Nov 16, 2018
Executives
Art Penn - Chairman and CEO Aviv Efrat - CFO
Analysts
Casey Alexander - Compass Point Paul Johnson - KBW Mickey Schleien - Ladenburg Kyle Joseph - Jefferies Thomas Wenk - JMP Securities
Operator
Please stand by we’re about to begin. Good morning, and welcome to the PennantPark Investment Corporation’s Fourth Fiscal Quarter 2018 Earnings Conference Call.
Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode.
The call will be opened for a question-and-answer session following the speakers’ remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr.
Art Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr.
Penn, you may now begin your conference.
Art Penn
Thank you and good morning everyone. I’d like to welcome you to PennantPark Investment Corporation’s fourth fiscal quarter 2018 earnings conference call.
I’m joined today by Aviv Efrat, our Chief Financial Officer. Aviv, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.
Aviv Efrat
Thank you, Art. I’d like to remind everyone that today’s call is being recorded.
Please note that this call is a property of PennantPark Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone numbers and pin provided in our earnings press release as well as on our website.
I’d also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today’s conference call may also include forward-looking statements and the projections, and we ask that you refer to our most recent filings with the SEC for information important factors that could cause actual results to differ materially from these 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 at www.pennantpark.com, or call us at 212-905-1000.
At this time, I’d like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.
Art Penn
Thanks, Aviv. I’m going to provide an update on the business starting with financial highlights followed by the discussion of the overall the market, the portfolio, investment activity, the financials and then open it up for Q&A.
For the first quarter ended September 30, 2018, we invested a $181 million and primarily first and second lien secured debt at an average yield of 10.1%. Net investment income was $0.20 per share.
Our recurring run rate income is now $0.19 per share excluding other income we received for such items as prepayment penalties. On average, other income such as prepayment penalties have been between $0.02 and $0.03 per share per quarter.
We purchased 7.2 million of our common stock as part of the $30 million stock repurchase program which is authorize by our board last quarter. Today, we have purchased $15 million.
The stock buyback program is accretive to both NAV and income per share. We are looking forward to continuing this program over the coming quarters.
As of September 30th, we have taxable spill over of $0.30 per share which provide substantial dividend cushion. With the generally stable underlying portfolio and significant spill over, we believe that PNNT stock should be able to provide investors with an attractive dividend stream along with potential upside as our equity investments mature.
As you all know, the small business credit availability act was signed in the law in late March 2018. Our board just approved the reduction of the asset coverage test from 200% to a 150% as well as authorize the submission of our proposal for shareholders for the upcoming February 2019 Annual Meeting to vote on the asset coverage reduction.
In connection with this reduction, our board also approved the reduction in our base fee from 1.5% to 1% on growth assets that exceed 200% of PNNT's NAV at the beginning of each quarter. Since our $250 million bond issue matures within a year, our board has also authorized us to redeem those notes.
In early 2019, we anticipate prepaying the notes at 100% of the principal amount plus accrued on unpaid interest as well as a make-whole premium. Our primary business of financing middle market sponsors has remained robust.
We manage relationships with about 400 private equity sponsors across the country from our offices in New York, Los Angeles, Chicago, Houston and London. We’ve done business with about 180 sponsors.
Due to the wide funnel of deal flow that we receive relative to the size of our vehicles, we can be extremely selective with our investments. In this environment, we have not only been extremely selective but we have generally moved up capital structure to more secure investments.
A reminder about our long-term track record, PNNT was in business since 2007 then as now, focused on financing middle-market financial sponsors. Our performance through the global financial crisis and recession was solid.
Prior to the onset of the global financial crisis in September 2008, we initiated investments, which ultimately aggregated 480 million. Average EBITDA of the underlying portfolio companies was down about 7% to the bottom of the recession.
According to the Bloomberg North American High Yield Index, the average high yield Company EBITDA was down about 40% during that timeframe. As a result, we had few defaults and attractive recoveries on that portfolio.
The IRR of those underlying investments was 8% even though they were done prior to the financial crisis and recession. We are proud of this downside case track record.
We’ve had only 12 companies going non-accrual out of 204 investments since inception over 11 years ago. Further, we are proud that even when we had those non-accruals, we’ve been able to preserve capital for our shareholders.
Through hard work patients and judicious additional investments in capital and personnel in those companies, we’ve been able to find ways to add value. Based on values as of September 30, today we have recovered about 80% of capital invested on the 12 companies that have been on non-accrual since inception of the firm.
We currently have no investments on non-accrual. Since inception, PNNT has made 208 investments, totaling about 5.1 billion, at an average yield of 12.4%.
This compares to an annualized loss ratio, including both realized and unrealized losses of about 30 basis points annually. This strong track record includes both our energy investments as well as our primarily subordinated debt investments made prior to the financial crisis.
In this environment, due to our deep and broad investment team, we’re seeing more deals than ever. We’re using our proven underwriting discipline in middle-market sponsor deals.
We are generally high in the capital stack and have substantial junior capital beneath us to provide cushion. As a result, we believe that we can continue to provide attractive risk-adjusted returns to our shareholders.
At this point in time, our underlying portfolio indicates a strong U.S. economy and no signs of recession.
We remain focused on long-term value and making investments that will perform well over an extended period of time and can withstand different business cycles. Our focus continue to be on companies and structures that are more defensive, have a low leverage, strong covenants and are positioned to weather different economic scenarios.
We are first call for middle-market financial sponsors' management teams and intermediaries, who want consistent and credible capital. As an independent provider who's free of conflicts or affiliations, we’ve become a trusted financing partner for our clients.
Our portfolio is constructed to withstand market and economic volatility. In general, our overall portfolio is performing well.
We have a cash interest coverage ratio of 2.8 times and a debt to EBITDA ratio of 4.9 times at cost on our cash flow loans. With asset yields coming down over the last several years, we’re looking to create attractive risk adjusted returns and our portfolio.
We’re executing a three point plan to do so. Number one, we’re focused on lower risk primarily secured investments, thereby reducing the volatility of our earnings stream.
Investments secured by either first or second lien or about 82% of the portfolio. We’re focused on -- number two, we’re also focused on reducing risk from the standpoint of diversification, as our portfolio rotates, we intend to have a more diversified portfolio with generally modest by sizes relative to our overall capital.
Number three, we look forward to continue to monetize the equity portion of our portfolio. Every time we’re targeting equity being 5% to 10% of our portfolio as of September 30, it was 14% of the portfolio.
In addition to being active on new investments, we have significant cash realization in the quarter ended September 30th. Some of our significant realizations include our investment in Howard Berger, where we realized an IRR 14.5% on our $39 million second lien position.
We also executed our investment in Veritext where we realized an IRR of 14.7% on our $28 million second lien position. In addition, we executed our $1 million equity co-investment in the regions with proceeds of almost $3 million resulting in about 20% IRR and a multiple invested capital of three times.
This might be a good time to highlight the value of the equity co-invest strategy as part of our portfolio. Since inception, across our platform, we invested a $148 million and 58 equity co-investments where we make a portion of our overall investment side-by-side with financial sponsors and the private equity along with the debt that we provide.
The IRR on our $148 million invested since inception is 23% which represents the multiple on invested capital of two times. Those returns have to offset losses and provide upside to the portfolio.
With regard to our energy related portfolio, we’re pleased that we continue to make progress monetizing those investments are reasonable values. We started 2018 with four investments in energy with the stated goal of monetization every time.
We held these investments over the last several years joining energy downturn with the goal of maximizing value over the long run. We believe we’re starting to see the fruits of that strategy.
You may remember that during the March quarter we exited the first of those names, American Gilsonite, which ended up generating 8.6% IRR and 1.4 times multiple on invested capital on our whole berry of 5.5 years. Last quarter, U.S.
Wealth Services announced a merger with MatlinPatterson acquisition Corporation. That merger closed on November 9, 2018, as a result of that transaction along with refinance, we hold equity in the public company with the current value of $13 million.
Based on this valuation, our overall investment in U.S. Wealth has generated an IRR of 18% and a 1.7 times multiple line invested capital.
With regard to our two remaining energy names, RAM and ETX, they’ve been aided by the higher oil prices. It will take time for us to maximize our recovery.
In terms of new investments, we’ve known these particular companies for a while as started the industries or have a strong relationship with the sponsor. Let’s walk through some of the highlights.
We’ve invested $13 million of subordinated debt and $2 million in common equity of BlackHawk Industrial Distribution, which is an independent distributor of metal working and industrial maintenance, repair and overall products of cutting tools. Snow Phipps is the sponsor.
[Indiscernible] are provider of services that help companies to promote their brands and engage employees by distributing promotional products. We invested $44 million in the second lien loan.
TPG Growth is the sponsor. U.S.
dominion is a global provider of election tabulations solutions and services. We invest 30 million of first lien and 1.5 million in common equity.
Staple Street Capital is the sponsor. We purchased 22 million of first lien and 2 million of common equity of Walker Edison Furniture.
The Company is an e-commerce platform focused on designing and selling ready to assemble furniture. J.W.
Childs is the sponsor. Turning to the outlook, we believe the 2019 will be active due to the growth and M&A driven financings we’re seeing, due to our strong sourcing network and client relationships, we are seeing active deal flow.
Let me now turn the call over to Aviv, our CFO to take us through the financial results.
Aviv Efrat
Thank you, Art. For the quarter ended September 30, 2018, net investment income totaled $0.20 per share.
We had about $0.02 per share of other income. Looking at some of the expense categories, management fees totaled $7.1 million, general and administrative expenses totaled $1.1 million, and interest expense totaled $5.5 million.
During the quarter ended September 30th, unrealized loss from investment was $5 million or $0.07 per share. Unrealized loss on our debt instruments was $1 million or $0.01 per share.
We had about $3 million or about $0.04 per share of realized gains. The accretive effect of our share buyback was about $0.02 per share.
Excess income over dividend was $0.02 per share. Consequently, NAV per share went from $9.09 to $9.11 per share.
As a reminder, our entire portfolio, credit facility, and senior notes are mark-to-market by our Board of Directors each quarter using the exit price provided by independent valuation firms, Security and Exchanges or independent broker dealer quotations, when active markets are available under ASC 820 and 825. In cases where broker dealer quotes are in active, we use independent valuation firms to value of the investments.
Our overall debt portfolio has a weighted average yield of 11.2%. On September 30th, our portfolio consisted of 53 companies across 27 different industries.
Their portfolio was invested in 47% first lien senior secured debt, 35% in second lien secured debt, 4% in subordinated debt, and 14% in preferred and common equity. 90% of the portfolio has a floating rate.
Now let me turn the call back to Art.
Art Penn
Thanks, Aviv. To conclude, we want to reiterate our mission.
Our goal is to generate attractive risk adjusted returns through income couple with long-term preservation of capital. Everything we do is aligned to that goal.
We try to find less risky middle-market companies that have high free cash flow conversion. We capture that free cash flow primarily in debt instruments and we pay out those contractual cash flows in the form of dividends to our shareholders.
In closing, I’d like to thank our extremely talented team of professionals for their commitment and dedication. And thank you all for your time today and for your continued investment and confidence in us.
That concludes our remarks. At this time, I would like to open up the call to questions.
Operator
Thank you. [Operator Instructions] We’ll take our first question from Casey Alexander with Compass Point.
Please go ahead.
Casey Alexander
Art, the $250 million note that you’re taking out in January, how much is the make-whole premium going to be charged to the income statement?
Art Penn
Yes. It’s going to be roughly 2.5 to me be $3 million depending on the timing on what yields are at that point in time.
Casey Alexander
Okay. So, explain to me why let say being nine months ahead of maturity, why wouldn’t you just pay it off at maturity and not have to take a $2.5 million or $3 million charge?
Art Penn
Well, yes, that’s a good question, Casey. I don’t think many people would actually hold it to maturity that usually like to deal with looming maturities ahead of time, once you're within 365 days you from a balance sheet perspective it becomes a short-term liability.
So, we know we have the short-term liability we have to deal with. We have an undrawn credit facility that we’re paying on used fees on.
And our lender there actually they want to drawn, they’ve been relatively undrawn during the life of their commitment to us. So, we think this is a win, win where we’re both bondholders and our lenders are going to like this outcome.
And we think everyone will be happy.
Operator
Thank you. I’ll take the next question from Paul Johnson with KBW.
Paul Johnson
Regarding the bonds that you’re going to be calling next year, I’m just curious I mean after that, what are you guys sort of see your liability structure kind of going up towards that 2:1 leverage effective date? I mean, are you guys looking at replacing them with other unsecured notes?
Are you looking at just simply adding it to the credit facility or other sort of financing options? Just wondering what you guys are thinking about?
Art Penn
Yes. So, look from the standpoint of strategy, it’s the same investments strategy we’ve been pursuing for a while, so steady as she goes.
In terms of leverage, we haven’t made any long-term decisions at this point. We’re not providing guidance as to what our leverage is at this point in time we’re going to evaluate all the options.
And we think it prudent just to get the 2:1 leverage options just to reduce risk of the Company and have even more cushion from the SEC asset coverage test. So, I think we're just going to take a one step for the time look at the portfolio, call back the bonds, draw all the credit facility and think about other options over the long-term that could be floating rate, that it could be fix rate, that it could be secured, it could be unsecured, could be a number of different things.
So, we’re going to take a deep breath and assess all the different options. One of the nice things that’s happened in the industry in the last few months is since one of our peers got no action letter around securitization and CLO technology to the extent you have a first lien portfolio, BDCs can get very attractive and efficient financing using that securitization technology and in a sense you saw with the sister company PFLT when we announced last week that we had a nice upside and we have a lot of demand for a securitization style credit facility.
So, we think BDC isn’t certainly PNNT can be beneficiary of looking at that kind of financing option as we go forward.
Paul Johnson
Are there any amendments currently in your credit facility that brand new from going above 1:1?
Art Penn
Right now, the credit facility is consistent with SEC asset coverage test 1:1 carving out the SBICs. So in theory, we can go above 1:1 using the SPICs on a GAAP basis, if we wanted to at this point in time.
So, we’re talking to the lending community and lenders and assessing where the market is there and going to figure that out overtime as well.
Paul Johnson
Also, you guys have been pretty consistent with your share repurchases. You’ve done a good job of utilizing that so far.
I’m just curious, I mean, do you also, in the meantime, intend to use those share repurchases sort of as a mean to managing leverage as we go into next year? Or do you sort of view this separately from managing your balance sheet leverage?
Art Penn
Well, it’s a good question. It certainly does impact leverage to the extent you’re reducing the equity council.
It’s something that we certainly look at. In our minds, though, we think of this stock buyback program something we’ve committed to over a fourth quarter time period and we’re going to roughly do 25% of the 30 million each quarter.
So that’s kind of how we view it in our minds.
Paul Johnson
My next question just really has kind of do with the energy markets and then one of your energy investments, but the commodity markets were fairly strong in the third quarter. I mean, obviously, oil reached multi-years high but your RAM energy equity investments markdown about 6 million in the quarter.
There’s obviously been a little bit of volatility in that market post quarter end. But I think at this point, I mean investors are just really looking to kind of get a sense maybe.
What the outlook is for the investment? How they should feel about the mark on the Company today?
And just wondering, if there’s any sort of outlook for that sector and that business that you could provide that would shed a little bit of light on RAM energy?
Art Penn
So, the RAM mark was really because we provided a revolver to RAM, so there was more debt on the balance sheet. So from a total enterprise value basis as things are constant, if there’s more debt, the equity value goes down.
So that’s what’s driving that RAM situation, the enterprise value we think are the independent valuation firms and more importantly value similarly quarter-to-quarter, which just because there was more debt on the balance sheet to finance a drilling program. That’s what drove that we were hopeful optimistic that RAM’s drilling program will prove out and equity value will be really good going forward.
We won’t know until we know of course, but we’re optimistic that the drilling program will be successful. In terms of the overall sector, again we have really 2 E&P names left, both of them are pursuing a similar strategy where they’re drilling someone else, and we’re hopeful of the outcome.
Certainly, oil in the 55, 60 range is much, much better than it was in the depths, it’s come down in the last couple weeks, it’s obviously hard for us to predict or control. Both companies are executing their plans and we’re hopeful that those plans will be successful.
Paul Johnson
And my last question just kind of have to do with 2:1 leverage, can you talk about a little bit, but I mean, is there ideally any kind of sort of investment or part of the market that you'd be looking to target for that incremental leverage?
Art Penn
So, ever since the law was being bandied about, what was it 7, 8 years ago. We’ve said consistently that on first lien debt, you can prudently leverage firstly debt more than 1:1 and still provide a safe return.
And that for second lien or mezzanine, even if you could leverage that those assets more than 1:1 you shouldn’t. So as we go forward, we’re going to look at the underlying portfolio and assess what we think is prudent leverage depending on the investment and type of investment.
Operator
Thank you. I’ll now take our next question from Mickey Schleien with Ladenburg.
Mickey Schleien
Yes. Good morning Art.
I just wanted to step back for a minute and ask you to remind us what the total committed AUM is across entire Pennant platform? And how large a check you can right?
Well, what I’m getting at is you’re competitive position within the market.
Art Penn
Yes. So, first let’s talk about the market we’re in, it’s a really great question, Mickey.
We're focused, as we said on yesterday's PFLT call on companies generally with 15 to 40 of EBITDA kind of the mean or median probably 25 of EBITDA, and we’re generating some really nice relationships. Today, AUM across the platform is about $2.7 billion and of course in each of the vehicle we need to provide really nice diversification.
So, we want kind of list 40 names and in any particular. So, depending on which vehicles deals fit into from the standpoint of risk and reward, we can right up to a $75 million, $80 million check, we can right check as low as $10 million.
Also and there are non-BDC vehicles, we have limited partners who are looking for co-investments and we can provide co-investments to those limited partner on occasion. So, case-by-case, the most important thing we’ve done really is add talents to the team over the last few years and open up these offices in LA, Chicago, Houston, London, New York and develops the relationships.
If we developed the relationships, you’ll get a lot of looks which allow you to be highly selective. And more importantly become a trusted partner and trusted advisor to these sponsor clients.
If you do in a right, it’s never about the last basis point or last weaker leverage, it’s about developing the trusted partnership where they want us to provide capital to them and we want to provide capital to them because it’s a mutually beneficial relationship.
Mickey Schleien
And Art in terms of providing capital this quarter at least in PNNT growth was focused on first lien. I know it can be idiosyncratic, but it’s now 43% of the portfolio at cost.
And I’m curious whether you expect that to go higher while still sticking to the spirit of PNNTs investment style as opposed to PFLT which is obviously a lower risk vehicle?
Art Penn
Yes. I mean it’s a good question, I mean we think of, we have two strategies here.
One is strictly a first lien strategy and that’s represented by PFLT and the other strategy which is represented by PNNT, as we say it’s across the capital structure, across the capital structure. So, it will do first lien, it will do second lien and occasionally mezz, and it will be nimble and opportunistic and go where we think the best rescue just to returns are up and down the balance sheet today by and enlarge we like to first lien senior.
PNNT did some second lien in mezz last quarter, but PNNT will be opportunistic and nimble between the different areas of the market place. And as a result, we’ll provide two different risk adjusted returns to our potential shareholders.
So, PNNT the average yield loan portfolio today is around 11%. That was probably coming down a little bit, PFLT the average yield is around 8% on the underlying portfolio.
So, two different returns, two different risk adjusted returns and two different investment focuses.
Mickey Schleien
And Art, my last question then in relation to that, as you talked about in your prepared remarks, PNNT was around during the crisis 10 years ago. But also top of my head, I don’t remember how high your first lien position.
What I really like to ask is, I agree with you, I don’t think we’re anywhere. I don’t think we’re near a recession.
I don’t think recessions around the corner, but if you were to start to get worry seriously about a recession. Could we see PNNT's first lien allocation climb to 60%, 70% of the portfolio would at cost?
Art Penn
Sure. So what happened, let’s take a step back what happened is PNNT got going in April of ’07, primarily we thought that point is a mezzanine debt provider, subordinated debt provider.
And by the summer of ’07, we felt from our underlying portfolio companies that the economy was weakening. So we slowed it down, first things first, we just slowed it down.
We raised the bar for deal to get approved. We felt like it had to be in a recession resistant industry, reasonable leverage, high yield, and importantly strong covenants and we raised the bar.
And during that time, we did -- we still did primarily second lien and mezz, but it was a very picky and selective orientation then. And that vintage of investments that we made between June of ’07 and September ’08 turned out to be a really strong vintage because we had proactively raised the bar.
In this particular and at that point PNNT was, we thought primarily second lien subordinated debt vehicle. Today obviously PNNT is now up and down the capital structure.
We do not, as we said in the prepared remarks see signs of economic weakness. And certainly as we underwrite new deals, we are putting in downside cases assuming a recession is next year or assuming recession is the following year really to distress case and understand what a downside might look like for new investment we make.
But we feel as though we’re in a really good position now with a big chunk of the portfolio and first lien any new second lien, we’re doing, where we’re really scrubbing it hard. And to the extent that we see economic weakness, we’ll do the same thing again, we will raise the bar, you’re right, we probably will prioritize first lien in that type of scenario.
If we were to get that type of scenario again and preserve capital and create liquidity and just try to batten down to hedges, if we actually saw some economic weakness. So that’s how we think about it.
Right now, the economy seems strong in the U.S. at least, but we’re watchful.
Mickey Schleien
And lastly, Art, when you say scrubbing the bar on the second lien today. Can you give us a sense of what kind of leverage?
I know it’s dependent on industries and growth profiles. But in general, what kind of leverage is acceptable to you for a second lien investment given that you’re modeling for recession maybe within a couple of years?
Art Penn
Yes, it’s case-by-case obviously based on the industry. I mean, our big thing is we need to find really great, great companies and we think ever real reason to be in companies that we think can generate very high free cash flow conversion or CapEx is low relative to EBITDA, so that even if the economy or even if the economy where to we can, you’d still get de-risked and deleverage.
So we say in this portfolio, the average debt to EBITDA is 4.8 times. The new deals we did this past quarter where, I think we said 4.9 times, portfolio 4.8 times with the new deals, we did this past quarter.
When we start getting above 5 times in general, we start getting more and more careful and cautious. Not to say we won’t do a financing above 5 times occasionally.
But we really have to love the Company. We have to love the cash flow conversion.
Mickey Schleien
So industries, you would like today would be software or healthcare without reimbursement risk, things like that, right?
Art Penn
Yes, yes.
Operator
Thank you [Operator Instructions]. We’ll hear now from Kyle Joseph with Jefferies.
Kyle Joseph
Just following up on your thoughts on the economy, Art. Can you give us sort of underlying revenue and the EBITDA trends you’re seeing at the portfolio company level?
And any really changes you’re seeing over the last three months, if any?
Art Penn
Thanks Kyle, good question. No real changes were seeing on average single digit revenue and EBITDA growth, it’s a general proposition, so a nice place to be a lender at this point in time.
Kyle Joseph
And then can you just remind us on your outlook for yields given moving capital spectrum, again we have the leverage changes, we have rate increasing to kind of your long-term outlook for the overall portfolio yield?
Art Penn
So, look you’ve across current, LIBOR certainly been a big benefit for several year we’ve had yields spread compression, we’re not seeing spread compression at this point. So, don’t know where LIBOR is headed in the future, but we’re feeling pretty good about the winded their back from the standpoint of LIBOR going up.
Operator
Thank you. We’ll take our next question from Chris York with JMP Securities.
Chris York
This is Thomas Wenk and in here for Chris York. We have one question for you this morning regarding credit ratings.
With the board’s approval for the reduction leverage, you presumably have conversations with all your stakeholders. So with your investment grade rating and should be minus with negative watch outlooks as well as S&Ps comments in April regarding the pursuit of additional leverage on ratings.
Do you guys think your investment grade rating is at risk of being adjusted at all?
Art Penn
Yes. Thanks Thomas, good question.
We don’t know at this point. And the agencies are going to do what the agencies are going to do.
We’ve had very good constructive commutative partnership with the agencies. The bonds are coming in January at a May call before any shareholder vote we should be in February.
So, our investment strategy and our leverage won’t change between now and then, the shareholder vote is coming after the bonds will be taken out in the May call. We think our bondholders will be very happy with the outcome here.
Operator
Thank you. We’ll now take a follow up question from Casey Alexander with Compass.
Casey Alexander
Well, first of all, congrats on the commitment to the shareholder repurchase program and I think shareholders are clearly benefiting by it and I think that they appreciate the Company’s commitment to the share repurchase program and also congrats on the repayment of the loan from U.S. Wealth Services.
I’m wondering because the Company and the board had really a kind of strict intension to stick to that leverage ratio of 0.8 times and maintain that investment grade rating. Did the ability to potentially do securitizations where the rating is kind of independent of the BVC and more dependent upon the structure of the securitization factoring your thinking about going ahead and authorizing more leverage at the board level and going to shareholders?
Art Penn
It’s a good question, Mickey obviously, everyone’s aware of the no action relief that one of our peers got which should help the entire industry, not only our vehicles. I think, it was more just that we had to deal with the bonds anyway.
They were coming do they, as of December 31st, they become a short-term liability. So we had to deal with them anyway.
And we have enjoyed and appreciate it being investment grade rated. And it’s something, it’s been important to us, but the bonds that are coming do anyway, we had to -- we just had to deal with them.
Now, we will take out the bonds, we will draw on the credit facility, and we’re going to look around and see what the different options are. There’s no going to be any changing investment strategy.
It’s our investment strategy will organically flow from where we see the best risk adjusted returns in the marketplace. And then we’re going to assess all the different financing tools including the securitization style as one.
But we are believer and having diversified financing tools whether they'll be bonds or credit facility or SBIC licenses. And we anticipate continuing to have diversified financial tools going forward.
Casey Alexander
Thank you. That’s a thoughtful answer.
Could you share with us what the date is or the perspective date for the annual meeting of what shareholders will be voting on the measure?
Art Penn
It’s going to be an early February, I think February 4th, 5th kind of zone, February 5th he was telling me.
Operator
And we’ll take our final question from Paul Johnson with KBW.
Paul Johnson
I just had one quick follow-up question for Aviv. Regarding that 2.5 million, 3 million of make-whole premium that you’re going to have any called upon.
Do you guys expect that to flow through the interest income line? Or do you expect to put that probably down below in the gain loss category?
Aviv Efrat
Yes, it’s going to be a one-time hit and you’re going to see that going as a one-time expense on the on the P&L and it’s going to affect March quarter end before doing it in January.
Art Penn
So Paul, as you know, sometimes we get core NII and GAAP NII. Certainly, it’ll impact GAAP NII, but the core it will be below the line from a core standpoint.
Operator
And that does conclude today’s question-and-answer session. I would like to turn the conference back over to Mr.
Penn for any additional or closing remarks.
Art Penn
Just want to thank everybody for being on call today. We’re hoping everybody has a great Thanksgiving and holiday season, and we’ll be talking to everybody in early February.
Thank you very much.
Operator
Thank you. That does conclude today’s conference.
Thank you all for your participation. You may now disconnect.