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Fifth Street Finance's CEO Discusses F2Q 2011 Results - Earnings Call Transcript

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The $150 million five year fixed rate convert, coupled with approximately $138 million of fixed rate ten year SBA debt, and currently undrawn three year credit lines, give us a long-term fixed rate, low cost liability structure.

While we have only experienced $13.6 million in refinancings and paydowns in this quarter ended – the quarter ended March 31, 2011, we believe the level would increase as the year progresses. This should generate an income boost later in the year due to the prepayment penalties and the additional income from the points we received at the time of origination. Turnover of investments is an important point component of earnings for BDCs as refinancings typically raise short-term earnings for those companies who take the conservative approach of amortizing the origination points over the life of loan as we do. While we expect the quarter ended June 30, 2011 to be weaker for originations, than the previous two quarters, our pipeline in both number of deals and dollars is very robust. Because we originate almost all of our securities, it takes 120 days on average to convert a deal from when it enters the pipeline to closure.

All of indicators point towards stronger levels of M&A activity as the year progresses. We are very pleased to have a second consecutive quarter of over $200 million of originations during the quarter just ended March 31.

I believe we are seeing high growth in deal volume for several reasons. Private equity sponsors view us as a top provider of one-stop middle market solutions. We’ve gained significant momentum from our recent hires and expansion of the Chicago market. And we are able to offer a full suite of products including senior-only, one-stop, and mezzanine. In addition, the ability to commit to an entire transaction and syndicate it down later provides us with some additional pricing power.

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