Mike Mauer - Chairman and Chief Executive Officer Chris Jansen - Co-Chief Investment Officer Rocco DelGuercio - Chief Financial Officer.

Ryan Lynch - KBW Robert Dodd - Raymond James Allison Rudary - Oppenheimer David Miyazaki - Confluence Investment Management.

Welcome to the CM Finance First Quarter Earnings Release Conference Call. Your speakers for today’s call are, Mike Mauer, Chris Jansen and Rocco DelGuercio. A question-and-answer session will follow the presentation. I would now like to turn the call over to your speakers. You may begin..

Thank you, Operator. Thank you all for joining us this afternoon. With me today are Chris Jansen, my Co-Chief Investment Officer and Rocco DelGuercio, our CFO. Before we begin, Rocco will give our customary disclaimer regarding information and forward-looking statements.

Rocco?.

Thanks Mike. I would like to remind everyone that today’s call is being recorded and that this call is a property of CM Finance, Inc. Any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by visiting our Investor Relations page on our Web site at www.cmfn-inc.com.

I’d also like to call your attention to the Safe harbor disclosure in our press release regarding forward-looking information, and remind everyone that today’s call may include forward-looking statements and projections.

We ask that you refer to our most recent 10-K filing for important factors that may cause actual results to differ materially from these projections. We will not update forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our Investor Relations page on our Web site.

At this time, I’d like to return the call back to our Chairman and CEO, Michael Mauer..

Thanks, Rocco. As in our past calls, I will begin with a discussion of what we’ve seen in leveraged finance market. Chris will then review our investment activity during and after the quarter. And then Rocco will discuss our financial results. I will conclude with commentary on our outlook for the portfolio.

We have redoubled our focus on developing directly sourced investments, usually on a club basis, over the last several months. Club deals frequently have a longer lead time between identifying the opportunity and closing on the investments, as well as a slower due-diligence.

The trading off is that these opportunities are not tied to borrowing conditions in the syndicated markets. The terms are idiosyncratic restructures thoughtfully match to the risk profile of the borrower as it operates in to do more work, it's being able to better return and protections for us as lenders.

During the quarter, we made two direct investments and closed on another direct investment after quarter end. We still look at loans that are broadly syndicated as well as secondary opportunities in loans and bonds. However, lending conditions in the syndicated markets remained borrower friendly.

73% of new loans tracked by LCD year-to-date are covenant like. We pride ourselves on our attention to the documentation and structuring of our investments, which has led us to path on a significant number of new deals.

Through our strategic relationships with Stifel and Cyrus and our proprietary networks of our investment team, we can leverage our origination capacity and call on a deep base of knowledge from the industry and product specialists, as well as investment bankers.

As is true when we spoke last our pipeline is focused largely on direct lending opportunities. We’re always focused on secured lending to high quality management teams and companies. We are opportunistic about the opportunities in our current pipeline as we continue through 2017 and enter the New Year.

I’d now like to turn the call over to Chris to discuss our portfolio activity..

Thanks Mike. We made three investments during the quarter, each of which is a new portfolio company. We also had three realizations during the quarter. As I mentioned on our last call, we made an investment in the first lien loan to CareerBuilder.

This loan backed Apollo’s purchase of the company, which is a leading online employment Web site on the Internet, serving both employers and job seekers. Our yield at cost was 9.1%. We invested in a first lien loan to Liberty Oilfield Services to provide our hydraulic fracturing services. River Stone is the sponsor.

This is a club deal and refinance Liberty's existing capital structure. Our yield at cost was 9.8%. Finally, we led a new second lien loan to Montrose Environmental Group. Montrose is a privately held environmental services firm that provides air, soil and water testing and related environmental services nationwide. Our yielded cost was 15%.

During the prior quarter, we participated in first lien loan for Melissa & Doug, the maker of a wide variety of children's toys. Our position was small and we sold it early this past quarter, realizing a gain of 1.5 points. This extremely high IRR is not meaningful given our short holding period.

We also fully realized our investment in the first lien tem loan of YRC Worldwide, a less than truckload freight carrier, which we had held since the IPO of CM Finance in February of 2014. Our realized IRR was approximately 8.6%. We received repayment in full on our second lien loan to TNS, which we had also held since the IPO.

Our realized IRR was approximately 9.6%. Our portfolio company count is held steady since June 30 with 23 portfolio companies. The count we made to 23 today. As of September 30th, our largest industry concentration was business services at 22% of the portfolio at fair value.

Oil and oil and gas services represented 19.7% of our portfolio, split between 11.3% oilfield services and 8.4% E&P. Entertainment and leisure followed at 14.1% followed by healthcare at 8.9 and media at 6.3. Since quarter end, we made one new investment and had one full realization.

Zinc oxide produces a key raw material use tire manufacturing, as well as chemical, agricultural and personal care applications. We participated in the first lien club deal and also co-invested in the equity. We purchased $7.5 million of this loan, which is priced at LIBOR plus 1,000 at a purchase price of 99.

We also purchased approximately $523,000 of equity alongside our lending partner in the transaction. Redbox repaid its loan in full in October. This loan was structured to repay quickly, so we were not directly surprised to receive this prepayment. Our fully realized IRR was approximately 13.5%.

I would now like to turn the call over to Rocco to discuss our financial results..

Thanks Chris. For the quarter, our net investment income was $3 million or $0.22 per share. As of September 30th, the fair value of our portfolio was $271.9 million compared to $254.9 million at June 30th. Our investment activity accounts for $6.3 million increase in our portfolio. We also had $700,000 increase in our net changes in our marks.

As of September 30th, the weighted average yield of our debt portfolio, including amortized cost, was 10.67% versus 9.73% at June 30th. Two major factors contributed to the increase in our average yield. First, our investments during the quarter had an average yield of 11.7% versus 9.1% average yield on investments realized in the quarter.

This accounted for 55 basis point increase in our yield. Second, the restructuring of Bird Electric removed a significant non-accrual asset from our debt portfolio as we equitized the loan. This accounted for 39 basis point increase in our yields.

As of October 1st, we removed Bird from non-accrual status, leaving us with no assets on non-accrual churn. Our debt portfolio was comprised of 96% floating rate investments and 4% fixed rate investments. Both one and three month LIBOR are in excess of all applicable rate floors of our loans.

Our average portfolio company investment was approximately $11.8 million, our largest portfolio company investment PGI was $25.8 million and our second largest portfolio company [Klist] was $22.9 million.

As of September 30th, 51% of our portfolio was in first lien investments, 44.6% of our portfolio was in second lien investments and the remaining 4.4% was in equity and warrant positions. We did not hold any unsecured debt investments as of September 30th.

Additional information regarding the composition of our portfolio is included in our Form 10-Q filed yesterday. We were 0.7 times levered as of September 30th compared to 0.6 times levered as of June 30th.

With respect to our liquidity, as of September 30th, we had $14.5 million in cash, $16.1 million in restricted cash and $22.27 million of capacity under our revolving credit facility with Citi. With that, I would like to turn the call back over to Mike..

Thank you, Rocco. The movement in our marks this quarter we’re on balance positive with the two large movers. Three marks changed more than $1 million. These were [Endemol], US Well Services and Trident. Our mark on [Endemol] improved from 77 to 86 this quarter.

[Endemol] results were encouraging and the company has an improving organic growth profile, coupled with margin expansion, which reduced this financial leverage. Our mark on US Well Services Class A and Class B units improved in aggregate of $3.3 million.

US Well’s results have improved materially since the restructuring, including better volumes and stabilized margins. We own equity by virtue of that restructuring, and we're pleased with the financial performance for the company over the past several quarters.

We decreased our mark on Trident Health from 78 to 58, weakness in Trident’s customer base, as well as a challenging debt profile give us reason for concern. We continue to monitor the credit closely and expect to work constructively with stakeholders over the coming months. Our portfolio yield improved significantly this quarter.

As Rocco explained the combination of our new investments in the quarter our realizations of lower yielding assets and the successful restructuring of Bird Electric, all played a role.

Our focus on direct lending relationships went to both significantly more attractive yield opportunities with Montreign and Liberty, and also the better structural protections that are available in a typical syndicated transaction. Over the long-term, we believe structuring is essential for the preservation of capital.

We’re committed to paying a sustainable dividend to our shareholders. Although, we under-earned our dividend in the second quarter, we expect to earn in excess of our dividend during the December quarter. And we are on track to cover the dividend for both fourth quarter and the full calendar year 2017.

Our run rate portfolio yield as well as our current portfolio size give confidence as we look into 2018. We continue to be sensitive to the ebbs and flows related to repayments and reinvesting of capital with the appropriate return and protections for our capital. Our investment activity grew our portfolio by $16.3 million.

However, interest income declined by 465,000 between June quarter and September quarter. The timing of our investments in Liberty and Montreign were a key factor in the seeming disconnect. Both closed late in September. We also entered the quarter under-levered at 0.6 times, which is below our target plus or minus 0.75 times.

That 0.75 being our actual leverage at September quarter end. We are comfortable at our current leverage level and we strive to keep our leverage between 0.65 and 0.85 times.

We did not earn any incentive fee in the September quarter due largely to the timing of our investments and repayments; although, we do expect to earn our incentive fee in the current quarter.

Our Board of Directors declared a distribution for the quarter ended December 31, 2017 of $0.25 per share, which will be payable on January 4, 2018 to shareholders of record as of December 15th.

We believe our dividend level is consistent with our ability to generate NII without reducing our investment quality or changing our focus from secured lending opportunities.

We believe in active management of our portfolio and have continued our work in lowering the portfolio risk profile while maintaining net investment income in order to sustain our dividend. As opportunities permit, we have exited lower yielding loans in favor of direct investments with better yields and structures.

We believe we have additional room to rotate the current portfolio out of lower yielding more liquid assets in favor of direct investments in the future.

In a market that was generally unforgiving for lenders, we have identified and closed two deals that had significant positive impact on our portfolio yield and we’re also more conservatively structures than we see in syndicated loans.

Over the past year, we have decreased our average position size, increased our number of portfolio company investments and have reduced our non accruals.

The team underwrites conservatively, focusing on quality management teams, sustainable capital structures, security packages and financial covenants for the protection and preservation of value over the long term.

We focused on preserving capital, but also think additional upside NAV potential remains in our current portfolio, especially in our energy book. Operator, could you please open the line for Q&A..

[Operator Instructions] Our first question comes from Ryan Lynch from KBW. Please go ahead Ryan..

The first one, your portfolio, the weighted average yield on new investments this quarter is obviously very high in a very competitive environment. I believe that was driven by your investment in Montrose Environmental, I believe you said that have like 15% yield on that investment, if I heard you correct.

So can you just talk about how you’re able to get definitely both average yield in a very competitive environment and what you guys saw in Montrose that can ensure investors that you’re not stretching for yield and potentially the result of taking on access credit risk?.

Ryan, I appreciate the question and opportunity to focus on that. As you and all the others know, we have a long-term strategic relationship with Stifel. This came in through Stifel’s Investment Bank. And it’s a client that was focused on trying to get a financing done in short order. Total size of financing is approximately $40 million.

They have a first lien group there. They wanted to get it done quickly. They have a company that we believe total firm value is a minimum of 8 to 10 times their EBITDA. Our lending allows them to take it up to about 4.25 times, so approximately 50% loan to value.

They wanted to get it done because they are very active in rolling up small companies into their base. And so therefore for the loan that we gave them, they were very happy to have a lender who could structure something to their needs over the near-term. And paying, I think, a couple of hundred basis points.

You could argue that we’re 200 to 300 higher than others wasn’t appropriate premium for them, given the timeframe and everything they want to do. But that’s the background..

And this is just a technical question. But when I look at that investment in your 10-Q, I know you mentioned on call you said that the 15% type of yielding investment. When I look in the 10-Q, it shows that it's L plus 950.

What is the disconnect between 50% versus what it shows up as L plus 950 in the 10-Q?.

Yes, there is three pieces to it and we can follow up with more detail. But there is the discount that we got it the L plus the spread. And then there’s call protection on the back side depending on when it comes out. And so the yield works comes out at 15% and could be actually higher in certain circumstances.

And the interest is also a step up in the out-years..

And then similar question, Liberty Oilfield. I guess, obviously, prior to this quarter, you had a very large oil and gas portfolio. So oil and gas -- with oil price recovering that’s an industry that’s maybe less concerning. But there's still substantial concerns around that industry.

So you can just talk about what you saw in Liberty Oilfield that you guys felt compelled to further grow your oil and gas portfolio, which is already substantially large before this investment?.

We spend a lot of time thinking about the industry bucket here. And I would say that I think that we are at the very top end of what we want to have in that overall bucket after putting Liberty in.

Liberty is a fairly unique opportunity because in our view, with River Stone you have the preeminent private equity energy sponsor who has a significant equity check in.

And what was unique on top of that and you can say that about a lot of sponsors is that when we look at the first lien opportunity, they were benefiting from the uptick as everyone else did, but had a higher operating leverage meaning that they were benefiting from cash flow, significantly as you saw oil and gas trade up.

And secondly the asset coverage here, and this is critical as we think about energy, okay, whether or not it's E&P or this company that is you're going to have some leverage on and this has three to four turns of leverage. Then you have really good asset coverage.

And our sensitivity, say that you covered well in access of one times, there are others that were working on the deal with us. It's a small subgroup. I think it's total of four people, including us in this deal that argue they were 3 times plus covered, but one to three turns.

And Chris, I don't know if you want add anything?.

The other thing, Ryan, is that we had a very good window through our investment in US Well on the industry turn in the fracturing -- in the fracking business. On top of that part of that operating leverage for Liberty was much broader diversity in both customer and also in basin as well.

And their fleets are extremely highly utilized as we entered into this loan. So you could see the numbers..

Okay, that’s helpful. And then one last one and you mentioned that you guys expect to full-year and the dividend in the calendar fourth quarter. You guys -- obviously the revenues were light in the calendar third quarter, even though you guys had substantial portfolio growth. And I think you said that was due to the timing of closings versus repayment.

So I just want to make sure I'm clear. Do you guys assume that -- assuming that the portfolio remains flat from the end of the calendar third quarter, and you guys expect that the incremental revenues from those investments closed later in the calendar third quarter.

And you guys will be able to fully earn the dividend in this calendar fourth quarter?.

Yeah two things; one is assuming the portfolio we have today we expect to fully cover plus earn our incentive fee. There is one transaction that we expect, no guarantees, but we expect to close in the next ten days. And that will further increase the over earning of the dividend.

But we do not need that in order fully earn this quarter next year, next quarter our dividend..

Our next question comes from Robert Dodd from Raymond James. Please go ahead Robert..

Just following up on Ryan’s question on Montreign the 15% versus what from the schedule, so accounting wise, obviously you guys -- we’re going to see coming in interest income as the L plus 9.5 plus the OID, which is 400 grand over three years.

Or is there going to be some accretion of, there is kind of, the yield towards that you described that almost no matter how it plays out, it's going to produce materially high-yields than what shows up on the schedule.

So can you just give some color on how was that actually going to work out in the accounting? Or is that yield going to manifest in a lump sum income whatever that event happens?.

So there will be two pieces to it. One is the LIBOR plus and the accretion over the next, approximately 24 months. At the end of 24 months, subsequent to that, there is an increasing rate. So you would start to see that in current income, if it is not repaid.

If it is repaid then you’ll see an acceleration of a slight lump sum that gets you to that yield that works or better..

Then on -- the Liberty question. I mean, as you’ve said, you’re kind of at the peak of what you want oil and gas wise. And I understand that that’s a tough decision about where you kept any individual industry.

What was your -- were you just looking at the weather cap should be based on what you kind of where this rely? What you think just industry and sector specific, or did you take into account the fact that frankly some of your energy investments have not been the greatest performers.

And reduce, what you felt, a cap would be by some amount above that? That makes only sense..

Yes, I understand the point. We always take into account, if you would, you were saying some of the markdowns of our existing portfolio, specifically like AAR. We do take that into account. We don’t ignore that. But I’d say that there were probably four or five things that we took into consideration.

When you think about it, it is not as straight forward as saying here an industry, I’ve got OEM auto secondary parts manufacturing that is to the OEM industry. There is gas exposure, there is oil exposure, there is E&P with potash sits in the ground that you leverage off advance rates on that.

There is oilfield services where you’ve got hard equipment and you’re secured by that. There is oilfield services where you’re basically first lean, but asset wise and you’re a lot lower leverage at the outset there. And then there is the question of what bases are there across.

And when we look at Liberty and we saw Permian Basin, DJ Basin, Marcellus, the best basins Eagle Ford, that’s another overlag.

And then lastly and not insignificant here, and maybe I should have said this first is, when we look at that portfolio at, I mean aggregate it's 19%, there is liquidity in that portfolio of at least 10% or close to 10% of the portfolio.

And I could argue more than 10% there’s two names that come to mind that we have ability to shift in and rotate out into other industries. We're not with 19% in illiquid direct lending two person deals. So that liquidity gives us some ability to bring it down and redeploy too..

And also following up on Ryan’s question and so is the earning the dividend over earning the dividend, if it's on the deal or close it. When I look at -- what's your outlook, if you can, on prepayments? When I look at, obviously, Red Box already prepaid.

When I look at some of the other, on the good side like premier global, where fair value is above amortized cost, which sometimes happen when you think prepayment might be eminent or something like that.

I mean, do you have a feel about -- is prepayment activity they have expectations? Is that going to be model it and that’s factored in, or what do you feel about that right there?.

It's something we really look at and quite frankly kind of long career of doing this over the last 25 years little different market. We have had, over the first three quarters, over $100 million of our portfolio mostly turned over from prepayments.

So when we look at the portfolio overall, you think of the PGI with what the equity sponsor wants to do there. In particular, we don't view that as having any refi risk at this point. The other thing is PGI remember, it's not where it trades vis-à-vis the cost, because our cost was low 90s on that.

From a refi exposures standpoint is where is it trade vis-à-vis the price to take it out. So in order to take it out, you have to pay credit card. So when you’re trading in 99 to 101-102. That’s when all the alarm bells are going off you can get ready to get refi, and there’re one or two of those. Chris, go ahead..

Yes, plus a lot of what we put on is fairly new when I go back and look over the last couple of quarters. And some of that was the lower spread strategy that we did over the summer.

And so that this adds to the liquidity that Mike spoke about earlier with regard to the oil and gas, it's just -- kind of portfolio wise, we feel like we have a pretty liquid portfolio. So we have plenty of dry powder as new direct lending club types of opportunities come to pass..

But I think specifically and I'm not going to give you any names, because I don’t want to give any issuers any ideas. But we do have built into our assumption that number one there probably will be at least one that has some activity on it.

But we also have, to the earlier question about investment levels and everything else, we already have a commitment that we are sure if that does happen that this will be -- that one will be reinvested and we will not be exposed to reinvesting on that same..

Couple more, again. On the Bird Electric, obviously, you equitized the position. Can you give -- so that’s $7.5 million is obviously not generating income. So can you -- obviously, it wasn’t the focus as non-accrual.

But any color on what’s your expectation, especially -- time line for maybe monetizing that $7.5 million or staying put and obviously even potentially generating a gain on that. And obviously, in that if you stay in the equity rather than monetizing, obviously, there’s some opportunity cost of potential income if you exit and reinvest.

But can you give us any thoughts on Bird?.

Sure. So first of all, just to refresh everybody there and Robert I appreciate the question. I know you are up to speed on this. Their preferred units that do have a distribution and right now, its picked 10% per annum associated with them. There is a target performance that would trigger, at some point and that will be required to go cash pay.

We expect that that will happen in the next six to 12 months, if they will go cash pay and they will continue to be cash paid from there on. And also have a separate component that gives us upside equity participation on the company.

So to your point about cash drag, we would expect that to end in the next six to 12 months and be a reasonable return on that and continue to give us upside on the equity. And as Rocco mentioned earlier, we've taken that off non-accrual as of October 1..

And then flipping the other side of the balance sheet, again. On the liability side, we’re about to hit, I guess, the tomorrow was the one year anniversary not that it matters that much of the facility, the $50 million. I mean, combination of between the relatively high spread, what I described as fairly onerous non-use fees.

Has there been any expiration of either renegotiating, renewing, or replacing that facility?.

I think, it’s fair to say that we have -- did have in conversations, and I think they've been very constructive conversations. And hopefully, in the near-term, we’ll put an 8-K out to you and tell you what's going on there..

Our next question comes from Allison Taylor Rudary from Oppenheimer. Please go ahead, Allison..

So a lot of my questions to so far have been asked and answered and I really appreciate all the color on some of names. But I wanted to follow-up on one of the earlier questions that was asked and answered by you, and then a little bit about your comments on Red Box being a short-term -- a reasonably short-term play.

So you said that Montreign have some call protection on the outside. Now, does that imply that you can't be called out as a deal for a few years, or that if you were to be call that as a deal out of it, it would carry a nice heavy premium.

And then second to that do you have other names in your portfolio that might be backed by prominent sponsors that may also be medium deals, and ones that you might expect to be prepaid on a short term basis?.

Chris, you want to….

First, to go to wider, Red Box was a deal that was very low, carried very low leverage, big cash flow generator. The Company had generated about 15% or 20% repayments of some excess cash flow. We bought at 97. We did not think it would get refinanced so quickly but it was taken out right after the call premium one-off after the first year.

So that last basically one year. And the high return is from this high heavy level of amortization repayment that we’ve got through excess cash flow schedule. I guess, d$97 price. So that’s the way Red Box was structured. It’s just got refinanced now.

But we didn’t anticipate it sticking around for that much longer any way, maybe not the year, year and half on top..

And Montreign not quite 97 has a 98 initial price. And then it does have a short turning where they could take it out at par. Assuming that it does not come out, we have premiums that will happen in escalator. So premiums happen and escalating in rates..

Your third question, Allison, hopefully I’ll answer it properly. On repayments, they’re really looking through the portfolio. Again, there is nothing that we feel is emanate or close to emanate on any refinancing or repayment in our portfolio other than scheduled amortization..

And then one follow-up, I know you guys have -- you have reasonably fixed rate right side of your balance sheet, which is great given that most of your portfolio is floating rate.

How sensitive are you guys to another 50 or 75 basis point on site?.

It is net positive to us, if that’s the question. We haven’t disclosed how positive because it really depends on the mix, I think.

Rocco?.

So Allison, it’s just in the queue but let’s say there is 1% increase that would increase our net income about 6.8%. And if there’s 2% increase, our net interest income would go up about by 13.5%..

And that’s based upon the portfolio as of 9.30 and will change..

Our next question comes from David Miyazaki from Confluence. Please go ahead, David..

Since everyone else has asked question about Montreign, I think I need to join that crowd. It is pretty interesting that you could create a situation. As you described, but it seems as though they will either pay a rising interest rate to you, or they will pay a significant premium.

And either way that it’s a pretty good position for you sales, is that a correct characterization?.

It’s correct. I think you think about it as we got a nice, I don’t want to call make hold, but a prepayment build in through the discount upfront. So if they pay us in the very short-term, we length at 98, we’re getting that par and we had double-digit coupon along the way.

And then if in the very, very near-term, the first year or so, we got a big make or prepayment penalty starting out at 105. That comes down and converges to an inflection point where they could prepay us at par basically for a day. And then after that day, you have increasing rates of backup and that’s about two years up..

So my recollection Rocco was that you guys were in the lead on this one.

Is that correct that you guys structured this to the inflation rate that was still favorable?.

Yes..

So I guess a couple of questions there. I mean, if I were at the senior lenders, I don’t know if I’d be thrilled to see this much interest going out underneath of me.

So do they have blocking privileges because they’re senior?.

No, they do not..

This is, as you described, it’s a good situation to be in.

One of the things that we’ve heard about is because there’s so much private equity capital that is out there that the margin on the subordinated debt exposures that some private equity sponsors are beginning to move into the subordinated debt position, because the returns are attractive and not that there is so much excess private equity capital.

Was that -- did you run across that in this situation or have you seen it elsewhere?.

Well, we did not in this situation and this comes back to our strategic relationship with Stifelk because this company was banked by them. We got in early discussions I’ve had over 20 years with companies like this. This structure I've been fortunate to use maybe less than half of dozen times, but it's not the first time I’ve done it.

And as a private company, you really don't want to bring a private equity sponsor in as a debt investor, because you’re really starting to open the door to the sponsor coming after you to take over, and not necessarily a friendly way. So we actually had the full position knowing that they didn’t want to go there..

That’s good to hear and it's also good to hear that the Stifel relationship that was at the bedrock of your formation is really come through some good deal flow. I wanted to shift also over to your energy side….

Before you reach that -- this is Chris. When Mike said it was a short timeframe, our guys spent better part of two months on this deal. So it wasn’t a week or two, it was highly structured and negotiated so just to model at that said onset..

No, that’s a good point. And I think short is always [multiple speakers] open to your interpretations. So thank you for that clarification. Shifting over to your energy side, it had been and my recollection is that at one point it was almost the third of your book. And some of that exposure has not been helpful throughout the cycle.

So as you think about going back in here and I think Mike you mentioned that there is some cash flow leverages the environment gets better. In that you can drop through the bottom line presumably, because there’s fixed cost.

But doesn’t that also mean, on the other side that when the time goes out that disproportionately affects the bottom line as well?.

You’re absolutely correct and I'm glad you bring that up. So that’s why there is two things that in the new investment why we liked it. The two things are a sponsored and we here know personally very, very well long history with them. But number two, forget about that, okay.

Anybody who generically says well we haven't been through a cycle since ‘08, if you talk about energy, we've been through a cycle. So we’ve had stress test. We've seen what's happened to asset values. And when we stress the asset values here, we are still more than one turn covered on our debt.

And that is part of why we sit there and say, don't get too comfortable with $55, $60 oil, because it can easily revert back to $40. I don't think it will revert to $27. But it can easily revert to $40, and how are we feeling then. And then you have less cash flow. You got more leverage. But we've got very, very good asset coverage on this investment..

I mean, it does create optically from the investment side looking in, to have your-self I think 19% or net range is probably among the highest that's out there. And it would seem that that could the perception could translate into higher cost of equity capital. And that your valuation may remain lower.

So do you make that calculus when you think about how much industry concentration you have with regard to energy?.

We do. And part of that calculus is that we would not expect it to stay that high. And earlier I talked to liquidity that we see in that portfolio of that 20%, at least 5% and closer to 10% of it being liquid..

I mean, I would think right now in all the areas that you could be lending in that energy is probably one that lenders actually have some strength relative to borrowers. But at the same time, I think it would be concerning for us as investors to see the proportion go back up to, say the 30% number. And so that’s not your intention.

You'd be looking to go in the opposite direction from here.

Is that right?.

Yes, opposite direction..

And gentlemen at this time, there are no further questions..

Thank you very much. And I'd like to thank everyone for joining us today and we look forward to speaking with you next quarter..

This concludes today's conference call. Thank you for attending..