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FS Investment Corporation (NYSE:FSIC)

Q1 2014 Earnings Conference Call

May 16, 2014 11:00 AM ET

Executives

Jerry Stahlecker - President

Michael Forman - CEO

Brad Marshall - Senior Portfolio Manager

Analysts

Arren Cyganovich - Evercore Partners

Greg Mason - KBW

Mickey Schleien - Ladenburg

Presentation

Operator

Good morning and welcome to FS Investment Corporation’s First Quarter Earnings Call. Please note that FS Investment Corporation may be referred to as FSIC, the fund, or the company throughout the call. There will be a question and answer session at the end of this call. Today’s call is being recorded and an audio replay of the conference call will be available for 30 days. Replay information is included in a press release that FSIC issued on April 30.

In addition FSIC has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the first quarter ended March 31, 2014. A link to today’s webcast and the presentation is available by going to the Investor Relations section of the Company’s web site at www.fsinvestmentcorp.com. Please note that this call is the property of FSIC. Any unauthorized rebroadcast of this call in any form is strictly prohibited. I would also like to call your attention to the customary disclosure in FSIC’s filings with the Securities and Exchange Commission regarding forward-looking information.

Today’s conference call includes forward-looking statements and projections and we ask that you refer to FSIC’s most recent filings with the SEC for important factors that could cause actual results or outcomes to differ materially from these statements and projections. FSIC does not undertake to update its forward-looking statements unless required to do so by law. In addition this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSIC’s first quarter 2014 earnings release that was previously filed with the SEC. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies. To obtain copies of the Company’s latest SEC filings, please visit FSIC’s web site.

I’ll now turn the call over to Jerry Stahlecker, President of FS Investment Corporation. Mr. Stahlecker, you may begin.

Jerry Stahlecker

Thank you Janet. Before discussing our quarterly results, I’d like to note that certain financial figures presented in our quarterly report, earnings release and supplemental presentation, including our earnings per share and adjusted net investment income per share for the first quarter have been presented in a manner that takes into account the effects of rounding in order for certain supplemental information to sum correctly as required by the form requirements for registration statements on Form N2. Excluding the effects of this rounding, our earnings per share for the first quarter would have been $0.31 per share and adjusted net investment income per share for the quarter would have been $0.23 per share. We intend to file a Form 8-K today containing the supplemental information.

I’ll now turn the call over to Michael Forman, Chairman and CEO of FS Investment Corporation to provide highlights for the first quarter. Michael.

Michael Forman

Thank you, Jerry and thanks to all of you who are listening and participating on this call. On behalf of my colleagues at Franklin Square, I would like to welcome you to FS Investment Corporation’s first quarter earnings call. Before discussing our quarterly results, I will first provide a summary of FSIC’s key highlights. Following my remarks Brad Marshall, Senior Portfolio Manager at GSO Blackstone, FSIC sub advisor, and an officer of FSIC will provide an overview of current market conditions and our investment activity for the quarter, and finally Jerry will discuss our financial results in greater detail. We will then open the call for questions. Today’s call marks the first quarterly earnings call since FSIC’s successful listing on the New York stock Exchange on April 16. FSIC is now one of the largest BDCs in the market with 4.5 billion in assets under management, and a market capitalization of approximately $2.7 billion.

In preparation for FSIC’s listing, we had the opportunity to meet with many institutional investors and about a dozen research analysts, and thank many of you for joining us today. While the BDC market in general has been challenged in the past month, we believe our listing was a success and would not have been possible without the support of many of you on this call. We look forward to continue our efforts to introduce our robust and differentiated BDC platform to the public markets in the coming quarters.

Turning to FSIC’s performance during the first quarter; our continued focus on capital preservation, and our commitment to delivering strong risk adjusted returns served our investors well. Last quarter we experienced strong financial performance, growing FSIC’s net asset value from $10.18 per share as of December 31, 2013 to $10.28 as of March 31, 2014. Our first quarter earnings of $0.31 per share were driven primarily by investment income, fee income from direct originations, and net realized gains. Earnings exceeded our distributions during the quarter. After paying distributions of $0.22 per share, we had undistributed net investment income and realized gains of $0.58 per share, an increase of $0.05 per share since year-end.

As we previously announced, subject to Board approval, we expect to distribute a portion of our excess income and realized gains in the form of two special cash distributions totaling $0.20 per share with one $0.10 distribution to be paid on August 15, 2014 to stockholders of record as of July 31, 2014 and the second $0.10 distribution to be paid on November 14, 2014 to stockholders of record as of October 31, 2104. We believe our strategy can support repeatable and sustainable generation of realized capital gains and as we have done historically, we expect to continue to make distributions to the extent we have excess income and gains.

We continue to benefit from our robust direct lending business, especially in the tighter credit markets present today. We committed at approximately $369 million to direct originations during the quarter, 93% of which were in senior secured debt. Our ability to draw upon the cross organizational credit expertise of GSO/Blackstone allows us to develop customized credit solutions for middle market companies and explore other opportunities to meet a growing need for non-bank capital.

As Brad will discuss in further detail later in the call, we continue to transition the portfolio to directly originated investments, which currently generate stronger risk adjusted returns than those found in the broadly syndicated markets to enhance FSIC’s yield and further grow its NAV.

Looking forward we will continue to strive to optimize the portfolio in this way in order to maximize value for our shareholders. The second quarter of 2014 is off to a strong start and we continue to see opportunities in our core strategies of direct lending and opportunistic investments.

Finally, we remain mindful of the regulatory environment in which we operate and the impact that new regulations might have on the BDC industry going forward. We continue to be engaged in the regulatory issues facing our industry.

Let me now turn the call over to Brad to provide an overview of our investment activity for the quarter. Brad.

Brad Marshall

Thank you, Michael. The loan market continued to experience strong demand in the first quarter as both retail and institutional investors sought out diversified sources of income and short duration assets. Inflows to bank loan mutual funds were approximately $7.7 billion while new CLO issuance exceeded $21 billion. This high level of demand contributed to tight conditions and continued to put downward pressure on new issue clearing yields.

We remained disciplined in our underwriting approach and focused on sourcing new direct originations, predominantly in the form of senior secured debt investments. As of March 31, 2014, the fair value of FSIC’s investment portfolio was $4.1 billion. Our overall allocation to core investment strategies, which include direct originations and opportunistic investments such as event driven investments and anchor orders increased from 79% to 83% during the quarter with 57% of our portfolio representing direct originations compared to 51% as of December 31, 2013.

Opportunistic investments represented 26% of the portfolio, compared to 28% at year-end while broadly syndicated loans and other investments represented 17% of the portfolio compared to 21% as of year-end. We would also note that as has been the case since FSIC’s inception, all of our investments are valued every quarter by independent valuation and pricing firms. To maximize our return on equity capital, we continue to rotate the portfolio into higher yielding direct originations and opportunistic investments in an attempt to further increase our portfolio yield and grow NAV. Our gross portfolio yield prior to leverage increased to 10.2% at quarter end compared to 10.1% as of December 31, 2013. We committed $369 million to direct originations in the first quarter compared to $86 million during the fourth quarter of 2013.

At the same time, we exited $127 million of direct originations which were predominantly the result of a small number of a refinancings. These exits contributed approximately 29% of FSIC’s total realized gains of $13.8 million during the first quarter. The gross portfolio yield prior to leverage of new direct originations during the quarter was 9.6%, compared to the gross portfolio yield prior to leverage of investments exited during the quarter of 9.4%.

Throughout the quarter, we continued to increase the number of companies enrolled in Blackstone’s Group Purchasing Organization or GPO. For FSIC’s originated portfolio companies that qualify for the program, Blackstone’s GPO program allows those companies to leverage the collective buying power of Blackstone’s portfolio companies to reduce operating expenses.

During the quarter three new portfolio companies were accepted into the program. Companies that have been part of the GPO program for six months or more have seen an average EBITDA improvement of almost 10%. The most significant expense reduction during the first quarter was attributable to an insurance implementation at one of our portfolio companies that reduced its annual cost of insurance by 18% and significantly increased the Company’s liquidity.

GPO is a differentiated advantage provided by Blackstone vendor relationships that can lower operating cost for FSIC’s portfolio companies. With the GPO program, our capital is not a commodity. We believe we are better positioned to win incremental mandates, achieve better pricing and terms, as well as gain upside through equity participations in our financings.

Since quarter end, we believe that a moderate pace of outflows from the loan market has helped to partially alleviate some of the tight conditions prevalent during the first quarter. This has created a slightly more favorable investment environment for FSIC with some of the more aggressive deals in the market having recently been shelved or restructured to favor lenders.

Over the short term, we expect these more favorable conditions to persist as an increase in M&A activity pushes out -- pushes more supply into the market. We continue to source new direct originations and expect to opportunistically sell down our broadly syndicated assets.

Through the middle of May, we’ve continued to rotate our portfolio out of broadly syndicated investments into our core investment strategies and have increased our net exposure to core investments by approximately $123 million. We expect to close up to an additional $150 million of core investments by the end of the second quarter and have access to a robust pipeline of potential investments of approximately $3 billion.

We remained focused on investing in senior secured debt and will seek to maintain FSIC’s portfolio yield by using cash and proceeds from sales and refinancings to deploy into direct originations and opportunistic investments.

Finally, we expect fee income earned during the second quarter to exceed the first quarter. However we do not expect to maintain this level of fee income as we continue to transition the portfolio from broadly syndicated investments to our targeted allocation in core investment strategies.

I will now turn the call over to Jerry to discuss our performance for the quarter.

Jerry Stahlecker

Thank you Brad. As Michael touched upon our portfolio continued to generate strong returns for our investors. Our net investment income for the first quarter was $0.22 per share, compared to $0.20 per share in the fourth quarter of 2013 and $0.20 per share in the first quarter of 2013.

Excluding the accrual for capital gains incentive fees, our adjusted net investment income for the first quarter was $0.23 per share, compared to $0.24 per share for the fourth quarter of 2013. Our adjusted net investment income exceeded our regular distributions for the first quarter ended March 31, 2014. We believe our size and ability to leverage the scale of Franklin Square’s platform allowed us to maximize returns while minimizing expenses during the quarter.

Our annualized general and administrative expenses as a percentage of average total assets in the first quarter were 34 basis points, representing one of the lower expense structures in the industry. During the first quarter we also experienced meaningful gains and appreciation across our investments. Our net realized and unrealized gains were $24.2 million or $0.09 per share. As investor demand for loans led to appreciation across our portfolio, we opportunistically sold certain broadly syndicated investments which contributed to FSIC generating $13.8 million in net realized gains during the quarter. Against the backdrop of tight markets, we continue to seek out what we believe are strong risk adjusted returns.

As of March 31, 2014, the average leverage for our direct originations through the respective tranche in which we invested, excluding equity and collateralized securities was four times. This is generally consistent with prior quarters. In addition, as of March 31st, no investment in our portfolio was on non-accrual. Thanks to FSICs track record and the scale and breadth of GSO Blackstone’s extensive relationships with some of the world’s largest commercial banks, we have access to a diversified lending group and have been able to borrow at attractive rates.

As of March 31, 2014 we had approximately $1.69 billion in total debt outstanding under our facilities, diversified across maturities and counterparties. At quarter end our weighted average effective interest rate was 2.8% and our debt to equity ratio was 62.9%. Approximately 56% of our debt outstanding was at a fixed interest rate of 3.25%.

On April 3, 2014 we entered into a revolving credit facility with ING Capital, which provides for borrowings of up to 300 million with an option for additional 100 million. Interest on used portions of the credit facility is payable at a rate of LIBOR plus 2.5%. Reflecting this strength of FSICs portfolio and the Company’s consistent operating performance, FSIC recently received an investment grade rating from two major rating agencies. FSIC received a BBB minus rating with a positive outlook from Standard and Poor’s and a BBB minus rating with a stable outlook from Fitch.

Among the factors supporting the ratings, the agencies generally cited FSIC’s improved access to the equity market and the diversity of its holdings. We are pleased with this development as we believe it will help provide FSIC with greater access to the capital markets. We recently filed a universal shelf registration with the Securities and Exchange Commission. Upon being declared effective by the SEC, the shelf registration statement will allow FSIC the flexibility to offer and sell time to time up to 1 billion of various securities, including debt and equity securities.

While FSIC has no definitive plans to issue debt or equity in a capital raising transaction at this time, we will consider taking advantage of favorable market conditions to raise capital opportunistically in the future. In connection with the listing on April 16th, FSIC commenced a modified Dutch auction tender offer to purchase up to $250 million in shares of its common stock. Under the terms of the tender offer, stockholders may tender all or a portion of their shares at one or more prices between $10.35 and $11 per share. Upon completion of the tender offer on May 28, 2014 we intend to purchase properly tendered shares at the lowest price in this range that would enable FSIC to purchase the maximum number of shares.

The previously mentioned ING Capital facility will be partially used to provide liquidity to fund the tender. We believe that the post-listing tender will be accretive to stockholders. Following the completion of the tender offer, members of Franklin Square and FSIC management are considering the purchase of up to 100 million and 25 million respectively of FSIC shares. In addition, affiliates of GSO Capital Partners are considering the purchase of up to $50 million in shares. The purchases potentially tolling up to $175 million, will be conducted for one or more 10b5-1 trading plans in accordance with the rule 10b5-1 of the Securities Exchange Act of 1934.

I’ll now turn the call back to Michael to provide some final thoughts and closing remarks.

Michael Forman

Thanks, Jerry. And I would like to thank you all for joining us today. As the largest manager of BDC’s with over 10 billion assets under management, Franklin Square believe that our experience, scale, partnership with GSO Blackstone and track record has benefited FSIC’s investors. With our listing now behind us, we believe we are well-positioned for the remainder of 2014 and years ahead.

With that we now open the call for questions. Operator.

Question-And-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Arren Cyganovich of Evercore. Please go ahead

Arren Cyganovich - Evercore Partners

Just looking at your investment opportunities, the current competitive environment, I guess in 1Q you commented being pretty tight and maybe getting a little bit better recently. How is this affecting your deal structures and pricing that you are seeing and how is that impacting the investment selection, and what areas are you seeing the best risk reward right now?

Brad Marshall

This is Brad Marshall from GSO. Certainly in the second quarter, we’ve seen an improvement in the loan market predominantly because of supply and demand dynamic. So there has been more supply, little bit less demand, given the flows into mutual funds and so investors have been able to be a little bit choosier in terms of selecting credits they want to do.

Some banks have been held with their loans that they under wrote and so that’s backing up the market a little bit. And that has a trickle-down effect into the middle market, and so we’re benefiting from that. I would say that we expect that dynamic to continue for the rest of the year as we see more and more supply come into the market. There is just more M&A activity that we’re looking to help finance. In terms of sector specific, I think we’ve seen a lot of activity in energy and industrials, and some of the service companies that we’ve financed historically. So I think overall, the markets improved relative to the first quarter.

Arren Cyganovich - Evercore Partners

And then in terms of your $3 billion pipeline, could you broadly tell us how you define that, and basically if you have any kind of view as to how that’s changed over the recent quarters?

Brad Marshall

Sure, we define our pipeline as opportunities that are actionable. So it has a moderate to high level degree of probability. And we’ve always defined our pipeline that way. We have a deeper pipeline of low to -- low probability opportunities that would make that pipeline seem bigger. But this pipeline has I would say grown by 35%, this quarter relative to last quarter. I think a lot of our pipeline was categorized into that low probability because the structures were too aggressive or the pricing was insufficient. So the pipeline has grown as a result of the competitive dynamic going into the second quarter.

Michael Forman

And I’d also add to that Arren, that the pipeline includes just directly originated deals. It doesn’t include the other transactions we may be looking at.

Arren Cyganovich - Evercore Partners

And then, I guess lastly the trends that we’re seeing within the portfolio, obviously the direct origination trends are positive and that’s increasing as a percentage. But you’re also taking advantage of opportunities to liquidate out of the broadly syndicated [units] [ph] pressuring your portfolio to some extent. Do you expect to see that continue with a little bit modest portfolio contraction, or do you think you’ll actually be able to see some growth in the portfolio as you rotate out of the broadly syndicated [loans] [ph]?

Jerry Stahlecker

I think you should expect -- Arren this is Jerry. I think you should expect to see us continue to rotate out of the liquid broadly syndicated investments, when we’ve got some unrealized appreciation. We’re opportunistically and we’ll continue to be opportunistically sell those and redeploy that capital into our core strategies of direct originations and opportunistic investments. We have since the end of the year, de-levered a bit going into the listing and the listing tender offer. And I think that you’ll continue to see the rotation of the portfolio into higher percentages of core investments on a go forward basis which ultimately we think will allow us to grow the yield and overall growth the net asset value of the portfolio.

Operator

And our next question comes from Greg Mason of KBW. Please go ahead.

Greg Mason - KBW

First my question was regarding the competitive markets in the first quarter, I was just curious if some of the retail outflows and bank loan funds that’s happened here in 2Q, if that has started to have any -- releasing some of the pressure effect on the overall market? Any updates on what you’re seeing from a competitive standpoint here in 2Q?

Brad Marshall

Yes, this is Brad. It absolutely has released some of the pressure. What happens when market gets very tight and aggressive, banks become very aggressive in what they’re willing to underwrite and what we’ve seen at least at the start of the second quarter is some of those aggressive deals that they had underwritten, the investors wouldn’t accept. And so they are consequently either pulling those deals but if they’re firmly underwritten what they’re doing is losing a lot of money on those deals, because they’re having to sell at discounted rates.

That’s having a trickle down in a number of ways; one, it’s resetting kind of where the clearing yields should be; and secondly, it’s allowing them to -- its resulted in them being less aggressive in new deals that they’re trying to underwrite. And so what that does for us is we can go in with more firmly written underwriting proposals and so small mandates are shifting to our pipeline, away from their pipelines.

Greg Mason - KBW

Great. And obviously that impacts the secondary market pretty quickly. What about your kind of pure opportunistic directly invested pipeline? Is that changing any of the pricing or leverage points yet on that pipeline?

Brad Marshall

That part of the pipeline is very episodic and it’s deal specific. So it’s hard to answer that with a sweeping statement. But what I will say is the number of deals that we’re looking at today which are stuck on the bank’s balance sheets has increased by probably about 75% relative to the first quarter. So that bucket of opportunities has certainly increased.

Greg Mason - KBW

Okay, great. And then one more question on the rate, and congratulations on your investment grade credit rating. Is this going to have any immediate impact on your credit facility cost? Will you be able to lower any of those costs? And then second follow up, you mentioned about potentially some other debt securities. Are you considering going out and doing any type of term financing or convertible debt? Have you looked at those markets and what do you think about those?

Jerry Stahlecker

Greg, it’s Jerry. I guess what we would say at this point is we don’t have any definitive plans at this point to tap the credit markets. I think that we are always looking at opportunities in those markets and we’ll look when it makes sense on an opportunistic basis to potentially issue debt in the public markets, I think that our existing credit facilities, there are no triggers built in where they automatically re-price based off of the credit rating being assigned to us.

I think if we were to do additional facilities on a go forward basis, I would expect that that would give us additional ability to negotiate even more favorable rates although we think that the rates we have today are very favorable, given our ability to leverage off of the GSO Blackstone relationships. And no, I think it will be more helpful if we look to tap the public credit markets.

Operator

And our next question comes from Mickey Schleien of Ladenburg. Please go ahead.

Mickey Schleien - Ladenburg

My first question relates to the quality of the deal flow in the first quarter. Can you give us at least a broad sense of how it broke down between re-financings, dividend recap, M&A and growth capital?

Jerry Stahlecker

Well, as Brand mentioned -- Mickey, this is Jerry. As Brad mentioned, we mentioned on the call, a portion of the deals that were done represented some re-financings. We had a $127 million of exits from our direct origination portfolio. Those were largely driven by a small number of re-financings. And the $369 million of overall direct originations stored in period, a lot of that was new transaction flow. Some of that was re-financings on the $127 million that I mentioned.

Brad Marshall

And our biggest deal during the quarter Mickey was Audio Visual PSAV acquisition and there -- as for the quality of deal flow, this was a unique situation where the sponsor Goldman was looking to acquire this Company. They wanted us to be part of their capital structure in large part because we knew the credit fairly well, invested in it for the past 10 years but also because the Company’s largest client is Hilton and Blackstone owns the Hilton. So we were able to negotiate fairly attractive rates and attachment points on our debt because of our -- the broader firm relationship with that Company.

Mickey Schleien - Ladenburg

Understand. Notwithstanding the fact that terms seem to be a little bit better in the second quarter than we’ve seen in a while, to the extent you have older loans on the book, are you still facing any significant re-pricing pressure from some of your borrowers?

Jerry Stahlecker

I think the re-pricing pressure has slowed down meaningfully, and it’s always present in the market. We typically expect 15% to 20% turnover in our portfolio on an annual basis and we see that now kind of reverting to its historical average. I think for a while we were looking at 25% to 30% but it’s now back its historical run rate of 15% to 20%.

Mickey Schleien - Ladenburg

Okay, it probably would help me and maybe some of the other listeners for you to walk us through the reasoning behind why you set the tender price above the year-end NAV and the pro forma NAV in February, which would be dilutive even at the lower end of the tender offer price range.

Michael Forman

Sure Mickey this is Michael. Certainly a lot of time and thought went into where to set the tender and what would make sense? I think our view was that we always expected that when we were fully absorbed into the marketplace that we would trade at some premium. I know the BDCs have traded off recently because of a variety of factors but in a normalized market we would expect to trade at a meaningful premium to NAV. We’ve got the lower end of the range at 10.35. It’s a little bit less than a 1% premium to our existing NAV was a fair low end for that tender. So with a lot of thoughts, certainly we’re the first folks to ever do this in the BDC space but we thought that that was a reasonable place to have a bottom demarcation for the tender.

Jerry Stahlecker

I would just add to that Mickey that given the fact that our current distribution yield is about 8.7% based on net asset value, if we were to acquire shares in the low end of that range, it would certainly be accretive to existing holders to purchase those shares.

Mickey Schleien - Ladenburg

Can you remind us of the timing of the tender and the potential share repurchases?

Michael Forman

The tender expires on May 28th, and then by law we have to wait at least 10 business days after the expiration of the tender before we can put those 10b-5 1 plans into effect. So those plans would go into effect likely around mid-June and so after the close of the tender, you’d have at least a 10 trading day period before those plans would go into effect.

Mickey Schleien - Ladenburg

And you would announce the results of the tender in between?

Michael Forman

The results of the tender will be announced. I would expect that we would have those to announce before those plans go into effect.

Mickey Schleien - Ladenburg

We’ve had a couple of questions today about the outlook for the balance sheet. So I’m not going to repeat them but I think Jerry mentioned that the balance sheet has relatively lower leverage considering the orientation of the portfolio towards senior secured. So can you give us a sense of ultimately where you would be comfortable running debt to equity for this particular portfolio?

Jerry Stahlecker

We’ve historically run in the 70% to 75% or 0.70 - 0.75 debt to equity and we think that’s a reasonable number. We’ve taken the leverage down in order to allow us to effectuate the tender. We’ll see what happens with respect to the tender and whether it’s fully subscribed. If it is, we’ll go a little bit above that high end. But our comfort level is in the 0.7 to 0.75 in a normalized market. It’s given us a little upside in the event that there is market opportunities to deploy capital.

Mickey Schleien - Ladenburg

I noticed you haven’t received any meaningful dividend income from your equity positions, which are not insignificant. There is almost a $200 million in the portfolio. So was curious how we should think about your willingness or ability to rotate some of those equity positions into income producing investments.

Michael Forman

I think the majority of the equity really, there investments made, where we’ve invested sort of side by side or a heads up basis with the private equity sponsor on a lot of our direct originations. And we’ve historically seen, been able to generate pretty nice realized gains when we’ve had events or liquidation events for those portfolio companies and that’s historically been a big part of our gains both realized and unrealized gains and it’s a core part of our strategy and one of the things helps us to consistently pay the special cash distributions, the two that we intend to declare are the 10th and 11th special cash distributions that we’ve declared since the fund started. So we have some income producing preferred equity investments, the dividends we’ve had in the past were principally focused -- the larger ones in prior course were principally focused around Aquilex [ph] where the company had sold some operating divisions that weren’t core to the business and made a nice distribution to the equity holders. But I think that we don’t expect our equity positions to be much more than 5% of the portfolio. But I think that you will see -- have seen and will continue to see over time that we expect to generate meaningful gains from that portion of the portfolio. And Brad, I don’t know what you had to that.

Brad Marshall

The only thing I would add, Mickey is that when we’re making these equity investments, we typically own all the debt and in our debt agreements we try and limit the amount of capital that can be dividended back to the equity owners, such that we can improve the and secure the value of that debt. So some of that is our own doing. And the other thing I would add is for a lot of our portfolio companies where we own equity, we’re in growth mode with those companies. So, we’re putting additional capital into the business in the form of debt and equity to help grow the business either because of an acquisition or because of an expansion project. So, I think it’s just the vintage of some of these equity investments.

Mickey Schleien - Ladenburg

Okay. So, it sounds like it’s going to be driven by your private equity partners and change in control sort of situations as they come about.

Brad Marshall

That’s correct.

Mickey Schleien - Ladenburg

Just a couple of modeling questions. What is your current estimate of your listing expenses and did you accrue for any of those in the first quarter?

Brad Marshall

They all accrued for at the time of the listing in the second quarter Mickey, and we haven’t publicly disclosed those numbers but I would…

Mickey Schleien - Ladenburg

The last number I think was 6 million, if I am remembering correctly.

Brad Marshall

I think that that’s still in-line with what all the all in expenses are expected to be.

Mickey Schleien - Ladenburg

Okay. And could you, my last question -- I appreciate the time you’ve given me -- is can you give me a sense of the difference between the weighted average yield of the broadly syndicated loan portfolio and the rest of the portfolio?

Michael Forman

Well, as we disclose, I expect to disclose numbers is that the weighted average yield of the overall portfolio is 10.2%, the weighted average yield of the direct originations is 10% and from that I think it’s fair to assume that our opportunistic investments generally have a higher yield and the broadly syndicated investments will generally have a lower yield than the overall average, which is how you get to the blended 10.2 for the overall portfolio, compared to 10% for the direct origination portion of the portfolio.

Operator

(Operator Instructions)

Michael Forman

Okay. There being no question, no additional questions, I want to thank you all for participating in our call today. I appreciate the time and the support and look forward to talking to you again next quarter.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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