portfolio running off and probably going back in at their investment ranges you mentioned, which probably is better yield than it was giving us before. We can draw in the revolver 100 invest that that will save another 50 on the revolver, the paying level plus 400 there, I can figure out the spread on that. We have pro forma combined $18.1 million in Q2 PCAP and PSEC net investment income a sort of disclosure in the Q, maybe there is some one-time OID in there, I can track that, but that will give me a sense of a run rate on our fully invested basis and that of course excludes surprise pay down, is that kind of a math as we're trying to run through this?

Yes that's fair and with the idea I would say it's not necessarily one time. We expect to hit that every quarter for quite sometime. And then when we take the proceeds for a full par repayment and then redeploy those at significantly higher spread, some of the Patriot book had not just lower spread deals, but they do not have a LIBOR floor, and trying to use much were likely of LIBOR floors and significant spreads attached to them in our (inaudible) prospects, but we monitored interest rates very carefully when LIBOR was at 500 basis points at pay deal last cycle. We wanted to forge before everything because we don't have a crystal ball, but we know during the last recession with that policy LIBOR went down a 100 basis points. Lets out (inaudible) in this deal, we're very glad we did though of course because LIBOR has gone below even 100, gone down to 25 basis points. And so we're very happy we had that force to combine the Patriot book, of course we thought at a discount and when someone tells me (inaudible) a zero. We have a built in for zero now in that one, but those are funds reprised will put them out at higher spreads.

In other words the $4.6 million of recognized OID last quarter came from prepayments, is that right, it was an accelerated?

Correct. Well a portion, it was accelerated a portion we would got is already is part of the ongoing course.

(Inaudible) was between what you would have gotten. I know if I take at $18.1 million pro forma in the Q and back out the one time if you will from prepaid, what would be your recurring number?

Well it's actually we owned the book for just under a month, so isn't a full for quarters copy on going accretion, some in the range of well Brian if you have full range (inaudible).

The accretion is about $1 million a month.

On an assuming static portfolio going forward?

Correct.

And that's kind of gets us to $4 million to $5 million a quarter, so maybe it's a little less than the $4 million to $5 million a quarter?

Yes, that's a fair point. We were asked about $4 million and then we had some early accretions so that reduces to somewhere between $3 million and $4 million going forward. The $4 million to $5 million accreted was before we had some resilient repayments.

So $3 million to $4 million per quarter?

Right, but then again we take the proceeds and we put them out of our spreads.

That's correct. I think that's helpful, it seems like everyone on the call was trying to get a sense of what we just walked through perhaps that gives us little more clarity on how we end up earning the dividend, which is just what everyone is asking a million different ways.

The next question comes from Greg Mason - Stifel Nicolaus.

Good to follow up. I had a question on the interest expense during the quarter you had roughly no borrowings last quarter $10 million this quarter you had about $2 million interest expense in the quarter. Can you walk us through what was that number was that something to that the Patriot acquisition?

No it's really its amortization cost as we're paying on our underlying commitments.

So those of the upfront commitment fees amortized over the life of the facility?

Right possibly pay in commitment fees on an ongoing basis for the underwriting revolver.

Okay. Is that goes where was the end of the current facility which I think is June of this year or do that go all the way through the full one year amortization period after that facility matures in June?

The latter and if you go to page 54 of our 10 Q that laid out in chapters.

So we'll have this kind of base interest expense and then wherever we borrow we'll go on top of that number?

Well not quite because if you're paying on an underline portion you wouldn't pay that when you draw.

Okay, make sense. And then one other clarification to the last conversation you just had, you talked about you'll be able to take the accreted discount and reinvest those proceeds, how does that line up with I think earlier in the call was implied it you'll take some of that and pay the dividend and that will be classified as return of capital. Can you kind of balance those two statements of taking capital and redeploying it versus needing at the pay the dividend?

I guess, you have to breakout of the components of the cash repayments we're getting a fair amount of principle back as well, it's not just the income portion and we're reinvesting that as new transactions and attractions spread environment we go to look at entire cash payment received not just the income portion they are off.

So likely the principal payment you get back reinvest, but the accretion into income that cash payments will go out the door to the dividend?

Correct, they got about $45 million of repayments last quarter for example. Well and excess of the income accretion recognition in portion.

You had $45 million paid back reported 4.6 of that into income so roughly you can redeploy $40 million and the 4.6 goes to help pay the dividend?

Correct.

You next question is from Louis (inaudible), Investor.

Thanks for the good disclosure and lengthy conference call. I have not been able to find anything your website or elsewhere as to the results of the proxy solicitation you had for the issuance of additional shares. Are you able to tell us anything about that?

It's in our 10-Q on page 60 and votes were in the affirmative on all the proposals. You'll got to pay 60 in our 10-Q, both were in the affirmative and all proposals.

The next question is from Mark Sunderhuse - Red Rocks Capital.

I want to be clear, I admire your business model, which you referenced earlier, you guys to gone about running at BDC in a different capacity and I'll just two quick, I guess comments and if you want to take them as questions or comment on I would be grateful. Given all of the different moving parts that exist rate now in a lot of the questions around the wide range guidance, would you be willing either on the conference or maybe to consider doing a mid quarter update, I don't think that's something that you've done historically, but again I'd request that the basis of shareholders simply to give a little bit more inside as you kind of work through, what you're doing? Then the second question would simply be seeking generically have you thought as you make potential further acquisitions of the idea of only on the assets acquired of having a variable fees structure that is commensurate with growth in book value or specificity in dividend growth outside of obviously borrow dividends, I think it's allowed after reading both (inaudible) BDC perspectives that we're familiar with and with curious if you guys would consider that, because it make a long way to either completing things that you may currently be focused on our things in the future?

I think second question, first I heard that Obama yesterday it's stated with he was delighted that Jimmy Diamond was getting paid where he was. And he was blind and was getting paid. So, maybe we're going to be cover from this theory that people who work hard should be paid a lot of money. I would like to see everybody at this company paid and offer lot of money, a huge multiple of what there are currently paid. They work seven days a week you should come and sit with us. Seven days a week we're on the phone doing things that 11.45 at night so I would suggest to concept like my father things if there is billionaire out there because only so much money and the more money one person has somebody else has to have less, its like a monopoly game you only give you so much money at the beginning. We don't subscribe to that, we subscribe to the view that people should work hard perform for shareholder and should we paid a lot of money so I just wanted to get them on the table because its an old passion concept it may be on the last person in the room to be promoted.

We would fully we even go a step further saying if you outperform your peers we have no received thing yourselves commensurate to the value you had relative to your peer groups. So its not it's not a capping question, its just it really is a theoretical question about maybe a way to drive more support for deals that you may pursue.

But I wanted to just continue on the top and just sort of we, you understood my position or not. I hope bad news are surrounding our building like coming to market. On both topics though, as Grier said earlier, we always want to consider ourselves rational, logical, objective, data driven, truth seekers. And so with somebody want in front of us and says you know that this would all work better for everybody in situation if we change at this way or that way or another way, we always listen and we review these things and we grind them through and so now you'll probably be gratified to know that we've already looked at both of the ideas that you have set forth and have considered them and we'll continue to consider them and based on your realizing both of those ideas, we will need to consider them harder than we would have before. As far as variable fee structures and so on, you'll be gratify to know our companies had those going back to 1988, and we've done very, very well with them. Sometimes, some of the investors obvious with them for various reasons, some people like you think to wonderful. So you get down to, do you want to keep as many people as possible happy for his longest possible, but sometimes we find is very, very hard keep all the people happy all of the time. That's the topic, on the presentation we do this presentation some time-to-time at these conferences and what we should do is as you know, we're just contacted for another one just the other day. And what we should do is maybe post it on our website or ask the investment banks to promote these concepts to make sure that you know about it and they don't, we will make sure you know about it. We believe that the more communications we can have with our shareholders and the more transparent we can do, above we're attempting to do the wins the losses the ties the lower will be across the cattle over time, which of course enabled us to be successful competing in a very competitive market place. So I really do appreciate to suggestions.

We'll definitely take the invoice.

Then one just two other very quick questions, better just related to macro within your business one would be, what is the idea if its out there somewhere I apologies I cant find it in current form. If you are going to so show a supply chart and we were going to (inaudible) side of debt investment be it warrants or converts or what not. Maybe for convert under that break it out depending on what conversion prices. Can you just talk about split right now between debt component equity realize its heavily if not 90% plus on the debt and then the second components of that would be in this environment in cost to funds and as you grow scale, your thoughts given that other equity investments were (inaudible) stressing that word maybe payoff in many cases better than some debt investments. I can only think of one BDC here in the U.S. that has primarily equity investments and we're just like to hear your philosophical thoughts because obviously the way you have to allocate your capital towards extremely different?

You can see the full breakout of all the types of assets on page 46 on our 10-Q. Moving to the question about equity positions we think that our business model of having that on strategies will (inaudible) of course the health companies we lend money to private equity sponsor own companies and we buy companies owning both the debt and the equity and managing towards total return is a great strategy to help make money, no matter where we are in the cycle, because if you're just look walk long, where it takes sponsor finance. If you're just one sponsors finance, they are going to be periods of time than we saw in a big, big way in 2006 and 2007 where being along that strategy including cap loss is very imprudent thing to do. And while it is imprudent (inaudible) it already competes, they were dialing up the leverage, they were accepting modest spreads because they have to keep all with everyone else. If you really own one thing, then you have to do that. If you on the other hand have a balance approach like we do, you can marry your own self originated deals to lot of companies that are negotiating basis to lend money to of course the oil companies and those two strategies, I think might see many folks don't do them. They require a lot of work, there's know third party private equity firm who does the diligence in the market studies and quality variance assessment, you just piggy back half of that and draft behind that as a lender here. We are the primary institution; we have to do other work. We're not looking to others to do that to study their work. And so, it's a much higher effort type strategy to originate and to screen and to assess, because we all were awarded and you see that of the fair well, warrants in equity position have paid off on one time basis for us in the past as well as kind of going forward basis or online basis with dividend distribution in certain investments. The area, that didn't workout as well which we have discontinued, is in the area of project financing, which left out of the ongoing forward strategy. But right now, here in early 2010 we have a market environment whereby companies in 2009 EBITDA is most likely also a double depressing trough EBITDA. So, that's a great profitability to be purchasing businesses of. And we are significantly pursuing our buyout strategy in conjunction with lots of financing in other forms of lending and we think to go for those position on the books with the associated outside is important now. It does mean you pursue deals and no matter what basis. Value is always critical and is anyone sort of visits our offices and house we are very value conscious in everything that we do. And that means when we buy a companies we are not the folks that chase as of others equity strategy within the BDC contact that found out paying the 8, 10, 12, 14 times multiple to win these options. It makes no sense whatsoever you are not going to be producing that gain that your equity booked to make that strategy viable but you are paying three to five times EBITDA which has been our purchase multiple range on buyouts which is only a little bit more than lending multiples some cases less because we've got an attractive deals then you are paying very little for that equity option that premium that is very low.

I particularly like to ask on but if you could just on, I went to page 46 that your suggesting and my only question would be and I don't know if you have given guidance on this historically then on the top line where your breakout control fairly to non-control that you talked about, I understand the frontline for the BDC on control or non-control, can you talk about how much you might stretch that control number to?

Well, we are allowed to go to 50% through the brick walls as a max and we remain flexibility to go, we got less than 30%, because when you are pointing out numbers we got actually we would like having a cushion but to go significantly towards that and it's important to our plan we do not hard in fast auditions for bookings. We don't say X percent had to be this type and Y that type. We would rather have each opportunity live or not live on a standalone basis and be attractive in risk adjustments to us but having said that there is aspect of recognizing the opportunity, we want to be doing more buyouts I think in current environment, so we are significantly pursuing that strategy.

And then just one last question on the preferred line in the common stock line of 1.7 and 2.9, how many of those are coupled with debt investments as well and how many of them are just standalone preferred in common stock, you know that of that top of your head by chance?

I don't know that of the top of my head because those lines are applied to build non-controlled and controlled situations.

Great, maybe at some point we can discuss it further, I appreciate your insights.

Your next question comes from Brian McMahon – Stoneberg Investment. Brian McMahon – Stoneberg Investment: Thank you. My questions have been answered.

Thank you, sir. This concludes our question-and-answer session. I would now like to turn the conference over to management for any closing remarks.

Okay, well we thank everybody and we know this snow storm has got some people heading for the exit. So we appreciate everybody for taking the time and have a wonderful lunch. Thank you all.

Thank you, gentleman for your time. The conference is now concluded. We thank you for attending today's presentation. You may now disconnect.