Gladstone Capital (GLAD)
F3Q10 Earnings Call
August 10, 2010 8:30 a.m. ET
David Gladstone – Chairman of the Board & Chief Executive Officer
George Stelljes, III – President, Chief Investment Officer & Director
Gresford Gray – Chief Financial Officer
Jonathan – Stifel Nicolaus
Troy Ward – Stifel Nicolaus
J.T. Rogers - Janney Montgomery Scott
David West – Davenport & Company
Previous Statements by GLAD
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Greetings and welcome to the Gladstone Capital third quarter 2010 earnings conference call. [Operator instructions.] It is now my pleasure to introduce your host Mr. David Gladstone, Chairman and CEO for Gladstone Capital. Thank you, Mr. Gladstone. You may begin.
Good morning and thank you Operator. Thank you all for calling in. This is David Gladstone, Chairman and this is the quarterly conference call for shareholders and analysts, that’s for Gladstone Capital, NASDAQ trading symbol is GLAD and again thank you all for calling in. We’re always so happy to speak with shareholders about our company and we wish we could do this more often. Once a month would be fine, but I guess nobody would call in once a month.
We hope you all take the opportunity to visit our website, www.GladstoneCapital.com, where you can sign up for email notices so you can receive information about the timely information about our company. Please remember that if you’re in the Washington DC area you have an open-ended invitation to stop by here in McLean Virginia and visit us and say hello. You’ll see some of the finest people in the business.
Now, I need to read that all-important statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934, including statements with regard to the future performance of the company.
These forward-looking statements inherently involve certain risks and uncertainties, and even though they are based on our current plans, and we certainly believe those plans are reasonable, there are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements, including those factors listed under the caption risk factors in our 10-Ks and 10-Qs and in our prospectus that’s filed with the Securities & Exchange Commission and can be found on our web site at www.GladstoneCapital.com and at the SEC website.
The company undertakes no obligation to publically update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Well, we’re much better off than we were in the past and we feel pretty good about it and we’ll start off with our president, Chip Stelljes. Chip is the Chief Investment Officer of all the Gladstone Companies and he’ll cover a lot of ground for Gladstone Capital. Chip, take it away.
Thanks David, and good morning. As most of you know, the difficult economic and small business lending climate continues. It is getting better, we are seeing new investment opportunities, and have a number of proposals out to companies. We hope to be telling you about some new investments soon.
We closed one new investment during the quarter ended June 30 for a total commitment of $2 million, of which $400,000 was funded at closing. In addition, we funded $1.8 million in the existing portfolio companies in the form of additional investments that were draws on revolver facilities, for a total funding of $2.2 million.
During the quarter we received repayments of approximately $18.5 million due to loan sales, payoffs, normal amortization, and paydowns of revolvers. So in total we had a net production decrease in our portfolio of about $16.3 million for the quarter. The net proceeds were used to pay down our line of credit.
Since the end of the quarter we made about $2.4 million in additional investments in existing portfolio companies. Additionally, after the end of the quarter we received $8.7 million in payments. Currently, the amount we owe on our new two-year line of credit is $18.2 million.
We continue to see new investment opportunities with pricing and structures that are attractive. We now have the availability on our line of credit and we’re actively seeking to make new investments.
We continue to explore ways to increase the yield on our existing investment portfolio by refinancing our lower yielding senior loans with third-party lenders while trying to maintain the higher yield in junior debt. This next year should see an increase in the assets we expect to have on our books.
At the end of the June quarter our investment portfolio was valued at approximately $270 million versus a cost basis of $310 million. So approximately 87% of cost, and although the values did not change materially this quarter, we continue to monitor our portfolio companies, revenues, and backlogs to judge where we think the underlying companies are headed.
At the end of the quarter we had loans with six companies on non-accrual and a number of other companies experiencing problems that may prevent them from making timely payments in the future. We have taken operating control of all but one of these companies and are working hard to fix the problems and improve their profitability.
On a dollar basis, the loans classified as non-accruing have a cost basis of $29.4 million, or about 9.5% of the cost basis of all loans in the portfolio. On a [unintelligible] value basis for the entire accruals represent 3.8%.