Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

NGP Capital Resources Company (NASDAQ:NGPC)

Q1 2013 Earnings Call

May 7, 2013 11:00 am ET

Executives

Stephen K. Gardner – President and Chief Executive Officer

L. Scott Biar – Secretary, Treasurer, Chief Compliance Officer and Chief Financial Officer

Michael Brown – Managing Director and Head of Middle Market Investments

Analysts

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Robert J. Dodd – Raymond James & Associates, Inc.

Thomas J. Tarka – Merril Lynch

Operator

Ladies and gentlemen, welcome to your NGP Capital Resources Company's First Quarter 2013 Earnings Call. At this time, all lines are in listen-only mode with a Q&A session to follow. (Operator Instructions) As a reminder, this conversation is being recorded. Now, I would like to turn the call over to your host, NGPC President and CEO, Steve Gardner.

Stephen K. Gardner

Thank you, Keira and thank you all for joining us in today’s call. With me today is Scott Biar, our Chief Financial Officer. I will make some opening remarks after which Scott will provide some details regarding the financial results for the quarter. Then I’ll discuss the portfolio activity and prospects for new investments and we will open it up for Q&A.

First I need to remind everyone that our remarks today may include comments which would be considered forward-looking statements. And such statements are subject to many factors that can cause actual results to differ materially from our expectations as expressed in those forward-looking statements. Those factors are described in more detail in our SEC filings and I refer you to our website or to the SEC’s website to review such filings. We undertake no obligation to publicly update or revise any forward-looking statements which speak only as of today’s day.

Okay for the first quarter of 2013 we reported total investment income of $5.8 million and net investment income of $2.3 million or $0.11 per share. During the first quarter we funded approximately $54 million in new investments including two non-energy middle market deals and received cash proceeds of approximately $27 million from repayments or redemptions of portfolio investments.

As of March 31, 2013 the total fair value of our portfolio was $231.2 million and our current investment portfolio balance is at its highest level since December 2008. Overall I’m quite pleased with the growth of the portfolio and the flow of new investment activity. We have closed over $70 million of new investments thus far in 2013, and increased our portfolio value from $214 million at the beginning of the year to $231 million at the end of the first quarter. It’s roughly $249 million as of today.

The total fair value of the portfolio at the end of the first quarter was 94% of cost and we had two investments on non-accrual, the common preferred stock which has been on non-accrual since 2009. And our GMX Resources senior-secured second priority notes which we placed on non-accrual as of this January 1 of this year, following the Chapter 11 filing that they made in April.

I’ll now turn this call over to Scott Biar, our CFO to discuss the details of our quarterly performance. Scott?

L. Scott Biar

Thank you, Steve. For the first quarter of 2013, total investment income was $5.8 million or $0.28 per share compared to $5.6 million or $0.26 per share in the first quarter of 2012 and $6.1 million or $0.29 per share in the fourth quarter of 2012. The 5% sequential decline was primarily a function of the timing between sales and repayments and investments and the closing of new investments. The 3% year-over-year increase in investment income was primarily attributable to higher overall investment portfolio balances, offset by slightly lower weighted average yields.

Operating expenses for the first quarter of 2013 totaled $3.5 million, increasing $800,000 compared to the first quarter of 2012 and increasing $100,000 compared to the fourth quarter of 2012. The sequential increase was primarily attributable to higher interest costs on higher debt balances supporting the investment portfolio, and the year-over-year increase was the result of higher interest costs and higher management fees to our investment advisor as a result of higher total asset balances.

Other non-interest G&A costs were fairly stable across all periods at roughly $1.3 million per quarter. Our net investment income for the first quarter totaled $2.3 million or $0.11 per share compared to $3.0 million or $0.14 per share in the first quarter of 2012 and $2.8 million or $0.13 per share in the fourth quarter of 2012.

We had net realized losses totaling $228,000 during the first quarter of 2013, which is primarily made up of two items. We sold all 229,000 shares of GMX common stock during the quarter for a total of $750,000 resulting in a realized loss of $1.6 million from the time we received that stock in September of 2012. And we realized a $1.3 million gain from the sale of $10 million face amount of EP Energy senior unsecured notes at an average price of 113.38.

We had net unrealized depreciation totaling $9.7 million or $0.46 per share in the first quarter of 2013, primarily resulting from the reduction in estimated fair value of our investments in the GMX notes of $7.4 million and Spirit preferred units of $2.8 million.

If you recall from our last conference call, GMX failed to make its interest payment on the 9% second priority notes which was due on March 4, shortly before we released earnings for the fourth quarter of 2012. At that time, GMX’s failure to pay did not constitute an event of default under our indenture unless the failure to pay had continued for 30 days. Meanwhile, GMX had engaged its financial advisor to assist the exploring financial alternatives including a potential balance sheet restructuring.

On April 1, GMX filed for protection under Chapter 11 of the U.S. Bankruptcy Code and rose in pursuing a structured reorganization or re-capitalization. GMX announced that it is pursuing an asset fail agreement with certain senior first-lien creditors to acquire substantially all of GMX's operating assets and undeveloped acreage. Once the contemplated asset sale agreement is finalized, the sale would be subject to a public auction, pursuant to Bankruptcy Court approval.

From our secured second-lien status within GMX’s capital structure, we have little influence on GMX’s Chapter 11 proceedings and given the direction that GMX’s reorganization process seems to be heading, we believe the value of our investment at this point is reduced to normal auction value. We’ll continue to monitor GMX’s bankruptcy proceedings closely and do what we can to attain some value for our investment, which will depend in large measure on the outcome of the auction process.

With respect to Spirit we restructured our $13.5 million term loans of Spirit in January, essentially converting $5.5 million into a conforming senior loan yielding 8% and converting the remaining $8 million to equity in the form of preferred units which represent a preferred interest in a 100% any equity distributions and those certain hurdles on that after which Spirit management would participate in 25% of such distributions.

In addition, we committed an additional $4.5 million of borrowing capacity and a Tranche B term loan earning interest at 15% per year of which $1.5 million was outstanding at March 31 of 2013. Borrowings under the Tranche B term loan are primarily being used for relatively low-risk, high return development projects at Spirit’s oil and gas properties which we believe are likely to increase production and reserve values of such properties, thereby increasing the value of our equity position over time. With less than four months into the restructuring facility and results to date has been in accordance with Biar’s plan.

Our net decrease in net assets resulted operations during the first quarter of 2013 was $7.6 million or $0.36 per share and we declared dividends of $0.16 per share bringing our net asset value as of March 31, 2013 to $9.05 per share, a 5.4% decrease from our year beginning of the year net asset value of $9.57 per share.

At March 31, 2013, we had cash and cash equivalents of $30.3 million and we had $72 million outstanding under our investment facility. Our long-term debt to capitalization ratio at the end of March was 27% and our net debt-to-capitalization ratio was 16%.

After funding new investments in 2013 and repaying some debt outstanding under the investment facility, we currently have $64.5 million of debt outstanding under the investment facility and approximately $7.5 million currently available for borrowing.

We are currently in discussions with our bank group as well as with potential new bank lenders as we seek to increase the size and extend the maturity of our investment facility. We also were affected with the self registration statement yesterday that could be used in the future for public debt or equity issuances.

In addition to some relatively liquid positions within our portfolio, we anticipate that we will also have a number of repayments for sales and investments over the next few months that will also provide additional capacity for new investments.

With that I will turn the call back over to Steve.

Stephen K. Gardner

Thanks, Scott. I would like to highlight a new investment we made recently and then I will provide an update on our limited term overriding royalty interest investment with ATP. Our expansion into the non-energy middle market space continues to bear fruit. In addition to the two investments we closed in mid-February, last week we closed our third non-energy middle market investment, a $17.5 million second-lien term loan with Nekoosa Coated products. Nekoosa is a Wisconsin based leading manufacturer of carbonless sheets and an expanding line of specialty products used in the commercial printing industry.

Proceeds from our term loan, we used to fund a portion of Nekoosa’s recent acquisition of IGI Corporation, which owns RTape, a leading manufacturer of application tape and other products used in the signage and digital printing business and CET Films, a manufacturer of custom extruded films for a range of niche graphic arts and ancillary markets.

The Nekoosa term loan earns interest payable in cash had an annual rate of 13% plus paid-in-kind interest of 2% and matures in October of 2018.

I’m pleased with the acceptance that NGPS received as a middle market investor and I’m encouraged by our progress in developing this portion of our portfolio. As of right now, middle market non-energy investments make up approximately 18% of our investments portfolio with a weighted average yield of over 13%.

As you heard me say before at this stage and in the foreseeable future we expect to continue to focus primarily on providing debt capital to the energy industry. But we also expect that the middle market portion of our investment portfolio will grow as a natural component to our energy portfolio.

The non-energy middle market sector provides many opportunities for relatively small sized individual investments and quality business with attractive yields and reasonable risk profiles. Smaller-sized investments which are needed to comply with the diversification requirements of regular investment companies, but generally hard to find in the pure energy space that are risk returned metrics that makes sense for us.

Turning our attention to our investment in the term loan writing royalty interest and producing offshore oil and gas properties operated by ATP. On April 13, 2013 operations and productions seized on a Gomez property under the orders of the Department of the Interior on behalf of the Bureau of Safety and Environmental Enforcement.

The Gomez chatting was anticipated as we were aware of ATP’s bonding issues with the BOEM. As a result of the Gomez shutdown, our total cash flows attributable to ORRIs will be reduced. But we should continue to receive our share of monthly production payments attributable to the Telemark properties, as well as the portion of the production payments attributable to Gomez prior to April 30, 2013.

During the first quarter of 2013, we received a total of $6.2 million of production payments under the ORRIs of which $3.4 million of 55% was Telemark production and €2.8 million or 45% was from Gomez production.

Actuarial production from the Telemark properties alone currently generates sufficient cash to cover our contracted rate of return and also to return a portion of our capital investment on a monthly basis. We believe that we’ll continue development of the Telemark reserves, future production at Telemark will be more than sufficient to fully repay the amounts owe to us under the limited term overwriting royalty interests.

The court sanction sale process involving ATP’s offshore oil and gas properties including the Telemark and Gomez fields continues to proceed and that as far notice with the core, compare four qualifying bids for summer all off its assets. The court supervised auction is currently scheduled to occur this week and the trial regarding the question of whether our investment represents a purchase of real property or financing arrangement has been postponed until July 25. We will continue of course to monitor this process closely.

I’d like to make a couple of further comments on GMXR. Our decision to write-down our investment in GMX was driven by two principle events. First, after the end of last year trading activity in the notes that we own completely dried up, our valuation as of 12/31/2012 was based on the note’s trading in the last week of the year at roughly 58% at par. Without any trading activity to indicate value, we changed our valuation methodology to rely on our traditional methodologies of discounted cash flows and market multiples of production and estimated reserve and acreage values, because much of the potential value of GMX enterprise is held in undeveloped acreage about which we do not have detailed information. We took a very conservative approach to valuing the enterprise.

Second, when GMX filed its initial motions and is bankruptcy proceeding in early April, it became clear that they were proposing a quick sale process heavily favoring the senior lenders who they proposed as a provider of debt financing. This was a surprising development. In December, GMX agreed to $30 million super senior facility with very favorable terms for the providers including a large equity interest in the company.

Then in February, GMX paid off the remaining $25 million or so of the 2013 unsecured notes at maturity in cash and at par. Our view was that the management was willing to take these two steps, they must have had a clear view as to how they were going to re-capitalize or reorganize the company and continue its development plans.

It makes no sense whatsoever to issue super senior debt in December with a large equity grant and payoff unsecured debt in cash at par in February and then 45 days later, filed for bankruptcy with a plan for an accelerated liquidation.

With respect to the portfolio credit quality, as you are aware, we rate all of our investments from one to seven with one being the highest credit quality. At the end of the first quarter, our average portfolio rating on a dollar weighted fair market value basis was 4.2 compared to 4.1 at the end of last year.

Of the 23 rated investments, we held as of March 2013 compared to December 2012, 14 investments retained the same ratings, two investments declined, one improved and we added six new investments during the quarter.

As we discussed earlier, we placed GMX on non-accrual at the beginning of this year. Deal flow has been reasonably steady in both the energy sector and in the middle market. We have closed four new investments totalling $71 million thus far this year and currently have a signed commitment for a fit, which is now in due diligence and documentation phase. This new investment will be approximately $10 million and is a traditional oil and gas development well. We expect this transaction to close sometime during this quarter.

We maintain our outlook, but the new investment activity in 2013 could be similar in magnitude to what we experienced in 2012 with $100 million to $125 million of new investments, depending on the rate of redemption availed early of capital among other factors.

In summary, well I am disappointed with the initial direction the GMX resources bankruptcy is going and the impact is hired on our earnings and their asset value. I am otherwise pleased with our quarterly results and the investment activity thus far this year. Our investment portfolio is growing with lower issue and sector concentration that we have had in the recent past. We are building a foundation for top line growth, solid core earnings with some opportunities for equity upside and strong overall portfolio credit quality.

At this time, I will turn the call back over to Keira and we will take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Troy Ward from KBW.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Hey, good morning guys.

Stephen K. Gardner

Good morning.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Steve, real quick on GMX; you said the company paid off some unsecured, don’t you have a second lien on that?

Stephen K. Gardner

No Troy, what we have a second lien is our oil and gas properties at acreage. They paid them off with cash and so…

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

So in your covenants, shouldn’t there have been something that would preclude them from paying off debt that sounds like it should be subordinate deals?

Stephen K. Gardner

It is subordinate to respect no debt instruments have covenants that prohibit you from hanging out there at maturity and maturity at 2013, that’s four years. One thing, there is an issue in bankruptcy and the unsecured credit estimated is clearly fighting the procedures of the process that they are putting forward. We aer trying to slow it down to get an order ourselves and we are assisting in that effort, though we are not part of the committee as we are secured.

One of the issues is, clearly the $25 million or so that was paid out was reference payment and if we can get this thing to about long enough, we already are able to challenge that. It’s just a non-sensible bank or management to do in my view.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Right, yeah, it sounds like they clearly were doing something that was going to harm you and they had to adorn it. Switching gears over to the non-energy side, can you talk about how those investments are being sourced whether was it Nekoosa was sponsored or non-sponsored transaction?

Stephen K. Gardner

Sure. Michael Brown run our middle market operation, he has been in the business for 30 years and he is sourcing all of our investments. This particular deal with the Nekoosa was sponsored by Wingate Partners, a group that Michael started business with for and that was quite well, but actually it was a deal that we’d bid on and not won and then the original provider faded from the scene or couldn’t move quickly enough, so we came back to [Allen] and got the terms that we wanted and literally closed the deal.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. And is there any point in the capital structure that you are focused on in the non-energy side, do you feel like there is better opportunities ceratin senior second lien years, where in the capital structure do you think you’re probably focused?

Stephen K. Gardner

Well, depending upon the company obviously. We will look at all the capital structure. What we have focused on today has been and when we could be there, we will be secured. In this particular case, we are second lien, but it’s really a function of cash flows of the company and the solidity of the growth plan. So we are willing to look pretty much anyway, though obviously if we have an equity investment like we do in one of the big deals, it’s a small co-investment, when we like the risk reward.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. And has your 10-Q been filed yet, I don’t think it has, has it?

Stephen K. Gardner

No, probably, Wednesday.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay, can you give us kind of an update on ATP and from a evaluation perspective what that looks like at the end of the quarter?

Stephen K. Gardner

Sure, happy to do it. We are still valuing as of March 31 and through today, we still value at the liquidated principles that we have and the principal reason is in fact at December 31 of last year, our valuation excluded the Gomez properties. We thought at some point they were going to be shutdown and so we took conservative approaches excluding from the analysis. So our valuation is entirely based on the Telemark properties and at this point, we are not taking any write-down the ground of NGP and expect that will be fully covered.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

That’s great. And then so just give me the remainder on the overwriting royalty, how that works? It’s basically you’re entitled to return plus of course your principal back and as long as they are pulling product out of the ground, you get a portion of that product.

Stephen K. Gardner

That’s right. On the Telemark properties, we have 5% overwriting royalty interest, which means we actually own 5% of the production strain.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay.

Stephen K. Gardner

And so each month, we are paid the proceeds from that production, I guess last month it was probably $1.2 million or $1.3 million of the total that we’ve received from that portion was attributable to Telemark. The feature of the way the overwriting royalty interest term structure works the first proceeds are paid to us in the form of the return on our investment that rate I believe is 13.2% per annum and then the balance reduces the outstanding principal sum.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay, all right guys. Thanks.

Stephen K. Gardner

Sure, Troy.

Operator

Thank you. And our next question comes from the line Robert Dodd from Raymond James.

Robert J. Dodd - Raymond James & Associates, Inc.

Hi guys, just one general question and then one specific one. I mean just kind of to firs point on the competitive environment both in the middle market and then oil and gas side of it. Obviously we are seeing and broadly not in that market share plan, but is that, considerable spectrum impression and that which multiple is still moving up and a lot of competitors moving downstream because it got forced up by CLOs et cetera. Are you seeing any change in the landscape of the type of players you are seeing like now and either energy or even emerging trends in the middle market versus what you saw over the course of last year or I think this kind of stable for you I think?

Stephen K. Gardner

It’s both, so I guess the best way to answer Robert is, we are seeing some pressure on the yields. The situations we have got involved in of late, the two we closed in February, more can offer much of last year and Nekoosa was a new acquisition of a deal. We looked at the initial financing at Nekoosa last year as well. Those were more – Nekoosa is more of a special situation and so I think that the ultimate terms we got were pretty favorable from our perspective.

Overall, we are not seeing a lot of new entrants, but it’s already a crowded stage. And so we just continue to mind the sponsor relationships and right now we rely on Michael’s reputation and our reputation of being able to get to the finish line quickly and with certainty, so we are trying to distinguish ourselves that way.

In the energy space, they have got a number of names that are showing up and it tends to be much larger funds; they are Carlyle, Highbridge, several others (inaudible) they tend to deal on largest space than we do from the energy perspective. And so on the small end, it’s pretty much the same players. It is once again the energy space is lot more lumpy and irregular I guess is the best way to put it, particularly at the small side that we are focused on.

So I think that we are experiencing the overall trend of greater competition particularly in the middle market, but it’s not really impacting the deal flow that we are taking a look at right now.

Robert J. Dodd – Raymond James & Associates, Inc.

Good, excellent and then also at dividend side, you obviously have declared the dividend payable that second quarter, first quarter dividend just basically at $0.16 to $0.11 can you give us some thoughts and I realize it’s a Board decision rather than yours said by, can you illuminate any on what the strategy is for that going forward with this, but now you are not earning?

L. Scott Biar

Sure Robert, we haven’t changed our approach at all and we intend to through the year earn the dividend that we pay out. We expect it to be a little closer to $0.16 in the first quarter, but really the GMX non-accrual had a pretty significant impact and we had some redemption that we initially didn’t anticipate.

Right now, we sill look at the new deals we put on and we’re about to put on as well as our expectations about a year while we don’t provide specific guidance, we’re comfortable at the $0.16 level that we will make up the shortfall in the first quarter through the balance of the year and right now we’d expect we’ll be able to maintain that significant redemption.

Robert J. Dodd – Raymond James & Associates, Inc.

Okay, got it, thank you.

Operator

Thank you. (Operator Instructions) our next question comes from the line of Steven Fitzgerald, a private investor.

Unidentified Analyst

Hi, I’d like to say first I have owned this stock for quite a few years and it’s like the worst performing stock in my portfolio. You have continually dropped in net asset value of this company for over five years, why should we be paying you this fees when you are loosing money every quarter and why shouldn’t you just liquidate the company, we could probably get $9 back or $8.50. Right now the stock is trading below $6.40, we’re paying you all these fees to manage our money and all we get as a dividend but actually a net asset value has continued to decrease, what’s the upside for this company when your track record is really quite poor?

L. Scott Biar

Well, Mr. Fitzgerald, while we did decrease the net asset value this past quarter and the first quarter this year, I believe the four quarter prior to that that asset value was increasing.

Unidentified Analyst

Five years ago the net asset value of this company was over $12.

L. Scott Biar

I am not going to argue, we are a long-term trend, I am well aware what the net asset value was. What I am saying is it hasn’t continually decreased. Performance hasn’t been where we would like it we had to….

Unidentified Analyst

But we are paying you a lot of money to perform well.

L. Scott Biar

And we’re doing our best to perform well, Mr. Fitzgerald.

Unidentified Analyst

So, well, I am almost at the point where I might want to tell you quit investing, give us our money back.

L. Scott Biar

I am happy to answer any other questions, but I really don’t have any comment for that.

Operator

Thank you. And our next question comes from the line of Thomas J. Tarka from Merrill Lynch.

Thomas J. Tarka – Merril Lynch

Good morning every one.

Stephen K. Gardner

Good morning.

Thomas J. Tarka – Merril Lynch

Just a couple of questions, can you give me a sense as to the amount of the portfolio right now that’s what I would call non-performing or inaccruable as you call them?

Stephen K. Gardner

Yes. It’s a common issue and the GMX are to that are all nonaccrual, that on a cost basis was approximately $13 million, out of the total portfolio today of $249 million on a value basis.

Thomas J. Tarka – Merril Lynch

Okay. So percentage wise it’s about approximately 5%?

Stephen K. Gardner

That is correct.

Thomas J. Tarka – Merril Lynch

Okay, yeah because CNS sometimes when we reach through the portfolio investment activity, it’s not that easy to break out. Total versus performing versus there is little in (inaudible) or work out. A simple question with the GMX property, I’m sure you’ve probably heard enough about this. Such has been and how is it, but do you have counsel or do you have a group that you can work with to do the work out.

Stephen K. Gardner

Yes.

Thomas J. Tarka – Merril Lynch

Activities that need to be done in a bankruptcy setting?

Stephen K. Gardner

Yes, so we do. But the holders of the issue that we own there are probably half a dozen of exercise and we have been organized as a group for several months and we do have counsel.

Thomas J. Tarka – Merril Lynch

And if I understood you earlier you’d mentioned that the funds have already been paid out to the senior holders or it’s in collateral?

Stephen K. Gardner

No, no. The mention that I made earlier was, there is an unsecured issue that matured in February and they paid that off. They met that maturity. Otherwise they would not have been expending any further funds other than I am not aware there maybe continuing the development program. But they did have as of year-end I think roughly $40 million or $50 million of cash and the balance sheet. And then at this point they are heading towards a liquidation with a credit that would dip lenders and there is a hearing coming up shortly in which the unsecured creditor is proposing an alternative or intend to propose an alternative dip facility and to slowdown the auction process, so that one might be able to achieve better value for the entire state. I have no idea how that proceeding is going to work out, whether the court will grab a slower process or whether they will hold to the original filings made by GMX.

Thomas J. Tarka – Merril Lynch

Okay. And it sounds like they paid out the unsecured holders prior to filing?

Stephen K. Gardner

Yes, roughly 45 days. So it would clearly fall into a category with challengeable preference payment, I am not an attorney but that’s my understanding.

Thomas J. Tarka – Merril Lynch

All right. Now it certainly sounds like done with in tact. And I know you alluded to in some other call but it sounds like the space that you were in originally 5, 6 years ago oil and gas so to speak is not only getting crowded or overcrowded but maybe more competitors than ever as you branch out into the things like the Nekoosa are you more depending on your partners or copartners to do the due-diligence or do you have the staff to look unto these other industries from the stand point of structure?

Stephen K. Gardner

No, we do not rely on our partners, micro brand – middle market efforts, they’ve been doing this for 30 years, quite successfully has a lot of experience into the staff, our analytical staff and support staff we have has gotten up to speed quite quickly and we have what I would term a very rigorous due-diligence process we have walked away or turned away well over 100 transactions we’ve looked out over the last year to manage the course three. So we feel very comfortable and confident in our underwriting process here, but the deals that we’ve done, I would describe as very much fairway middle market deals. We’re not stretching or reaching and if we see something is unusual in a structure or proceeding we’ll be happy to pass on it.

Thomas J. Tarka – Merril Lynch

And I certainly don’t recall the aspirations or the strategic directions with us but this was alluded to earlier by one of the other callers. I guess it was the board that made the decision to institute a buyback versus having lets say the money goes towards your distributions or they’re not really dividends, I guess you would call them distributions.

L. Scott Biar

Well actually we do call them dividends. We are a (inaudible), yes it was the board that approved the buyback, it wasn’t authorized initially a year ago in November, a $10 million buyback, today we’ve spent $4.2 million. We have $5.8 million remaining under that authorization and as we see the ability to buy on an accretive basis and we’re in an open window period, we would intend to continue.

Thomas J. Tarka – Merril Lynch

I see and you know obviously we’re going truly unique time here with the banks who have sort of frozen up and some of the middle markets as far as lending which was their traditional business maybe 5 – 10 – 15 years ago, do you see opportunity in any particular industries now or is it more specific to somebody sure, you should deal with more enviable cash so to speak.

But we are (inaudible) looking at traditional middle market deals. And it’s through our connections, we are not focused on any specific industry. These businesses that we are looking at our cash flow businesses and pretty light on assets, but really we are not looking at early stage or venture, we are not looking at technology, it’s pretty much manufacturing, distribution, healthcare services, business services, those types of industries that we are focused on.

Thomas J. Tarka – Merril Lynch

I see. Any forecast on distribution going at the year end this year?

Stephen K. Gardner

No, we have got a tradition and never providing guidance. What we say is we declare the dividend quarter-by-quarter and we inspect to over the course of the calendar fiscal year to earn the dividends on net investment income basis.

Thomas J. Tarka – Merril Lynch

And it looks like you currently have about 18% of your portfolio in treasuries, cash?

Stephen K. Gardner

We’ve a treasury facility that we don’t really count that as part of our investment during $30 million Steven, it fairly and doesn’t include those treasuries and in portfolio. It is a facility we use to facilitate the other investments that we want to make.

Thomas J. Tarka – Merril Lynch

So that has been used as collateral?

Stephen K. Gardner

Correct.

Thomas J. Tarka – Merril Lynch

Okay. Thank you.

Stephen K. Gardner

Thank you.

Operator

Thank you, Sir. And our next question is a follow up from the line of Troy Ward from KBW.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Hey, just real quick as a follow up to the last line of questioning on the private equity side, first I’ll ask you is Mike Brown available on the phone to speak or is he not?

Stephen K. Gardner

Sure, he is right here with us.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Great. Well, I’m sorry about it. If you’ve been answering, I didn’t recognize the new voice. Michael, one of the things that as a follow, there are lot of BDCs and most of them are dealing in the middle market. I just like to get your kind of outlook and maybe your thought process when you think about a transaction especially with related to club deals. So the deals you are looking at, are you taking a majority piece of the tranche that you are going into or are you taking the minority, are you clubbing up with other lenders, just kind of broadly speaking, how do you view the market?

Stephen K. Gardner

Sure. The deals that we have done to date, we have been the sole provider in the Tranche. There has been another thing you would like there we have been the junior capital provider. We certainly would consider looking at transactions in which we will participate with some other providers as long if the terms and the structure make sense, but to date everything that we have done, we have been the sole provider.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. And then as you view your equity partners and let’s just use the – when the – whatever the name of that was, and Wingate was the sponsor in that transaction. How do you view the relationship with the private equity sponsor, as the data link or how important do you think that is and do you pay attention to how much capital they have left in a particular fund and whether or not the rates and new fund and things like that?

Stephen K. Gardner

Absolutely. I mean, we’re – I’d say that the sources that we look at are obviously funded private equity sponsors, management team and the sponsor. It is the category in terms of transaction. Obviously the quality of the equity sponsor is huge for us in addition to the quality of the management team and the experience. I have known Wingate’s for a long time. Their track record is top tier. They have got a significant equity commitment and investment in Nekoosa-IGI transaction which brings a lot of attention from them, depth of operational oversight in the portfolio, they’ve had previous experience, acreage successfully, successful experience in the paper industry in the past. So, all those factors really gave us confidence that this was a transaction worth doing, in addition to the senior lender and our relationship with them as well.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. And then one final question Michael. If I recall, you do have some SBIC experience historically in your path.

Michael Brown

Yeah.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Is that a potential avenue that you see for this platform and is that a realistic goal or do you think you can get SBIC license?

Michael Brown

Yeah, just above.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. Has that process started?

Michael Brown

No.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay. All right. Thanks for the update guys.

Michael Brown

Sure, Troy.

Stephen K. Gardner

The Troy, the new middle market deals we’ve closed are with different sponsors.

Troy L. Ward – Keefe, Bruyette & Woods, Inc.

Okay, great. Thanks.

Operator

Thank you. And I have no additional questions in the queue at this time. I would like to turn the conference back to NGP for any concluding remarks.

Stephen K. Gardner

Thank you, Keira and then thanks to all of you for joining us. We appreciate your interest and look forward to speaking here next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: NGP Capital Resources' CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts