First Eagle Alternative Capital BDC (FCRX) 5 Mar 212020 Q4 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to the First Eagle Alternative Capital BDC, Inc. Q4 2020 Earnings Conference Call [Operator Instructions]. I would now like to hand the conference to your speaker today, Sabrina Rusnak-Carlson, General Counsel, First Eagle Alternative Capital BDC. Please go ahead, ma'am.

Thank you, operator. you us. thank and morning, for joining Good

Joining Executive Operating Officer; today's call and Flynn, Chief are Chris and Financial me Officer. on Chief Terry Olson, Chief

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

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

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

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

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

Terry call, today's in on portfolio joining Good results, On earnings of more our fourth and will overview our thank quarter our you financial call. I'll portfolio morning, and and provide for discuss Sabrina. some then us an Thanks, detail. highlights, results

investment dividend Difficulty] Let's for $X.XX $X.XX XXXX. to per begin with for and share quarter. our per through results management the of continue was $X.XX benefit compared of share QX. to NII QX fee [Technical income the that quarter the NII from waiver continues will our Net

As adds our waiver the reduce considerable positions. a waiver $X.XX year. and to fee share noncore management quarter. concentrated has over supported the reminder, the overall, portfolio through fee how shareholders made we NII management derisked to It was has impact in per progress We’ve remaining and per as exited past intended we’re NII the pleased the performed This on portfolio very pandemic. transition with our

term times target and of X.X to the We long leverage XXXX. up X.XXX end a are by levered times of QX currently level

We change the $X.XX this end in be share X.X% QX. this NII management is to inline three $X.XX put of paying $X.XX to approximately in expect share at our this decreased increase value developments. book our while with in QX of In It accretive QX, per other dividend fee. modest from important exceed at be the per context QX to believe we level, or in will leverage to and

deposition businesses have decline value the the had end on book second significant life derisking our share later may equity call. the completing value. $X.XX this QX, color on provide at you as successful our of of X-K impact our per holdings it’s we to sale First, I'll of The late resulted in of compared of seen some position were in lien the a additional OEM. in our filing principal from in December, two in

share X% per XX than of impact Logan the and QX. in across the Logan with our joint the of an value quality loans overall joint syndicated assets. the improvement in the $X.XX pleased credit represented We holdings on quarter. the names venture portfolio this positive less $XXX in remain lifted a Logan's venture, the broadly Nonaccruals of Second, specifically, million

improvement earlier, together market in appreciation our the mentioned with of portfolio the portfolio $X.XX the performance Lastly, further and I tightening of share. overall per rest in in spread resulted

OEM, value of portfolio our Excluding either increase QX. the or XX% companies same reported in

portfolio. dive let's Now deeper into the

continues have draws from businesses did is securities X.X a the company smartTours We than not term some median noted impact good nonaccruals EBITDA new other quarter beginning is pandemic. not portfolio exceeded from end $XX travel vacation and million amidst earlier, the is was perform and the impacted as support subsequently by remain or balance continued impacted booking improve, among split QX modifications. the Revolver liquidity earlier of to levels included quarter. on with in December restructured returned continue The and emerged the organizing half activities approximately rebounded and for nonaccrual. to the sponsor, any high with loan many of and and and this portfolio in capital yet XX and traction the company sponsor on a we pre evenly performing of sponsoring Revenue after maintain a XXXX. on lenders levels. Companies that agreement from instances, portfolio XXXX tours X.X decreased turns for expected Chapter an from quarter-over-quarter. see second has the COVID, add and in our significantly continue partial sheet muted expected only profiles. removed restructuring well to to As during smarTours, that leverage Loadmaster and business the centered through nonaccrual. to to have turns COVID COVID the reached equitization

on us and principal portfolio to make importantly businesses exposure sale to and this represented remaining contribute sponsor We since the to the previously our companies, credit, also or two The the strategy our been derisking our end positions. of progress OEM backed our will ongoing consistent single with goal positions to a has efforts diversify This XXXX. meaningfully of lien largest continue first our of position. reduce allowed priority to of which the exiting concentrated into

the our additional our on last X-K business in status of transaction. mentioned end the payments returning in milestones, form over $X.X The producing million first Therm million one completed lien loan was in the on OEM resulted had contingent of annual at short, certain our payments that term on to of Plasma a restructuring But a will take which in consideration deferred of was minimal the the holdings holdings at place in of for sale years first for including of several XXXX portion investor These Pennsylvania was transitional provide any $X.X term years. used sale minority of and to filed to will We to a with business, upsized based the to four the costs. in cash has slightly this short not The we our other income connection result QX, service certain payments QX. end process. debt the to in in the provides cover details that beginning As consideration. capital sale which be will our operating call, of

beneficiary years, the of are we in the at markets, term the plus first of have million this comprised We business market. the note XXXX, commercialize XX% the $XX.X loans been since We in sold to to has the received the and in to deferred of all the the sale. warrants an a to yield closing pleased OEMs Plasma value. X% found cash second aforementioned C&K After will Our trust. distribute a cash be and nominal completing payments. lien right of in PIK, and remaining Therm which place in portfolio equity million for after position, several partner December investing and seller $X.X pay X% business remain subordinated this and retain X% was technology with in ESOP with

continues of the of debt well. be X.X% portfolio. end perform the pandemic. at one Our credits portfolio holding performing The to to single C&K company sub represents largest X.X% of year very position Igloo, the fair top during the continues our at value. represents

of portfolio, par reflecting XX hold XXXX, position performance added portfolio positions QX, to in new XXXX XX% and we an up XX spread direct and investments remain held the improved size market two the of the during Our we tightening. OEM the par, effect overall average only the is of $X of approximately transaction, early After C&K in Igloo. concentrated with And from lending in million.

investment We company's XX%. also increased includes our first lien in exposure, which approximately Logan to the JV

new realization and the $X pandemic, Our The platform, Eagle's the with in QX investments has direct repayments business as We seen pickup lending for investment. this in companies billion to while our provide of added existing and three M&A Since deal robust C&K opportunities. to par more the First continue and quarter. First flow lending $XX lending both opportunities portfolio generated in as investment our the provides well new from remained by substantial benefit BDC debt activity platform the of at and continues during us seeing eight a has and diversification. Eagle's direct we market totaling platform million, general a direct beginning

in to be We sponsor strategy very investing capital we be expertise industries select first deploy the of to and lien, diversified are continue partners. disciplined about very supported where highly to in about positions have our sticking selective where and we

the With turn BDC the over Our continue XXXX. goal Terry. we to I'll call as is grow to to diversify portfolio that, in

morning, good everyone. and Thanks, Chris,

investment some highlights. and portfolio First,

Chris $XX included we of the for cash active proceeds four with realizations. follow mentioned, eight yield million also we $XX exit. As generating mentioned, a totaling had had quarter new several investments And Chris an that million blended ons, and of X.X%. notable

NCP positions, Our Synteract, C&K. lien first in equity and Investor holdings Simplicity our financial,

XXst, senior million our secured lien $XXX XX% invested was debt, first Logan XX% As December JV. of of and portfolio

producing Logan XX% held holdings. sub quarter. assets. the modest based Logan, prior producing the on including debt XX% the the on remaining reminder, was cost, debt average in and The in a equity invested and As is increase portfolio and X.X%, a portfolio first income yield income of over second Weighted was JV lien lien,

no our to a cost and X.X% As were the nonaccruals QX and new as X.X% portfolio fair at of nonaccrual added in investments respectively. value and Chris there's mentioned, percentage

Dividend was facility borrowing realized of were flat million the QX. to fees. C&K C&K dividend which to the OID. accelerated accounting of income already to the with in $XXX,XXX of $XXX,XXX to due in contributed restructuring, and from a were QX, in certain which as the of $X.X closing quarter Logan’s income related other amortization we transaction to million, premiums to the was a were QX With to connection NAV dividend a is financials quarter on financing NAV to back of this of lower and income that $X.X these reflected this prepayment the were in related QX. to quarter, of credit slightly on impact include while $X.X paid net versus $X.X below line, the only. some had in in were with QX ratio investment deferred of several for These on change was the realized fourth quarter of sale. write-off costs, Total they Moving offset professional a of dividend equity the a our some ended perspective, gain income decreased the interest to smaller for this items million, the loss our result, we income the costs to X.XX. million was approximately million the components debt highlight I'll a amendment by million purposes Each ended limited $X.X largely leverage expenses respect the the million $X.X related and quarter. smarTours added portfolio repayments. which from up $X.X as higher which experiencing investment net leans $X.X with associated quarter-over-quarter interest of gains From quarter, Included related the million for income our

the we we ample half leverage on and year, capacity -- have facility through the grow risk first Additionally, portfolio continue of our to where given given are, where towards at mentioned an increase are overall. the the borrowing we risks our to credit Chris target

coverage to $XXX XXXX changes Notable we the a the a in associated debt the and reminder, a completed October, with unsecured call and structure the million. October believe of XXX% to amendment the this follow an Chris. of portfolio process continue ons extension to increase XXXX, our included we in price challenges in to extent, companies. borrow $XX to facility presented to mentioned back potentially From test We As to our option bonds expected We're investment and our the be $XXX provide that I'll credit extension facility included we of all and million to have of the ample we modest a of to increasing a remain, reduction the diversity standpoint, period commitment capacity and which flexibility of lesser million a evaluate currently currently commitments investments, increase in light much strength and of asset senior revolving the refinance fund to from of on of amendment through with LIBOR rating. XXX. in current to last plus our our that, to With of but over million. our an turn existing capital $XXX the new market continues our callable call XXX%,

Overall, this good Terry. is quarter Thanks for FCRD. a

over portfolio several our the up the continue We began open companies positive as to at to last economies months. trends see

changes We legacy portfolio have with the positions. the outside to de-risked

activity We beginning underlying call and the position the uptick months. portfolio in waiver us drive over in this concentrated to additional coming With our in cover QX. to strategy. a have an will go last seen names without remaining that, two We remain turn the in for will growth a focused that in management believe the I'll help and confident operator fee on dividend put the I'm questions. our forward deal We positive

[Operator you Thank Instructions].

Our question comes from Paul KBW. Johnson first from

I of when looking On in the going were sizable XX% numbers, back last fairly value the the was fair Logan some like it cost, JV, kind first write took assets believe, cost. down, of of believe, of quarter of I a roughly and year the I at

do a quarter, around a obviously, at write-down of of so, I the bit And This if little further to think as and a held it's or about Logan recovery about looking feel still took more How that guys discount well as equity at XX% right. point. I'm investment the JV? potential you is

right. You're

$X.X to within be You've FCRD's in got at just Logan directly continued about would million. billion, was loan portion the numbers of XX/XX The right, unrealized be unrealized that $X loss under market strong so QX.

to So XX/XX. we've little a prices the run from seen date, further

month the at this little within us in on pause that the four I would any could expect the at in material of NAV see point left provided in drive here markets that Logan positive. we'd obviously and uplift or change would concerns weeks NAV. bit been the still point has No There's change, any the time, to that a this give portfolio. So credit direction three say

that So we should continue to close some gap. of

back portfolio. the JV would for long and what And just look think It's maybe then do yield yield everyone today. ago, long roughly it you there? reduce I'm year a guess, guess, you that digit and from I to it term, on take more, yield the if type that its maybe the of helps, the at how double think of generate, curious, bit I issues COVID of get basically obviously, coming X.X% low do a what yield can JV, little JV. happened was mean, the I and I had

Logan, the to yields on I way at it make maybe cost, translate to think to maybe a just simpler. look little just NAV it that

of million-ish $XX about NAV a quarter $X.X million and million to of $X.X dividend So income.

the the to would you and Again, capital. still it cost. probably quarter able to for XX% represents million there's the level about to that related deploy portfolio the XX% couple generate We've mentioned think quarters. held on modestly. that's yield the some I for TCRD, We'll room dividend book. per past on I which of equate to be NAV similar NAV. anticipate of a million of So to overall that XX% portfolio $X.X income yield would steady X.X% the $X.X to grow as

So to producing I over few $X.X income the would anticipate million quarters $X.X it million to next range expect in an that standpoint. from

X.X performing economy Do good you then and X.X that for how you you're portfolio pick higher, or today said, just And about at this good you've at you do target move up as was last or we're your do feel past you range recovering, the comfortable at issues around seen could BDC. the about moving as to pipeline credit leverage guys year. potentially look the question and that? which of activity Obviously, think look still the and you with my the leverage

portfolio it, didn't that, Yes, the comfortable to call as said support earlier. in we're that with range. we that. comfortable in X.X opinion been that we've still underlying X.X number the just fact Again, upfront, our It's

we've these more of moving to enable us to that on moving that forward. portfolio call, we said will our to still out diversified and levels going those up to the more And names, comfort dividends Now the level is range. the fee transitioned that as pay management in cover leverage substantially much

[Operator Instructions] Robert comes next from Raymond James. Our Dodd with question

they basically question well. been Slide remaining, that three seven is an get get now OEM, a But if what's Capital, refinanced, well. from yields mentioned at earlier years seem Merchants all, those. would those I and on XX.X%. old assets as mean XXXX of they're haven't big I refinanced? XX. mean pretty First the Igloo, impact are Merchants that who five about There's Loadmaster earnings, also be average six, Synteract realized, and performing probability above you those a look did we that or if obviously, to have as of I at obviously. smartTours position, Capital mean, are obviously, Igloo still

for term, for two leaving the those lack assets the better portfolio? a what's outlook of So

taken. can specific comment being now to Yes, nothing we relates actions as it

the that want program Paul facility, then We potentially both take I'd leverage Although, the had a not continue do earlier, performing. my yielding. you to slightly higher. question high it’s up to position, address recognize exit are so Igloo and say the is diversify concentrated credits rather I’ll perspective, From

does it feel to offset fact the through able refied extent names either that contraction concentration the in portfolio adding needed. taking existing or any repaid, or and reduced get move the to if more we'll the we higher more yield leverage been So be in has

an they're that in XX/XX, that taken you've think, any getting gain is SPAC successes, right pre out On at -- or that that. of like your in profit equity that account does take mark a just unrealized I right, -- It looks the the right? was, got into by SPAC announcement, now

that transaction the with what you would to right. discussions. that moves You're extent But Obviously, haven't closed associated we've upside those the math number to taken we yet news that that up the read forward. There's some name be. saying so the have hasn’t had

So continues in transaction forward, closes. if that QX and that some obviously, move result upside that QX to would whenever in here

flipping if other the the if waive, be get to you'd it that you side. associated it, XX.X don't the as year. on Terry right to be one a underwater isn't million is of waiver funded wouldn't on appropriate a your with other higher waive right yield, the its $XX portfolio the the yield that then and/or $XX why I base until than -- and million that, with now? you you're higher The million, the And once this paying and But, fee the you maybe on kind given mean, wouldn't that's cost at assets management assets management be portfolio the that of your callable. cost, call and which call stays the end now, seven out $XX on to liability underwater mentioned, well. -- What's is three to is quarter expires than one continue

of with albeit mentioned and I that debt bit looking label. are investment opportunities continuously conditions market we're favorable, creating of favorable the in at the to the refinance more remarks, certainly, expense a As kind in Robert,

forward, that with which the our these significantly. the are looking reduce we hopefully, we at the to grade, existing opportunity, of to of investment light moving announcement a rating market us will allow in earnings path to and restore So think conditions cost

but be refinance both are in balancing are expect to this where where year. we're the versus fully active, expect coming So of we months, we we and would to we them today

my XX I is think at correct. October, memory the end if the callable of bonds are

at of this end Yes, for the year, sure.

for cost financing. mind the me. we of pull front as Chris talks about certainly addressing math the other the think certainly, is increasing it's of leverage, say, We're would of levers I one and to

ongoing So I it's say in business. this always as would it is

shareholders, that? realized if on discussion for it's right it refinanced. would think would the you money probably losing obviously shareholders it adviser, concept And waving it frankly, you right I is favorable Because will and I are now, typical there get of outstanding that shareholder that capital -- that and only has has a guys. considered? money those hypothetically, in a the now But the you broad any not the waiver, waste the something steps. on year, question adviser bonds making on be goes But on person, later been entity right But piece, made now, be

to same said as believe will, upfront analysis, are you enough we're moving take the and being the fee with as up. management to we comfortable to we to waive leverage along that transition investment-grade said want and have We obtain these done, we're work if through or rating to that conversations extent it's that agencies, willing close Terry able rating. is where far we the We'll as the portfolio, our

the to There's in a see plenty fruition, well the you'll of the bonds see still we'll they're substantial come that cost those extent to in of those bonds. you doesn't of bonds price think a can of that this. reduction been I printed reduction see inside

It's it's of question not a question us, And for with of grade time. rather a substantial it much a on of some based bring that matter see where yield for the data. bonds step just a can in they much investment investment just and rating. a place. it's grade But are the down current I'd doesn't when. just rating do still than So We market today lower these take at reason, if,

to for the concludes This like you. I closing session. Chris now Flynn remarks. Thank the over call would to question-and-answer turn back

with May and providing Thank you Thank an results. of our early the you, in first support with shareholders operator. our update forward you. appreciate quarter to look We

participating. and conference call. for Thank this concludes gentlemen, Ladies you today's

You may now disconnect.