David Gladstone - Chairman of the Board, Chief Executive Officer Michael LiCalsi - Internal Counsel and Secretary Bob Marcotte - President Melissa Morrison - Chief Financial Officer.

Greg Mason - KBW.

Good day, ladies and gentlemen. Welcome to the Gladstone Capital Corporation's Fourth Quarter and Year Ended 9/30/2014 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference call, Mr. David Gladstone. You may begin, sir..

All right. Thank you, Kevin. Nice introduction. Hello and good morning to everyone this morning. This is David Gladstone, Chairman. This is the fourth quarter and fiscal end earnings conference call and we that for shareholders analysts for Gladstone Capital. Common stock is traded on a symbol GLAD and our preferred stock is traded under the symbol GLADO.

Thank you all for calling in. We are always happy to talk to shareholders and analysts and wish we do this more often, but it is once a quarter. We like giving updates on our company, our portfolio and the business environment.

As always, you have an open invitation visit us here in McLean, Virginia, which is outside of Washington D.C., and please stop by and say hello. You will see some of the team, about 60 people and I think they are the finest in the business. Now, we will hear from our General Counsel and Secretary, Michael LiCalsi.

He is also the President of our Administrator and he will make some statements regarding forward-looking statements.

Michael?.

Good morning, everyone. This conference call may include 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 and other factors even though they are based on our current plans, which we believe to be reasonable.

Many of these forward-looking statements can be identified by the use of certain words such as anticipates, believes, expects, intends, will, should, may and similar expressions.

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-K filing and our registration statement as filed with the SEC, all of which can be found on our website at www.gladstonecapital.com or the SEC's website at www.sec.gov.

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, after the date of this conference call, except as required by law. Please note that past performance or market information is not a guarantee of future results.

Please take the opportunity to visit our website and sign up for email notification service. We don't send our junk mails, just timely news on your company. You could also find us on Facebook, keyword, The Gladstone Company and follow us on Twitter at Gladstone Comps.

I hope our listeners will read our press release issued yesterday and also review our Form 10-K for our year ended September 30, 2014, which we filed yesterday with the SEC. You could access the press release and 10-K on our website at gladstonecapital.com and also on the SEC's website.

An audio presentation of this call is also available on our website. Now, we will begin by hearing from Gladstone Capital's President, Bob Marcotte..

Good morning, everyone. Before we get into the performance review of our fourth quarter and fiscal year ended September 30, I would like to provide a short overview of Gladstone Capital. As many of you know, Gladstone Capital is a lending fund of the Gladstone Companies'.

We provide loans to privately held U.S.-based businesses in target companies in the lower middle market, which we define as $20 million to $200 million in revenue and $3 million to $15 million in earnings before interest and taxes or EBITDA.

We lend the businesses to fund private equity buyouts, make acquisitions, meet growth capital needs or recapitalize or refinance their existing capital structure. We invest in companies with profitable operations, sustainable competitive position in cash flows and experienced management teams.

Gladstone Capital is of one of the few firms exclusively focused on cash flow lending to the lower-middle market, and we typically compete on the basis of our experience and ability to reflex our investments to fit the needs and objectives of the business and not rate.

We invest in the combination of senior and subordinated securities and sometimes make a small equity co-investment and target to make investments of $8 million to $20 million, but will consider smaller positions in broadly syndicated loans from time-to-time.

Our investment focus is to make prudent investments where, which provide accretive returns to our shareholders and support our commitment to maintain our longstanding track record of shareholder distributions.

Having set the stage for our business strategy, let's get into the results for the quarter and fiscal year ended September 30, in terms of investment activity, movement in the portfolio credit quality, net investment income and then we will conclude with an update on the market in which we operate.

During the quarter ended September 30, 2014, we made $18.9 million in either follow-on our new fundings and had five early pay-offs totaling $15.9 million at cost. The pay-offs produced a combined $230,000 in prepayment fees and $1.1 million in realized gains.

In addition, we received $3.6 million during the quarter in scheduled and unscheduled repayments. While the net investment growth in the quarter was flat, we view the $6.4 million of exits related to challenged assets, which were received in the quarter is a significant positive and we will discuss later.

In terms of our direct origination activities for the quarter, we closed an $8.8 million investment in a senior subordinated term loan and small equity co-investment to Southern Petroleum Laboratories, Inc.

At Southern Petroleum or SPL, provides oil and gas production industry with independent lab measurement, field meter services and provides well production allocation services across Texas and Gulf Coast.

The company has been operating for almost 75 years serving the oil and gas production market and we supported two experienced sponsors in the buy-out of this family business. Also included in our fundings for the quarter was $7.1 million follow-on, subordinated debt and equity and co-investment in Francis Drilling Fluids.

This investment was used to fund a strategic acquisition, which enhanced FDF's core oil and gas service offerings, geographic coverage and scale. Subsequent to September 30, we closed a $4 million follow-on investment in Vitera Healthcare Solutions.

In October of 2014, North American Aircraft Services was acquired and its debt and equity redeemed early, resulted in a realized gain of $1.6 million and success fee of $600,000, which will be recorded in the December 2014 quarter. The IRR on this deal equated to 18%.

In November 2014, we contacted to sell our investment Midwest Metal Distribution, for net proceeds which may exceed the fair value of the prior quarter and would result in a realized loss of approximately $15 million.

Additionally, we anticipate closing one small add-on and two syndicated transactions totaling approximately $11 million in the next few weeks.

For the year ended September 30, 2014, the company closed $102 million of debt and equity investments, which was up 13.2% over last year and repayments declined on the year to $67.9 million resulting in a net portfolio growth, excluding exits of $34 million.

Our investment portfolio increased at cost in fair value by 5.1% and 9.5%, respectively, year-over-year. We expect this trend of building investment activity and modest repayments to continue over the near-term and expect to fund it with our planned exits and increased utilization of our available credit facility.

With respect to the portfolio of quality, on a whole, the portfolio evaluation was up in the quarter and prior year with fair value rising to 80.5% cost at September 30, 2014, compared to 75.7% of cost at June 30, 2014 and 77.3% of cost at September 30, 2013.

The net unrealized appreciation for the quarter ended September 30, 2014 totaled $17.3 million and was primarily due to the valuation increased related to our investment in RBC acquisition, also known as Reliable Biopharmaceutical.

Reliable as we discussed on our last quarter's call is a manufacture of active pharmaceutical ingredients and high purity ingredients for generic drug manufacturers. Within the past quarter, the company has been able to evidence tangible support for its ongoing contractual relationship with one of its key customers.

For the September 30 quarter, we had valued Reliable with the support of an expert third-party assistance based on the current operations, forecast, cash flows of the business and ongoing revenue streams from this customer.

Despite the successes on the quarter, our non-accrual investments and underperforming assets are still higher than we consider acceptable. All of these positions are in our older pre-2008 vintage investments and includes several small-scale businesses, which are relatively illiquid and taking longer plan to achieve an orderly exit.

That said, we are placing more emphasis on the strategic assessment and fit any investment positions and will continue to manage any outlier investments to our orderly exit. This quarter, we are pleased to report the exit of our investment in Junior Golf, which was paid off at par or $2.3 million higher than the fair value at June 30 of 2014.

This exit was achieved by a combination of contractual protections built into the investments and the skills and persistence of our team to manage the moving parts of these more challenged investments. Our investment in Sunshine Media Holdings continued to be on non-accrual and is still work-in-process.

Although as we reported last quarter, it stabilized and it is cash flow positive. We are focused on trying to return some or all of its debt to a green status in the near-term. Heartland Communications is a small radio broadcaster was placed on non-accrual in the March 2014 quarter, due to liquidity concerns.

However following a strong summer operating period, the company has plans to stay current on all interest payments as of today. Subsequent to September 30, we contracted to exit Midwest Metals, which was placed on non-accrual in the June quarter.

The Midwest Metals' closing is expected to occur in the next few weeks and the company continues being current on all interest obligations.

These three non-accrual companies have a combined debt cost basis of approximately $51.4 million or 16.1% of the cost basis of all-in debt investments in the portfolio and a combined fair value of $13.2 million or 5.2% of the fair value of all debt investments in the portfolios as of September 30.

Pro forma for the pending Midwest Metals' exit, the fair value of the non-accruals are expected to dip to $8.7 million or 3.4% of the fair value of all debt investments. We have had some success in turning around or exiting several of our non-accrual investments and more challenge credits in the last year with favorable results.

However, this does not mean that we can do it again or that we will not place other companies on non-accrual in the future.

Moving over to our portfolio income profile, the weighted average yield on interest-bearing debt investments in our portfolio has remained relatively consistent over the last several quarters and was 11.6% as of September 30, 2014, which excludes any success fee income and reserves on interest receivable, including success fees, our yield for the quarter ended September would have been 12.2%.

Our eight new proprietary investments during the year ended September 30, 2014 had a weighted average current interest rate of 11.8% and equally important from a risk perspective the ongoing weighted average leverage in these deals was 3.2 turns of EBITDA.

Generally, our floating rate investments have LIBOR floors and the weighted average for on our variable rate loans was 2.1%, while the weighted average margin at 9.4% as of September 30, 2014.

Our proprietary loans totaling 82% of the portfolio cost had an average all-in rate of 11.8%, while our syndicates totaling 18% of portfolio cost had an average all-in rate of 10.5%.

Our other income has been significant at times over the last several quarters, which is primarily due to what we call success fees, which are fees generally due on the change of control of company on record when cash is received.

We have received success fee totaling $2.4 million during our fiscal year 2014, in addition to a variety of other prepayment fees or distributions, which Melissa will discuss later. As of September 30, 2014, off-balance sheet success fees receivables totaled $11 million or approximately $0.52 per common share if the payment was triggered.

Due to their contingent nature, there are no guarantees that we will collect any of these success fees and exclude this from our reported yields. Net investment income was down on a quarter-over-quarter, primarily due to the decrease in the amount other income earned compared to the large amount recorded in the prior quarter.

Our total operating income on the quarter was up significantly quarter-over-quarter, due primarily to the reversal, the depreciation on Reliable from last quarter as previously discussed.

As of the day of this call, we received $640,000 in other income to the aforementioned portfolio company exit and early payoff subsequent to September 30, and expect other income in the next few quarters will be consistent with the level recorded this quarter.

With respect to the investment climate backlog of loan opportunities, now let's discussed the investment climate in which we operate. The middle market M&A environment is relatively active. Transaction volumes are up over 2013 and building going through the end of the year.

We are seeing a healthy flow of unitranche investment opportunities in the lower end of the middle market, across a variety of industries and middle market private equity sponsors. While the opportunity flow is healthy, there is also a heightened competitive pressure in the lending marketplace from middle market loans.

The competitive convergence comes from a combination of banks, BDCs and other leverage credit firms. Certain of the regional leverage loan-focused banks are looking to maintain the yield or growth their loan book, albeit with the overhang of some regulatory pressures.

The BDCs and to a lesser extent other credit funds targeted to serve senior loan market are very active and has resulted in some yield compression for increasingly riskier, higher leverage investments. Competition continues to be most pronounced at the higher end of the middle market, where the supply of capital was most abundant.

In spite of this increased competitive environment, we have been able to add eight new proprietary investments and five new syndicated investment for the year ended September 30, resulting a positive net earning asset growth while maintaining our average portfolio yield.

While the investment climate is more challenging, our strategy is to continue to leverage our investment advisors' longstanding reputation in the low end of the middle market and investor oriented financing approach to more aggressively engage the private equity sponsor community as they represent a substantial portion of the potential investment opportunities in the lower middle market.

These constituents' value is dedicated market focus, the level of engagement needed to understand the business and are receptive to the unitranche financing solution we are able to deliver and generally welcome the opportunity to establish a long-term financial partnership with us.

Given the competitive syndicated market conditions, including limited covenant, elevated leverage levels and lower yields, we are seeing less attractively priced syndicated investments of late.

While we expect to maintain syndicated loans as a portion of our portfolio, we do not expect these to be a significant part of our asset growth for the near-term.

Our continuing priorities going into 2015 will be to manage the more challenging credits in the portfolio and building on the new investment origination momentum to support future portfolio growth.

Despite some of the broader investing market pressures, we continue to be optimistic that we are well positioned to originate lower leverage, attractively priced investments, consistent with the lower end of the middle market and we will generate solid asset growth and income growth over the coming quarters to enhance the bottom-line for the benefit of the shareholders.

Now let us hear from our Chief Financial Officer, Melissa Morrison, who will provide a report on funds quarterly and year end results..

Thank you, Bob. Good morning, everyone. I will now review GLAD's financial results and overall portfolio statistics for the quarter and fiscal year end. Starting with the statement of operations for our fourth fiscal quarter of 2014 ended September 30th as compared to our third fiscal quarter ended June 30, 2014.

Net investment income was $4.4 million or $0.21 per share, which is a decrease of 12.9% when compared to the prior quarter of $5.1 million or $0.24 per share.

Investment income decreased quarter-over-quarter about 14.7%, primarily due to the decrease in other income of $900,000 from higher dividend income and a litigation settlement received in the prior quarter.

During the quarter ended September 30, we received $800,000 in success fees as a result of our earlier sale of substantially all of the assets and one large acquisition resulting from escrow proceeds during the 2014 fiscal year.

Interest income on debt investments decreased by 6.8% quarter-over-quarter, primarily due to Midwest Metals being on non-accrual, the entire quarter, the five early pay-offs we had during the quarter and reserves placed on interest receivables for certain portfolio of companies.

Offsetting the decrease in investment income for the fourth quarter was a decrease in operating expenses of 16.5% as compared to the prior quarter, primarily due to the lower incentive fee and higher incentive fee credit in the current quarter.

Of note, we did receive interest payments from ever $700,000 from two of our non-accrual medical companies during our September 30 end. These receipts were not recognized on the income statement, but as a cost basis reduction consistent with our non-accrual policy.

Based on our commitment to sustaining shareholder returns, we did credit the incentive fee in our fourth quarter ended September 30 in order to ensure that distributions to stockholders were covered by net investment income. For the year ended September 30, our common stock distributions were covered by 104%, which is consistent with last year.

For the 12 months ended September 30, 2014, net investment income remain consistent year-over-year at $18.4 million or $0.89 and $0.88 per share, respectively. The makeup of total investment income shifted slightly in that other income as a percentage of total investment income was up to 12% in 2014 as compared to 7% in 2013.

Success fees were up year-over-year about $680,000 primarily related to the escrow released on Lindmark and prepayment and other fees and dividend income were up by $1.1 million in total year-over-year, primarily related to the litigation settlement of $425,000 we received in our third quarter on a previously exited portfolio company as well as the large dividend we received in our third quarter from FedCap Partners of $700,000.

Offsetting the increase in investment income during the year ended September 30, was the slight increase in expenses of 2.5% year-over-year.

This increase was primarily due to increases in dividend expense on our mandatorily redeemable preferred stock and other expenses, which were partially offset by [decreases] in interest expense on our credit facility, which related to a lower year-over-year weighted average outstanding amount and also the amendment in January 2013 to remove the LIBOR floor on advances.

The increase in dividend expense and our mandatorily redeemable term preferred resulted from the increased number of shares of the Series 2021 term preferred stock issued in May 2014 over the prior issue, albeit, at a lower rate.

Other expenses increased year-over-year, due to the receipt of certain previously reserved or reimbursable deal expenses in the prior year as well as an increase in due diligence expenses on certain prospective portfolio company in the current year.

The lower net investment income on our statement of operations, are realized and unrealized changes in the fair value of our portfolio.

Realized gains and losses come from actual sale or disposals transactions of our investments, unrealized appreciation or depreciation on our portfolio is when we mark investments to fair value on our statement of assets and liabilities and represents the change in fair value quarter-over-quarter in our statement of operations.

This is a non-cash event and is required by generally accepted accounting principles in the U.S. or GAAP rules for investment companies. During the quarter ended September 30, the majority of the $1.1 million of net realized gains was related to the exit of our equity investment in WP Evenflo during the quarter, above our cost basis.

For the quarter ended September 30, we recorded net unrealized appreciation, excluding reversals of $60 million on investments, which is as Bob touched on earlier, primarily related to an increase in fair value on our investment in the LIBOR quarter-over-quarter.

In addition, we had several other portfolio of company with net unrealized appreciation during the quarter, due to increases in comparable multiples as well as increased portfolio of company performance.

Over our entire portfolio, excluding reversal, the net unrealized appreciation for the three months ended September 30, consisted of approximately $10 million of appreciation on our GAAP investments and $6 million of appreciation on our equity investments.

Our net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders. However, it may be an indication of future realized losses, which could ultimately reduce our income available for distribution to stockholders.

Both of the older vintage investments in our portfolio and industries they are in were severely impacted by the recession and in many cases they have not covered. Approximately, 92% of the $68 million in cumulative unrealized depreciation on our balance sheet relates to portfolio of company originated prior to 2008.

51% of the total cost basis of our portfolio is from investments that originated in the last seven years. As of September 30, those assets are valued at approximately 98% of the cost basis.

The bottom-line on our statement of operations is the change in net assets resulting from operations and is a combination of NII, net unrealized appreciation or depreciations and net realized gains or losses.

For the quarter ended September 30, 2014, the net increase in net assets resulting from operations was $23 million or $0.09 per share compared to decrease of $20.2 million or $0.96 per share as of June 30. The significant increased quarter-over-quarter was primarily due to the affirmations change in fair value of our investment in Reliable.

For the year ended September 30, the increase in net assets resulting from operation was $11.2 million or $0.53 per share versus $32.2 million or $1.53 per share as of September 30, 2013.

The year-over-year decreased of $21 million or $1 per share is primarily driven by the sale of Lindmark in fiscal year 2013, which resulted in a reversal of depreciation of $14 million or $0.67 per share in 2013.

The remaining difference was primarily attributable to the net unrealized depreciation recorded during 2014 on certain investments, namely, Midwest Metals and Reliable, as compared to last year partially offset by appreciation on Defiance and Funko during the year totaling a combined $8.8 million and reversals on sales of challenged assets totaling $6.4 million, which resulted from successful pay off at higher than anticipated amounts.

Moving over to Gladstone Capital's statement of assets and liabilities, as of September 30, 2014, we had approximately $301 million in total assets at fair value consisting of $281 million in investment at value and $20 million in cash and other assets.

Liabilities totaled approximately $102 million consisting of $36.7 million in borrowings at cost on our line of credit, which has a revolving period end date in January 2016, $61 million in term preferred stock and $4.3 million in other liabilities.

We believe by these funding our term preferred stock last quarter, we have enhanced our liquidity position, extended our maturity profile and reduce the effective cost of our preferred to approximately 7.3%.

In addition, we are looking at other capital raising opportunities in the future as well as working on an amendment and extension of our facility to lower our current cost of capital and more closely match the duration of our investments.

Overall, due to the increased appreciation of our investment portfolio quarter-over-quarter, our net asset value increased from $181 million or $8.62 per share as of June 30 to $200 million or $9.51 per share as of September 30, 2014.

Our NAV per share of $9.51 was higher by 4% than last year's NAV of $9.14, when excluding the $0.67 per share in impact from the Lindmark sale last year.

From an available capital perspective, as of today, we have about $73 million in aggregate cash and availability on our $137 million credit facility, so we have enough capital to deploy for new originations while funding operating expenses and making our monthly distributions to stockholders. In summary, we believe our balance sheet is conservative.

BDC rules leverage to one-to-one debt to equity and currently drives leverage is at about 50%, which is relatively low as compared to our BDC peers, with the median is around 69%. We will consider other financing sources over the next several quarters depending on new deal productions and available capital. Now, I will comment on portfolio statistics.

Gladstone Capital targeted portfolio mix is 95% in senior and subordinated debt and 5% in equity securities. Currently, our portfolio is at a 92% to 8% allocation of debt to equity at cost, with 48% of the portfolio invested in senior debt and 44% in senior subordinated.

We ended the September 30 quarter with 45 companies in the portfolio, which is down from 49 at the prior quarter end. Our portfolio is highly diversified by industry classification, with 17 different industries and by geographic regions.

At fair value, our largest investment concentrations are in healthcare, education and childcare, oil and gas, personal and non-durable consumer products and diversified conglomerate manufacturing. We continue to avoid industries in the housing, banking, high technology and venture capital, commodity products or highly cyclical industries.

Our current non-syndicate average investment size is approximately $9.9 million. Our credit facility and regulations under the regulated investment company IRS rules, both contain certain concentration and diversity limits all of which we have met and continue to meet as of September 30, 2014.

Our target for the portfolio is to have 90% of debt investments at variable rates and 10% of fixed rate to help us manage interest rate risk. We are currently at 85% to 15% variable to fixed rate allocation of the portfolio. Generally, our variable rate loans have a minimum rate on floor, so when rates begin to increase, we should see higher income.

In summary, we had a total of $18.9 million in new and follow-on investments during our fourth quarter, maintaining our portfolio yield and we made progress [ph] on adjusting some of our challenged credits. Our focus is on building our portfolio with investments and strong operating cash flow businesses and stable to growing industries.

This will be necessary in order to grow our net investment income and deliver accretive results to our shareholders in the future. Now, I will turn the call back over to David..

All right, thank you so much, Melissa, Bob, Michael, Those were all good reports, I would like to see four more quarters of good reports like that. For quarter ending September 30, 2014, in summary, we had invested about $8.8 million in new oil and gas company and we are excited about that company another $7.1 million in existing oil and gas company.

We delivered solid exits above par and recognized other income, realized gains on these exits and with our income totaling about $1 million and we have also maintained a strong portfolio yield of 11.6% quarter-over-quarter.

In addition, we have more investments that are in line of getting closed, hopefully some of those will make it by December 31, 2014. We will be report on those of course, but the others that are in the pipeline, I just want to say this company continues to fix the last two problem loan it has. I think the turnaround is coming on strong.

I think we will be over it soon and let me ask a question of all of those who follow the business development companies, you know there are many BDCs out there and would you rather have a stock in a BDC like GLAD that is trading below net asset value and every quarter continues to make strong upside potential possible or would you rather have the stock look BDC that is trading above net asset value, has exhausted all its low-cost money from the FDA and is growing in size, so that now has to invest in very large companies and compete with hundreds of other investors not for those flattish deals.

I ask you to take a close look at this fund. I think it is on the way to be a very good, strong year for September 30, 2015.

One of our challenges like everybody else in this business is, finding new investments in the competitive lending environment that we are all in, but this company is lending the smaller companies, so there is less competition and in reality we get our share of the markets.

Many of the borrowers are looking to take advantage of the capital available today to do a buy-out or refinance their business and rates, they are actively shopping for financing based on rate, but most of those small businesses are not just looking for low rates, they are also looking for partner that can help them succeed. This is where we excel.

We have a lot of good business experience, many good business people here that can point people in the right direction, so we have a strong relationship with our companies that we invest in and other financial sources that we can bring to the powerful package to the business that we are looking at.

In addition, we continue to make our existing portfolio of companies stronger. We have exited some of course, but we have also exited some that did not show the progress that we wanted, so we have given ourselves a better chance of the upside. I would like to mention the recent economic indicators.

This has been the slowest recovery I have ever experienced and I have been in five of them. We continue to monitor a lot of areas of concern, uncertainty around the timing of the Federal Reserve's possible increase in interest rates. Japan is stimulating and knocking down its interest rates and I am guessing Europe will follow.

I think, it is going to be very hard for the fed to raise rates, but nonetheless it will happen one day. Fiscal crisis and the federal government is still on top of my mind and as the federal deficit has moved over $17 trillion, when you count in all of the things that they have to put forward. It is unbelievable.

The government has more than $17 trillion and promises to citizens now in the form of welfare and other promises like Social Security, one account [ph] even had it over $100 trillion.

It is just unsustainable and the tensions that are going on around the world I think are in part due to the fact that our government is so stretched in terms of all the debt and promises that we have on our balance sheet. Many private companies like the ones we invested in; there is too much regulations around.

First of all, healthcare problem, financial markets, energy and the environment regulations, all of these regulations are hindering their performance and many of them closed up expansion and job growth just not possible with all of those problems sitting on their table.

Today, there are fewer small businesses than there were in the days of Jimmy Carter's [ph], right back in terms of the number of small businesses out there. The government is destroying new business, and my believe, due to all these regulatory things and so I am hopeful that there will be some changes as time goes on.

Despite the economic issues, we continued time to invest and growing small businesses. Small businesses are important part of the economy, primarily driver in economic growth and jobs, Gladstone Capital has demonstrated ability to withstand the economic cycles even the horrible one that was thrown at us at this time about five years ago.

October of 2014, our Board of Directors declared a monthly distribution to our common stockholders with $0.07 per common share per month and that is the new preferred shares were also declared at that time. All of this will take place and has taken place in October, at the end of November and for December 2014.

Board meets again in January to consider the growth on January, February and March 2015, and I think that will be good for everybody. Through the date of this call, we have made a 141 sequential monthly or quarterly cash distributions to our stockholders; we have never missed the distribution.

At the current distributions rate, our common stock - common stock price of about $9.13 as closed yesterday. Deals about 9.2%, the BDC industry median is about 9.4%, however I would remind you that I think some of the BDCs are taking on much more risk on the deals that they are doing when we were talking on.

Our monthly distribution was 7.9% of our newly issued preferred stock is about $1.69 annually and that means that based on the stock price $25.35 that has the yield of about 6.7% on that. Let me remind you that we are going to have our upcoming annual shareholders meeting.

It is going to be on Thursday, February 13, 2015, 11 AM at the Tysons Corner, Hilton, just down the street from our offices here. 7920 Jones Branch Drive. I wish all of you would come and ask some good questions. We don't get a lot of shareholders, but we would love to see many of you there.

In summary, this quarter we were able to report new oil and gas investments and successful exits of our par, some appreciation of our investments at fair value, but we need to continue the work to show you new deals originations.

An investment advisor team has successful contracted of investments in middle market businesses, and we are working together through multiple economic downturns in the past and I think we can handle anything that economy might throw at us in the future.

We expect a good movement forward in 2015 and hope to continue to show you strong yields on your investment in our firm. Now, if operator would come on, we will take some calls from some of the people out there that have been listening..

Our first question comes from Greg Mason with KBW..

Great. Good morning, guys, and thanks for that comprehensive overview. I wanted to talk about oil and gas underwriting. You did a couple new deal. Obviously, you like that.

Just curious of your thoughts with the recent kind of decline in oil, how you think that impacts your portfolio and how you have underwritten for potential volatility in oil prices?.

Both of the investments that we described this quarter, majority of them are in the services end. In the case the SPL, it is much like the deal we closed earlier in the year. It evolved in the measurement and the tracking of oil and gas, which is undoubtedly up and focused on the Permian Basin in the Gulf Coast.

Clearly, when you look at both, the drilling activity that has happened and the production outlook under any scenario, there was going to be a lot more out there to track measure and validate, so we view that investment as very much in the back end on production side of curve, and I think that is likely to continue.

In the case of one of the other investments, there is one in Francis and that is probably more on the drilling side. A couple of things to note there, that is a very large scale company.

There has been a lot of additional strategic investments in that company and it has both, diversified the field that is covered, the services it provides and the customers that it has in its existing portfolio. Order of magnitude, that company is relatively under leveraged and very, very large.

It is probably on average three times or four times the typical size we have been doing our business, so the combination of the size, scale, strategic acquisitions and breadth of the operations, they are really diversified out away from what would otherwise be the risk profile of smaller oil and gas company..

That is great. Two more questions on the portfolio. It looks like one of your controlled investments Defiance; the equity increased another $1 million in fair value. It is up like $5 million this year.

Can you just give us thoughts on what is going on there and potential for harvesting that gain or do want to keep holding it?.

Defiance is performing remarkably. It is continuing to book business since it was taken over at the low end of the cycle. It has the unique set of assets and capabilities; it is serving industrial, manufacturing and industrial production in the Midwest. In fact, it is all EBITDA-driven.

Their performance has gone up; their debt has been relatively unchanged since it was taken on. In that particular situation, they have fully exhausted the capacity of their plant.

There is no more business that they can logically take on and the nature their plan, which I dates back about 85 years, is such that it is not optimal to achieve the harvesting that you are referring to at the moment.

We are in the process of moving that into a new facility, with tremendous streamline efficiencies and growth opportunity and once that is completed, we will entertain pursuing alternative courses for that particular investment..

That's great. Then one last one, it looks like Saunders took a bit of a hit this quarter.

Do you think that is temporary in nature or any updates you are willing to give on Saunders?.

Saunders, I would say continues to maintain the intellectual property and technical capabilities that are unique in the global providers for the crystal technologies that they can deliver. The challenge has been that has been a lumpy business. If you were to think about it, that is a little bit like a semiconductor equipment manufacturer.

It goes through cycles.

We, along with our whole lender in that transaction are performing a bottoms up review of the industry and opportunities to try apply better alternative to scale, which something that is essentially a very good technologically-driven business, but yet not generating the growth and revenue momentum that it needs, so our view of that is we are taking some of strategic analysis and we will find alternatives to try to better utilize that technology in the industries that it serves.

We feel it is still solid. We just need to us to retool it to better utilize the assets it represents..

Great, guys, thank you for your comments..

Okay.

Next question?.

[Operator Instructions] I am not showing any further questions at this time..

All right. Thank you very much. We appreciate all of you calling in and that is the end of this call..

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day..