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Executives

Pete Deoudes - Director of Equity Capital Markets

Malon Wilkus - Founder, Chairman, Chief Executive Officer and Chairman of Executive Committee

John R. Erickson - Chief Financial Officer, Principal Accounting Officer and President of Structured Finance

Analysts

Joel J. Houck - Wells Fargo Securities, LLC, Research Division

Jasper Burch - Macquarie Research

Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division

Unknown Analyst

American Capital (ACAS) Q1 2012 Earnings Call May 2, 2012 11:00 AM ET

Operator

Good day, and welcome to the American Capital shareholders call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pete Deoudes, Director, Equity Capital Markets. Please go ahead.

Pete Deoudes

Thank you, Amy. Thank you, everyone, for joining American Capital's First Quarter 2012 Earnings Call. Before we begin the call, I'd like to review the Safe Harbor statement.

This conference call and corresponding slide presentation contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of American Capital. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice.

Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in our periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at www.sec.gov. We disclaim any obligation to update our forward-looking statements, unless required to by law.

An archive of this presentation will be made available on our website, and the telephone recording can be accessed through May 15 by dialing (877) 344-7529. The replay passcode is 10013312.

To view the Q1 slide presentation that corresponds with this call, turn to our website, americancapital.com and click on the Q1 2012 Earnings Presentation link in the upper right-hand corner of the homepage. Select the webcast option for both slides and audio or click on the link in the Conference Call section to view the streaming slide presentation during the call.

Participating on today's call are Malon Wilkus, our Chairman and Chief Executive Officer; John Erickson, President, Structured Finance and Chief Financial Officer; Gordon O'Brien, President, Specialty Finance and Operations; Sam Flax, Executive Vice President and General Counsel; Rich Konzmann, Senior Vice President, Accounting and Reporting; and Tom McHale, Senior Vice President, Finance.

With that, I'll turn the call over to Malon.

Malon Wilkus

Thank you, Pete. And thanks, everyone, for joining us. We had an outstanding quarter for the first quarter of producing $0.24 in net operating income before taxes or $81 million. On an after-tax basis, that would result in $0.14 or $0.49 -- or $49 million dollars in total of after -- of tax net operating income. And just to remind everyone, the taxes were charged against our deferred tax benefit and not paid in cash. So we do think the metric that probably best fits in reviewing American Capital's performance, particularly in comparison to other companies, would be the $0.24 in net operating income before income taxes.

We had $1.71 in net earnings, our bottom line, totaling $580 million. So just an outstanding quarter. That brought our net asset value per share to $15.71. It's $1.84 per share increase from the fourth quarter and $551 million in total, and that's a 53% annualized growth rate.

Turning to Slide 4. Since the third quarter of 2009, when the U.S. Gross Domestic Product turned positive, we've had 10 out of 11 quarters of positive net earnings. We produced $6.95 in NAV per share over that time, and that's a 26% annualized growth rate. And over the last year, since the first quarter of 2011, we've produced $3.74 in NAV or 31% return.

Turning to Slide 5, we wanted to announce -- or we did announce in our earnings release that we expanded our share repurchase and dividend program by extending it through December 2013. We expanded it for a year, and we reset the cumulative start date to the beginning of 2012. And since we've initiated the repurchase program, we've bought back $182 million cumulatively in repurchases. That has produced $0.44 per share accretion in our book value, and that's equivalent -- think about this, that's equivalent to producing an additional $143 million of retained earnings.

Now I got to tell you, to increase your retained earnings by $143 million over a 3-quarter period is a not -- not an easy thing to do. So by buying back shares, we've been able to substantially enhance our book value per share, and we think it's incredibly and wonderfully accretive and incredibly a great opportunity.

In fact, we've exceeded the cumulative net cash provided by operating activities by $47 million, which is the number that our board reviews in determining the size of the buyback program. But I got to tell you, today, with the current discount being so compelling, we just sense this is a terrific place for utilizing some of our capital. And so we take the discount into account in determining the volume of our purchases, and the discount is a significant factor in determining the volume of repurchases.

Turning to Slide 6. As you know, we continue to boost our performance of our portfolio through organic growth and supporting them through add-on acquisitions and helping them expand their business. We -- when we work with our portfolio companies and determine its time to exit, we're continuing to pursue very high exit values and with great success in the last 3 years. And one of the big achievements we've had is expanding our asset management business, and we're continuing to do that by -- both by expanding the existing funds under management but also by raising new funds, and we have 7 new funds under development.

That asset management business has been helpful in multiple ways, not only do we get some appreciation out of its -- based on its value increasing as we manage more funds under -- or have more funds under management, and we get income from managing the asset management company, the asset management company is paying us dividends, but we're also leveraging our existing cost structure to grow our assets under management. So in the first quarter, on an annualized basis, $24 million of the $208 million of SG&A was reimbursed by our asset management company, and we would hope if the asset management company grows, we can continue to have more of our SG&A absorbed in that way.

On Slide 7, you can see that this actually impacts our operating expense ratios. We're always trying to make sure that we are competitive and we have -- we do everything we can to operate efficiently. So we have, as you can see here and I won't go over the slide in detail, but we have the lowest operating expense ratio of the top 6 BDCs in the country when you evaluate it, either before or after stock-based compensation or carried interest expense. So that's even true when you consider, and we're particularly impressed by this, that when you consider that we're managing to the 46% or 47% of our assets, our equity assets, while all the other BDCs have considerably less of their assets in equities and instead in debt. And we've had a very good retained or net earnings, return on net assets, very good return on equity.

Turning to Slide 8. I'll let folks take a look at Slide 7 on their own, and we can talk about it in the Q&A if anyone would like. On Slide 8, we continue to grow our net asset values, and we're doing it by optimizing our tax benefit. We're doing it by appreciating our various assets as we can. And we've pointed out here on the slide that European Capital has very substantial opportunities for accretion and appreciation. And so as long as Europe avoids a serious recession, we think we'll do well in Europe.

Turning to Slide 9. Just to summarize, we just held our annual shareholder meeting. It was very successful, all of our proposals were passed. We did want to point out that we had no new Stock Option Plan that we requested for 2012, and all of our legally permitted stock options have, in fact, been granted to date. So our option expense will decline as stock options vest. And the value of our -- just to give you an example, the value of our senior management 2011 option grants represented about 59% of our total compensation, so we're extremely aligned with the interest of our shareholders. And since the option program has been fully granted and we have reached the maximum legally permitted, we will see a dropoff. And if you think about the proxy next year, it'll -- or senior management, we would anticipate that the options would drop off, and that would represent a very substantial portion of our total compensation.

Slide 10. With respect to our operating companies, our one-stop buyouts had $52 million of unrealized appreciation for the quarter. We've produced a 14% IRR on those investments, a total of $11 billion of investments. A 18% IRR on the $4 billion of equity investments, so we're very proud of how they've performed.

Today, the companies in this category in our one-stop buyouts or majority-owned companies had a moderate aggregate revenue increase and a moderate adjusted EBITDA increase in the past 3 months year-over-year. One of the -- one of our majority-owned portfolio companies is American Capital, LLC, our asset management portfolio company. It is doing extremely well, with fair value of $736 million on a cost basis of $99 million. And this last quarter, we had $287 million in unrealized appreciation, driven by an increase in actual and forecasted growth. And so we've increased our earning assets under management by $5.2 billion in the last 12 months to $9.8 million. And we, as I mentioned earlier, we have a number of programs underway to try to expand our assets under management, managed through American Capital, LLC.

Slide 11, our Sponsor Finance business, we had $26 million of unrealized appreciation for the quarter. We're very pleased with that result. We've had a 7% IRR on the $9 billion of investments that we've done in this category since we went public. And again, the companies in this category had moderate aggregate revenue increase and moderate adjusted EBITDA increase over the past 3 months year-over-year.

Turning to Slide 12. Our nonperforming loans dropped $63 million on a cost basis. And I wanted to point out at the bottom of the slide there that our nonaccruing loans value -- are valued at 50% of cost, and that really represents our expected recovery rate on those loans as of the end of the quarter.

Turning to Slide 13, European Capital. We had $164 million of net unrealized appreciation at European Capital, 82%, that now brings it to 80% of its net asset value, and that's an increase from the 67% where it stood at the end of last quarter.

We had $148 million of net unrealized appreciation that's primarily driven by an increase in the net asset value at European Capital itself and then a decrease in the implied discount to the net asset value due to an increase in multiples of comparable public companies, and a decrease in the cost of the equity.

The performance outlook, we think, is good, though it's certainly subject to the -- to how the economy performs in Europe overall. But the companies had a slight aggregate revenue increase and a slight adjusted EBITDA decrease in the past 3 months year-over-year in Europe.

Turning to Slide 14, our capital management update. We had $442 million of liquidity, $396 million of that came from realizations. Frankly, that was more than we were confident of receiving. And $46 million came from net cash provided by operating activities.

We brought down our debt-to-equity ratio, down to 0.2:1, and that's on a net basis with our cash. And we repurchased 5.5 million shares or $48 million at an average price of $8.79 per share in the first quarter, and that produced $0.12 of accretion for the first quarter of this year.

And finally, to end the presentation and before I open up to questions, I do think that the -- we're in a very -- we are in an uncertain macro environment, however, our portfolio of operating performance has been moderately positive. We remain focused on our portfolio companies, providing operational and financial support. We have a high priority to appreciate the control companies by funding organic growth and add-on acquisitions. We are seeking unitranche / second lien / mezzanine investment opportunities. And we're pursuing our one-stop buyouts and we plan, in addition, to repurchase shares or pay dividend, depending on our share price relative to NAV.

And as always, we're a long-term patient investor, and we plan to get fair values on realizations in a slow M&A market.

And with that, I'll open it up to questions.

Pete Deoudes

Amy, this is Pete. Can you please open up the call for Q&A?

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Joel Houck at Wells Fargo.

Joel J. Houck - Wells Fargo Securities, LLC, Research Division

I had one question and a follow-up, if I may. On the first question, there's obviously been a lot of value created by American Capital, LLC, not only in the growth of AGNC, but also the performance. Question, on Slide 9, you see here that option expense, you're at the limit, I guess, both legally for BDC. What confidence, if any, can you give us that Gary Kain will be -- you'll be able to retain him, given the -- what would appear to be lack of ability for future stock option grants for ACAS? And can you give us some insights into how he -- what you plan on doing to kind of retain him going forward, given that a lot of the value here and growth in NAV has been a result of AGNC, and presumably, a similar track for MTGE? And then I have a follow-up.

Malon Wilkus

Gary Kain doesn't work for American Capital. He works for American Capital, LLC, which is a portfolio company. So his compensation is tied there, and in fact, under his employment agreement, he is an investor in American Capital Agency. And employees of American Capital -- the American Capital, ACAS, are precluded to invest in the agency. He is allowed to because he's not an employee of ACAS. He's an employee of American Capital, LLC. And his whole compensation is structured at that level, and he is extremely incentivized. He's well incentivized at American Capital, LLC to help us expand the management company, expand assets under management. He's also very well incentivized to create excellent performance at American Capital Agency and American Capital Mortgage. He has all of the compensation features that you would want and hope for a properly compensated employee to perform and continue to make the company grow and to continue to do good work in asset management. And of course, Gary has done an absolute terrific job under that compensation structure. He's been operating under that compensation structure for upwards of 3 years now. Joel, did that answer that question?

Joel J. Houck - Wells Fargo Securities, LLC, Research Division

Yes, it does. I mean, just before I make my follow-up, I guess, my comment is given the external structure, investors, both AGNC and ACAS investors, can't really see what his compensation's tied to, so I do appreciate the color. I think, obviously, these become more important vehicles, that question or concern will obviously come up.

Malon Wilkus

Let me say one more thing about that, too. American Capital Agency is a $9.5 billion market cap company today. It's managing in excess of $70 billion of assets. And it is extremely, as you can imagine, this compensation has to be competitive with other firms of his type, and you can go and look, the closest comp out there is probably Annaly. And it's an internally managed funds or REITs, so you can actually see the compensation levels there. And you should assume that there's -- that Gary is not only a smart investor for the agency, but he's also smart with respect to compensation.

John R. Erickson

Joel, we have -- as part of his employment agreement, there's a non-comp and non-poach, so we feel like we've done the right things to really completely align him. And we recognize how valuable he is to that platform, and I think we've done the best that we can contractually to lock him in [indiscernible] non-comp and non-poach.

Joel J. Houck - Wells Fargo Securities, LLC, Research Division

Yes, and I understand that. Right, compensation agreements are a private matter. I just -- given the importance of this individual, we get a lot of questions from our clients and investors. But sorry to be so long, but I guess, the follow-up has to do with -- regarding kind of the new investments we see a theme here that you continue to support portfolio companies. And I think most people would agree that that's -- that those are less riskier than new investments, and to the extent you're going to originate probably the best use of capital than buying back stock or debt. Question is, you see here on Slide 18, there's 34 investment teams and 92 investment professionals. There hasn't been a lot of new origination, and -- not that we're encouraging that, but what is the -- if you look at -- you take a hard look at the number of investment professionals at ACAS and how many are kind of contributing to portfolio growth as opposed to what we would consider monitoring or maintenance of portfolio companies. Can you give us a sense for how the allocation or division of labor is divided up inside of ACAS?

Malon Wilkus

We probably have 70 people among this group that you're pointing out, 70 people working full time at portfolio companies at any given moment. We -- we're just constantly working with them, whether it's to recapitalize them -- think about it, half of our assets are in -- or actually 65% of our assets are in majority-owned companies. And so we're not like the other BDCs who don't have any responsibilities at their portfolio companies. They have a responsibility to make good in loans to those companies, but they have no job to do at the portfolio companies. They are allowed to maybe come in periodically and do a little due diligence or meet with management, but we have a job to do there. And so for instance, just like the other buyout, the entire buyout industry, we have a refinancing cliff, that we have our whole syndications team. There are 4 people on our syndications team in New York, they're working full-time, believe me, they're swamped with work to do with our portfolio companies to get them refinanced before their debt comes due. And they have done a terrific job of that, and we've very substantially expanded out and flattened out that cliff that's been typical that everyone's been talking about for buyout, the buyout industry. Our operations team. As you know, we went through the worst recessions since the great depression. Well, I -- and you've seen that we've had depreciation as a result of that and losses as a result of that. Well, we still have plenty of companies that are still working to do better than they were doing the year before, and the year before that, and the year before that. And this team of 10 ex-CEOs and Presidents, 1 COO, 1 CFO, they're working constantly. And they're not working alone, they're working with our investment teams. So all of the investment professionals have the responsibilities to their portfolio companies. They're working to help them grow, help them fix problems, help them get refinanced, to do add-on acquisitions. We did 3 add-on acquisitions this last quarter, portfolio companies that we financed, but it's quite possible the companies did some additional ones where our financing wasn't necessary. So our investment teams play a very big role in all of those add-on acquisitions. So believe me, we have assessed and reassessed and assessed again this question, and in fact, these investment teams are down around 60% from their high back in 2008. And so we've downsized them as our portfolio has grown somewhat smaller, but they've been very busy. Now since the middle of 2010 and since the beginning of 2011, first, our Sponsor Finance and then our buyout teams have been back active looking for new opportunities, so that's also taking up some of their time. But look, one of the reasons we felt it appropriate to show Slide 7, and if you could turn to Slide 7, this question has arisen as to how efficient we are operating, and compared to the top 5 other BDC's out there, our net -- our operating expenses as a percent of net asset value is 2.9% and relative to a low of 3.3% and a high of 5% for the other BDCs, that before carried interest or stock-based compensation. If you include those 2 expenses, then our cost is 3.9% compared to a low of 5.8% and a high of 7.8%. So we are dramatically more efficient in operating our portfolio, even though we have the largest portfolio of equity, and frankly, the better way to look at it is 65% -- over 65% of our assets is in majority-owned companies of any of these other BDCs. And in fact, our earnings this last year very dramatically exceeded, on a return on equity basis, the other BDCs, and I think that's also the case over the last 3 years.

John R. Erickson

Joel, when we went through the pain of downsizing, we retained the professionals that had the best track records that we believe have the highest likelihood of us raising funds around. And I think it's far more efficient for us to raise new capital around these professionals, which is what we're trying to do on -- in American Capital, LLC. I think we talked about having 7 funds under that development, so I hope that what you see in the near term is an expansion of the fee stream in American Capital, LLC.

Operator

The next question comes from Jasper Burch at Macquarie.

Jasper Burch - Macquarie Research

Just a couple of quick questions. First on the asset management franchise -- sorry, 2 questions on that. One, you, I mean, increased your growth estimates again on that franchise and I was wondering if you could give us more color on how fast you expect to grow? And also, if you could give us a little color on what the 7 new funds that you're developing are?

John R. Erickson

In terms of the asset management growth, I think you could imagine -- you saw MTGE successfully do its first follow-on offering, and it was -- significantly it was -- essentially doubled its market cap. And so that certainly, as you can imagine, would impact our view of its ability to access capital going forward.

Malon Wilkus

Yes, we can't really give any more guidance on our forecast of capital raises, but we've been very successful in the last several years and we're continuing to be optimistic about how we can grow that business. And that's not only the portion of the business that are managing our 2 public REITs, but also some other of our asset management efforts.

Operator

Next question comes from Greg Mason at Stifel, Nicolaus.

Greg Mason - Stifel, Nicolaus & Co., Inc., Research Division

Malon, it feels like 1 year ago, you were talking about a lot of things you want to do with your capital, including starting back up the buyout business and investing in a lot of new portfolio companies. It seems like your tone now is much more excited about share repurchases and talking about what you think the value of the stock is. Given you've got $300 million of capital, how should we think about your usage of that capital going forward, excluding the debt paydown that you have to do?

Malon Wilkus

I think you mean we have $5 billion of capital, but we had $300 million of cash. And as you've seen in the past, we've been producing about $1 billion of liquidity a year. So we do have an enormous amount of capital resources and highly liquid resources, which we've been able to draw on over the years to -- certainly we've been using it to retire debt. That debt retirement really is coming to an end in the next 18 months. And we -- so we do have to think about our capital uses. The first thing I have to say is that the market today for deploying capital is incredibly rich. By that I mean that prices are high and -- if you're trying to buy companies and terms are poor if you're trying to lend to companies. So there is a frothiness in the market, it seems to us. So we have been bidding on buyouts over this last year, probably about 18 -- 15 to 18 different buyouts, and simply have not gotten into the second round of bidding on virtually all of those efforts. That's not because we can't bring the capital to the table. We certainly are capable of doing that. It is because other people think the values for those companies are higher. So we have not been winning bids. Had we been too conservative? I do not think so. I think we have been judicious in our approach of bidding on companies. Same on the lending side, we have made many, many proposals to lend to -- particularly to change our control, M&A or recapitalizations in the buyout industry. And we're often finding that we are not seeing the investment the same way as other lenders are. And frankly, there's been virtually no capital that disappeared through this last recession for the buyout industry in the middle market, and yet, in fact, the capital probably has grown some. But there is dramatically fewer M&A opportunities to lend into. And so we are finding that if you are maintaining your standards, it is a difficult market to deploy into. In our case, that's not such a bad thing because we have such a -- what we think a fabulous opportunity to invest in ourselves. We're trading at extreme discount to our book, and we think that represents a great buy opportunity. And so we have been using it, using a chunk of our capital for that purpose, and we intend to do more of that.

Operator

The next question comes from Stewart Sterling [ph], private investor.

Unknown Shareholder

We spoke about dividends a couple of years ago. And I am just curious since I live on dividends, as to what your expansion is with this, or when you feel that you may be in position to pay the dividends? I know you're doing the repurchases and that offsets one or the other, but I would like to hear your opinion on this.

Malon Wilkus

Stewart [ph], we would -- I'm one of the largest individual shareholders and one of our board members. And several of our board members, I think, are also extremely large shareholders of the company, individual shareholders. And we would all love to start receiving the dividends, just like you. It was hurtful when we elected not to continue to pay dividends, but we think it is the better thing for our shareholders. So we would love to start paying our dividends, but -- and it would make sense to do so if we were trading near book or in excess of book, but trading at a deep discount to book it just is much more powerful for our shareholders if we buy back shares. It's as if -- I've already pointed this out in this last 3 quarters, it's as if we earned an additional $133 million of retained earnings. That is huge. So our stock buyback program equates to that in the last 3 quarters. But let me also point out something. This is something that I think individual shareholders miss a lot. It's -- all of our in institutions are generally pleased with our policy of paying dividends in excess of -- when we're trading in excess of book and buying back shares when we are at a discount. They like that because they know, economically, it makes the most sense. Individual shareholders may also feel that same way, but like you said, you live off your income. But understand that you could sell a similar percentage of your shares that equates to the amount of shares we're buying back. And so we're buying shares at a run rate of about...

John R. Erickson

I would say about 10% of the outstanding shares.

Malon Wilkus

10% a year, so 2.5% a quarter. If you were to sell 2.5% of your shares, you would actually get a higher after-tax return than if we paid you the dividend, and you would have a higher value of your remaining shares in book value.

Unknown Shareholder

I understand what you're saying. I honestly do. I just was curious which way you're going to go, which way you're leaning. If you're leaning towards, hey, if we get a few more deals, we can start paying dividends, or just sell out some. I understand that. I was just curious as to what you want to do because you guys are the ones that are running it, not me.

Malon Wilkus

Yes, no. Well, we appreciate that, Stewart [ph], and thank you for your question. And like I said, I'd love to reinstate the dividend as soon as we start to trade at near book again.

Operator

The next question comes from Dan Rutski [ph] at Edward Jones.

Unknown Analyst

To give you a somewhat different perspective than what you may be normally used to, I am a retail financial advisor. And I wanted to have a couple of comments made then have you comment back in reply. My point -- and I'm a little nervous, so I apologize. I do believe that the stock buyback program is especially valuable, but I would not discount market reaction to a small dividend being paid. My suggestion is if you have $50 million in a quarter that you have targeted towards stock repurchase, how about 10% of that going to be paid in a cash dividend and 90% toward the stock repurchase? And then as we get closer and closer and closer, which I do believe will happen, narrowing that discount, increasing the percentage of the allocation toward dividends and stock repurchase more toward dividends. Say, maybe as you get within 15% of your NAV, perhaps the dividend can be maybe 50% of what you intend to spend on the total program of repurchasing and cash dividends. So that's my first comment. My second comment is when I leave the office, my day is not done. I'd like to get home and watch Mad Money with Jim Cramer and at least half of Larry Kudlow before my wife makes me watch Wheel of Fortune. And the point I would make is I think it would be valuable for you to spend maybe a little bit of time, and Malon, perhaps you or your CFO, maybe calling up Jim Cramer and getting on his show. Many people call in and ask his thoughts about your company, and he basically says I can't give any opinion because I don't know what they hold. Well, when I call up your website...

Malon Wilkus

We appreciate your comments, and certainly, we'll give those some thought. And thanks so much for your comments.

Operator

[Operator Instructions] And our next question comes from Angelo Corino [ph] at DTI.

Unknown Analyst

Nobody else has asked about the -- what seems to be the likely restructuring in the future. And I wonder whether or not you've made any progress on looking at that? And secondly, since I seem to be timed to the wind-downs of the BLTs, where does that look -- where do you think those will be wound down at this point?

Malon Wilkus

Starting with the BLTs first, our oldest existing BLT has just recently paid down just last month, and that was very successful. All of the BLTs that we have are -- on balance sheet securitizations, all are successful. We have 4 more left, and we would expect 1 of those to go to 0 and be paid down and released this year, and 3 next year, and 1 in the year after.

Unknown Analyst

Do you see those as a precondition to -- for you to considering?

Malon Wilkus

So 1 this year and 3 next year.

Unknown Analyst

Would you see those as...

Malon Wilkus

Yes, it would be -- it -- we haven't figured any way to do any kind of restructuring without first having paid those down.

John R. Erickson

And as well as you know, the 575 of the new secured debt matures at the end of 2013 as well.

Unknown Analyst

Right. And the -- I guess, are you basically done with the old bond debt?

John R. Erickson

There's like $50 million of that remaining there.

Malon Wilkus

Also, I will say that one of the things that we want to do, and keep in mind, again, 65% of our assets are in companies that we control, where it's -- that is something that's simply not going to change fast or anytime soon. Those assets are particularly equity assets, and they keep, in the good economy, they're continuing to appreciate. And so they actually are becoming a larger percent of our total assets. So one of the things we want to do in any case is to consider the possibility of being able to report those companies on a public reporting basis, on a consolidated basis, so that our shareholders can see the performance of the EBITDA of those companies, their margins, their capital expenditures, their cash and so forth. And we think we should do that whether or not we once again become a RIC or whether we continue to not to be a RIC, C corp. or some other structure. And so we are working with our portfolio companies to evaluate the possibility of doing that. That is a huge effort, as you can imagine. We have over 50 different control companies here and in Europe, and so that is a massive effort. We are working on it, and -- but it will take some time before we will be in a position to assess that and then it would take some time after that to be able to implement it.

Unknown Analyst

But you -- independent of that in the past calls, you had, I think, inferred that one of the possibilities will be to take your performing debt assets and toss it out to the shareholders, and maybe throw that under the LLC...

Malon Wilkus

Yes, let me clarify that. So the concept there is that we might, someday, dividend out our debt assets to our shareholders. And we think that in the form of a BDC that we would manage through our asset management companies, so it would be an externally managed BDC. We really can't do that until we pay down the BLTs and have those released. And it -- the whole concept there is that we would hope that such a BDC would be able to pay an outstanding dividend, but relative to its size, it would still be probably a modest amount of assets, and as a result, trade at book. But we just can't do that until we pay down our debt, both our secured and then our securitized debt.

Unknown Analyst

So the end of 2013, really, at this point?

Malon Wilkus

That would be the earliest we could do it in our assessment at this point. But -- and that, also, still begs the question of what the remaining assets would become, less like a BDC, yet still -- or less like a RIC BDC, and we would have to operate under the same BDC rules. And so, and that might become difficult for a variety of reasons and...

Unknown Analyst

Well, that's where the C corp, I mean...

Malon Wilkus

No, we -- that's where we have to have -- address the question of our control assets and the -- all the ways in which we could handle that would require the public reporting consolidation of those companies. And so that's why we're in the midst of -- one of the reasons we're in the midst of analyzing that.

Pete Deoudes

Angelo, thank you very much for your question. Amy, with there being no other questions, can you please close the call?

Operator

Certainly. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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