CM Finance Inc. (NASDAQ:CMFN) Q2 2019 Earnings Conference Call Transcript

Feb 07, 2019 • 01:00 pm ET

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CM Finance Inc. (NASDAQ:CMFN) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good afternoon, ladies and gentlemen, and welcome to CM Finance's Second Quarter Earnings Release Conference Call. Your speakers for today's call are Mike Mauer, Chris Jansen and Rocco DelGuercio.

(Operator Instructions) I'll now turn the call over to your speakers, please begin.

Executive
Michael C. Mauer

Thank you, operator. Thank you all for dialing in today. I'm joined by Chris Jansen, my Co-Chief Investment Officer; and Rocco DelGuercio, our CFO. Before we begin, Rocco will give you our customary disclaimer regarding information and forward-looking statements. Rocco?

Executive
Rocco DelGuercio

Thanks, Mike. I would like to remind everyone that today's call is being recorded and that this is the property of CM Finance Inc. Any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by visiting our Investor Relations page on our website at www.cmfn-inc.com.

I would also like to call your attention to the Safe Harbor disclosure in our press release regarding forward-looking information and remind everyone that today's call may include forward-looking statements and projections. We ask that you refer to our most recent 10-Q filing for important factors that may cause actual results to differ materially from these projections. We will not update forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our Investor Relations page on our website.

At this time, I would like to turn the call back over to our Chairman and CEO, Michael Mauer.

Executive
Michael C. Mauer

Thanks Rocco. I'll begin today's call with some commentary on the state of the market. First, we will walk through our investment activity during and after the quarter, and then Rocco will discuss our financial results. I'll conclude with specific detail about our largest marks, both positive and negative, our outlook and thoughts on our progress repositioning the portfolio. As always we'll end with Q&A.

Last quarter was a tale of two entirely different markets. September and October saw robust new issue volume with relatively stable secondary pricing and activity. Secondary pricing moved steadily lower through November and the loan market saw some spike in volatility in December, that we all observed across markets globally. Although the broadly syndicated loan market is not our primary focus, it influences us in several ways.

Most directly, volatility in the broadly syndicated market can create opportunistic investments for us. Pricing where the spread and OID in the primary market or dollar prices in the secondary are the first levers to move. This also affects the value of the existing portfolio. Clearly secondary market pricing backed up through November and very significantly in December. This gave us a chance to make several investments at attractive levels.

To highlight this tale of two quarters, in the first half of the quarter, our investments had an average yield of 9%, in the second half this was 13.2%. Structural changes in the market flow through more slowly. Using the example of an underwritten loan, leverage security, besides the equity check and often the presence of or lack of