Main Street Capital's (MAIN) CEO Vince Foster on Q2 2016 Results - Earnings Call Transcript

| About: Main Street (MAIN)

Main Street Capital Corporation (NYSE:MAIN)

Q2 2016 Earnings Conference Call

August 09, 2016 10:00 AM ETs

Executives

Ken Dennard - Dennard Lascar Associates

Vince Foster - CEO

Brent Smith - CFO

Dwayne Hyzak - COO

Analysts

Bryce Rowe - Robert W. Baird

Christopher Nolan - FBR

Leslie Vandegrift - Raymond James

Nancy Rosenberg - SunTrust

Johnathan Reichek - Friedberg Investments

Mickey Schleien - Ladenburg and Thalmann

Operator

Greetings, and welcome to the Main Street Capital Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions]

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ken Dennard. Thank you. You may begin.

Ken Dennard

Thanks, Matt, and good morning, everyone. Thanks for joining us for the Main Street Capital Corporation second quarter 2016 earnings conference call. Joining me on the call today is Chairman and CEO, Vince Foster; President and Chief Operating Officer, Dwayne Hyzak; and Chief Financial Officer, Brent Smith.

Main Street issued a press release yesterday afternoon that details the company's second quarter 2016 financial and operating results. This document is available on the Investor Relations section of the company's website at mainstreetcapital.com.

A replay of today's call will be available beginning about an hour after the completion of the call and will remain available until August 16. Information on how to access the replay is included in yesterday's release. We also advise you that this conference call is being broadcast live through Internet and can be accessed on the company's homepage.

Please note that information reported on this call speaks only as of today, August 9, 2016, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading.

Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and they are not guarantees of future performance.

Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law.

During today's call, management will discuss non-GAAP financial measures, including distributable net investment income. Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies was derived from third-party sources and has not been independently verified.

And now, I'll turn the call over to Vince.

Vince Foster

Thanks, Jenny, and thank you all for joining us today. I will comment on the performance of our investment portfolio, discuss our recent dividend announcement answer noteworthy developments related to our capital raising activities and capital structure and conclude by commenting on our investment pipeline. Following my comments, Dwayne Hyzak, our President, and Brent Smith, our CFO, will cover our operating performance in more detail commenting on our second quarter financial results, originations and exits, our recent announcements, our current liquidity position and certain key portfolio statistics and our expense ratio, after which, we will take your questions.

We were very pleased with the overall operating results our investment portfolio delivered during the second quarter. Our lower middle market portfolio, our primary area of focus appreciated by $120 million on a net basis with 22 of our investments appreciating during the quarter and 14 depreciating. Our middle market loans appreciated by $4.1 million during the quarter on a net basis. And our private loans depreciated by $2.6 million during the quarter. We finished the quarter with a net asset value per share of $21.11, a sequential decrease of $0.07 a share over the first quarter. Before giving a set to the $27.50 a share semiannual supplemental dividend paid in June, our NAV per share for the second quarter increased sequentially by $20.50 a share over the first quarter.

Our lower middle market companies collectively continue to exhibit highly conservative leverage ratios on a relative basis, which Dwayne will cover in greater detail.

Last week, our Board declared our fourth quarter regular monthly dividends of $0.185 a share in each of October, November, and December 2016, representing a sequential increase for the quarter of $0.015 a share over our third quarter dividend payout rates. The ex-dates for these dividends are September 19, October 18, and November 17 respectively.

As I mentioned in June we paid a semiannual supplemental dividend of $0.275 a share. 2016 represents our fifth consecutive year of supplemental dividends beginning with the 2012 dividend declared in the fourth quarter of that year. We currently expect to ask our Board to declare our next semiannual supplemental dividend to be paid in the fourth quarter in the range of $0.25 to $0.30 a share.

Primarily as a result of realized gain in the second quarter in the exit of our equity investments in SambaSafety, we currently estimate to 50% to 75% of our third quarter regular dividends will be taxed as or somewhere to long-term capital gains for federal income tax purposes as it relates to our individual shareholders.

Lastly, I mentioned we were going to try a new form of equity capital raising relative to the retail oriented overnight offerings we have historically utilized in an opportunity improve the overall efficiency of our equity capital raising activities. So late last year we implemented $1 million ATM or aftermarket program, this initial tranche was completed in early June of this year which we followed by implementing a new 1.5 million share tranche which commenced in mid-June. Combined through today, the ATM program has raised just over $54 million in that proceeds and evolved the issuance of 1.7 million shares.

We have been pleased with the execution to date of the program and intend to continue utilizing the ATM alternative assuming continued favorable execution in market conditions. Therefore absent an unexpected need for proceeds, we would not expect to utilize an overnight or other follow on equity alternatives in the near future. We are also very pleased to have announced in press release yesterday that we have received our third SBIC license. The third SBIC license represents a significant milestone for Main Street and we believe that will contribute meaningfully to our long term growth and capital plans.

As of today, I characterize our investment pipeline as about average, and we would expect a solid Q4 from a lower level market origination perspective. We continue to seek and receive significant equity participation in our lower middle market investments, and as of quarter-end, we held an average of 35% fully diluted equity ownership position in the 99% of these investments in which we currently have equity exposure. Our officer director group has continued to be regular purchasers of our shares investing approximately $1.4 million during the second quarter.

With that, I'd like to turn the call over to Dwayne to cover our portfolio performance in more detail.

Dwayne Hyzak

Thanks, Vince, and good morning everyone. We are pleased to report another quarter during which we generated distributable net investment income in excess of our recurring monthly dividends and continued favorable performance from our lower middle market portfolio.

We believe that our unique investment strategy focused primarily on the underserved lower middle market combined with our efficient operating structure continue to provide a value proposition that differentiates Main Street from other yield oriented investment options and generates the premium total returns realized by our shareholders.

As we’ve discussed in prior quarters, we believe that the primary driver of our long-term success has been and continues to be our focus on the underserved lower middle market, and specifically our investment strategy of investing in both the debt and equity in the lower middle market and acting as a sponsor and a partner to the management teams of our lower middle market portfolio companies and not just a financing source.

Over the last few quarters, we provided some highlights on different aspects of our focus on the lower middle market to demonstrate the significant benefits of our unique investment strategy. Specifically, in our conference call comments it will have two quarters, we discussed the benefits of our equity investments and lower middle market companies as illustrated by the results from the exits of our equity investments in Southern RV and SambaSafety.

As we've previously discussed these two exits generated significant realized gains which on a combined basis totaled over $43 million. What we haven’t discuss in our prior calls is that in addition to the benefit of these realized gains and the years prior to these exits our historical investments in these companies included highly attractive debt investments that we believe will add value that is significant and is unique to our lower middle market investment strategy.

This value is evidenced by the fact that in both cases we were able to maintain debt investments in these companies through the exit base with interest rates of low 10 percentages on our first lien secured debt positions with modest EBITDA leverage ratios and with significant enterprise value supporting our debt investments as evidenced by the valuations resulting from these recent exits. We believe that we are able to maintain these debt investments in high quality of companies by providing a flexible approach on the debt investments and by expressing our interest in investing additional capital in the business to facilitate future growth.

Our approach allowed portfolio companies to execute on the growth plans and navigate the potential future industry and business cycles without unnecessary concerns about their capital structure. We believe that the risk will reward relationship evidenced by these debt investments is highly attractive and is reflective of the types of debt investments that are available to us as a result of our lower middle market investment strategy.

In addition, we believe that these investments opportunities are generally not otherwise available in the broader market. We also believe that our investments in these portfolio companies are great examples of the value generated by our position in the lower middle market as a trusted partner for these companies and not just the financing source.

Consistent with prior quarters, we want to highlight that the contributions from our lower middle market portfolio continue to be well diversified with 44 of our 73 lower middle market equity investment having appreciation at June 30th, and with 27 companies in our lower middle market portfolio approximately 60% of our investments in flow through entities for tax purposes contributed to our dividend income over the last 12 months. In addition, we also have several equity investments in non-flow through entities which have contributed to our dividend income over the last 12 months.

We believe that the diversity of our lower middle market portfolio is very important when analyzing the benefits from our lower middle market strategy, and we believe that this diversity provides visibility to the recurring nature of these benefits in the future.

Now turning specifically to our investment portfolio at quarter-end and our investment activity in the second quarter; we are pleased to report that our overall portfolio performance remained strong. Our investment activity in the second quarter included total investments on our lower middle market portfolio of over $62 million, primarily as a result of our investments in three new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of $30 million.

We had a net increase in our middle market portfolio of approximately $14 million, and a net increase in our private loan portfolio of $28 million. As a result, at June 30, we had investments in 199 portfolio companies that are in more than 50 different industries across the lower middle market, middle market and private loan components of our investment portfolio.

The largest portfolio company represents less than 5% of our total investment income and less than 3% of our total portfolio fair value with the majority of our portfolio investments representing less than 1% of our income and our assets.

Additional details on our investment portfolio at quarter-end are included in the press release that we issued yesterday, but I’ll touch on a few highlights. Our lower middle market portfolio included investments in 74 companies, representing approximately $866 million of fair value, which is approximately 19% above our cost basis. At the lower middle market portfolio level, the portfolio's median net senior debt to EBITDA ratio was a conservative 2.9 to 1 or 3.0 to 1, including portfolio junior in priority to our debt position. As a complement to our lower middle market portfolio and our middle market portfolio, we had investments in 81 companies, representing approximately $612 million of fair value and in our private loan portfolio we had investments in 42 companies, representing approximately $299 million in fair value.

The total investment portfolio at fair value at June 30 was approximately 105% of the related cost basis, and we had eight investments on non-accrual status, which comprised approximately 0.5% of the total investment portfolio at fair value and 3.7% at cost. In summary, Main Street’s investment portfolio continues to perform at a high level and continues to deliver on our long-term goals.

With that, I'll turn the call over to Brent to cover our financial results, capital structure and liquidity position.

Brent Smith

Thanks, Dwayne. We are pleased to report that our total investment income increased by 4% for the second quarter over the same period in 2015 to a total of $42.9 million. Interest income increased by approximately 0.6 million. Dividend income increased by approximately 2.5 million and fee income decrease by approximately 1.3 million, when compared to the prior year. The amount of income that is less consistent on a recurring basis was approximately 0.7 million or $0.01 per share in the second quarter of this year, compared to approximately 1.8 million or $0.04 per share in the second quarter of 2015.

Second quarter 2016 operating expenses, excluding non-cash share-based compensation expense, increased by $0.6 million over the second quarter of the prior year to a total of $13 million. The increase was primarily related to a $0.6 million increase in interest expense and a $0.2 million increase in general and administrative expenses and compensation related expense. These increases were partially offset by a $0.2 million increase in the amount of costs allocated to our external investment manager.

The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, which we believe is a key metric in evaluating our operating efficiency, remains constant at 1.4% on an annualized basis for the second quarter and continues to compare very favorably to other BDCs and other yield oriented investment options.

Our increased total investment income and continued leverage of our efficient operating structure resulted in a 4% increase in distributable net investment income for the second quarter of 2016 to a total of $29.9 million or $0.58 per share, exceeding our recurring monthly dividends paid for the quarter by over 7%.

Our external investment manager’s relationship with the HMS Income Fund benefited our net investment income by approximately $2 million in the second quarter of 2016, through a $1.4 million reduction of our operating expenses for costs we allocated to the external investment manager for services we provided to it and $0.6 million of dividend income from the external investment manager.

We recorded a net realized gain of $15.5 million during the second quarter, primarily relating to realized gains due to the exit of SambaSafety, a lower middle market investments partially offset by realized losses relating to the exits and restructuring of certain middle market and private loan investments. And as Vince discussed, we recorded net unrealized depreciation on the investment portfolio of $2.6 million in the second quarter, primarily relating to $4.1 million of net appreciation on our middle market portfolio, and $1.8 million of net appreciation relating to our lower middle market portfolio. This net appreciation was partially offset by a net depreciation relating to our private loans portfolio of $2.6 million and $0.9 million of depreciation relating to our external investment manager. Additional details for the change in our net unrealized appreciation can be found in our earnings release.

Looking forward to the third quarter of 2016 and consistent with the information we provided on our last earnings conference call, we wanted to provide an update regarding the market movement relating to our middle market portfolio. The overall market on middle market debt investments has continued to improve during the third quarter. Based on our static middle market portfolio as of June 30, 2016, not taking into account any new investments or sales or repayments during the third quarter and based on quoted market prices for underlying middle market debt investments, our middle market portfolio has generated approximately $3.5 million to $4 million in net unrealized appreciation through this point in the third quarter.

Our operating results for the second quarter of 2016 resulted in a net increase to net assets of $30.9 million or $0.60 per share. On the capital resources front, our liquidity and overall capitalization remains strong. At the end of the second quarter, we had $18.7 million of cash, $1.6 million of marketable securities and $205 million of unused capacity under our credit facility.

Today, we have approximately $20 million of cash, $0.6 million of marketable securities and $226 million of unused capacity under our credit facility. And as Vince mentioned in regards to our capital structure, we are also very pleased to now that to access to additional long term attractively priced fixed rate debt capital through our third SBIC license, which significantly enhances our available capital.

As we have previously noted in prior communications since our IPO in 2007, the available capital to us under the SBIC program is very attractive as it aligns very well with our primary investment strategy of focusing and providing the long term debt and equity capital to lower middle market companies. And just to follow up on our ATM accrete program, as Vince stated we have been very pleased with this execution, as we have raised over 54 million in net proceeds since we started the program last November. The flexibility of the ATM program provides real time liquidity to better co-relate to the timing of our investment activity.

In addition, the net proceeds per share under ATM program is significantly higher than the net proceeds per share under our last equity offering in March of 2015. As we look forward to the third quarter of 2016, we currently expect that we will generate distributable net investment income of $0.57 to $0.59 per share during the quarter. This estimate is $0.03 to $0.05 per share above our previously announced monthly dividends for the third quarter of $0.54 per share.

With that, I'll now turn the call back over to the operator, so we can take any questions.

Question-and-Answer Session

Operator

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instruction] Our first question comes from Bryce Rowe from Robert W. Baird. Please go ahead.

Bryce Rowe

Vince, Brent and Dwayne, appreciate the commentary on the aftermarket program and would concur that it's been an efficient use or efficient way to raise equity capital. Do you guys anticipates considering to use it at the pace that we’ve seen here recently after you would capitalize or advertise that third SBIC license, just carries if you would kind of use the SBA debentures first and maybe slow down on the ATM program? Or do you think that you will continue to kind of drip in as we move forward?

Vince Foster

Bryce that’s -- I’m glad you brought that up. With respect to the third license and already getting the 125 million of the incremental debt, you need to contribute 62.5 million of equity and that lines up pretty well with the 54 in assets we raised. So I think what we want to signal is when we use relative, we modest tranches, so the first when we kind of dipped out toe in the water with 1 million shares, second, when we did 1.5 million.

We are in no hurry to complete that and I don’t know correct me if I’m wrong, it was about halfway done. Yes, so would you see us with third one this year, probably not. I think we are just going to take an opportunistic approach. The way we run the business is we really start with the availability under the revolver we want to use the revolver as a revolver and not have the thing real fully drawn or anyway near fully drawn.

And so was up as our capacity, Brent mentioned it's about 2.25 or [Multiple Speakers], so we don’t want to take too much more of that down probably so it really kind of depends on net originations and keeping availability of the revolver and as we are going to use the SPIC third SPIC license as order to quickly as we responsibly can to the degree we've got SPIC eligible investments. So as that kind of the view.

Bryce Rowe

That's great, and then maybe a follow-up. Vince you talked about the pipeline at least from the lower middle market side being “average”, but expecting an active fourth quarter. So I assume that would mean maybe a bit of the slow down here in the third quarter since you pulled through. Some activity in the second quarter and then again a pickup in activity in the fourth quarter?

Vince Foster

Yes, I think that's right. It really shouldn’t be seasonal but we are seeing seasonality in the business where you have more activity and probably in Q2 and Q4 then you do in Q1 and Q3. And Q3 maybe, because it’s summer vacations trying to get all our professionals on both sides on geared up through documentations, due diligence and everything it's just -- it's kind of more challenging but people get and kids back in school, we can convert more and more of that pipeline. So I think it's just normal season, Brent, you have any different viewpoint?

Brent Smith

No I agree 100%.

Bryce Rowe

Alright, that's great. Thanks guys. Appreciated.

Operator

Our next question comes from Christopher Nolan from FBR. Please go ahead.

Christopher Nolan

The eight non-accruals is it the same six in last quarter or with additions or have things changed around?

Brent Smith

There was two new additions this quarter which is our Permian Holdings and Larchmont, both were added to the non-accrual this quarter.

Christopher Nolan

And Vince, can you give a little color on what you views on the energy sector these days?

Vince Foster

Yes, again we're taking an opportunistic approach, we've done a couple of minerals deals, they were modest, highly opportunistic. You are seeing assets become available that normally just you wouldn't see or we wouldn’t see. And so if something is highly and it needs to be highly attractive given the volatility of this space, you know we’ll certainly look at it. But I wouldn’t see our exposure to coming up and I think what I would tell the guys is if you are seeing an energy asset you want to add, you better kick someone off to the bus to make for it. Because the bus is pretty full, so I'm not really seeing the energy exposure going up. I don’t think the participants in our revolver would like to see the energy exposure go up, but -- so I think we're kind of on our opportunistic rotational basis there. You say different?

Brent Smith

No, I agree.

Christopher Nolan

And I have a quick follow-up. Given your comments in terms of warnings fill up a third SBA sooner rather than later is it a part of strategy there to, given a maturing investment to basically roll that investment into the SBA, if it's SBA compliance is it works for that or would you look at new investments?

Vince Foster

So you are not allowed to, we couldn’t drop in assets that we currently owned that into, currently owe in the BDC entity or in the [indiscernible] down SBIC. So it's only for a new originations. There is -- related party rules et cetera, the prohibitions. Albeit new stuff, yes.

Christopher Nolan

Okay thank you.

Operator

Our next question comes from Leslie Vandegrift from Raymond James. Please go ahead.

Leslie Vandegrift

Most of my questions have already have been answered. Just a quick one on the industry exposures, specifically on a retail stores, last quarter in the Q we saw about 4% in specialty retail and then possibly some stores in that leisure and equipment exposure and other. Just kind of what you guys are seeing on how kind of the retail stores are doing right now and what's your June 30, exposure to those specific sector investments?

Vince Foster

Yes Leslie, thanks for the question. I think consistent with what we had discussed in general on some retail exposure on some of our prior calls, I think what we have seen in the retail sector is maybe a slowdown in growth and more of a flat kind of quarter-over-quarter, month-over-month type performance. We have not seen significant or material declines. So I think we are pretty happy with that. There is I think in the middle market, there has been more movement from a market valuation or kind of the bid at the end point which is pushed down with fair values at least in one case and retail main where clearly the market is viewing the retail sector with a more pessimistic view, and it's impacting that valuation. But overall we have seen kind of flat type performance as opposed to a historical growth over a decline.

Brent, you want to give the kind of color on the percentage from the [Multiple Speakers] standpoint.

Brent Smith

Yes its 634 total portfolio, our specialty retail is consistent at 4%.

Leslie Vandegrift

All right perfect. Thank you guys appreciated.

Operator

Our next question comes from Doug Mewhirter from SunTrust. Please go ahead.

Nancy Rosenberg

Good morning, this is actually Nancy Rosenberg on for Doug, thank you for taking my questions. So we have been hearing comments that increased competition in the lower middle market and I know you mentioned seasonality, but could you comment a little more about what you are seeing?

Vince Foster

I think that when we look at the competition in lower middle market, we look at it kind of two different ways. Our lower middle market companies are typically in the 3 million to 15 million EBITDA range and I think our average is probably -- our average size or medium size is in the 6 million to 7 million range at this point. And so with respect to those size companies, unless they exhibit a lot of growth, are doing a really hot space like software as a service or something like debt. We continue to not see a lot of competition other than maybe the private equity firm looking at that size company as an add on or bolt-on to an existing investment. But with respect to those size companies representing platform investments which is how we look at them, it just not all that competitive for the most part.

Now, is that medium size of 7 goes to 17, you are going to see more competition, it's kind of linear. But I’ll say that for a certain sectors they are definitely more competitive than probably -- I don’t know, I would say over that maybe the last 12 to 18 months than we have seen in the past 10 years. And that's probably here to stay as funds are going down market if you will to pick up industries that they are very excited about, and you just won't see us with the lot of those companies.

So if we look at a software as a service company rather than paying 15 times EBITDA for $7 million company, which we are not going to do, we might exit for that as we've done, we’ll go look at the million dollar EBITDA companies, we’ll continue to go down scale even more for those hot type industries where we have some experience and find them attractive. So our strategy is continuing to stay kind of off the radar and with the smaller companies that we view as platforms rather than add-ons that very attractive to the founders or the sellers and their families and what's really, really attractive is the fact that we represent permanent capital and we don’t represent -- we don’t have our financing contingency involved that we can write the whole check and we do not have an exit strategy that we’re underwriting to that's it's kind of a -- it's meant to be kind of a permanent investment. Unless and until the Management team things that makes sense to sale.

Nancy Rosenberg

Okay, understand. Thank you for this comment. Could you also comment on your unrealized losses this quarter, was that the credit issue or mainly a reversal?

Vince Foster

Yes, the majority of the unrealized net appreciation/depreciation this quarter was accounting reversal of large disputes which related to the Samba exit, because we had a significant size gain on Samba, almost $29 million. So obviously the accounting will be the largest aspect of the total amount you see on our income statement, and as we walk through earlier the true excluding the accounting reversals, the true net unrealized appreciation, we walk to those earlier but that was mainly driven by the middle market of around $4 million and the lower middle market which was I think $1.8 million.

Brent Smith

And we can also point you to some disclosures in our earnings release and our MD&A and the 10-Q that kind of breaks down the difference between the true change and unrealized appreciation-depreciation as well as the impact to the flips distributing more color on that.

Nancy Rosenberg

Okay, thank you. That's all I have for now.

Operator

Our next question comes from Johnathan Reichek from Friedberg Investments. Please go ahead.

Johnathan Reichek

I have a question regarding crude oil -- the consensus seems to be that supply and demand are going to come into balance at the end of this year or early next year, which should lead to an increase in prices and then an increase in activity levels here. So, as activity starts to return to normal levels, you guys have had to mark down some of your energy investments. What kind of upside is there to NAV as some of your energy companies start to return to a normal level of profitability?

Brent Smith

Yes, Jonathan I think when you look at that it's hard to form a really defined view on what we think is going to happen in that area, but I think in response to your point, I do think that to the extent there is improvement even if it’s modest, it means obviously that the impact would be even more significant if there is significant improvement but even modest improvement we believe will be a significant positive for all of our oil and gas investments and it's hard to quantify what that would mean in dollars, but just generically we can tell you that over the last kind of six to seven quarters, I guess six quarters gone back to 12.31 in 2014, we had over $50 million of net depreciation specifically on oil and gas companies. A lot of that depreciation is obviously directly correlated to the decline in commodity prices. So when you look at it just getting back where we starting, you’re looking at $50 million of depreciation or $4 share of NAV.

Johnathan Reichek

Okay. All right, thank you.

Operator

Our next question comes from Mickey Schleien from Ladenburg and Thalmann. Please go ahead.

Mickey Schleien

Vince, can you remind us -- has there been any public disclosure about whether, when or if HMS Income Fund will list.

Vince Foster

Well, that’s been publically disclosed Mickey is that after the fund raising phase has concluded, the Board would seek to -- I think I forget with the language, seek to explore liquidity event in five to seven years. Now, they obviously they could do something sooner than that, they could do something later than that. But they’re still in fund raising mode now, so a listing would be, would probably be relatively far off, because I don’t think they will list while they are continuing to fund-raise. But I think the next important milestone would be concluding the fund raising period and then, you are right, the focus will then be on what kind of liquidity event makes sense given its size and its investment model et cetera.

Mickey Schleien

Is there any guidance on when the fund raising phase is expected to end?

Vince Foster

I don’t think it provided guidance, but if I had to guess, I would say -- when I look at what the competition has done and based on kind of reading body language et cetera, I would guess that it would be sometime in 2017.

Mickey Schleien

Okay appreciate that and thank you very much.

Operator

Our next question comes from Christopher Nolan from FBR. Please go ahead.

Christopher Nolan

Hi Brent, as a quick follow up for the DNII guidance, is this still a $0.03 per share adjustment to get to reported NII?

Brent Smith

No, its $0.04 last quarterly time guided to that as a forward looking measure, but we expect the difference to be approximately $0.04.

Christopher Nolan

Great; and what is the spillover income?

Brent Smith

The still lower income at the end of June 30th, was approximately 49 million.

Christopher Nolan

All right. Thank you.

Operator

Thank you. There are no further questions at the moment. I would like to turn the floor back over to management for any closing comments.

Vince Foster

Great. I appreciate all the participation on the call and we look forward to talking to again in early November. Bye.

Operator

This concludes today's teleconference. Thank you for your participation. You may disconnect your line at this time.

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