BlackRock Kelso Capital Corporation Q1 2010 Earnings Call Transcript

BlackRock Kelso Capital Corporation Q1 2010 Earnings Call Transcript
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BlackRock Kelso Capital Corporation (BKCC)

Q1 2010 Earnings Call Transcript

May 6, 2010 4:30 pm ET

Executives

Jim Maher – Chairman and CEO

Frank Gordon – CFO

Michael Lazar – COO

Analysts

Greg Mason – Stifel Nicolaus

Arren Cyganovich – Ladenburg

Jasper Birch – Macquarie Capital

Chris Harris – Wells Fargo Securities

Jim Ballan – Lazard Capital Markets

Presentation

Operator

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Previous Statements by BKCC
» BlackRock Kelso Capital Corp. Q3 2008 Earnings Call Transcript
» BlackRock Kelso Capital Corporation Q2 2008 Earnings Call Transcript
» BlackRock Kelso Capital Corporation Q1 2008 Earnings Conference Call

Good afternoon, my name is Christian and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Kelso Capital Corporation investor teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Jim R. Maher; Chief Operating Officer, Michael B. Lazar; and Chief Financial Officer, Frank D Gordon.

All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions) Mr Maher, you may begin the conference.

Jim Maher

Thank you, Christian, and welcome to our first quarter conference call. We will begin by having Frank review some general conference call information.

Frank Gordon

Thank you, Jim. Before we begin our remarks today, I would like to point out that during the course of this conference call, we may make a number of forward-looking statements. We call to your attention the fact that BlackRock Kelso Capital Corporation’s actual results may differ from these statements.

As you know, BlackRock Kelso Capital Corporation has filed with the SEC reports, which list some of the factors, which may cause BlackRock Kelso Capital Corporation’s results to differ materially from these statements. Finally, BlackRock Kelso Capital Corporation assumes no duty to and does not undertake to update any forward-looking statements.

I would now like to turn the call back over to Jim.

Jim Maher

Thank you, Frank. It is great to have the opportunity to speak to you about our first quarter results. Our first quarter performance was strong, 2010 has had a good start and I expect a productive year for BlackRock Kelso Capital.

Our portfolio continues to produce strong investment income. I am very encouraged by the improving economic environment and its impact, positive impact on our investments. We are seeing more and more investment opportunities, and we continue to actively manage our existing portfolio.

As I mentioned last quarter, during 2009 we exited several investments with either low interest rates or significant tech interest features. This continued in the first quarter of 2010. We generated more than $70 million in additional cash, and further reduced our leverage during the quarter. We finalized the first stage of our credit agreement amendment extending a significant portion of our debt maturities by three years.

For the quarter, we had net investment income of $0.36 per share. Net investment income is adjusted for incentive fees equalled $0.30 per share. Yesterday, our Board of Directors declared a regular second quarter dividend of $0.32 per share. This dividend is consistent with the company’s first quarter dividend, and is supported by net investment income.

The volume of new transaction opportunities began to increase late last year; this increase has been sustained and is accelerated into the second quarter of 2010. Importantly an improvement in the quality of actionable opportunities has been evident. Solid businesses that had performed well in the most recent cycle are now seeking capital for new transactions.

Portfolio valuations continued to improve during the first quarter. During the quarter ended March 31. 2010, the investment portfolio increased in value by $10.2 million. We attribute this increase to stronger general economic conditions, a contraction in market interest rates and credit spreads, and specific efforts made at certain portfolio companies to improve balance sheet and reduce debt. The effects of cost reduction programs put in place by many of the portfolio company’s management teams are also having a positive impact on profitability and valuations.

Our balance sheet remains very conservatively positioned. Net debt stood at less than $250 million on March 31. Our statutory BDC asset coverage tests stood at less than 0.5 to 1. We are pleased that we have completed our credit facility extension and would especially like to thank our banking partners of Citi, Bank of America, UBS, and Credit Suisse for their support. Access to equity and debt capital will allow us to resume and sustain our profitable growth into the future.

Net asset value increased again during the first quarter and now stands at $553 million that equates to $9.77 per share, up from $9.55 per share at year-end, and $9.04 per share last March 31. We believe that the current investment environment provides us with an attractive opportunity to put capital work at rates that are accretive to our net investment income. There continues to be attractive investment opportunities available in the middle market, and fewer capital providers to middle market companies.

We are excited to have the capital resources and disciplined investment process in place to take advantage of these opportunities. We remain conservatively positioned for the long term. Our balance sheet is solid and we believe that we have the financial flexibility to profit from the improving market, and economic environment through 2010 and beyond.

Mike will now discuss our portfolio activity, and market conditions in more detail.

Michael Lazar

Thank you, Jim. I am pleased to have the opportunity to speak with you about the portfolio and current market conditions today.

Portfolio activity increased in the first quarter and into the second quarter both for portfolio repayments and exits as well as for our review of new investment opportunities. We completed several follow-on investments in existing portfolio companies during the first quarter, and are currently working on multiple investment opportunities that we sourced during the first quarter. While we cannot make assurances about which transactions will ultimately close, we do have an active pipeline and hope to close several transactions in the next few months.

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