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Executives

Brook Taube - Chief Executive Officer

Rick Allorto - Chief Financial Officer

Analysts

Jonathan Bock - Wells Fargo Securities

Mickey Schleien – Ladenburg Thalmann

Greg Mason - KBW

Casey Alexander - Gilford Securities

Chris York - JMP Securities

Andrew Kerai - National Securities

Douglas Harter - Credit Suisse

J.T. Rogers - Janney Capital Markets

Medley Capital Corporation (MCC) F4Q 2013 Earnings Conference Call December 10, 2013 10:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Medley Capital Corporation’s Fourth Quarter and Fiscal End 2013 Financial Results Conference Call. Today’s call is being recorded for replay purposes. All participants are in listen-only mode. (Operator instructions)

This conference call may contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements. Actual outcomes and results could differ materially from those forecast due to the impact of many factors. The company does not undertake to update its forward-looking statements unless required by law. The fourth quarter 2013 investor presentation is available in the Investor Relations section of the company’s website, www.medleycapitalcorp.com.

I would now like to turn the call over to the company’s Chief Executive Officer, Mr. Brook Taube. Please proceed, Mr. Taube.

Brook Taube

Thank you and welcome everybody to Medley Capital Corporation’s quarterly earnings conference call. We appreciate everyone taking the time to join us this morning. As usual, a quick agenda. First, we are going to discuss the dividend for the quarter ended September 30. Second, we will provide an update on originations and the overall portfolio, including review of the origination activity for this quarter and our outlook going forward. Third, we will provide an update on our SBIC activity and also discuss liquidity and capital availability for new investments. And finally, a quick review of the financial results for the quarter and the fiscal year ended September 30.

But before we start today, I would like to acknowledge all of the shareholders for their continued support. And on behalf of the entire team here at Medley, we would like to thank you. Our team works so hard to produce the results for the shareholders and I would also like to take a moment to acknowledge our team here at Medley from the very strong and our growing investment team, to our experienced and conscientious asset management team and to an ever vigilant finance and operations team. You all have delivered extraordinary effort and results over many years, but in particular this fiscal year ending 2013 for Medley Capital Corporation.

We completed the fiscal 2013 year having delivered net investment income of $1.53 per share and dividend totaling $1.46 over the same time period. Our portfolio increased 86% in 2013 to $749 million and 57 borrowers. And the team at Medley is now 60 people. Our effort remains on investing in high-quality and growing borrowers, providing a diversified portfolio of senior secured loans and delivering steady and consistent net investment income and as a result dividends to the shareholders. We are off to a very strong start in this calendar 12/31 quarter and we look forward to similar results in our fiscal 2014.

Now, turning to the dividend on October 30, the Board of Directors declared a dividend of $0.37 per share for the quarter ended 9/30. The dividend will be payable on December 13 to shareholders of record on November 22. As we have stated in the past, we expect net investment income will meet or exceed the current dividend as we look forward assuming we are able to deploy capital as planned. On originations, during the quarter ended September 30, we originated $106 million in five new investments and four existing investments. We received amortization and repayments totaling $47.5 million resulting in net portfolio growth of $58.5 million over the quarter. We are pleased with the overall volume and our pipeline remains strong. A quick note on pricing, our direct investment opportunities and non-sponsored opportunities remains stable and we continue to find attractive risk-adjusted returns in the market. The deal flow remains strong and we expect to continue to deploy capital in a steady and consistent manner.

Now, turning to the portfolio, the portfolio consists primarily of senior secured loans. It remains stable and well-diversified with 57 portfolio companies across 24 industries and an average position size of 13.1 million. Our expectation is that we will continue to diversify as we grow the overall size of the book. And as I mentioned on our prior call, we intended to increase the floating rate portion of the portfolio. During this past quarter 97% of our new origination volume was floating rate. We expect to increase the overall floating rate portion of the portfolio in the quarters ahead. Overall the credit quality of the portfolio remains stable with no new loans on non-accrual. And over this past quarter we increased NAV per share to $12.70.

Turning now to the SBIC, during the September 30 quarter we drew down an additional $25 million of SBIC leverage to end the quarter with the total of $30 million drawn. This was consistent with our guidance last quarter. A large portion of the current investment pipeline qualifies for the SBIC and we expect to continue to draw the leverage in a consistent and measured manner throughout 2014.

In November we received the commitment letter from the SBA for an additional $50 million of SBIC leverage. This is referred to as the second turn of leverage. And based upon our existing $50 million of regulatory capital at the subsidiary, we now have a total of $100 million or the full two turns of leverage available. We may in the future increase the regulatory capital at the SBIC subsidiary to a total of $75 million, an increase of $25 million in the regulatory capital, which would give us access to an incremental $50 million from the SBA bringing the total leverage potential to $150 million for the subsidiary.

In addition to the SBIC financing capacity, during the quarter we increased our commitments on the revolver and term credit facilities by $20 million bringing the total commitments on the combined revolver and term facility to $365 million. As of September 30, we had drawn only $2.5 million on the revolving credit line. The combination of the lower-cost revolver and the SBIC term financing provides us with low-cost financing capacity for our future investments as we grow the portfolio.

I would now like to turn the call over to Rick Allorto, our Chief Financial Officer to review the third (sic) (fourth) quarter financial results.

Rick Allorto

Thank you, Brook. For the three months ended September 30, the company’s net investment income and net income were $14.4 million and $15.1 million or $0.41 per share and $0.43 per share respectively. The net asset value per share was $12.70 at September 30 compared to $12.65 at June 30. For the quarter total investment income was $27.5 million and was comprised of $21.7 million of interest income and $5.8 million of fee income.

Total operating expenses were $13.1 million and consisted of $6.9 million in base and incentive management fees, $4.2 million in interest and financing expenses and $2 million in professional fees, administrator expenses and general administrative expenses. For the quarter, the company reported net unrealized appreciation of $700,000 and a net realized gain from investments of $23,000.

The company’s net investment income for the fiscal year ended September 30, 2013, was $46.4 million or $1.53 per share and net income was $39.4 million or $1.30 per share. For the fiscal year total investment income was $89 million and was comprised of $73.2 million of interest income and $15.8 million of other fee income. Total operating expenses for the year were $42.6 million and consisted of $22.5 million in base and incentive management fees, $13.4 million in interest and financing expenses and $6.7 million in professional fees, administrator expenses and general and administrative expenses.

For the fiscal year, the company reported net unrealized depreciation of $7.2 million and a net realized gain of $300,000. As of September 30, the company’s total outstanding debt equaled $256 million including $2.5 million outstanding on the revolving credit facility. The company’s debt to equity ratio excluding SBIC debt was 0.44x. As of September 30, we had approximately $262 million of available capital under the revolving credit facility and in the SBIC subsidiary.

That concludes my financial review. I will now turn the call back over to Brook.

Brook Taube

Thank you very much Rick. Again, we are very pleased with the performance for our fiscal year ending 2013. This quarter and our fiscal 2014 are already off to a strong start. I would again like to thank all of the shareholders for their continued support. And we can now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Jonathan Bock from Wells Fargo Securities. Please proceed.

Jonathan Bock - Wells Fargo Securities

Good morning and thank you for taking my questions. Brook, a few overall market questions first. Would you give us a sense of perhaps repayment activity in the fourth quarter to-date whether you would determine that to be elevated in areas of the lower middle markets or not considering you got a pretty good view now that we are only a two or three weeks away?

Brook Taube

I am not going to comment specifically, but I feel comfortable saying that the quarter is off to a strong start and we expect to continue to grow the portfolio at or above our average portfolio growth.

Jonathan Bock - Wells Fargo Securities

Okay. And now how about a sense of both sponsor versus non-sponsor transactions and which one you see to be one, the most active and two, in terms of relative attractiveness the one that generates the better risk adjusted return?

Brook Taube

Sure. During the quarter we saw actually a significant increase in volume in deals in general. Our production was consistent with our prior quarters in terms of the nature, the source and the yield. But as we canvass, we track very carefully the total volume that comes over the Medley platform and volumes were up substantially. The increased volume generally related to the sponsor channel. So I think that is clearly a reflection of their activity. But the dollar volume that was lost on price both Medley participating and walking away at too low a yield, others, I’m sure did it. That was one component that was up during the quarter. And we also had a significant increase in the number of sponsors that they themselves lost on their purchase indications. So that would tell you that most of the incremental volume versus our baseline volume was related to sponsors and it continues to be a competitive market both on the credit providing side as well as I believe for the sponsors themselves as they look to secure high quality investments.

In terms of pricing we have seen stable yields over the quarter. If you look carefully at the yield metrics, we look at it both in terms of our volume as well as that provided by our third party valuation people and other market sources. The yields in the private middle market are stable to up. And I think if you looked at any benchmark using high yield or any other proxy that obviously compressed during the period. So I will say I believe as you look at the market opportunities today, our team of 60 people with deep capacity to originate is a very differentiated platform versus those that are participating in syndicated or sponsor only origination.

Jonathan Bock - Wells Fargo Securities

I couldn’t agree more and thank you for the color. And then just a few more, now I noticed a slight shift towards the first lien category or classification of loan as opposed to what we have maybe seen in second lien or subordinated debt, can you talk about that mix shift, was it deliberate or was it largely a function of just what is being provided in the deal pipeline and how much of that is considered last out financing?

Brook Taube

None of it’s considered last out. These are true first lien, when we say first lien we actually have a first lien. Second comment is I would not read too much into the shift. Our first lien and floating rate was a very, very high percentage of this quarter’s origination volume. If you go back several quarters, we have indicated the desire to increase floating and a target to increase first lien. It’s substantially coming in the direct channel versus the sponsor channel. We intend to continue to increase the floating rate exposure and we intend to continue to work hard to generate first lien opportunities.

Jonathan Bock - Wells Fargo Securities

And then maybe shifting gears to a question that’s extremely important to investors in the wake of spread compression, you mentioned the NII will cover the dividend and I noticed a little additional commentary, please forgive me if I mischaracterized it, but in the event that originations effectively go according to plan or something to that effect, and as I look at historical dividend coverage, particularly from cash flows because there is a PIK component here, which on one is going to disagree with, because there is a PIK component here as well as a substantive amount of fee income, walk us through what happens to the dividend in the event that originations subside or fees decline?

Brook Taube

I will try to answer as many of those as I can and we can circle back if I missed it. Our percentage of our portfolio that was PIK is down 100 basis points. We have told people that’s declining. Our percentage of our income that is PIK as I said as a percent of total income is below - at or below industry standard. So there is nothing specific to the Medley portfolio and our PIK interest is declining. As a consistent part of the portfolio, PIK is a first lien obligation where we have a first lien, it’s a not a fee, it’s not hard to get, we have done it for years, it’s just an additional yield that you are seeing in our sort of enhanced return on equity. So I would say it’s declining, it’s under control, it’s part of our business and we are below average in terms of the industry.

Now, the color on origination for the quarter, I believe I said the same thing as I have said the last few quarters. Clearly, we have to execute to drive the growth of the portfolio. We have done that over three, four years now. We intend to continue to do that. I don’t see any reason why we will not be able to.

The fee piece, this quarter was higher than expected prepayment. If you look carefully at the prepayment fee, they were about 32% of our fee income, that’s high, it’s expected. We have a natural role to make loans to good companies. They prepay you, you’ve done hard work, you have fees, they give it to you and you redeploy the capital, the natural business role. If you look today at this quarter you took the interest plus normal origination fees we cover the dividend. What happens if we have no prepayment fees in hands we were still – we had a lower NII this quarter. We have a higher yield, because the portfolio assets would actually be working for us. So as you get assets back, you must redeploy them. This is a natural ebb and flow. We expect it to be an additive, but idiosyncratic as we go forward. The good news is you get capital to be able to redeploy and we see very high quality opportunities in our pipeline today. Did I miss anything?

Jonathan Bock - Wells Fargo Securities

No, no, you got it. I can always circle back. And then just the last industry specific or company specific relates to URT or United Road Towing. I noticed that you put an additional $5 million in and there was perhaps an increase in the small amount of PIK, which we understand. Can you walk us through the reason one – put more money into that as well as in your first lien I’d imagine or at least I just go back and look, what’s ahead of you in the event that there is a problem with that specific credit?

Brook Taube

Sure. I commented on URT over the period, the mark increased 4.5%. That’s a reflection of a couple of things. One, de-leveraging at the company, they’re selling non-core assets and de-levering and stable performance, 2013 EBITDA approximately at $10 million. So this is a stable company that had – as we talked about in the prior call, a shortfall in performance, but it has stabilized, as part of the effort, the sponsor and Medley combined put capital in. We provide a liquidity and support. We received the fee part of that increase in effectively back in payment for us was an additional fee. So here is an example of having boots on the ground, complete control of a credit that’s now stabilized, like driving excess fees in return for shareholders. And we expect a resolution on this sometime in the first half or the middle of 2014. Does that answer the question Jonathan?

Jonathan Bock - Wells Fargo Securities

Yes, it does. Thank you very much.

Brook Taube

Thank you.

Operator

Your next question comes from the line Mickey Schleien from Ladenburg. Please proceed.

Mickey Schleien – Ladenburg Thalmann

Good morning Brook and Rick and thanks for taking my question. Jonathan asked most of the questions that I had in mind, but I just wanted to follow-up on return of capital, there was $10.9 million for the 10-K for fiscal 2013 is that due to different tax treatment for PIK or is something else going on there?

Rick Allorto

Sure thanks. Maybe that’s really a function of the issuances during the year and some of those new shares participating in that respective quarterly dividend.

Mickey Schleien – Ladenburg Thalmann

Okay and my second question is do you see any scope to reduce the credit facilities interest rate or commitment fee given the growth in the asset base?

Brook Taube

It’s a very good question, it’s on our mind and if you would like to call the credit providers with me, I would be happy to have your support.

Mickey Schleien – Ladenburg Thalmann

No problem, happy to do it.

Brook Taube

Thanks Mickey.

Mickey Schleien – Ladenburg Thalmann

Thank you.

Operator

Your next question comes from Greg Mason from KBW. Please proceed.

Greg Mason - KBW

Great, thank you. One quick modeling question, just on the fee income was a big driver. I think your comments were the prepayment fees were about 32% of the income and then you also mentioned you had a fee from the URT reworking, can you talk about how much that was just so that we can kind of get a base fee income number versus the one-time items?

Brook Taube

Let me get back to you, I don’t have the exact numbers in front of me, but a large portion – if I remember correctly it was about $400,000 that was the fee and then approximately $1 million is a deferred fee that is back ended. We didn’t fund it, but it’s to us a maturity and we expect at this point. And as I think you can tell from the mark on the position, there is a very reasonable expectation that, that fee is now collectible with a target of 2014.

Greg Mason - KBW

Great. And then all of your new investments this quarter were floating rate, what is the average LIBOR for that you are seeing on those new investments and just new investments in the pipeline in general?

Brook Taube

It still remains in our market. This is now giving you some color. I can come back to you with the specific number, but it’s approximately 1% to 1.5%. In some cases we are still seeing floors and certainly no less than 1%.

Greg Mason - KBW

Okay, great. And then on the SBIC to put in the additional $25 million of regulatory capital, can you do that at anytime or do you have to wait until you utilize the full $100 million you have approval for and then do that?

Brook Taube

We can do it at anytime. I do want to just reiterate that we have a plan to deploy that SBIC capital in aggregate on the steady and consistent manner. There are two reasons. One, we are trying to source and select the appropriate assets from our origination pipeline. And two, we like all SBIC managers have to indicate and I wouldn’t say stick to but have the intention the stick to a multiyear plan that has been laid out in the advance to the SBA. So I would expect to continue to see us deliver that capital – deploy that capital and then you could model an injection of equity capital that would go in at about the time it was needed. Did that make sense?

Greg Mason - KBW

Yes, great. And then one additional question to the extent that you can talk about Exide, I believe it is in bankruptcy right now. The mark went up pretty nicely though in the quarter can you give us any updates there?

Brook Taube

Sure, give me one second I will give my – during the period I think the mark went up to 72, it’s trading higher right now. The mark on that position is quoted in the market.

Greg Mason - KBW

Okay.

Brook Taube

What happened over the quarter, a couple of things in our estimation, this settles an existing settlement on the cleanup was less than expected in California. And there was a significantly lower draw on the debt. If you look at the economics of the company, the sales are tracking and we are looking at a budget of north of $100 million of EBITDA for fiscal ‘14. So our estimate for recoveries was mid – perhaps mid to high 80s. So even at today’s mark that position still looks to generate a 20% IRR for us.

Greg Mason - KBW

Great. I appreciate it.

Operator

Your next question comes from the line of Casey Alexander from Gilford Securities. Please proceed.

Casey Alexander - Gilford Securities

Hi, good morning and thanks for taking my question. I am a little curious about the originations in the sort of the way that they are presented in the presentation materials? I mean, their floating rate, but with yields that average in the mid 13s and there is a line in there that these are yields to maturity utilizing industry standard forward LIBOR curve assumptions? Was the difference between the yield to maturity is sort of the out of the box yield on these deals?

Brook Taube

I think what we have said you see in the footnotes, we are using the current forward curve for LIBOR. At some point, if you look at yield to maturity even look at the swap fixed rate equivalent for floating rate assets or use the forward curve that happens to be a mathematical axiom that the forwards on a cumulative basis equal the swap rate. So I think if you use either the swap rate equivalent or the forward curve, it would give you a snapshot today of what is the total return for the position would be if LIBOR follow the forward curve. And I will say our observation is that it typically does not. We just don’t know which way it is going to not follow it.

Casey Alexander - Gilford Securities

Okay. Secondly, within your peer group, Medley seems to have pretty much the lowest percentage of equity participation of any BDC out there sort of what’s – what do you get back for taking such minimal equity representation in the deals that you are doing?

Brook Taube

Stability and consistency. And I think the other comment I will make is we are debt guys, we are not equity guys. We do get upside, we get participation features, we take them, but we really be ourselves as credit providers. The whole team goes to work everyday with the objective to invest a dollar and try to get back $1.50 or $1.60 over the life of the three to four-year asset. So the mindset is tuned towards deploying capital safely, getting it back in a consistent manner that’s not consistent with having an opinion on the equity upside of a situation. So I think you should expect to continue to see that and if people want to pure play on senior credit in the middle market, we are happy to provide that.

Casey Alexander - Gilford Securities

Okay, great. Alright, well thanks for taking my questions.

Brook Taube

Thanks Casey.

Operator

Your next question comes from the line of Chris York from JMP Securities. Please proceed.

Chris York - JMP Securities

Good morning. Most of my questions have been asked, but I did want to follow up on Jonathan’s question. Could you quantify the split between sponsored investments and non-sponsored investments during the quarter? And then what was the yield differences between those two types of credits?

Brook Taube

I am not going to quantify the difference. I will tell you that we have observed consistently now in the past year 200 basis points or greater differential in deals that are direct to borrowers.

Chris York - JMP Securities

Okay. So you are just not going to release that information?

Brook Taube

That’s right.

Chris York - JMP Securities

Okay, fair enough. Alright, thanks.

Operator

The next question comes from the line of Andrew Kerai from National Securities. Please proceed.

Andrew Kerai - National Securities

Hi, good morning. Thank you for taking my questions and congrats on a good quarter. Again, most of mine have also been answered. And I just had kind of a quick question here from a capital planning standpoint, so you are sitting currently with your debt to equity SBA borrowings of about 0.44x, use of the capital is obviously in September, you have $120 million or so roughly of dry powder if you get the $75 million regulatory capital in the SBIC sub. I mean, can we assume probably an equity raise is probably something that’s – that would be relatively low in your sort of – in your sort of means of funding employee kind of getting closer to that 0.6, 0.65 kind of targeted debt to equity range?

Brook Taube

Sorry Andrew. I am not sure, I understand the question. Could you just ask that again?

Andrew Kerai - National Securities

Yes. So basically just kind of looking at where your leverage is now, the fact that you have so much in dry powder and the SBIC sub, I mean, there is an equity raise kind of something that we can consider more or less off the table and so you kind of get to that 0.6 to 0.65x or so targeted debt to equity level?

Brook Taube

I think I understand the question. Let me answer it in two parts. First, we are not going to comment on issuance. We have told folks generally and we intend to stick with it that we are going to fully lever the balance sheet, drive return on equity and not issue below book. So we are not changing our TAC on any of these measures. In terms of capital availability, you had the numbers correct, we ended the quarter at 0.44 times as we invest capital that goes up. We expected to drive that back up to 0.6 to 0.7 for sure. The SBI subsidiary as I mentioned to Greg during his comment, it would be appropriate to model a steady and consistent takedown on both the debt and then the injection of the equity and the two factors there are originating the correct assets as well as meeting our plan that we laid out and I believe is appropriate for all SBIC managers and that is to say invested capital like we do at the whole business in a very steady and consistent manner over time.

Andrew Kerai - National Securities

Certainly, thank you for the color. And I think you have kind of given guidance previously at about 70% or so of the originations are SBIC funding eligible, is that number still sort of approximately correct?

Brook Taube

Yes.

Andrew Kerai - National Securities

Okay, great. Thanks for the color guys and congrats again on the good quarter.

Brook Taube

Thanks very much.

Operator

The next question comes from the line of Douglas Harter from Credit Suisse. Please proceed.

Douglas Harter - Credit Suisse

Thanks. Just following up on an earlier question, can you view how you kind of view the trade-off of the lower kind of day one yield from the floating rate versus the potential benefits if and when rates rise?

Brook Taube

Sure. Doug, are you asking could we get higher yields if we were fixed rate versus floating today?

Douglas Harter - Credit Suisse

Yes, and that and sort of how you would view that the trade-off and sort of what that differential would need to be for you to find the floating rate more attractive like you are today?

Brook Taube

Sure. Well, our overall comment is that our sector and I think specifically Medley Capital Corp it should not be viewed as an interest rate play. We are balanced in terms of our portfolio fixed and floating. If you remind at the beginning of 2011, we were a little lonely in suggesting of being fixed rate makes sense given our view on the economy deflation. We said over a year ago that we saw performance increasing in the economy that also was a lonely view 12 to 18 months ago. We continue to deal like the economy is stable. We’re seeing mid single-digit revenue and EBITDA in our middle market sector that’s trending obviously above GDP. So, our view is commonly was stabilizing and is doing okay and that’s the view we held per year. The intention go to floating rate is that our view like most is the asymmetry that favors rising rates versus falling is starting to become more favorable.

So, I think you should expect migration. I believe we went from about 45% floating to 53% or maybe my numbers are wrong, but the portfolio percentages growing, but it’s not jumping up the page. We’re also focused on overtime as we said terming out the liabilities that combination of the baby bonds as well as SBIC which will be fixed rate terming the liabilities out. So the portfolio is positioned relatively balanced manner if anything slight positive to the LIBOR reset and that some indication is in the K that gives you a framework for the effect on that investment income. And the final comment coming back to interest rate sensitivity if you look at a portfolio like ours which has an average life of say 3.5 years, these assets are not terribly sensitive to rates and the role in the book would effectively allow us over a very reasonable period of time to redeploy capital with higher yields. So, this is not a significant issue fixed versus floating, it’s not going to have a dramatic effect on NII. We don’t believe, but we are positioning it for a sort of short to medium-term reasonable expectation of the fed taking the curb back. Does that answer the question?

Douglas Harter - Credit Suisse

It does. Thank you.

Brook Taube

Okay, thanks.

Operator

Your next question comes from the line of J.T. Rogers from Janney Capital Markets. Please proceed.

J.T. Rogers - Janney Capital Markets

Thanks for taking my question. Brook, I saw a slight uptick in three and four rated credits, is this due to credit migration or is it just a function of fair value marks on a preexisting three and four rated credits?

Brook Taube

I think it really is just a fair value mark, so I mean the big part of that four was Exide. So I don’t think there has been no change if anything I would say that the portfolio is stable and the slight increase in NAV reflects a flat to slightly positive overall credit.

J.T. Rogers - Janney Capital Markets

Okay great. And then I guess just more generally I was wondering if you could talk about where you think we are in the credit cycle, maybe the broader economic cycle? It seems like at least the new investments we can pull out if at your scheduled investments. It seems like they appear to be more pro-cyclical, so I want to get a sense of what kind of risk you guys are looking to take and think are reasonable at this point in the credit cycle?

Brook Taube

Sure. Our view is that we are in middle innings and it’s a very favorable environment to provide credit. There is a couple of factors, asset valuations are still coming back to the pre-great recession levels and our loan value our advance rates are consistent. I think it’s fair to say that yields were higher and risk was lower two years ago. But in the context of high yield and other very liquid credit indices tightening to historical ties, we still have excess return here, and we think taking very sensible risks. As I mentioned we can risk not only our portfolio, but also our pipeline I mean the financials of the borrowers we are looking at and revenue and EBITDA tracking ahead of GDP is a positive sign. Anecdotally we do feel confident in obviously all of the borrowers we are committing capital to. And we are also seeing activity in terms of deploying capital, adding plants and equipment and doing acquisition on the small scale, which would we hope indicates an increase in confidence. At some point the GDP will reflect that we believe. So we – if you look at the availability of cash the high quality balance sheets we have in the U.S. barrowing community and the overall level of returns we feel like it’s really a very good time to be a capital provider on the credit side.

J.T. Rogers - Janney Capital Markets

Alright thanks. And then I guess just on new investments, what is generally the LTV, maybe not any specific investments you made in the quarter, but just I was wondering what market is right now?

Brook Taube

I don’t have the exact number, but we are sticking to our historical average of lending at or below 60% loan to value. If you look at a hard asset valuation one of the deals comes to mind was 57% loan to value. I think from a lending capacity, if you put a pin in 3.5 to 4 four times EBITDA through Medley debt that seems 60% loan to value. You have to be persuaded that the market was trading at 6-6.5 times EBITDA or higher. And as we are going in purchase price on the average acquisition that we are seeing today as well as third party independent firm valuations, which we see every quarter on many companies, we have going in debt to EBITDA would also be consistent within at or below 60% loan to value at a going in number. Does that make sense?

J.T. Rogers - Janney Capital Markets

Yes, I think you are saying the 6 to 6.5 times purchase number, but it seems like no market purchases at least from the anecdotal evidence we see that it’s more in the eight to nine times?

Brook Taube

Sure. As I said you would have to be persuaded that enterprise values were at least 6 to 6.5 if you looking at 60% loan to value. And I agree with your statement that today as we sit here the average multiple clearly is higher. So we are at four times and the multiples are eight we are at a 50% loan to value, which again reflects my point we are at or below 60% loan to value and that’s consistent with our historical multiyear origination track.

J.T. Rogers - Janney Capital Markets

Just somewhere in the 4 to 5 times debt to EBITDA?

Brook Taube

No. I would say somewhere four or below, 3.5 to 4.

J.T. Rogers - Janney Capital Markets

Okay.

Brook Taube

Just because multiples go up to eight times, it doesn’t mean you have to lend five times. So we are going to stick with our –there is an absolute level of debt to EBITDA and then there is also the percentage of the enterprise value. So if anything ironically we would try to pull back and we might see lower loan to values even the multiples are expanding. And that’s a reflection of holding debt to EBITDA with some sense of a cap from a portfolio perspective.

J.T. Rogers - Janney Capital Markets

Okay. And these are on new investments or the existing portfolio?

Brook Taube

New investments.

J.T. Rogers - Janney Capital Markets

Okay, great.

Operator

Your next question comes from the line of Jonathan Bock from Wells Fargo Securities. Please proceed.

Jonathan Bock - Wells Fargo Securities

Just one last follow up, and thank you. So the percentage of sponsor deals perhaps is elevated, Brook, can you give us a sense of the percentage or the general breakdown of what you would consider sold source syndicated credit versus your participation amongst the club of other smaller middle market vendors?

Brook Taube

Sure. I think on the portfolio basis, today it’s still 60% to 65% direct. We have seen elevated volumes and I will give you an example. Over the last quarter as I mentioned our historical – between $1 billion and $1.3 billion of total volume that we review this past quarter was $1.9 billion. So if you look at the total volumes you will clearly see an increase in sponsor activity. We are still driving a core pipeline of opportunities in our market. So that $1 billion to $1.3 billion would be consistent for the excess volume comes we believe from the sponsor. It’s too early to predict a secular shift, although I think everyone is aware that the active sponsors have been active. We will see if that continues through this quarter. We have seen them active this quarter and into 2014. That’s too early to call a shift, but I will comment only that we are still seeing high quality borrowers that are growing, not all of whom want to sell their company to a sponsor. So that’s our target is the high quality company that sees Medley as a viable alternative to selling their company. And that volume will continue to be part of our new origination as well as the existing portfolio.

Jonathan Bock - Wells Fargo Securities

Thank you very much.

Operator

That concludes our question-and-answer session. I will now turn the call back to Mr. Brook Taube for final remarks.

Brook Taube

Well, thank you again everybody for your continued support. And from the entire team at Medley I would like to wish everybody a happy and healthy holiday season. And we will talk to you in February. Have a good holiday.

Operator

That concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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