Gladstone Capital Corporation (NASDAQ:GLAD)
F4Q12 Earnings Call
November 13, 2012 8:30 am ET
David Gladstone - Chairman of the Board, Chief Executive Officer
George Stelljes III - President, Chief Investment Officer, Director
David Watson - Chief Financial Officer
Ryan Lynch - Stifel Nicolaus
Casey Alexander - Gilford Securities
Good morning, and welcome to the Gladstone Capital Corporation's fourth quarter and year ended September 30, 2012 shareholders' conference call. All participants will be in a listen-only mode. (Operator Instructions) Please note that this event is being recorded.
I would now like to turn the conference over to David Gladstone. Sir Gladstone, please go ahead.
All right, thank you, Keith for that nice introduction, and also the information that you gave everybody. Hello and good morning to all of you out there. This is David Gladstone, Chairman and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Capital. Common stock is traded under the symbol, GLAD and the term preferred stock is traded under the symbol GLADP and both of those are traded on NASDAQ on the global market.
Thanks to all of you for calling in. we are happy to talk to the shareholders about our company and wish there was more opportunities to talk to you. We hope all of you will take the opportunity to go to the website at www.gladstonecapital.com where you can sign up for e-mail notices so you can receive information about us on a timely fashion. Please remember that if you are in the Washington, D.C. area, you have an open invitation to visit us here in McLean, Virginia. Please stop by and say hello. You will see some of the finest people in the business.
We are glad all of our offices are back and running from Hurricane Sandy. We are lucky here in McLean to have experienced minimal work interruptions and the team members running your business are all safe. So we are all glad about that.
Now, before beginning, let me read a statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements inherently involve certain risks and uncertainties and other factors, even though they are based on our current plans, and we believe those plans to be reasonable.
Many of these forward-looking statements can be identified by the use of words such as anticipate, beliefs, expects, intends, would, should, may and similar expressions. There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements, including those factors listed under the caption Risk Factors in our 10-K and 10-Q filings and our registrations being filed with the Securities and Exchange Commission.
All of those can be found on our website at www.gladstonecapital.com and also on the SEC website at www.sec.gov. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call. Please also note that past performance and/or marketing information is not a guarantee of future results.
Before we get started, just a note that we planned to file our 10-K yesterday but the government was closed. We were working, of course. So we filed our press release yesterday that was a bit longer than usual and then we filed the 10-K this morning. We will be shortening our press releases in the future from the one that you saw today.
So first, let's start with our President Chip Stelljes. Chip is the Chief Investment Officer of the Gladstone Fund and he will provide an overview of the company's fourth quarter and all of the investment and marketing outlook as it pertains to the company and, Chip, go ahead.
George Stelljes III
Good morning. During our ended September 30, 2012 our net production was down due to early payoffs of partially $24.3 million and also sales of two of our non-accrual companies totaling $5 million of cost. We extended $2.6 million to existing portfolio companies through revolver draws or additional investment during the quarter. We continued to focus on managing the portfolio company performance.
In addition, after the quarter end, we received other scheduled and unscheduled principal payments totaling about $22.8 million and related to our early payoffs on one of our portfolio companies. During the fourth quarter, we received $1.2 million in success fees that we had mentioned in our third quarter earnings call. It’s a subsequent event.
During the year ended September 30, 2012 we invested an aggregate of $29.6 million in debt and equity investments and several new proprietary portfolio companies and an aggregate of $15.5 million in new syndicated investments and we dispersed $23.8 million to existing portfolio companies in the form of revolver draws, additions to term that was in equity.
Offsetting this $68.9 million in investment during the year ended September 30, 2012 was scheduled and unscheduled payments of $67.4 million including 10 early payoffs at par totaling $47.5 million which resulted in an aggregate of $4 million in success fees during the 2012 fiscal year-end.
We used net repayments during the quarter to pay down a line of credit which matures in January of 2015 and as of the date of this call we have $65.9 million in availability on our line available for new investments.
Subsequent to September 30, 2012 we made two new investments with initial fundings of $5.5 million and had four early payoffs of syndicated investments totaling an aggregate of $21.1 million. Furthermore, we invested $0.7 million in three existing portfolio companies through revolver draws and we received $1.7 million in other scheduled and unscheduled repayments.
In October 2012, we made limited revisions to our investment objectives and strategies which will go into effect on January 1, 2013. All of our current investments stick within the revised objectives and strategies. So we will not need to make any changes. As a result, we also terminated an equity distribution agreement we had to issue common shares under which we had never issued any shares. All of our current portfolio investments on our books stick within the scope of revisions on our investment objectives and strategies.
We continue to work hard to fill our pipeline with new deals. Currently, we have two deals totaling $17 million through the due diligence process and in various stages of closing. Please note however there is no guarantee that they will close but we are seeing attractive investment opportunities in an improving market place which are aligned with our investment strategies and objectives. Although there is significant capital and competition in the market for the right deals.
During the fourth quarter of 2012, the SEC approved an exemptive order that expands our ability to co-invest with our other BDC Gladstone Investment Corporation. This provides origination opportunities on a broader range of companies and flexibility to invest in some larger companies. To date, we have not made any of these co-investment but are looking for the right opportunities.
During 2012, we were able to access the long term capital market by raising $38.5 million in term preferred stock and believe this, along with the extension of our credit facility for a term until 2015, will provide us the capital to grow the portfolio into 2013. We hope to continue to increase our net investment income over the long term.
As of September 30, 2012 our portfolio consisted of loans to 50 companies in 28 states in 21 different industries. Our portfolio is comprised of approximately 97% in debt investments and 3% in equity investments at fair value as of September 30, 2012. We aim to have a diversified portfolio by industry classification and by geographic region that are not too heavily invested in either one, albeit specifically nor we invested too significantly in any one particular portfolio company.
As of September 30, 2012 we had cumulative net unrealized depreciation of $91.1 million and while we are disappointed in the size of the amount of unrealized depreciation, the vast majority of it, or 88%, relates to portfolio companies we first invested in prior to the 2008 recession, even though those investments account for only 58% of our cost basis. While their values have decreased these remaining companies have survived the recession and we believe we will be able to recover a meaningful portion of their value. Cumulative net unrealized depreciation on investments does not have an impact on our current ability to pay distribution to stockholders, although it may be an indication of future realized losses which could ultimately reduce our income available for distribution.
On a related note, the number of our non-accrual investments is higher than we consider acceptable event though all fixed non-accrual investments were originated in 2006 and 2007 and likewise were significantly impacted by the recession. We will continue to work to fix these companies and recover a meaningful portion of our capital. Accordingly, we reduced the number of non-accrual companies by two from last quarter due to sales of U.S. Healthcare Communications and BERTL Inc., during the fiscal fourth quarter. We had exhausted all viable strategies to turn them around and believe this was a prudent step for these investments. We remain diligent and focused on managing our current portfolio and feel we have been able to stabilize and improve several of our non-accrual companies which resulted in unrealized appreciation of several of these companies during the fourth quarter.
The six investments classified as non-accruing had a cost basis of $61.1 million or about 17.3% of the cost basis of all debt investments in our portfolio as of September 30, 2012. From a value perspective, the non-accruals fair value represented $6.8 million or about 2.6% of the fair value basis for all debt investments in the portfolio at quarter end. No new non-accrual investments were added during the quarter ended 9/30/2012 and none of them added since the end of the quarter.
We continue to have a high concentration of variable rate loans in our portfolio. So when rates begin to increase we should have higher income and while our loan rates are variable, they usually have a minimum rate or a floor so that the effects of declining interest rates that we have seen over the last number of years are mitigated. We target to have a large part of our portfolio with variable rates, accompanied with minimum floors with the remainder in fixed rates and for the quarter ended September 30, 2012, approximately 88% of our loans at cost have floors, 5% of our loans do not have floors or ceilings and the remaining 7% of our loans have relatively high fixed rates. This is consistent with last quarter and our approach to managing interest rate risk in general. All of our variable rate loans generally have rates associated with one month LIBOR rates.
The weighted average floor on our variable rate loans is 2.4% in relation to one month LIBOR with an average margin of 8.9% resulting in all in aggregate of 11.3% on our income producing investments as of September 30, 2012, as compared with the same 11.3% as of June 30, 2012.
We view our quality of income as consistently good. We generally limit income generated from paid in kind or originally as a discount structure as these generate non-cash income and our non-cash income is represented less than 1% of our investment income over the last two years.
On the other hand, our investors have seen a high level of success fee income recorded over the last year particularly the $1.2 million earned in the fourth quarter of 2012 and $4 million in total during the fiscal year 2012., all related to portfolio companies that exist and payoffs in fiscal year 2012. Success fees are contractually due upon the change of control of a portfolio companies generally through a sale and are not recognized until received in cash and we do not include success fees in our reported yields as they are not consistent and would skew our actual current cash run rate.
As of September 30, 2012 approximately 50.1% of our interest bearing debt investments had success fees related to them and those investments have an average contractual accrual rate of 2.5% per annum over the principal balance. As of September 30, 2012 we had current contractual obligations of an aggregate of $12.5 million in success fees on our accruing debt investments that would be (inaudible) to us based on our current portfolio, if sold. Success fee accruals are not recorded in our income statement on our balance sheet. Instead, we recognize them as earned in our income statement at the time of receipt through their contingent nature of their no-guarantees, they will collect all the success fees or certainly know the timing of such collections.
As for the market place, the senior and senior subordinated debt market place for the larger middle market companies continues to improve, albeit inconsistently. We believe they are encouraging economic trends in this market place doubled with decent liquidity. The market for loans to companies at the low end of the middle market in which we seek to invest our capital is seeing more competition but again, not from banks. Competition is generally coming from other public firms like ours and many small private firms. Under these conditions, we still feel we have a good market opportunity and we are focused on our pipeline. We feel we will be able to show our shareholders some new quality deals over the next several quarters which will help generate solid income growth. We believe we have the capital to deploy for the right opportunities in line with our investment strategy and objectives/
With that, I will turn the presentation back to David.
All right, good report, Chip. Now, let's turn to the financials for the fourth quarter and the year ending September 30, 2012. For that we will hear from David Watson, our Chief Financial Officer and Treasurer.
Good morning, everyone. Yesterday we released our earnings press release for our fourth quarter and fiscal year ended September 30, 2012 and this morning, our Form 10-K, which I hope you all had a chance to review in this limited time. On this call, I will provide a financial overview of the quarter and the year starting with the income statement.
For our fourth quarter ended September 30, 2012, net investment income was $4.5 million or $0.22 per share versus $4.8 million or $0.23 per share for the same quarter last year, which was a decrease of 5.7%. This decrease was primarily due to an increase in dividend expense of $0.7 million on our term preferred stock for the quarter ended September 30, 2012, as no term preferred stock was outstanding in the fiscal year 2011. The increase in dividend expense was partially offset by the increase in other income on investments due to $1.2 million in success fees received in relation to an early payoff during the fourth quarter ended September 30, 2012 as compared to the prior period.
For the year ended September 30, 2012, net investment income was $19 million or $0.91 per share versus $18.4 million or $0.88 per share for the year ended September 30, 2011, an increase of 3.4%. Net investment income increased primarily due to a combined increase interest and other income from investments for the current year offset partially by increased interest and dividend expense of $4.2 million compared to the prior year. Interest income on investments increased $3.2 million or 9.7% primarily due to an increase in the weighted average principal balance of our interest bearing debt investments of $35.2 million year-over-year, even though our portfolio decreased in size as of September 30, 2012 as compared to September 30, 2011. Other income from investments increased by $2.1 million from 2011, due primarily to an increase in success fees received on early payoffs of several proprietary investments.
Partially offsetting these increases to net investment income was a payment of $2.5 million in dividends on our term preferred stock and the increase in interest expense of $1.7 million due to an increase in weighted average borrowings outstanding of $23 million for the year ended September 30, 2012 over the prior year.
100% of common and preferred stock distributions paid in the 12 months ended 2012 and 2011 were covered by net investment income, though a portion of our 2012 distributions was classified as a return of capital from the tax basis standpoint. This highlights our commitment to prudent growth and building shareholder value.
Let's turn to realized and unrealized changes in our assets. Realized gains and losses come from actual sales or disposables of investments. Unrealized appreciation and depreciation come from our requirement to mark our investments to fair value on our balance sheet with the change in fair value from one period to the next being recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event.
Regarding our realized investment activity, we recorded a net realized loss of $4.8 million in the fourth quarter of 2012, primarily related to the sales of two portfolio companies that were non-accrual. For the fiscal year ended September 30, 2012 we had net realized loss of $12.8 million which primarily resulted from the sales of KMBQ Corporation and Newhall Holdings during the first quarter ended December 31, 2011 and the sales that we had in the fourth quarter.
From an unrealized standpoint, for the September 2012 quarter end, we had net unrealized appreciation of $4.9 million of our entire portfolio which included reversals of previously recorded unrealized depreciation of $5 million related to the sales of the two portfolio companies. Our investment portfolio was fair valued at approximately $274 million versus a cost basis of $365 million or approximately 75% of cost. This fair value to cost percentage is lower than last quarter, which was at approximately 76%, and lower than last year which was approximately 79%, resulting from continued declines in certain of our portfolio company’s financial and operational performance and the early payoff of some good loans.
The increase in the cumulative net unrealized depreciation during the year ended September 30, 2012 totaled $11.2 million. The cumulative net unrealized depreciation of our investments does not impact our current ability to pay distributions to stockholders but does indicate that the assessed value is lower and there maybe future realized losses that could ultimately reduce our distributions.
So, our bottom line is the net increase decrease in net assets resulting from operations. This term is a combination of net investment income, net unrealized depreciation or appreciation and net realized gains or losses.
For the September 2012 quarter end, the net increase decrease in net assets resulting from operations increased to an increase of $5.5 million or $0.26 per share versus a decrease of $0.5 million or $0.03 per share in the prior year's September quarter. For the year ended September 30, 2012, the net decrease in net assets resulting from operations decreased to $8 million or $0.38 per share versus $21.1 million or $1 per share in the prior year.
Moving over to the balance sheet. As of September 30, we had approximately $293 million in total assets at fair value, consisting of $274 million in investments at fair value and $19 million in cash and other assets.
Our borrowings totaled $58.8 million at cost on our line of credit and $38.5 million on our term preferred stock, which was issued in November of 2011. As a reminder, due to the term preferred stock’s mandatory redemption feature, we classified the preferred stock as a liability on the balance sheet.
As of September 30, 2012 we had approximately $189 million in net assets, as compared to $240 million in net assets as of our fiscal year ended September 30, 2011. This represents a NAV per common share of $8.98 as of September 30, 2012, as compared to $10.16 as of September 30, 2011.
From a liquidity perspective, at the time of this call, we have about $56 million available on our $137 million line of credit and $6.6 million in cash. So we have the ability to deploy more capital for the right opportunities in line with our investment objectives and strategies.
Now, I will turn the program back over to David.
All right, very good report, David Watson, and I hope all our listeners will read our press releases and review our annual report on the Form 10-K which we just filed with the SEC. You can access the press release and 10-Ks on our website at www.gladstonecapital.com and also on the SEC website.
I think the big news this quarter was the exit of two non-performing loans enabling our team to focus on the remaining portfolio and also the growth in net investment income even though it is 3.4% over the past year and 7.2% over the last two years. It's not great but it's going in the right direction. So we feel like we are doing the right thing here at the company.
We received about $1.2 million in success fees in the fourth quarter and for the year ending 2012 of about $4 million. So, again, good success fee garnering from these loans that we have outstanding.
Both of these are good points and good news for shareholders and our team and I think we can continue to produce good results as time goes on. The biggest challenge today is our access to long term capital market place. We have a line of credit. We have a very supportive lending institutions and that line of credit works fine and we believe it's sufficient for the near term but obviously we need long term debt and long term equity.
In November 2011, we issued our new term preferred stock as a substitute for long term debt. It's worked extremely well. As a portion of the long term funding, we continue to seek those lending institutions that can help us with long term debt because at the end of the day, we are making long term investments so we need to raise additional long term debt and long term capital.
For our portfolio companies, we worry too that they will not be able to make long-term investments because they don’t get senior loans that are long term. There are a fair number of regional banks that make new loans, based primarily on assets of the business and these asset based lenders are certainly more clinical than they were last year and we hope to get some of the banks to extend long-term loans to our portfolio companies. That’s what they need. We are supplying money now for that and we would like to see the banks come in and do lower cost lending to our small businesses.
I think the banks will be better over the coming years. So we are looking forward to that. Our concerns continue to be the economy. It is not strong and we are not sure of the direction it is going. Japan and Europe are both tethering on recession. I don’t think we are on a recession line yet but we have got a lot of things to overcome at our company.
While oil prices continued to be a risk for the economy, high gas prices just continue to make cars and trucks more expensive to use and they hurt every business in the United States. So we need to develop more oil and gas here in the United States. Hopefully we are on the track to do that.
Inflation is on the way. The government keeps printing money. The only reason we have not seen it is because of the turmoil in the global economy and people all over the world buying money and buying bonds here in the U.S., and so we can keep printing that bonds and keep spending. Unfortunately spending by the Federal government is just unsustainable. We keep talking about this each time and the Federal deficit is now $16 trillion and rising. Federal government is now borrowing about 45% of every dollar they have spent and I think in 2013, it maybe as much as 50%.
The government has now delayed reporting their GAAP accounting until January. This makes me believe that the fiscal year 2012, which ended in September, it will be greater than $1.1 trillion loss. The amount of money being spent on the war in Afghanistan continues. Although we are told that they are going to end that in 2014 and we certainly hope that all our troops come back soon and we can end that war in Afghanistan.
We have the financial cliff, as they call it, coming up at the end of this calendar year and cutback on the areas of government spending as well as increasing in taxes from where they are today and of course we have all kind of problems with regard to resolving that. I would note that the country has spent about $3 billion on this election and we are at the same place we were a year ago. So it's still very worse. I don’t know how that problem is going to be solved that that’s coming up on January 1.
Trade deficit with China and certain other nations is still extremely high and unsustainable. China continues to subsidize their industries to the disadvantage of our businesses. They subsidize, for example, their oil prices significantly. This means our companies can't compete with them and, of course, jobs leave the United States and go to Asia.
The outsourcing of jobs, just because our taxes are too high and our regulations are too extensive means businesses continue to go overseas. The continued stagnation in housing industry, although it seems to be coming back and the related disaster in home mortgage defaults continues to drag down our economy. Obviously that’s was the main cause of the recessions and there is just a lack of a quick recovery there. There does seem to be life in housing area now and we are still hoping that that will come back soon.
European debt crisis may hurt some of our companies, but we not many, although we are fortunate that we don’t have any investments in Europe and not many of our companies are dependent on Europe for their sales.
The unemployment in the U.S. is far too high. The numbers used by the government don’t include those who are working part-time but seeking full-time and it doesn’t include those who have stop work altogether. The more realistic number for unemployment rate is probably around 18%.
In spite of all those negatives, the industrial base of the U.S. is not a disaster today. It keeps chugging along. The lingering recession is having an impact on our portfolio companies but again, it's not disastrous like it was in '09 and 2010. Like most investment companies, some of our portfolio companies have not seen an increases in revenues or backlog, however there are some others that are seeing good increases and there are few that are just great increases and doing very well. So it’s a very uneven recovery and economy that we have today.
While we believe the downturn that began in 2007 is beginning some improvement. In October 2012, our board of directors declared our monthly distribution to common shareholders of $0.07 per common share for each of the months of October, November and December of 2012. The board will meet again in January to consider to vote upon the monthly distributions for January, February and March 2013. Through the date of this call we have made 109 monthly cash distributions to our common shareholders and before that we had several quarterly distributions to our shareholders.
This is the important purpose of the Gladstone Capital Fund. That is to distribute net investment income to our shareholders monthly and do it consistently. We believe, this differentiates us from other BDCs and other stocks in general and we are hopeful that we can continue a strong recovery.
At the current distribution rate for common stock with the common stock priced at about $8.50 yesterday, the yield on the distribution is now, it's very high, it's about 9.9%. Also of note, we are trading at $8.50 and the net asset value is $8.98. So we are trading at about 95%. One item I would like to mention here on our valuations and we noted in our 10-Ks and 10-Qs is that we look at our senior and subordinated notes in the same company and we value them at the same price even though one is senior and one is subordinated.
This is really like the unitranche loans, except that we tell you the amount we think is senior and the amount we think is second lien so you can see how we look at the risk profile but rather than having a unitranche which we price at one price, we just have senior and second lien that we price at the same price. So not much different from some of the other business development companies and lenders.
Our monthly distribution on the preferred stock is 7.125% on our term preferred which translates in to about $14.84 monthly or $1.78 annually. The stock closed yesterday at $25.30. So that’s a little greater than a 7% yield.
Please go to our website at gladstonecapital.com and sign up for email notifications. We don’t send our junk mail, just news about the company and there you can find us on Facebook, keyword is TheGladstoneCompanies and you can follow us on Twitter at GladstoneComps.
Please mark your calendars folks. We are having our annual meeting of stockholders on Thursday, February 14, 2013 at 11 AM at Tysons Corner, Hilton, located in McLean, Virginia on 7920 Jones Branch Drive. Resolutions to be voted on will be released shortly. That is, the proxy will be coming out shortly and we hope to see all of you there. Come vote your shares there or vote on them and then show up and you ask a lot of questions. We always have a good time with our shareholders at those meetings.
In summary, I think we are moving forward at a good pace and we hope to make continued progress in 2013. We are stewards of your money, as we say every time and we will stay the course and continue to be conservative and disciplined in our investment approach, whilst driving to deliver shareholder's value to all of us and we are shareholders, of course, in the company as well.
Okay, we will open up the lines now. So if the operator will please come on, we will take some questions from shareholders and analysts who can ask questions.
(Operator Instructions) The first question comes from Ryan Lynch from Stifel Nicolaus.
Ryan Lynch - Stifel Nicolaus
You guys deployed about $2.6 million this quarter in new investments. Was that a function of you guys not seeing deals of favorable terms because of froppy market conditions we have heard from other market participants?
George Stelljes III
This is Chip Stelljes. I would say yes. That’s definitely the case. So we have some internal and external statistics that we have been following for several quarters now. We saw more opportunities in the last six months than as a percentage of total deals that closed than we had in our previous two years. But a number of those got priced and structured in ways that we thought were not reflective of those solid risk returns. So I would say, yes, it's been very froppy.
I would also say that, in general, talking with other market participants that there have been fewer opportunities. So therefore, just in general, more dollars chasing fewer opportunities period.
I will also say some of this is just the lumpiness of the business, given our size, that one or two investments roll over through the following quarter. The quarter before this one we had sizeable new investment deployment. The quarter before that we didn’t have much. So a lot of its time, the deal is given that we are closing, two, three, four deals over a three and six month periods.
Ryan Lynch - Stifel Nicolaus
Another question, Ryan?
Ryan Lynch - Stifel Nicolaus
Yes, kind of along the same lines. Because we had froppy market conditions in the big run up in the credit market, I see you guys reduce your syndicated loan portfolio to about $78 million from $91 million. Was that a function of you guys selling those syndicated loans in the strong credit markets? And if so, do we expect to see that in your fiscal Q1?
George Stelljes III
What's going on in that market place is very similar to what was going on 2006 and 2007? That is, people will come in, issue a good piece of debt. We like it. We buy it. A year later, they have grown a little bit more and the market place became stronger. So as a result they go back and get cheaper debt and usually they payoff the second lien debt that we might be holding and replace it with all first lien debt. So we saw multiple payoffs during the last year due, I think, primarily to the strength of the syndicated loan market place.
So we didn’t have any voluntary sales.
Ryan Lynch - Stifel Nicolaus
Okay, and then kind of a last and kind of a more broad-based question. In fiscal year 2012, you guys had some issues with new non-accruals and markdowns in the portfolio. So I was wondering what are you guys doing different in 2013 to help eliminate or reduce some of those issues going forward?
George Stelljes III
Well, a couple of things. I think as we noted in the script, almost all of our non-accrual issues, as a matter of fact, all of our non-accrual issues continue from our legacy portfolio originated prior 2008 and we are working through those. I would say the remaining non-accruals have all, I don’t say have all, but all feel like they have stabilized and you see some of the uptick in marks this quarter, certainly from a cash flow perspective.
We have seen some of our companies that were in need of cash are now generating cash. So we will continue to work through the remaining non-accrual and work hard not to have new ones go in non-accrual. So I think the thing we are doing differently is just focusing on businesses that we think can withstand another significant downturn and that maybe one difference than how we are now underwriting versus how other who people don’t have a legacy portfolio are underwriting.
Other questions, Ryan?
Ryan Lynch - Stifel Nicolaus
No. That’s it. Thanks, guys.
Okay, do we have any other questions?
Yes, we have a question from Casey Alexander from Gilford Securities.
Casey Alexander - Gilford Securities
The $21 million that is listed as principal payments in the new quarter, are there any exit fees associated with those?
I don’t think there is.
George Stelljes III
No, it's almost all syndicated as well. All but $1.7 million are syndicated payoffs, as David described.
Casey Alexander - Gilford Securities
Okay, thank you.
(Operator Instructions) All right, there are no more questions at the present time. So I will turn the call back over to management for any closing remarks.
All right. Thank you very much and we appreciate all the participation and again, if you have questions we have an 800 number. You can call in and ask questions. That’s the end of this conference call.
Thank you. That concludes today's teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.
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