THL Credit, Inc. (NASDAQ:TCRD) Q3 2019 Earnings Conference Call - Final Transcript
Nov 05, 2019 • 10:30 am ET
Thank you. [Operator Instructions] Our first question comes from the line of Lee Cooperman with Omega Family Office.
Thank you very much. Just a few questions, Chris, if I may. I missed it, if you said something but is the cash flow covering your dividend if you took your incentive fee per your arrangement? That's number one. So are we still subsidizing the distribution or we no longer have a need to subsidize the distribution? Secondly, if you had to take a stab at the question, if you took all the questionable assets and wrote them down to what you thought was a reasonable level, what impact would that have on the book value?
And third, I think you're doing the right thing in buying back stock, but you're obviously shrinking the size of the company, you're shrinking your footprint. Are we economically viable as a kind of entity we're structured presently? Those three questions, any help you could give would be appreciated. Thank you.
Christopher J. Flynn
Thanks Lee, appreciate the questions. The first, as it relates to the incentive fee as it relates to our dividend, I'll be honest, I don't recall the last time we actually took an incentive fee on the BDC, so it's been quite some time. So if we pro forma that in on our existing results, the earnings per share would be less. It's about a $0.03 or $0.04 reduction, but given our existing structure that we have as it relates to our fees and the look-back over time, we're not anticipating taking an incentive fee given the losses that we've incurred during the portfolio for the remainder of 2020. So we think the dividend itself is sized accordingly and is okay.
To the extent the portfolio itself has been diversified enough to enable us to add more leverage, I think the leverage that we've put on the system would enable us to potentially earn an incentive fee in the future and still cover the dividend as outlined.
Your second question as it relates to the assets, we obviously value these assets at what we believe to be the fair market value each quarter. Fortunately, we've got two names that are sizable as it relates to the overall concentration around those. You see them. We've highlighted them. It's not that we're not being transparent. It's [Indecipherable] both areas of focus, and folks can do the math on what that risk is, but we value those assets every quarter on what we think the fair value is.
And then I think your last question regarding the economic viability of the BDC itself, as a standalone entity, I think you're right, it would be difficult for -- as we are sitting here only managing a $500 million vehicle for us to say that it makes sense. But the fact is we're not, we're part of a much larger platform. We don't manage $500 million. We manage $17 billion. And we try to make that point in the prepared remarks