Garrett Edson - IR, ICR Gregg Felton - President & CEO Michael Sell - CFO John Stuart - Chairman.

Mickey Schleien - Ladenburg.

Welcome to the Full Circle Capital Corp Third Quarter Fiscal 2015 Earnings Conference Call. [Operator Instructions]. At this time I would like to turn the conference over to Mr. Garrett Edson with ICR. Please go ahead, sir..

Thank you, Operator. Good afternoon everyone. Thank you for joining us for Full Circle Capital Corp's third quarter fiscal 2015 earnings conference call for the quarter ended March 31, 2015.

On the call this afternoon are Gregg Felton, President and Chief Executive Officer; and Michael Sell, Chief Financial Officer and John Stuart, Chairman If you would like to be added to the company's distribution list, please send an e-mail to info@fccapital.com. Alternatively, you can sign up under the Investor Relations tab on the company's website.

The slide presentation accompanying this afternoon's conference call can also be found on Full Circle's website under the Investor Relations tab at www.fccapital.com. Before I turn the call over to management, I'd like to call your attention to the customary Safe Harbor statement regarding forward-looking information.

Today's conference call includes forward-looking statements and projections, and we ask that you refer to Full Circle's most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. Full Circle does not undertake to update its forward-looking statement unless required by law.

To obtain copies of the latest SEC filings, please visit Full Circle's website under the Investor Relations tab. I'd now like to turn the call over to Gregg Felton, Chief Executive Officer of Full Circle Capita.

Gregg?.

Thank you. Garrett. Good afternoon and welcome everyone to this afternoon's call. The fiscal third quarter was a quiet one on the investment front by our standards since we began the quarter at near full investment levels keeping us almost exclusively focused on the management of our existing positions while constraining our origination activity.

Notwithstanding the limited investment activity, the quarter was very eventful in an overall sense for the company.

At the end of the quarter, thanks to the support of our shareholders, we successfully completed a rights offering which provided Full Circle with nearly 38 million in net proceeds to use toward executing on our investment program to build a larger and more diversified loan portfolio.

We began deploying our new capital in April as we were already actively working to build our investment pipeline in anticipation of the capital raise.

The rights offering and additional capital resources received dove tails with the broad initiatives that we have undertaken over the past 18 months to reposition Full Circle Capital for improved performance and more stable returns for our stockholders.

With the announcement of the rights offering, we simultaneously announced the reset of our monthly distribution level.

As we noted on our prior call, we felt it important to provide clarity regarding our per share distributions following the completion of the capital raise in order to ensure that future distributions are in-line with our projected earnings.

Beginning with April, we set our monthly distribution to stockholders at $0.035 per share which we believe reflects sustainable earnings of Full Circle pro forma for the capital raise.

In order to demonstrate confidence in the expected outcome of the initiatives just mentioned and to further align management with the performance of the company, our management company has agreed to waive both its base and incentive fees to the extent required in order for the company to earn net investment income sufficient to fully support each monthly distribution through the end of fiscal 2016.

This is in addition to our existing expense cap limitation, whereby Full Circle advisors have agreed to provide reimbursement to Full Circle Capital for annual operating expenses exceeding 1.5% of net asset value in fiscal 2015 and 1.75% in fiscal 2016 and subsequent years.

We believe these two agreements not only continue to keep the interest of management and our stockholders closely aligned but also ensure that net investment income matches declared distributions.

With the rights offering completed, we ended the quarter with approximately 70 million in investment capacity from which we have made 13.7 million in new investments in the month of April.

In terms of our financial results for the third quarter with the benefit of a fully invested portfolio, but without the benefit of significant fee income, we reported net investment income per share of $0.17.

Our net asset value was $4.43 per share as of March 31, with the decrease primarily due to the rights offering as we nearly doubled our share count at a subscription price of $3.50 per share. As presented on slide 5, we funded 2 million to one new portfolio company in the quarter.

Full realizations in the quarter totaled 5.3 million as Infinite Aegis was paid off in full. The Peaks Trust position continues to amortize it's principle as expected and we received amortization and prepayments from other borrowers.

We would also note that the Blackstrap revolving loans have been terminated as part of the successful restructuring with Davidzon Radio and our investment schedule now lists a loan with similar terms and a 2020 maturity date from Davidzon Radio.

Our activity subsequent to the March quarter end is summarized on slide 6, since the completion of the rights offering, we closed on an additional 13.7 million in investments. At the beginning of April, we participated in a $23.5 million club financing with a $3.2 million purchase of notes issued by GC Pivotal, a data connectivity services company.

Later in the month and through the beginning of this month, we added to our investment in U.S. Shale Solutions purchasing an additional $5 million of $210 million outstanding in senior secured notes for the price of approximately $2.5 million.

The purchase price represents an opportunistic investment driven by market concern surrounding the energy sector volatility and we believe these first lien loans offer a compelling risk reward profile at the discounted prices we paid.

Finally, at the end of April, we financed 8 million in a senior tranche of $43 million in senior secured notes issued by Sundberg America, an appliance parts distributor.

These recent investments demonstrate the diversity of investments in our origination pipeline, and we remain focused on growing our portfolio in a diversified fashion across a variety of industries. Slide 9 details the metrics of our investment portfolio as of March 31.

Our portfolio contains 27 discrete debt investments as compared with 21 a year ago. Although we continue to identify a few attractive second lien investments from larger corporate borrowers, we will continue to favor first lien investments, and first lien loans represented 89% of our portfolio as of March 31.

We have been and remain very focused on either restructuring or exiting our troubled legacy positions. While we did not have any new non-accruals in the third quarter, our investment in New Media West was placed on non-accrual in April and we’re working to resolve that position as expeditiously as possible.

As of March 31, our portfolio totaled a $121 million down from a 129 million in our second fiscal quarter of 2015, but up 34% year-over-year from about $90 million. The average size of our debt investments is 4.3 million, and the weighted average interest rate at March 31, was 10.53%.

This average interest rate does not reflect the average borrower coupon in our portfolio as it includes the effect of non-accruals at a rate of 0%. The weighted average interest rate of our performing debt investments was approximately 11.6%.

I would now like to pass the call over to Mike Sell for more a detailed discussion of our financial performance in the third quarter.

Mike?.

Thanks, Gregg. Please turn to slide 10 which provides an overview of the third quarter financial highlights. For the third quarter of fiscal 2015, investment income was $4.3 million, an increase of 35% compared to $3.2 million in the third quarter of fiscal 2014.

Net investment income was $2 million compared to $1.4 million for the quarter ended March 31, 2014, a 41% increase. On a per-share basis, net investment income was $0.17 versus $0.15 in the prior period.

Net realized and unrealized losses were $0.3 million, comprising net unrealized depreciation of $3.2 million and realized losses on investments of $3.5 million. The net unrealized depreciation was comprised of $2.1 million of net unrealized depreciation on debt investments and 1.1 million of net unrealized depreciation on equity investments.

We reported an increase in net assets resulting from operations of $1.7 million or $0.14 per share. Per share amounts for the quarter are based on approximately 12 million weighted average shares outstanding compared to 9 million weighted average shares outstanding for the third quarter of fiscal 2014.

Net asset value is $4.43 per share at March 31, compared to $5.48 per share at December 31, 2014, with the decrease primarily resulting from the rights offering completed during the fiscal third quarter 2015. Slide 11 illustrates the composition of the portfolio.

In the third quarter, 78% of our loans carried a floating rate, one benefit of our portfolio consisting the majority of the floating rate loans is in the rising interest rate environment we would expect our portfolio and net investment income to increase. Please turn to slide 12 which highlights the important balance sheet items.

On March 31, our total assets were approximately $167.4 million, at the end of the quarter the investment portfolio at fair value totaled approximately $121 million reflecting the net impact of sales, pay-offs new investments and net unrealized and realized losses and gains that occurred during the fiscal third quarter.

Total liabilities were approximately $65 million, this includes $27.2 million outstanding on our revolving line of credit and $33.6 million outstanding on our eight and quarter percent notes. I will now turn the call back over to Gregg..

Thanks, Mike. We’re pleased with the successful rights offering and with the confidence provided to us by our shareholders and we look forward to executing on your behalf going forward.

We will continue to grow our investment portfolio with the pipeline which leverages our broad relationships across a variety of origination channels, importantly for the next few quarters and through 2016 we have provided certainty that we will able to fully support our monthly distribution further aligning management with our shareholders, we remain committed to delivering long term value to our stockholders in the form of increased returns and sustainable stockholders distributions.

We would now like to open the call up for questions.

Operator?.

[Operator Instructions]. We will talk our first question from Mickey Schleien with Ladenburg..

Gregg, given that this is effectively Full Circle’s, you know reset mode for a lack of better term, could you refresh our memory on where or how you envision the origination channel working, whether it's sponsored versus non-sponsored, whether you’re looking to directly, how much you’re looking to directly originate - where on the capital stack are you trying to focus in order to generate the best risk adjusted returns?.

I would say a couple of things, first off, this is no doubt an environment where we want to be particularly careful and focused on originating the right quality of loans, and to that end, I would say we’re most focused on first lien senior secured investments.

You will see, if at all we pursue second lien investments, they will be in larger corporate borrowers where we believe the credit quality and the scale and the volatility to reflect that. So I would say first off expect us to be more first lien focused.

Secondly, in terms of origination of where we’re going to find those opportunities, I would say we’re very much in all of the above approach to origination.

We believe that there are certain categories of the market where there is much greater competition, and we think having a much broader origination model that is to say looking at everything from club financing with our peer group to some sponsor-driven deals that we get brought into directly originated deals with very small borrowers where our hold size is 5 million to 10 million makes us the sole provider of capital.

All of those would represent a universe or deals that we would look at, but the key point I would raise is that we will have to sit through and we’re shifting through quite a lot of deals to find deals that we want to finance.

So this is the type of environment where we want to be looking through a lot of deals, to identify those deals that meet the risk reward characteristics that we think are appropriate.

We’re having good success there, and we’re optimistic that our strategy is leading to good amount of deal flow, but it's definitely an environment where we want to remain disciplined and thoughtful about how we deploy capital..

So Gregg, given what you just said, if I'm hearing you correctl,y focus - because of the size of your balance sheet on probably more club deals, probably more sponsored deals, first lien orientation, that’s a very competitive world right now.

We saw that in the first quarter where there was a dearth of volume, and demand is very high and spreads compress. So what's your outlook for the investment opportunity for the balance of the year given how difficult the market is right now..

We’re studying like you’re, the peer group and the origination challenges, particularly that some of the larger BDCs face. I would tell you that we think there is a benefit in this environment of being smaller.

We would not want to have to put out a $100 million in a quarter or try to, we are really looking at deals and there is one recent deal that was announced by the borrower, it's a good example of the type of deal that we see, called RiceBran Technologies, a public company, a lot of collateral value that we think exists for us to provide a first lien deal, but it's a small deal.

It will be a deal of $5 million plus. So, these types of deals that are not really competitive in the sense that we’re not large enough to attract a lot of the BDC community.

We’re looking at part of the market here at the smaller end, even sub-10 million where some of the other BDCs, many of the other BDCs would not be able to participate or would not be interested to participate.

So we do -- we think have a benefit by being smaller, but at the same time, we want to look at some of the larger deals and we are -- one deal that we announced for example this quarter was a $43 million financing where we were able to participate, and I want to tell you exactly how we participated in Sundberg America.

Here was a deal where $43 million club financing, a unitranche deal and we had provided the top $8 million, so we were the first out - it's called meaning the senior most part of that capital, and from our perspective earning a 9.5% rate on a company with double digit EBITDA, has a very low leverage was quite compelling, and it's something that our network origination brought to us, it was not a competitive situation because of the size of the deal and it’s an example of the things that we’re looking for, but the broader point I think you’re raising of the fact that it is a competitive environment is why we’re pleased to have the structure that we do and why we focus so much on having this alignment with shareholders as it relates to fee waiver.

We want our shareholders to understand that we’re going to be disciplined in terms of deployment, and if the deal flow is slower, I mean if we’re not finding enough actionable opportunity, we’re going to be slower about deploying capital, and we have a waiver in place to make sure that that’s not going to compromise our net investment income.

So that’s really I think the point there about the pipeline..

Okay. And just a couple of housekeeping questions, can you comment on the level of debt to EBITDA on the portfolio and perhaps for Mike, is there any limitation on the use of the taxable realized losses to offset potential realized gains down the road..

Sure. A couple of things I would say, one our portfolio is pretty diverse both in terms of size and in terms of profile. There are many deals in our portfolio that have more asset orientation and many that have more cash flow.

I would tell you that we are from an attachment point, this is - differs across BDCs, very focused on being that when we say first lien we mean first dollar, sometimes people call first lien, first lien, but they are really actually junior debt.

So we’re focused on being that first dollar out, I would make that point, and then again to the extent we’re looking at second lien which by definition means typically a little more leverage. We are going to be focused on larger borrowers.

So, I want to make that point again for your question about EBITDA, I don’t think we have Mike a stat on the average EBITDA for the portfolio -- the average leverage..

We [indiscernible] track debt EBITDA on a portfolio wide basis just because each individual credit got its own risk level based on industry and borrower size, borrower's EBITDA level from absolute basis. So it doesn’t work as good of a proxy as maybe we want it to because we don’t have a lot of vanilla credit if you will..

We’re very focused as an issuer, as a company on being as transparent as we can so we certainly will work with you on ways to give you more insight of the portfolio, it's very much on our mind and focus to be transparent with our investors and analyst who cover us.

So we can certainly talk offline about ways to give you more transparency, that’s just not stuff we cover. And do you want to cover on the tax point, because we’re working on that obviously..

Obviously we have incurred our share of losses over the years and some of these being realized at this point in time.

We agree that we have realized losses, we have the ability to carry forward those losses to offset future realized gain income which essentially eliminates our obligation to distribute that to shareholders and the enables us to keep it on balance sheet if you will so to avoid all the cost of bringing new capital just by making money to some degree..

Mike, those tax losses, those carry forwards they are not expiring anytime soon, are they?.

No, none of our carry forwards are expiring anytime soon..

Okay and then back to the leverage question, if you don’t announce that do you release the LTV number for the portfolio?.

Yes, our LTV for the quarter we do publish on a regular basis on every quarterly report and our K at 66% as of 331..

[Operator Instructions]. And it appears we have no further questions. I would like to turn the call back over to our speakers for any closing or additional remarks..

Thanks, Operator. In closing we thank you for attending the call this morning and we look forward to speaking with you on our fourth quarter earnings call in September, until then please don’t hesitate to reach out to John, Mike or myself at any time should you’ve any additional questions. Thank you..

And that concludes today's conference call. We thank you for your participation..