THL Credit, Inc. (NASDAQ:TCRD) Q3 2019 Earnings Conference Call - Final Transcript
Nov 05, 2019 • 10:30 am ET
Christopher J. Flynn
is a first-lien investment and one of our three remaining energy credits. The business continued to face market headwinds this quarter due to overall reduced M&A activity in the energy space, and was marked down accordingly. Aside from the markdown in Holland, we continue to believe the fundamentals of our portfolio are moving in the right direction.
We are very pleased with the results of our Copperweld exit this quarter. Copperweld, as one of our control equity positions, was originally an unsponsored deal that we took through a restructuring in 2016. With managerial changes and the retention of an adviser, operations were stabilized and EBITDA grew, positioning the company for a sale. Cash proceeds received and dollars escrow totaled $35 million, which were 1.6 times our original investment and a $1.5 million markup from June 30th. The total return on this investment, including interest and dividends, was 2.2 times our original investment. The proceeds from Copperweld, one of our most concentrated positions at over 7% of the portfolio as of June, can now be deployed across several new investments, also improve the overall diversity of the portfolio and may also be used for additional share buybacks under our $15 million 10b5-1 stock repurchase plan. Since we initiated this plan in March 2019, we have repurchased $13.7 million of our stock or 91% of the target plan at a substantial discount to NAV. Repurchases in Q3 were accretive to book value by $0.05 per share. At the current repurchase play in place, we expect to hit the $15 million amount by the end of the next month, at which point, we will reevaluate a new plan.
Moving on to our portfolio repositioning efforts. Our objective since 2008 has been to reduce the risk in our portfolio by one, improving diversification; two, continuing to exit legacy non-core assets; and three, continue to grow our first-lien senior secured assets. We are doing this by proactively exiting concentrated names, control equity positions in subordinated and unsponsored investments, and transitioning those assets into senior secured positions and growing our Logan joint venture. Let me continue to provide more color on our progress. First, we have substantially improved overall diversification of our portfolio by proactively exiting more concentrated positions and adding smaller ones. As of March 31, 2018, we had 14 positions of the hold size greater than 2.5%. With the exit of Copperweld, a 7.1% position; and Fairstone, a 3.3% position. In Q3, we have now exited eight of these. Since the start of 2018, the average size of our 21 new investments is $5.9 million or 1.5%, well below our target max hold of 2.5.
TCRD continues to benefit from our coinvestment capabilities across our private funds and middle-market CLO platform, allowing us to take smaller positions and achieve our diversification goal. As a result, the average size of our investment debt portfolio at cost has decreased from $14 million in Q1 2018 to $8 million as of Q3 2019. While we are focused