Gladstone Capital's CEO Discusses F2Q2014 Results - Earnings Call Transcript

| About: Gladstone Capital (GLAD)

Start Time: 08:30

End Time: 09:10

Gladstone Capital Corporation (NASDAQ:GLAD)

F2Q2014 Earnings Conference Call

May 01, 2014, 08:30 AM ET


David J. Gladstone - Chairman and CEO

Bob Marcotte - Executive Managing Director and President

Melissa Morrison - CFO

Michael LiCalsi - Internal Counsel and Secretary


Ryan Lynch - Keefe, Bruyette & Woods, Inc.

Vernon Plack - BB&T Capital Markets

John Rogers - Janney Montgomery Scott


Good day, ladies and gentlemen, and welcome to the Gladstone Capital Corporation's Second Quarter Ended March 31, 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, David Gladstone. Please go ahead.

David J. Gladstone

All right. Thank you, Charlotte, for that nice introduction and hello everyone out there and thank you for calling in. This is David Gladstone, Chairman. This is the quarterly earnings conference call for shareholders and analysts of Gladstone Capital. Common stock traded under the symbol GLAD and the preferred stock traded under the symbol GLAD-P for preferred.

Again, thank you all for calling in. We're always happy to talk to our loyal shareholders and potential shareholders. I'd like to give an update on the company and our portfolio and our business environment. I do wish we could do this more often. An invitation is always open to all of you that if you're in the Washington D.C. area, we're here in McLean, Virginia, outside Washington D.C. and please stop by and say hello. You'll see a number of the team members here and I think they're the finest team in the business.

Please take the opportunity to visit our website at and sign up for our e-mail notification service. We don't send out any junk mail, just timely news about the company. You can also find us on Facebook, keyword, The Gladstone Companies, and you can follow us on Twitter under Gladstone Comps.

Now, our Internal Counsel and Secretary, Michael LiCalsi, will make a statement with our forward-looking statements.

Michael LiCalsi

Good morning, everyone. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements involve certain risks and uncertainties and other factors even though they are based on our current plans which we believe to be reasonable.

Many of these forward-looking statements can be identified by the use of the words such as anticipates, believes, expects, intends, will, 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 filing and our registration statement as filed with the Securities and Exchange Commission, all of which can be found on our website at or the SEC's website,

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, except as required by law. Please also note that the past performance or market information is not a guarantee of future results.

Now, we will begin the presentation today by hearing from Gladstone Capital's President, Bob Marcotte.

Bob Marcotte

Good morning, everyone. I will start off by reviewing Gladstone Capital's business and investment activity for the quarter, the portfolio in general and then conclude with an update on the investment climate and marketplace in which we operate.

As many of you know, we provide loans to the U.S.-based businesses targeting companies in the low end of the middle-market with $20 million to $100 million of revenue and $3 million to $15 million of earnings before interest, taxes and depreciation. Providing capital to these companies allows them to grow, make acquisitions of other companies and may be used to refinance existing debt that is coming due.

We invest in private companies with profitable operations, sustainable competitive positions and experienced management teams. Typical using a combination of senior and subordinated loans and sometimes we buy a small amount of equity in the business. The investment activity on the quarter for our second fiscal quarter ended March 31, 2014, we invested a total of $29.4 million in three new proprietary companies.

We invested 11.1 million of debt and equity financing in Edge Adhesives Holdings, a leading developer and manufacturer of innovative adhesives, sealants, tapes and related solutions, which was a co-investment with Gladstone Investment, an affiliated BDC which invested an additional $16.7 million under the same terms as Glad.

We invested $11.3 million of debt and equity financing in WadeCo which is a chemical distributor servicing independent oral operators with production chemicals used for corrosion prevention, separation of oil, gas and water once extracted, bacteria growth management and other services.

Lastly, we invested $7 million of debt and equity financing in Lignetics which is a manufacturer and national distributor of branded wood pellets, which are used as a renewable fuel source for home, industrial heating, animal bedding, moisture and other products.

In addition, down the quarter, we had $8.1 million of follow-on funding to existing investments and two exits during the quarter including POP Radio and BAS Broadcasting. We also ended the quarter with 51 companies in our portfolio and are slightly ahead of our planned investment levels and pacing well going into the second half of our fiscal 2014.

Regarding the quality of portfolios, on a whole, our existing portfolio valuation was down quarter-over-quarter. As of March 31, we had a net increase of 3.9 million in unrealized appreciation from last quarter, bringing the cumulative unrealized depreciation to 62.5 million. This move consisted of net unrealized appreciation totaling 10.7 and a reversal on exit of $6.7 million.

The net unrealized appreciation for the quarter ended March 31 was primarily due to valuations related to two specific companies; Midwest Metal Distributors and RBC Acquisition. Midwest Metal Distributors is an aluminum service center on the Midwest and despite strong sales performance and it being current on all loan obligations, the continued depressed levels of aluminum prices and impact on the company's margins we have moved to adjust the valuation in line with prevailing enterprise valuations.

With respect to Reliable Biopharmaceutical that is a manufactured active pharmaceutical ingredient and high purity ingredients for generic drug manufacturers. Certain of Reliable's largest customers have experienced production-related delays which has deferred Reliable of near-term revenues and impacted the associated valuation.

Our investment in Sunshine Media Holdings remains our nonaccrual and is still a work in process. The business does appear to have stabilized and cash flow is positive that has a way to go and is focused on improving profitability. In addition on the quarter, we placed Heartland Communications, a small radio broadcaster, on nonaccrual due to liquidity concerns primarily. These two companies have a combined debt cost basis of 33.8 million or 10.3% of the cost basis of all debt investments in the portfolio, and have a combined fair value of 9.2 million or 3.3% of the fair value of all debt investments in the portfolio.

We remain diligent and focused on managing these nonaccrual investments so we can help them turn into profitable operations. We've had some success in turning several of our nonaccruals around in the last several quarters, and we're able to recover a meaningful portion of the capital from them. However, this does not mean we can do this again or that we will not place other companies on nonaccrual in the future.

Looking at the quality of income in the portfolio, our portfolio's income and our paid-in-kind and other non-cash sources of income continue to be below our peak BDC peers and represent less than 1% of our investment income over the last several quarters. We recognize a significant number of one-time income over the past several quarters which is primarily due to what we call success fees.

Success fees are similar to PIK, however, they typically do only upon a change of control of the company and are recorded when received in cash. We received success fees totaling 1.7 million over our entire fiscal 2013 and for the quarter ended March 2014, we received 700,000 related to portfolio companies that had an early payoff of their loans and one in terms that is related to a dividend recapitalization which triggered the prepayment of a portion of their recurring fees.

As of March 31, 2014, approximately 47.2% of our interest bearing debt investments had success fees related to them. The weighted average contractual accrual on these success fees is 2.2% per annum of the accruing principal balance and at quarter end we had off-balance sheet success fee receivables of 16.3 million which equates to about $0.77 per share that would be owed to us if paid. Due to the contingent nature, there are no guarantees that will be able to collect any of these success fees and as such, we do not include them in our reported deals and we generally do not recognize them in our financial statements until received in cash.

With respect to the backlog and loan opportunities in our outlook, we continue to see increased competitive pressures in the lending marketplace for senior and subordinated debt investments, which has resulted in lower yields for increasingly riskier investments. Competitive competition is most pronounced at the larger end of the middle-market where the supply of capital from banks that can grow assets and large investment funds without stripping the leverage finance opportunity to advance.

In spite of this increased competitive environment, we have been able to maintain a weighted average yield on our accruing investments of approximately 11.6% for the past several quarters. This is comprised of approximately 10.6 for our weighted average syndicated loans and 12% for our weighted average proprietary loans. While the investment climate is more challenging, we will continue to be selective and build our portfolio with sound investments in sustainable businesses with attractive risk adjusted returns while maintaining our overall portfolio yields.

We are planning to leverage our established reputation in the low end of the middle-market and an investor-oriented financing approach to more aggressively engage the private equity sector sponsored community in the coming quarters as they represent a substantial portion of the potential investment opportunities in the low end of the middle-market. These constituents value the dedicated market focus, the level of engagement needed to understand the business and generally welcome the opportunity to establish a long-term financial partnership.

Given the competitive syndicated loan marketing conditions including limited covenants, the elevated leverage levels and lower yields, we have not seen much in the way of attractively priced investments of late in this segment. We will continue to expect – we would expect these will not be a significant part of our asset growth for the near term. The overall level of refinancing activity appears to have bated with the extended period of lower interest rates and capital availability, which should result in a more normal pace of investment origination contributing to net asset growth.

So, despite the broader investing market pressures, we continue to be optimistic that Glad is well positioned to originate attractive quality deals and will generate solid asset and income growth over the coming quarters to enhance the bottom line for the benefit of shareholders.

Now, I'll turn it to our Chief Financial Officer, Melissa Morrison, who will report on the funds financials for the quarter. Melissa?

Melissa Morrison

Thanks, Bob. Good morning. I will review Glad's financial results and overall portfolio for the quarter. Starting with the statement of operations for our second fiscal quarter of 2014 ended March 31 as compared to our first fiscal quarter ended December 31, 2013, net investment income was 4.5 million or $0.21 per share, slightly up when compared to the prior quarter of 4.4 million or $0.21 per share.

Investment income increased by 11.2% from the three months ended March 31 as compared to the prior quarter primarily due to $1 million increase in other income from increased success and prepayment fees as well as dividend income in the current quarter, mostly received from Francis Drilling Fluids which was recapitalized during the quarter.

Interest income and debt investments was consistent quarter-over-quarter as we had two exits during the quarter in addition to the new originations that Bob mentioned earlier. Offsetting the increase in investment income for the quarter was an increase in operating expenses of 22% as compared to the prior quarter primarily due to the decline and we now have incentive fees payable to our investment advisor, which were credited in the prior quarter.

The credit last quarter was needed to ensure distributions to stockholders were covered entirely by net investment income and no incentives and credit was necessary this quarter. Over the last three years, 100% of common and preferred stock distributions paid were covered by net investment income. This highlights our continued commitment to prudent growth.

The low net investment income on our statement of operations realized and unrealized changes in the fair value of our portfolio. Realized gains and losses come from actual sale or disposal transactions of our investment. When we mark investments to fair value on our statements of assets and liabilities, the change in fair value quarter-over-quarter is recognized in our statement of operations as unrealized appreciation or depreciation. This is a non-cash event and is required by generally accepted accounting principles in the U.S. or GAAP rules for investment companies.

During the quarter ended March 31, we recorded a net realized loss of 2.5 million primarily related to our sale of BAS Broadcasting this quarter. We were able to exit BAS for 1.1 million higher than it was marked previously, an impact of approximately $0.20 per share on NAV. As Bob discussed earlier, we are downing that two nonaccrual companies year-over-year.

For the quarter ended March 31, we recorded net unrealized depreciation of 3.9 million which included reversals of 6.7 million, a cumulative unrealized depreciation; 6.9 million of this related to the sale of BAS and 10.7 million of net unrealized depreciation during the quarter which Bob touched on earlier. This decrease was partially offset by unrealized appreciation on certain companies in the portfolio due to increased operational and financial performance and to a lesser extent an increase in certain comparable multiples.

Over the entire portfolio, the net unrealized depreciation for the three months ended March 31 consisted of approximately 5.2 million on our debt investment from 5.5 million on our equity investments. Overall, our entire portfolio was fair valued at approximately 82% of costs as of March 31, which is consistent with the prior quarter and up from the 77% as of our fiscal year ended September 30, 2013.

The cumulative net unrealized depreciation on our investments as of March 31 was comprised of approximately 86% of investments made in 2007 and prior. We believe this depreciation is primarily due to the lingering effects (indiscernible) and the performance of certain of our portfolio companies indeed to certain industries that were disproportionally impacted.

The bottom line on our statement of operations is a change in net assets resulting from operations as it is a combination of net investment income, net unrealized appreciation or depreciation and net realized gains or losses. For the March 31, 2014 quarter end, the net decrease in net assets resulting from operations was a negative 2.1 million or a negative $0.10 per share versus an increase of 10.5 million or $0.50 per share in the December 31, 2013 quarter end.

The quarter has recorded a decrease of 12.6 million or $0.60 per share is primarily driven of the larger net unrealized depreciation recorded this quarter as compared to the net unrealized appreciation recorded last quarter.

Now let's review Glad's statement of assets and liabilities. As of March 31, we had approximately 308 million in total assets at fair value consisting of 293 million in investments at fair value and 15 million in cash and other assets. Liabilities totaled approximately 103 million consisting of 60 million in borrowings at cost on our line of credit with a revolving period ending in January 2016, 38.5 million in term preferred stock, which has a mandatory redemption feature at the end of 2016, and a basically unsecured debt and 4 million in other liabilities.

In summary, for the quarter ended March 31, we had approximately 206 million in net assets as compared to 212 million in net assets as of December 31, 2013, and 187 million a year ago for the March 2013 quarter. This represents a NAV per common share of $9.79 as of March 31, 2014, $10.10 as of December 31, 2013 and $8.91 a year ago as of March 31, 2013.

At the time of this call, we have about 57 million in aggregate in cash and availability on our 137 million credit facility. So we do currently have capital available that we can deploy for the right deals which meet our investment objectives. We also use our cash and availability to fund operating expenses and make distributions to our stockholders.

We believe our balance sheet is conservative and that our overall risk profile is low. BDC rules restrict leverage to one-to-one debt to equity and currently drives weighted average leverage is at about 42% for the quarter which is relatively low as compared to our peers. We will need to consider other financing sources over the next several quarters depending on our new deal originations and available capital.

Next, let's discuss our portfolio. Our primary focus in our portfolio continues to be in senior and senior subordinated debt investments, which provide income to pay and every time grow our dividends. To a lesser extent, we may invest in equity investments, which we expect will appreciate and build shareholder value.

Our targeted portfolio mix is 95% allocated to debt securities and 5% in equity securities. And currently our portfolio is at 92% to 8% allocation of debt-to-equity at costs with 52% of the portfolio invested in senior debt and 40% in senior subordinated debt.

Our portfolio as of March 31 consisted of loans to 51 companies in 24 states and in 20 different industries. This is down by one portfolio company quarter-over-quarter. We continue to have a highly diversified portfolio by industry classification and by geographic region, and we're not too significantly invested in any one particular portfolio company.

At fair value our largest investment concentrations are in healthcare, education and childcare, electronics, in consumer products and diversified manufacturing. Our five largest investments in our portfolio at fair value, as of March 31, totaled 86 million, 29% of our total investment portfolio, which is consistent with last quarter. Our credit facility and regulations under the regulated investment company IRS rules, both contains certain concentration and diversity limits, all of which we have met and continue to meet as of March 31.

We have historically targeted to have our portfolio with 90% of debt investments at variable rate and 10% at fixed rate. This helps us manage interest rate risk. Our variable rate loans generally set to the one month LIBOR usually have a minimum rate of floor, so that the effects of declining interest rates are mitigated. And when rates begin to increase, we should see higher income. Currently, as of March 31, 2014, our debt portfolio is at an 85% to 15% variable to fixed rate allocation, resulting from some of our newer fixed rate deals.

The weighted average yield on interest bearing debt investments in our portfolio has remained consistent over the last several quarters and was at 11.6% as of March 31, which excludes any success fee or other income. The weighted average floor on our variable rate loans was 2.4% in relation to one month's LIBOR. These loans had a weighted average margin of 9.2%, resulting in an all-in weighted average rate of 11.6% on our interest bearing debt investments.

Our proprietary loans had an average all-in rate of 11.4% while our syndicates had an average all-in rate of 10.2%. This syndicate yield excludes any additional income from the amortization of discounts, which are generally at 1% to 2% of par. Our target portfolio has typically been at about 20% of costs of syndicate and may over the next few quarters be a little lower to around 15% of costs based on the terms in yields we have been seeing in this market.

In summary, we had good origination activity this quarter, adding quality income producing investments. Our focus is on building our portfolio with investments and secure income producing portfolio companies. This will be necessary in order to grow our net investment income and show our shareholders accretive results in the future.

Now, I'll turn the call back to over to David.

David J. Gladstone

All right, Melissa. Thank you. Michael and Bob, thank you all for those great reports. I hope our listeners will read our press releases, the one we issued yesterday was also combined with our Form 10-Q for the March 2014 quarter end. We filed those yesterday with the SEC. You can access the press release and the 10-Q on our website at and you can also find on the SEC website information about our company.

For the second fiscal quarter ending March 2014, I think Gladstone Capital continues to focus on the main thing and that is building the list of possible new investments for us to invest in. But during that quarter we also added three new companies to the portfolio, almost $30 million worth. We have about $14.5 million of early exists, so we did build the portfolio based on growth in assets.

We also maintain a strong portfolio yield of about 11.6% quarter-over-quarter, so receiving about $1.2 million in other income was a big plus to our earnings and we continue to be a consistent dividend payer to all of our shareholders.

The biggest challenge for this company like many in our industry is finding new investments that we believe will survive another possible recession or possible forthcoming inflation – strong inflation that's coming. We continue to [onboard] (ph) industries in housing, also banking, high technology venture capital. Commodities, we're not much in that area, and industries that are highly cyclical.

Availability of capital will also be a concern from the near future as we utilize our current credit facility and look to raising additional long-term debt and equity over time. Although recent economic indicators, especially this last quarter that just ended, have been going down rather than being more positive, the economic recovery has been I guess by any standard a sluggish one and we continue to monitor the economic outlook with the effect on the investment climate which we operate in dealing out new concerns.

There's still uncertainty around the Federal Reserve monitory policies. They just cut back how much they're going to buy. And the impact in future interest rates, I just don't know what's going to happen there other than they have to remain I think fairly low simply because the government can't stand having to pay higher interest rates. But my guess is today that for the next – at least the next two quarters and maybe even the next year, interest rates will continue to stay low.

The fiscal crisis in the federal government is still on top of my mind. I hope it is on yours as well. Federal deficit is now over 17 trillion and continues to climb as the government spending just continues to be unsustainable and continue to print dollars and dilute the value of the existing dollars out there. Just very, very disconcerting at this point in time.

Many private companies like those in which we invest feel that too much regulation is all around them; it's healthcare, it's financial services, it's energy, it's ignitions, it's just a big hindrance to their performance and they spend an enormous amount of hours trying to fill out all the forms and explain what they're doing to the government. At the same time they should be trying to expand and get good job growth.

Despite all these economic issues, our company, our fund Gladstone Capital has continued to make consistent monthly dividends. We have a history of earning our dividend and have continued to make monthly distributions to our shareholders through these very uncertain economic times. In April 2014, our Board of Directors declared our monthly distribution to common shareholders of $0.07 per common share for each of the months, April, May and June. And the Board will meet again in July, about mid-July actually this time to vote for the monthly distributions for July, August and September 2014.

Through the date of this call, we've made about 127 sequential monthly cash distributions to our common shareholders and several quarterly distributions before that. The current distribution rate of the common stock and with the common stock being price at about $9.67 at the close yesterday, the yield on the distribution is now very high at 8.7%. And so our net asset value is $9.79, so we're still selling a bit below the net asset value, so there was a $0.12 difference there.

In summary, I think the first half of our fiscal 2014 year is off on a good pace, although we're still cautious about the economy and its recovery and its effect on our businesses. We have seen pressures on turns, conditions, yields, but we're still seeing some good opportunities and are expecting good movement forward in the rest of the year, especially with our new President on board.

Now I'll stop and we'll take some calls plus some questions from our shareholders as well as some of the analysts. Please come on and go through the situation there, Charlotte.

Question-and-Answer Session


(Operator Instructions). Our first question will be coming from the line of Ryan Lynch from KBW Capital Markets. Your line is open.

Ryan Lynch - Keefe, Bruyette & Woods, Inc.

Good morning, everyone. I'd first like to start off with your investment in Midwest Metal. While that investment is still paying interest income, if the weakness in aluminum prices persists or if they weaken further, can you give us some color on what is that company's ability to continue paying interest?

Bob Marcotte

The company with the current state of the metals, the company has continued to perform. The fact that the metal price has come down, has been somewhat compressed on their margins, they currently have adequate liquidity and they have a fairly strong asset backed loan that supports the typical metal inventories. So, the two are generally in line, so it is generating positive cash flow, has working capital support. It is possible it is just not something that is on an upward trend and certainly it's something that we're watching very closely.

Ryan Lynch - Keefe, Bruyette & Woods, Inc.

Okay. And then one other investment. Your investment in RBC, it looks like you guys had a pretty big write-down in the common equity. You guys invested some additional capital into the preferred equity tranche which was also written down. Can you just give us some color on that, the operation for that business and that company's ability to continue to pay interest?

Bob Marcotte

Certainly. Reliable is kind of a unique company. It produces active ingredients. They go under pharmaceutical, so it is a very regulated production type of facility, very exact in standards. And what they essentially do is they work with generic drug manufacturers and make the key ingredients that form the basis of those generic drugs. So, as you can imagine with FDA approval processes, with production processes, there has been – continue to be some disruptions and some scheduling issues that come out of the natural processes of approving those drugs. Several of their manufacturers had issues with their facilities, had to suspend or delay or make certain corrections. The result was the active ingredients that Reliable produces were pushed to the right. We don't believe that the company is fundamentally impaired. Its ability to continue to produce to the quality standards and the compliance with all FDA regulations and production is undisputed at this point. So, our view is that the drugs they are supporting will continue to move into production. The company has as a result of that from near-term softness in revenues, we are expecting significant update on a couple of these material drugs over the course over the next quarter or two and we believe they have a much clearer outlook as we go into 2015 as a result. At this point, the company is fully – we've good ample liquidity today and we expect a very near-term resolution into that company's matters. It typically takes anywhere between 12 and 18 months for some of these drugs to be approved and we are in the approval cycle on a couple of major drugs today that I think will resolve this or at least provide greater clarity in the next quarter or two.

Michael LiCalsi

Other questions, Ryan?

Ryan Lynch - Keefe, Bruyette & Woods, Inc.

Yes. You guys exited from your syndicated loans in the quarter. Given the run-up syndicated loan market is at, are you guys going to be actively pursuing exiting more syndicated loans in the future?

Bob Marcotte

I don't think we actually actively exited. I think we had $2 million or so of prepayments given the natural turnover in companies and the refinancing activities. I think we are very selective. As you know, probably more than half of the current syndicated market has no covenants. Those facilities are not in keeping with our investment parameters and quality expectations. So the vast majority of the syndicated market is not something that we're pursuing. I don't think we're actively looking to reduce our exposures. I think if you look at our existing portfolio, it is reasonably seasoned which means that it's got a slightly lower leverage than what the average that probably has been originated then in the last year. It also has slightly higher average yields. So most of those investments would trade at a fairly favorable rate, but at this point are accretive to our overall returns and there's no reason given those positive investment characteristics for us to exit them. Obviously that is a potential source should we find incremental accretive opportunities in our direct origination, but at this point given our availability under our line, there is no reason to consider liquidating or taking a more proactive action in reducing that portion of our portfolio.

Michael LiCalsi

Other questions, Ryan?

Ryan Lynch - Keefe, Bruyette & Woods, Inc.

That's all for me. Thanks, guys.

David J. Gladstone

Okay. Next question, please.


Thank you. Our next question will be coming from the line of Vernon Plack from BB&T Capital Markets. Your line is open.

Vernon Plack - BB&T Capital Markets

Thank you. I was hoping to get a better understanding of what's going on with two of your portfolio companies that have passed their maturity date? The first one is Legend Communications. I believe that was due in January 2014.

Melissa Morrison

Yes. This is Melissa Morrison, the CFO. Yes, in Legend we are actually looking at possibly refinancing with the FDA and very similar to what we did with BAS Broadcasting, so more to come on that one in the next quarter.

David J. Gladstone

Vernon, it's just been expended while we work with the FDA.

Vernon Plack - BB&T Capital Markets

Okay. Can I assume that that's also the case, just a couple more, one Precision Acquisition as well as Saunders has been due for quite some time?

Melissa Morrison

Yes. So Precision we are looking at expending that. We're working with the lender on that one. The other lender, there's more to come next quarter. We should have an update on that one. And in Saunders we still are in negotiations with the participating lender and the sponsor, so we're negotiating with two other parties and looking at potentially expending that one as well. But all three of those; Legend, Precision and Saunders are paying as agreed in our current.

Vernon Plack - BB&T Capital Markets

Okay. And the last one is International Junior Golf that's due this month. Do you expect that to pay off?

David J. Gladstone

We're already in process of working with someone that wants to buy them. I just don't know if it's going to happen or not. If not, the sponsor is relatively strong there and we would expect to continue to get paid.

Vernon Plack - BB&T Capital Markets

Okay. Thank you.


Thank you. (Operator Instructions). I'm showing we have a question from the line of J.T. Rogers from Janney Capital Markets. Your line is open.

John Rogers - Janney Montgomery Scott

Thank you. Good morning. My only question is that you guys have plenty of availability under your line and cash on hand right now, but what is your view if you continue to de-stock trading below book value, what are your views on raising capital below book?

David J. Gladstone

Well, we've not done that much in the past for any of our companies. I think we used it once only. And so I don't like to do that. As you know, I'm a very large shareholder. I don't like the dilution and so I'd say we'll do it when we need to and right now we don't need to, so we're not doing it.

John Rogers - Janney Montgomery Scott

Okay. That's all I had. Thank you.

David J. Gladstone

Thank you, J.T. Anybody else have a question?


At this time, I'm not showing any further questions. I would now like to turn the call back over to David Gladstone for any closing remarks.

David J. Gladstone

Okay. Thank you, Charlotte. You did a good job for us and we thank you all for calling in and we look forward to talking to you again next quarter, and that's the end of this call. Thank you all.


Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

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