Fifth Street Finance CEO Discusses F4Q2010 Results – Earnings Call Transcript
Fifth Street Finance Corp. (FSC)
F4Q2010 Earnings Call Transcript
December 3, 2010 10:00 am ET
Executives
Stacey Thorne – Executive Director, Head of IR
Leonard Tannenbaum – CEO
Bernard Berman – President
William Craig – CFO
Steve Noreika – Executive Director and Controller
Analysts
Troy Ward – Stifel Nicolaus
Casey Alexander – Gilford Securities
Robert Dodd – Morgan Keegan
James Ballan – Lazard Capital Markets
Jasper Burch – Macquarie
Presentation
Operator
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Fifth Street Finance Corp. F1Q10 (Qtr End 12/31/09) Earnings Call Transcript
Good day, and welcome to the Fifth Street Finance Corporation fourth quarter 2010 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Stacey Thorne. Please go ahead, ma’am.
Stacey Thorne
Good morning, and welcome, everyone. My name is Stacey Thorne, and I am the Head of Investor Relations for Fifth Street Finance Corp. This is the conference call to discuss Fifth Street Finance Corp.’s fourth quarter and year-end results for September 30th, 2010. I have with me this afternoon Leonard Tannenbaum, CEO; Bernard Berman, President; and William Craig, Chief Financial Officer.
Before I begin, I would like to point out that this call is being recorded. Replay information is included in our October 27th press release and is posted on our website. Please note that this call is the property of Fifth Street Finance Corp. Any unauthorized rebroadcast of this call of any form is strictly prohibited. Before we go into our earnings portion of the call, I’d like to call your attention to the customary Safe Harbor disclosure in our October 27, 2010 press release regarding forward-looking information.
Today's conference call includes forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that would cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website or call Investor Relations at 914-286-6811.
The format for today's call is as follows. Len will provide an overview, Bernie will provide an update on each of our lending facilities, and Bill will summarize the financials, and then we will open our line for Q&A.
Before I turn the call over to our CEO, Leonard Tannenbaum, I would like to take the time to clear some information relating to our recently amended dividend reinvestment plans. On October 9, 2010, we announced that our Board of Directors adopted an amended DRIP. This plan allows a 5% discount on newly issued shares purchased through the plan, provided that shares will not be issued at less than net asset value.
This plan will be effective for all dividends paid after January 1, 2011. It is inversely attention that there may be some confusion about how to enroll on the plan. If you are an investor and would like to have your dividends reinvested into shares, you should contact your broker directly. While I’m happy to speak to investors, I encourage all questions relating to the DRIP to be directed to our plan administrator American Stock and Transfer Company at 866-665-2280.
I will now turn the call over to our CEO, Len Tannenbaum.
Leonard Tannenbaum
Thank you, Stacey. From an economic standpoint, we have continued to experience stable to slightly increasing EBITDA, especially in our 2008 and beyond interest portfolio. The Fifth Street Small Business Index, which is published monthly on our website, has increased for ten consecutive months. The growth in earnings is due both to margin expansion and revenue growth. These indicators of a rising economy are seen across several industry growths.
In addition, since September 30, 2010, TBA and Goldco have been refinanced to only totaling approximately $19 million. TBA was at one time a problem security. Debt-to-EBITDA was over ten times. The careful monitor in the best investment was instrumental (inaudible) for our debt, and we still hold a piece of the equity. We also have continued to exit problem securities, including Rose Tarlow during the fourth fiscal quarter.
Turnover of investments is an important component of earnings for BDCs, as refinancings typically raise short-term earnings for those companies like ours to amortize the original points over the life of the loan. We expect this quarter to be a record quarter for originations. Quarter-to-date we have already originated $109 million.
Our origination volume has grown every quarter this calendar year, and we expect our new Chicago office to contribute additional investment relationships. Our previous record quarter was in the fourth calendar quarter of last year. As many private equity firms wanted deals to close by year-end, we expect to announce additional closings through the month of December.
We continue to have ample capacity to fund investments through the remainder of our SBA facility, our Wells Fargo credit facility, and our ING-led credit facility. We are also looking to expand our credit capability in the ING facility by expanding the syndicate and increasing the amounts from the existing syndicate members.
Our 2007 vintage portfolio, which now represents approximately 13% of our Fifth Street’s total portfolio at fair value, continues to contain most of our underperforming assets. These investments in general are smaller, have weaker sponsors as partners, and are primarily second lien.
We have already taken significant write-downs to many of these assets. At the end of the fourth fiscal quarter, we had five assets on non-accruals. We believe this number will improve in the current quarter. Consistent with our recent revised guidance, we had earnings in the quarter of $0.21 per share.
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