First Eagle Alternative Capital BDC (FCRX) 7 Aug 202020 Q2 Earnings call transcript

Good morning and welcome to the First Eagle Alternative Capital BDC Inc.'s Earnings Conference Call for its Second Fiscal Quarter ended June 30, 2020. It is my pleasure to turn the call over to Sabrina Rusnak-Carlson, the First Eagle Alternative Capital BDC Inc. Ms. Rusnak-Carlson, you may begin.

Thank you, Operator. you us. thank and morning for joining Good With Officer; Officer; Jim are Chris Financial and Chief Executive Flynn, our Officer. Chief Fellows, and Olson, Chief me our today Terry Operating our Chief Investment

of the that results note other to forward-looking concerning in our entitled First of recent performance Eagle assumptions other beyond and XX-Q, constitute the future and XXXX some quarterly Risk Annual please actual uncertainties begin, most amended. ways periodic within not XX-K Form Form results the we on the made Report our materially and that Commission. in statements Securities differ other call uncertainties statements Securities management's on the unknown, by of control subject BDC, statements. our factors by the Such as are and Alternative section anticipated to The could statements are and are with Exchange meaning report as include cause that updated Capital may this in such Act guarantees Factors and factors various Before and reflect on from known included filings and factors

assumptions also on could any inaccurate be incorrect. those assumptions on that statements are a forward-looking result, based as and Although believe could prove we based statements are those on the of any be reasonable, which assumptions to the forward-looking

You should not place statements. on undue forward-looking reliance these

date update this undertakes to speak herein. no any Capital as forward-looking Alternative duty call. only of statements Eagle the forward-looking statements First All of made

the the August until turn please X XXXX, With replay, over morning. available visit access To hours to after be be that, found webcast this with refer website were replay released that approximately website to A yesterday during Our I'll our we copies the call of www.feacbdc.com. we earnings which presentation, along afternoon, Chris. conclude XX-Q our this announcement this can at may will of starting on call. call QX XX, earnings and

Thanks Sabrina. call joining us Good thank our you for on morning and earnings today.

business of start, these I you been continue I minute today's provide we our a our pandemic. during all recent this in our execution safe results for number an in I and updates, On very Terry I we also all staying developments. will overview quarter to this Eagle remotely provide hope to take portfolio some thank results times. busy with the manage call, First detail. are Before want areas focused-on of to and as QX We've their a discuss more and want healthy will financial to entire the team of say challenging business of significant

in First, equity raise we book value completed $XX million April. of a

Eagle new Special the with the by approved in Second, at management our Meeting May. was contract First shareholders

an the April attractive success, wish so. able our market, XX. a who of tender at those an price value that were to of all Third, as million believe at stock this We exit for $X.XX premium and an discount a approximately July, $X.XX of $XX tender completed worth shares representing we of share XX% reported book the was in to accretive to do to overall per

we were oversubscribed. So as not

FCRD. the corresponding notable provided Alternative this offer Eagle ticker Capital who change level First Fourth, Inc. rebranded the to officially tender. to tender accretion and to the the and not BDC elected Additionally, our to existing week shareholders we changed BDC Credit from a of earlier THL name

our Finally, progress portfolio. to on continue make we

to turn our let's Now results.

loan recovery a $X.XX driven per share prior by value the X% to market from the increased to per We by low QX. of quarter from the portfolio are pleased this in end quarter. report of the in to at share increased appreciation, $X.XX our a due Book company approximately point value book

X%. additional accreted NII this completion by offer basis in of or tender NII for decline an was The due of the $X.XX quarter on of was primarily temporary dividend to July in compared $X.XX. per quarter our adding. the the is Additionally, an to $X.XX one-time unadjusted number share a

of for amount full and we the These the NII raised new have determining our tender completion quarter. the QX additional had of in $X.XX amount purposes equity enable our the of shares for drag we on First, offer. the

timing one-time you also On impact these basis, of to and by have amendment fees, NII exclude fees the per Next, would facility the forma been NII $X.XX $X.XX share. associated equity credit if share. pro with our the a reduced and approximately tender per the

increased Our portfolio stress temporary took dynamics the the step earnings the QX opportunistic a on advantage in smaller during Logan with due in given offer drag leverage Logan portfolio prudent some market quarter. potential of the of $X.XX in trading and a the risks reducing created JV to

time. from loan the caused to a continues prudent balance perspective these Distributions on the temporary overall market While a stabilize, drag over but sheet actions Logan we expect Distributions negative increase Logan to

the reminder, similar QX We million more proactively balance waive to our sheet through a position XXXX. manager to in beginning loans. sleeve March. $XX step volatility early liquid a syndicated BDC's of QX, March agreed XXXX end NAV February, In As our took approximately April, late a the better management we potential of of fees in sold for and

NII and more share we time position. thought per the to increased the this of be and COVID-XX legacy a impact half from quarter. $X.XX that We on might pressure those share us give factors in concentrated knew from $X.XX be of add so the level buffer sort year pressure took May We would last of of per economic into some flexibility. recognize We we said, utilize waivers we the as plan, will to near there our term, back in this as an and the additional of consideration there dividend executing earnings per to our exiting

as Our in portfolio pro XX, levered offer of the one forma at has tender June for time July.

end to at X.X we times, times the but this down the provided at elevated QX. X.X near-term to is from significantly While remains of the guidance, X.XX

calls, ready. on stated longer-term target the previous the when levels have we to will X.X range in X.X leverage portfolio we we think As is

expect, levels expect partial in these said, XXXX of accretive to early we half in as the nearly potential we We to portfolio which of year our we beginning that transition portfolio With growth up see are and are reach be COVID. will the second these end could to related targeting NII. to levels,

levels mentioned quarters, exceeding Excluding the previously with coming as one-time our line generate temporary in or $X.XX in items the dividend. and additional expect leverage modestly deployment with NII we to higher

Moving on to the portfolio.

on OEM positions the continues make this provide X%. take on largest like our I'd to few on to our of portfolio in progress opportunity continue a investment executing names. QX. represent remaining update to and concentrated comments our We goal at to

we opportunities to the reduce for QX And strategic our arrangement in our will earnings us continue strategic We exit forward, eliminate derisk a be look are in to position need of partners. XXXX. a the position a strategic going partner near with We return actually believe security to risk to our the pursing in and term. and QX to partner capital with would allow or status provide portion the of

substantial been of position a track which C&K expect XXXX in return QX, capital. XX. portion as X% portfolio a of transaction in complete at sale which since our is Second we our C&K in portfolio remains June to will on Markets, has

tremendous wheels few unsponsored notable have to Our On We We're on portfolio. tours notable investments do a in added vacation organizing controlling continue one smarTours the equity around front, high and the investments as happy on result a these given business in the represent pressure QX and in we position sponsoring on to disruption. OEM small COVID end name of assets. a non-accrual travel progress last up. is and related travel and experiencing smarTours. C&K is report COVID centered world

early working like fair to non-accrual value based after though on with sponsor update loan and focus the highlight investment this material expect with coming a them was Nonetheless, it's came we towards discipline We of portfolio a are the that we'll small down is in marked given of We running on value, portfolio the not of even put X% originated one have to now the the management increased the effect to back. many equity continues providing $X the and solution represents that's how the on that book them months. our of was up diversified in did our in I'd size bounce our and into than million consistent and remainder well. visibility less hold $X.XX. quickly more how perform to more on first the have Overall, our and portfolio to XXXX of companies the that will be fulsome stages on

versus on most of instances the had which a is encouraging. where we primary a COVID-XX business, more seeing are delay impact For destruction, demand demand has

these that gone liquidity and managing for primary to efforts sponsors and discussions focus extend have related investments with continues on Overall duration well. these to be Our working our needed. quite

very making has first we enhancements. and and month. [indiscernible] capital pricing now diversified partners. market are With been the in where sticking We're several are the about with that supportive lien, and to to selective seeing pick the has the last deal down started our much and has we higher in become months, lender pipeline The up to friendly more coupled overall structural being we highly experience investing very deploy with select of have where positions we in industries strategy be our know disciplined about sponsors last

excited wanted to highlight to few over about. changes call the we're turning I a Before that Terry, personnel

[indiscernible] joining years are to underwriting that the to Terry Direct First our are primary since experts. a and CIO, announce rotating pleased Investment Eagle four ago. addition her Committee her almost recognizes Committee. and myself had portfolio Fellows, formally five contribution THL Jim Lending we First, with along and industry member has Olson in committee our of the joined Michelle Handy Michelle the

from and the Klaff Finance industry lead new veterans direct Larry Second, we solution asset-based added firm. team to to Brothers the joining lending Gordon for Larry Galeota us our and Company. Lisa lending Lisa

are this our call as platform for returns to the lending is of to lending a additional our high-quality With adjusted options investors, over addition well I'll excited turn our asset-based complementary as and to very We Terry. platform provide for risk that, as very will source another companies. direct our portfolio about

good everyone. and Chris, Thanks, morning

revolver First, the around investment mentioned, the make existing highlights. investments DDTL parameters and we've funding new in QX some except Since COVID-XX of of investment uncertainty BDC. of light X.X%. our investments Chris investment the energy activity in of three portfolio investment. an remaining remaining Investment a and the investment and QX the equity end of were the and credits. any consisted did blended of legacy added commitments. the of QX we In two QX in Allied first not lien our restructured Allied exited debt two in portfolio also - Holland Holland yield at to like of on We the two to as

secured senior Logan lien XX, of invested portfolio million, of As the first XX% June in with debt. the $XXX XX% in JV.

the a partially on represents non-accrual XX. in QX, equity Chris income XX% are percentage fair Holland was Weighted from a of are XX% the this As as decreased portfolio the Loadmaster lien is flat XX.X% that the lien, prior in Logan XX.X% loan was million and We producing invested smarTours, mentioned, first the held of JV our of OEM the with exit holdings. the and Total costs and the company's company as only Logan average in position. and respectively yield non-accrual repositioning And, portfolio assets. new was credit addition reminder, to quarter-over-quarter. offset was our and on the other portfolio remain and including only accruals value other by X.X% which $X quarter of quarter. June debt Allied income producing of at second

Let brief Logan update me to on moving our on before a for the financials quarter. the JV give

of names. portfolio and reduced Logan's light we in of mentioned market. of XX the out We by reduced $XX based proactively presented sold size on As the the Chris million leverage at risk the cost

volatility While part earning has been of expect the of rotate and than and the smaller higher in to year. a grow fair yielding power, the opportunities we Logan's only less loan credit X% non-accrual to with of with the the of million to reduced, $X.X the of the overall latter pleased portfolio. short or or respectively, continue the $X.X the portfolio term value remain cost on has book portfolio Logan the quality We one

increased you loan broadly million improvement the of would net was the the drove portfolio of increase prices $XX most and in expect portfolio. QX. in TCRD Logan seen market in As syndicated an the in notably

highlighted some quarter. Chris income income the Moving net and of this second financials in increase bridge on to for investment the earlier quarter. of the addressing of coverage. components our dividend the I'll NAV the million $X investment highlight

primarily quarter due decreased Our $X.X the income slightly to interest non-accrual. million of this

there Our amortization $X.XX a no share Logan, as smaller the dividend would NII the earned this of note that $X.X prepayment income decreased this I'd deals million to due our contributed also quarter premiums of decline quarter. from per to one or accelerated to exits which or dividend result any expect. as was

structure, of Holland below exit now. the our the a items X.X in losses mark-up to forma of of to leverage million fees, We with the approximately based which and debt the have or X.XX the down the by was portfolio whether as unsecured of matched Allied revolver coming bonds of of believe QX From crisis side industry in expenses Chris ratio NII was credit capital restructuring. capacity XX% borrow April of accelerated of to borrowing the the QX senior With for to a XX.X $XX in training on leverage the COVID the facility, to proactively matched end one-time remainder lower costs level pro increase from in - QX Included amendment expense lower were net the XXX,XXX QX commitment was fee into related reduction $XXX,XXX costs deferred X.X% line, the lower perspective our pick QX by our of facility. in times our plus of the to quarters. our April line was total incentive equity realized reversal primarily million credit one credit was the the in to our deferred base overall flexibility offer of a capital expenses amended resulting facility. and QX. we facility mentioned, and and with On under QX management our pandemic leverage asset of senior our to respect this QX the times similar NAV and in a versus the credit financing outstanding XXX% effects at $X.X decreased the in asset our provide we leverage the coverage and from This strength as diversity Due some June was related raise, baked is of million tender proceeds expenses XX the and the loss on capacity the with quarter to any additional and from to reminder secured liquidity of times. during the flexibility quarter already more befitting amortization ample in was

follow our We on and have funding companies. portfolio to liquidity ample or unfunded existing investments commitments

a As had standpoint commitments these are operator million with over commitments call a positioned total remaining in from that, to turn reminder, I'll unfunded and we $XX only we necessary. of million callable Q&A. liquidity fund if well commitments, the And to for $X the

Office. first your Lee Omega [Operator Family Instructions] And question comes with Cooperman from

book the is value tender was questions The XXX a value of the completed I July, top housekeeping forma? head. book is pro some of there it’s Just forma as pro until that or answer know not should better, almost which my probably the June,

Lee, Terry. That's

Okay.

July. XXX, occurred The forma The actual. XXX Lee book is is pro which value in

So XXX pro the is for tender. forma

good. Okay,

Correct.

you a The for I I think this because another in you expected? call FFO this FFO the been I comment is you any got make have call came made about guys sixth year, week. comment conference Did distracted

that over low feel that some could We I'll today we look the have with $X.XX up if fee have Logan, felt we the to feel were leverage was definitely, the we we that came you stable. take quarters. if exposure We quarters we coming slightly market to the labor coming in do adjusted the we set $X.XX increase pleased to share with the fact flexibility financial that tried items waivers the to it a add at at provide back obviously guidance add compelled we're onetime don't a $X.XX to and more share, management in prudent believe comfortable for until

left comment have about intentions repurchase it million? I the think about on you $XX guys the potential million any was XX your

Lee, No. question. the I Thanks, appreciate

not itself, out. subscribed, therefore was tender tender fully look that everyone wanted fully it to tendered you at was If the

As don't NAV from It want it the quarter sheet decrease. report to see of here management's nice size actually grow. BDC our actually today, increased given to we where we the to keep shrinking sit balance a was with as to opposed perspective,

So if demand. again fact that million one to the people and feel of almost substantially, tender to that amount tender with basically allocate the more But cutback. I shares exactly million the is was oversubscribed tender cut two and compelled that $XX times were $XX out worth back we the meet no got went might

hand and is stock now the XXX the On XXX. you other paid

So, is XXX buy XXX? it better at than it a a was

the point sub-scale, take actually looking hear balance grow, is to to your the book is, in think Yes. continues the more the and if mathematically of and all proactive we'll is program obviously sense. know discount Technically we Board BDC, the work it to with but there be makes in another steps and future we're I team but we the grow see to sheet, Directors conjunction to

Well, view have I expressed his before.

you you think discount to And shareholders in to make with a lot the shareholders I and shareholders the or their your play MLP either XX.XX% liquidating BDC, stock make The I crappy, we the that just goes the is the be any guys, in work looked discount like doing. it's you either X.XX. against would same give has companies against behind look being price the it's value still the that including shareholders right want our for But as way sells a that your brings you a NAV, deal XXX% you're guys, $X.XX guys assets, to money ask to you sure as buying right best possibility, companies you back you dividend, over. as same you stock do do And premium stock Street despite NAV, the of every by at dividend in can. given only by the calling what stock the NAV. buy And but the thing I a a know you a represents do raise guys I I'm asset, Wall their last we're speech of and when the and results the done as you money you've just you But it sell before the a the the the of which going respect stock and buy page. stock benchmark make with you game of loan created I thing know, big or in it. the stock have to that to new space loan the yields at against dividend, right it's you're new games stock, IT you X.XX so sell raise NAV back to the I restated not at is sale stock but I believe to here sure .That's yielding day of a and the that returning

No, I, much Thanks it. very for appreciate it.

you good luck. I wish

Thank you.

question Raymond from Your James. Robert with next comes Dodd

completely quite Lee the addressed one topics of there.

kind proportion vintage other impacts, we on company, the at still look, put you year? of the the smart on COVID post-XXXX at of relative disrupted recent I'll one. you of additionally COVID if the towards So, highly impact that's obviously of highly kind the color positions. to concentrated characterize books. get to more look high back What on Could book assets When you things gave to you particularly I I the mean move the also is in the half appreciate mean a impacted. at would the If you relative say risk of is risk I travel the

all this Yes, way portfolios, you direct more have I weighted X, level severely appreciate is it's ranges, the Tier can the XX% XX% portfolio, is portfolio the tertiary We've the in to but not Robert towards of else significantly the X which smarTours, to we our where anything most we don’t question. demand we as demand in down good focus we is scored disruption. we obviously Dodd impacted Tier as impact, in say speaking have delay script, would ahead be I'd there impact referenced more actually the of and this believe heightened imagine, what

the businesses with we'll So very, operating, work thus job companies the managing done are far the have a very of liquidity. to continue portfolio still good sponsors

portfolio So an I smarTours everything that don't we of watching very in impact book is see the anything the closely. meaningful but as very, are in else is

to your instances, it in delay that tied of COVID into most were isn't delay. had where my obviously. where XXX% remarks just mean Yes, most versus kind or question proportion versus prepared impact, demand of Most mean an I you follow, was said disruption? because I instances a those most what

the non-accrual I'd back go on Again, just say to related COVID was only business that and we put smarTours.

of So is I don't one but portfolio. want what nuanced too portfolio have to look the you number if of out companies, definition entire over most at get we of the our

comes next Johnson Paul with KBW. Your question from

wanted I forward, purpose trying JV was also, what seemed in the just growth ask part the strategy was the about forward. - your and what big was portfolio it going that reducing And of the like intention because there? the is then intention understand just going your for a commitments with JV for to to

a trying just So your intentions that? with what sense are get of to

the This appreciate thanks. No, Chris, Paul. question is

from very XXXX, in facility and new Our can going you given it we want the to good be put We in ourselves guidance sheet. need We've a I that quality potential return just the forward. in our shareholder. we itself XXXX high the of to will was from to where and incremental Logan, and reductions that size it The our have our think be. is in to range and JV balance if Logan to it back intention we limited really didn't substantially equity the back think continue at provides good support to ROE larger. set Logan manage were The is reflected size commitments suggested run partner place, size. where capital The

relationship with very good. partner So is our our

manage intention feel We and with address confident we'll is because would BDC capital the full extent it that was back - because grow them be and the to never program we to have of down growing. unnecessary continuing we We continuing can able work to to But amount. now mathematically able be to that if right just and needed. add the full it's the draw

just So based it we right balance sized the sheet. on

little mean, lower mean on the then the yield, from the new a environment it the do where JV you in this And to do of quarter? be for bit distribution the the or income was deleveraging state higher normal than run this is I to in obviously expect rate quarter. low sort where it JV I you of current at stay Is of the this, the kind this it's given expect distribution earnings yield

sell cushion into in. as that is term of us good and we flexibility market need In where recovery Logan we just and said we multiple is. prudent a recent I as them one news to the levered incremental manage to to de-risk position. if We to recovered probably The thought to vehicle, provide the near it it and bring and that have we'd when stay expect earlier, it was the

is just will the and that the we Logan it risk have stabilized, very, bring the that of that historic to we three reduce we we push up. enable per So waiver on take quarter envelope. confident the to distributions the given increased there next quarters, us levels the when that volatility very fact prudent leverage the that fee with the felt But cushion return management is up back feel and $X.XX prudent be share market leverage it can once to for a back

and And covenant borrowers, then of they from your and or sort thing? Have pretty on amendments people you speaking waivers demand thing? or your high broadly moderated requests seeing around get some to materially, the pretty that existing on sort are and slowed still seeking for conversations that just release remaining down portfolio of have how going

QX has most Yes, conversations was through. a the the sponsors subsided productive imagine all and no, of it's of of from a say which had working been we're good good There as us you that and for with when we've I'd activity wave can substantially the question. started, contribution either part

part, providing most the short-term discussions had most For extensions plays. not long-term these of that we're

where of of activity So there in much portfolio well could community supportive September economy the is. on the companies. be or reopened. of coming very the today, back economy as how sponsor been discussions like is on feel the into an we have And depending But uptick gone has October the

you is it then then many with growth. mentioned last just just do investing the with it more portfolio to you investment need Appreciate or curious, normal conditions again. point question course something call resuming do see that. And investment the be has to resume and of economical ready U.S. market my you there? from more of to kind back is that activity stabilization middle the at in where in what when think portfolio I'm and kind broader you can Is activity

question. Yes, that’s great a

really it's a think I and function stages.

amendments that stabilization and say the were the give feel Logan is fact stabilization one portfolio its sheet comfortable our we would unnecessary bank very delever able to or with the balance from positioned. we sheet group, first I The given and balance supported how

parameters, So BDC the tech, these our very, function deploying extent investment looking diversified are by for we participating opportunities other difficult the invest With basis made it's anticipate our as sectors as attractive are it to days. to the in asset we're see and becomes single means every business highly such consumer open the capital we certain software, platform. seeing doing been we just a on we being do and and facing sense across opportunities think would as are want we've industries that past. no the specifically We across entire very of we'll now a unique of when where just sector

And have no at Instructions] [Operator this time you further questions.

Thank also voting contract in to shareholders the for their thank May. support and want management you, our Operator. for I

rotation portfolio with the this completing are First with excited of chapter next starting Eagle. We the about the BDC and support

While to in you to the the our Thank we'll challenges next weather strategy we and you to are face we from quarter. talking continue confident impact, the look forward team storm. COVID-XX to and

this call. concludes today's and gentlemen, Ladies conference

now disconnect. may You