Gladstone Investment Corporation Year End 2010 Earnings Call Transcript

Gladstone Investment Corporation Year End 2010 Earnings Call Transcript
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Gladstone Investment Corporation (GAIN)

Year End 2010 Earnings Call

May 25, 2010 8:30 a.m. EST

Executives

David Gladstone - Chairman & CEO

David Dullum - President

David Watson - CFO

Analysts

Vernon Plack - BB&T Capital Markets

David West - Davenport & Company

[Jeff Redner] - UBF

Ross Demmerle - Hilliard Lyons

Presentation

Operator

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Greetings, and welcome to the Gladstone Investment's year-end 2010 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer for Gladstone Investment. Thank you. Sir, you may begin.

David Gladstone

Thank you, [Diego]. I appreciate the introduction; and hello and good morning to all of you out there. This is David Gladstone, Chairman, and this is the quarterly conference call for shareholders and analysts of Gladstone Investment, trading symbol GAIN.

Again, thank you all for calling in. We are very happy to talk to shareholders. We wish there was more opportunity to do it. If you're ever in this area, the Washington DC area, we're in McLean, Virginia just outside of Washington DC, so please stop by and say hello. You'll see a great team working for you. I think they're the best in the business.

Now let me read that statement I always read at the beginning. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the 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. Even though they are based on our current plans, we believe those plans to be reasonable.

There are many factors that may cause the actual results to be materially different from any future results that may be expressed or implied by these forward-looking statements, including those factors listed under the caption, Risk Factors, in our periodic filings as filed with the Securities and Exchange Commission. Those can be found on our website at www.gladstoneinvestment.com and the SEC website as well.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

You're going to hear from the three Davids today, David Gladstone, David Dullum and David Watson and we'll start out with our President, David Dullum. He'll cover a lot of ground; and, Dave, take it away.

David Dullum

Thank you, David. Good morning, all. To briefly review, GAIN is an investor in buyer transactions of lower middle market businesses. WE partner with management teams and private equity sponsors in these transactions to achieve the necessary leverage and the best financial solution for the transaction at the time.

Our products are mezzanine or junior debt instruments combined with warrants to buy common stock or and equity investment in common stock or preferred stock. This approach provides the investing discipline to be focused on generating income for dividend distributions on a current basis and future capital gains to enhance the overall returns to our shareholders.

We may also find from time to time opportunities to provide capital in support of business owners and management teams who are not seeking to sell their company outright but achieve partial liquidity through a recapitalization of their business or where they have a capital need to strengthen the balance sheet as in for growth.

I believe right now we are in a very favorable environment for our type of financing what with the availability of asset-based and bank senior term loans being a challenge for private equity sponsors in leverage transactions to date. Therefore, these structural circumstances extend the need for the junior debt/mezzanine tranche that we provide.

Moving briefly to the activity over the last quarter and year, we invested $0.9 million in A. Stucki for an add-on acquisition and $1.5 million ASH Holdings to help finance out a senior lender. Both of these are existing portfolio companies.

There were no exits from our buyout portfolio though we continued to analyze opportunities for recapitalizing or exiting from select portfolio companies at the appropriate time. In this regard, we previously reported that one of our control buyout portfolio companies had signed an agreement with an investment banking group to review strategic options.

This process is moving forward and we hope that it continues on a positive note. There is no certainty, though, in the outcome at this time.

During the quarter we received $679,000 of principal repayments from companies in our portfolio and dispersed $2.4 million to these companies. During the quarter we extended the Noble Logistics revolving credit facility to May of 2010 which was previously due to expire in February of 2010.

We continue in our efforts to refinance lower yielding debt obligations and to pay down our line of credit and reduce our interest costs, thereby strengthening our earnings per share.

During the quarter ended March 31, we received scheduled principal repayments of about $27,000 from our remaining syndicated loans and, subsequent to the fiscal year end, we were repaid in full from Interstate FiberNet and received $6.8 million, which is both our fair value and was the cost basis of this investment as of March 31, 2010.

As a result of these various activities, at the end of the March quarter, which is our fiscal year end, we had $215.4 million invested in 13 buyouts at cost and $12.2 million invested in two syndicated and one non-syndicated loan for a total portfolio cost of about $227.6 million and total assets of around $297 million.

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