Vince Foster - Chairman, President and CEO Dwayne Hyzak - Chief Financial Officer Brent Smith - Senior Vice President, Finance.

Bryce Rowe - Robert W. Baird Robert Dodd - Raymond James Christopher Nolan - MLV & Company Vernon Plack - BB&T Capital Markets Doug Mewhirter - SunTrust Mickey Schleien - Ladenburg Thalmann.

Greetings and welcome to the Main Street Capital Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenny Zhou.

Thank you, you may begin..

Thank you, Kevin. And good morning, everyone. Thanks for joining us for the Main Street Capital Corporation third quarter 2014 earnings conference call. Joining me today on the call are Chairman, President and CEO, Vince Foster; Chief Financial Officer, Dwayne Hyzak; and Senior Vice President of Finance, Brent Smith.

Main Street issued a press release yesterday afternoon that details the company’s quarterly financial and operating results. This document is available on the Investor Relations section of the company’s website at mainstcapital.com.

A replay of today’s call will be available beginning about an hour after the completion of the call and will remain available until November 14th. Information on how to access the replay is included in yesterday’s press release.

We also advise you that this conference call is being broadcast live through an Internet webcast that can be accessed on the company’s web page.

Please note that information reported on this call speaks only as of today, November 7, 2014, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening. Our conference call today will contain forward-looking statements.

Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar expressions. These statements are based on management’s estimates, assumptions and projections as of the date of this call, and they are not guarantees of future performance.

Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including, but not similar to, the factors set forth in the company’s filings with the Securities and Exchange Commission, which can be found on the company’s website or at sec.gov.

Main Street assumes no obligation to update any of these statements unless required by law. During today’s call, management will discuss non-GAAP financial measures, including distributable net investment income and distributable net realized income.

Please refer to yesterday’s press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies, which was derived from third-party sources have not been independently verified.

And now I’ll turn the call over to Vince..

Thanks, Jenny and thank you, all for joining us today. I will comment on the performance of our investment portfolio, discuss our recent dividend announcements and conclude by commenting on our investment pipeline.

Following my comments, Dwayne and Brent will cover our operating performance in more detail and comment on our third quarter financial results and originations, recently announced assets, our current liquidity position and certain key portfolio statistics. After which, we will take your questions.

We were pleased with the performance of our investment portfolio during the third quarter. Our lower middle market investments appreciated during the quarter by $7.6 million on a net basis with 22 of our investments appreciating during the quarter and 11 depreciating.

Our middle market private loan and other investment assets depreciated by $5.2 million during the quarter on a net basis. We finished the quarter with a net asset value per share of $21.8, a sequential increase of $0.05 over the second quarter.

We’ve been highly focused over the last two years to posture our company as investment grade as defined by the major rating agencies. We were therefore very pleased and we were informed by Standard & Poor’s during the third quarter that we have received a BBB rating, the top rating they currently have assigned to a BDC.

Their rating allowed us to pursue a successful investment grade debt issuance, which closed earlier this week and which Dwayne will cover in more detail.

Our lower middle market companies with nearly $110 million of cash on their balance sheet as of September 30th continued to exhibit highly conservative leverage and debt service coverage ratios, which Brent will cover in greater detail.

Last month, our Board declared our supplemental semiannual dividend payable on late December of $0.275 a share, maintaining the same rate of distribution we paid in June.

We are very pleased to continue this level of distribution, which validates our lower middle market strategy of creating equity appreciation that can be periodically harvested and converted a spillover income for our shareholders.

Earlier this week, our Board declared our first quarter 2015 regular monthly dividends of $0.175 a share or $0.51 for the first quarter.

In recommending dividends to our Board, we typically take into account our projected DNII per share, which is our net investment income per share before restricted stock amortization expense and whether that per share amount exceeds the recommended dividend by at least 5%.

Because we are currently earning and expect to continue to earn DNII in excess of 5% of our regular monthly dividends, we will likely ask our Board for at least one dividend increase during 2015.

At 06/30/14, we estimated our spillover taxable income was $35 million, after being reduced by $12.3 million semiannual supplemental dividend distribution that we paid in late June. We currently estimate that our spillover at September 30th was $49 million.

We continue to expect that we will pay semiannual supplemental dividends in addition to our regular monthly dividends as long as we are in a significant spillover income position. We therefore anticipate asking our Board to declare a semiannual supplemental dividend next June in the range of $0.25 to $0.30 per share.

A final noteworthy item concerning our 2014 dividends is that we currently estimate that nearly 100% of our third quarter dividends will be taxed at the highly favorable long-term capital gain tax rates, which significantly benefits our taxpaying shareholders.

As of today, I would characterize our lower middle market investment pipeline is unusually strong. We expect near-term originations to consist primarily of lower middle market investments.

We continue to seek and receive significant equity participation in our lower middle market investments, and as of quarter end, we owned an average of a 35% fully diluted equity ownership position in the 94% of these investments in which we currently have equity exposure.

Our officer director group has continued to be regular purchasers of our shares, investing over $0.5 million during the third quarter. With that, I’d like to turn the call over to Dwayne Hyzak, our CFO and Senior Managing Director, to cover our portfolio performance in more detail..

Thanks Vince.

We are pleased to report that our third quarter results continue to illustrate the benefits of our unique investment strategy and efficient internally managed operating structure which combine to allow us to generate continued growth in our recurring total investment income, distributable net investment income per share which significantly exceeded our regular monthly dividends paid for the quarter, significant realized gains and continued appreciation of our net asset value per share.

For the third quarter, our total investment income increased by 23% over the same period in 2013 to a total of $36.4 million.

This increase was primarily driven by increased amounts of interest income associated with higher levels of portfolio debt investments, increased dividend income from portfolio equity investments and increased fee income from higher levels of investment portfolio origination and repayment activity.

Third quarter operating expenses, excluding non-cash share-based compensation expense, increased by $300,000 over the same period in 2013 to a total of $10.3 million.

This increase was primarily the result $500,000 increase in compensation-related expenses and a $300,000 increase in other general and administrative expenses with these increases partially offset by $600,000 of operating expenses charge to our external investment manager.

The ratio of our total operating expenses excluding interest expense as a percentage of our average total assets was 1.4% on an annualized basis for the third quarter of 2014 compared to 1.6% for the third quarter of 2013 and 1.7% for the full year in 2013.

We believe that this ratio is one of the lowest in the BDC industry and continues to illustrate the significant benefits associated with our efficient internally managed operating structure, which allows to deliver a greater proportion of our gross portfolio returns to our shareholders and which we believe provides for a greater alignment of interest between our management team and our shareholders.

Our increased total investment income and the continued leverage of our efficient operating structure resulted in a 33% year-over-year increase in our distributable net investment income to a total of $26.1 million or $0.58 per share for the third quarter, which exceeded the top-end of our guidance provided on our second quarter conference call and again exceeded our monthly dividends paid for the quarter with an excess this quarter of $0.08 per share over 17%.

In addition, we also recorded net unrealized gains at $15.7 million during the third quarter, primarily as a result of our exits of our investments in American Sensor Technologies and Texas ReExcavation, resulting in distributable net realized income of $41.8 million, or $0.93 per share.

As Vince previously discussed, we recorded net unrealized depreciation on the investment portfolio of $6.2 million in the third quarter.

This unrealized depreciation was offset by carrying reversals of net unrealized depreciation from prior periods of $13.1 million related to portfolio exits and repayments, and by $8.7 million of unrealized depreciation on the SBIC debentures held by one of our wholly owned SBIC subsidiaries, which are accounted for on a fair value basis.

Additional details for the change in our net unrealized depreciation can be found in our earnings release. Our operating results for the third quarter resulted in a net increase in net assets from operations of $21.6 million or $0.48 per share. And our net asset value per share increased to $21.8 per share on increase of 6% since December 31, 2013.

Our investment activity in the third quarter included total investments in our lower middle market portfolio of approximately $39 million, primarily as a result of our investments in four new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of approximately $14 million.

We had a net decrease on our middle market portfolio of approximately $5 million and a net increase in our private loan portfolio of approximately $39 million. On the capital resources front, we have continued to focus on improving our already-strong liquidity position and overall capitalization.

These efforts include the amendment of our credit facility in September to increase the total commitments from $502.5 million to $522.5 million to decrease the interest rate by 25 basis points to LIBOR plus 2% as long as we maintain an investment grade rating and to extend the final maturity by one year to September 2019.

As Vince mentioned, we also obtained an investment grade rating of BBB from Standard & Poor’s in September, which makes us one of only five BDCs with an investment grade rating of BBB and allowed us the opportunity to access the institutional debt capital markets.

In November, we issued $175 million of unsecured institutional notes with a five year term and a fixed 4.5% interest rate.

We believe that these activities result in significant improvements to our capital structure and we are proud of these accomplishments and excited about the benefits that we expect they will provide to our shareholders in the future. After completion of our $175 million unsecured notes offering.

We currently have over $30 million of cash, $9 million of marketable securities and over $390 million of unused capacity under our credit facility, providing us significant liquidity for future growth.

During the third quarter, the fees earned by our external investment manager under its investment sub-advisory relationship with HMS Income Fund generated approximately $700,000 of contribution to our net investment income.

We currently project that this relationship will contribute approximately $0.02 to $0.03 per share of net investment income in the fourth quarter. Based upon HMS Income Fund’s current fund raising efforts and activities, we expect that this amount should continue increase over the next 12 months.

As we look forward to the fourth quarter of 2014 and consider our current investment portfolio, our fourth quarter investment activity to-date and the impact of the increased interest expense associated with our recent notes offering, we currently expect that we would generate fourth quarter of 2014 distributable net investment income per share in a range of approximately $0.58 to $0.60 per share or $0.07 or $0.09 above our previously announced regular monthly dividends for the fourth quarter of $0.51 per share, which is consistent with our previously discussed policy of generally setting our regular monthly dividends at 90% to 95% of our distributable net investment income.

With that, I will now turn the call over to Brent Smith, our Senior Vice President of Finance to cover our investment portfolio statistics..

Thanks Dwayne. Our investment portfolio continues to be extremely diversified with investments in 176 companies across our lower middle market, middle market and private loan portfolios. These companies are diversified across over 50 different industries and their portfolio continues to be very well diversified by end market, geography and vintage.

We believe that this diversification adds significant protections to our investment portfolio, recurring investment income and cash flows and provides significant benefit to our shareholders.

In our lower middle market portfolio, we had 64 investments representing approximately $681 million of fair value, which is approximately 25% above the cost basis of approximately $544 million.

Consistent with our investment strategy, approximately 73% of our lower middle market portfolio investments at cost were in the form of secured debt investments and approximately 86% of these debt investments held the first lien security position.

The weighted average effective yield on our lower middle market portfolio debt investments was approximately 13.5%. We continue to hold equity positions in 94% of our lower middle market portfolio companies with an average fully diluted equity ownership position of approximately 35%.

We believe that these equity ownership positions provide significant value to our shareholders and they are the primary driver behind our significant net unrealized appreciation of over $3 per share and our growing levels of dividend income.

At the lower middle market portfolio level, the portfolio’s median net senior debt-to-EBITDA ratio, which includes all debt through Main Street’s debt position, was 2:1.

Based upon our internal investment rating system, with a rating of 1 being the highest and 5 being the lowest and with all new investments entering the rating system with an initial 3 rating, the weighted average investment rating for our lower middle market investment portfolio was 2.2 on September 30th, which is unchanged from the prior quarter and prior year-end of December 31, 2013.

In our middle market portfolio, we had investments in 86 companies representing approximately $557 million of fair value that are generating a weighted average yield of approximately 7.5%.

Our middle market portfolio investments are primarily in the form of debt investments and approximately 90% of our middle market portfolio debt investments at cost held the first lien security position. The weighted average EBITDA for the companies in the middle market portfolio was approximately $68 million.

In our private loan portfolio, we had investments in 26 companies collectively totaling approximately $181 million in fair value for the total cost basis of approximately $188 million. The weighted average EBITDA for the companies in the private loan portfolio was approximately $13.6 million.

Approximately 97% of our private loan portfolio investments are in the form of debt investments and 86% of such debt investments held the first lien security position. The weighted average annual effective yield on our private loan portfolio debt investments was approximately 10.4%.

The total investment portfolio fair value at September 30th was approximately 110% of the related cost basis and we had three portfolio investments on nonaccrual status, which comprised approximately 1.2% of the total investment portfolio at fair value and 3.9% at cost.

And with that, I will now turn the call back over to the operator so we can take any questions..

Thank you. At this time, we’ll be conducting a question-and-answer session. (Operator Instructions). Our first question today is coming from Bryce Rowe from Robert W. Baird. Please proceed with your question..

Hi. .

Hey Bryce. .

A couple of questions here. As you talked about the potential for near-term investment portfolio growth to come from, predominantly from the lower middle market and then we’ve seen here recently an increase in the lower middle market, as well as a pretty steady increase in the private loan portfolio.

So maybe any guidance you could give us in terms of mix of new flows coming in would be helpful.

Do you expect 100% in the lower middle market or the majority of them just coming from the lower middle market?.

I think it’s going to be a majority. Sometimes the private loan opportunities have a pretty short views; it’s less than three or four weeks sometime. So, it’s possible we could book some private loans that we don’t -- we’re not even aware of right now before the end of the year, but we have pretty good visibility on some lower middle market activity.

In fact, we closed one last week that we will announce next week. So, I’m kind of including that as well. And as part of your larger question Bryce, we intentionally shrank the middle market portfolio somewhat during Q3.

We tend to crank it in connection with the bunch of cash that comes in from an equity offering or if we have an unusual amount of exit activity, we have some pretty unusual high amount of exit activity recently. But we were able to pretty quickly put that away in the lower middle market. So, we kind of like the size of our middle market portfolio now.

We’re still continuing to digest the feedback we received from our latest group of investors which are investment grade, debt investors. As you can imagine a lot of them like the middle market portfolio because it’s liquid or at least theoretically liquid; it can generally be converted to cash in 30 days.

The lower middle market is kind of new to them. So we’ll kind of play it by a year there.

But our goal is to have the majority of our balance sheet in lower middle market and in a perfect world that’s all we would have but it’s just not realistic to how long it takes and how difficult it is to close those deals and to predict the timing with any certainty..

Understood. And then follow-up on the growth in the portfolio and some of the yields you’re seeing today. So, we saw a pretty dramatic decline in the weighted average yield on the lower middle market from 14.9% down to 13.5% sequentially and then also with the private loan portfolio down to 10.4%.

Just curious, what’s driving that and do you expect at least some level of stability here going forward given some of the macro events from the last quarter..

Yes. So, there is no general response to why did your yields dropped sequentially. I mean a lot of times we’re faced with the following and that is the way the lower middle market company, we have a GAAP yield in the low to mid teens let’s say. And over two, three, four, five six years, however long it takes, they’re all different.

The company delevers because we’re typically the only related company delevers to the point where it’s now an attractive refinance candidate by a local bank, commercial bank.

And the company comes to us and says we’re getting these term sheets to take you out and we would rather take a 15% yielding debt position in the company that we might have gone it three times levered, now it’s only times levered and get 8% then have it go away.

If we allowed it to be completely refinanced by the banks, we wouldn’t have yield decline but we have less of it, right. So, a lot of it is trying to stay with these companies.

Dwayne likes to point out, we know a lot more about the company’s five years in than we do initially and we really tend to like them and we will put, we will give them 7% or 8% money all day long with they become delever, what would you say growing 1, 1.5 times to kind of delay the banks coming in. So that can happen.

We can see none of that for six months and then we can see a lot of it one quarter; and we saw a fair amount of it in Q3. Otherwise, in terms of what we expect in the future, our 2015 budget if we gave to the board is assuming -- approved by the board, was assumed lower middle market originations in between 12% and 13% GAAP yield.

We’re tending to use more equity, direct equity investments rather than warrants. And when you do that, you have less OID, because the warrants create OID. So that is -- that’s kind of compressing the GAAP yield down towards the cash yield. That was about the same amount, correct me, if I’m wrong, that we had in our 2014 budget.

So we’re not planning on originating at lower yields. But you will see less OID, because we just don’t use warrants as frequently. When you’re simply a creditor with warrants, you really have a fundamentally different relationship with a company then when you’ve written a cheque and own some of the equity.

And over the years, that’s kind of become our preferred way to transact.

What else would you add, Dwayne?.

I think you covered it.

I think the biggest thing is in this transactions, we have 30%, 40% or 50% equity, we less consider to 1 or 2 percentage points on the rate if we can get at 12% loan versus 14%, but we get that significant equity participation in a good lower middle market company where we’re very comfortable with that, we’re happy to do that on a continuous basis..

Thanks. That’s helpful. And just one more quick question, Dwayne for you. We continue to see increased levels of dividend income in the revenue stream; I mean I think I’ve asked this on previous calls.

But is that concentrated in one or two companies or is it just more broadly spread now and growing given the number of equity positions that you have and the de-leveraging within the book?.

Yes. I would say it’s the latter, so it is growing and it’s diversified across the number of companies.

Here what you would see is it typically is going to be the companies that have been in the portfolio for 2 or 3 years or longer because that’s given them an opportunity to delever and then start using some of the excess cash flow for something other than debt service.

You may have one or two companies that are larger amounts, but rough math if I have at least 10 companies that are above $200,000 a quarter and a number of other companies are above $100,000 so it’s a pretty diversified group that’s contributing to the dividend income..

Okay. Thanks guys..

You’re welcome. Thank you..

Thank you. Our next question today is Robert Dodd from Raymond James. Please proceed with your question..

Hi guys. Just looking on the capital structure side, obviously with the institution that you paid on the revolver and then the indication is that lower middle market is going to be the primary growth. In the past you’ve tended to obviously match book, the middle market funded in the revolver.

So, the simple question, is it just a function of financial engineering timing paying it down so you don’t have outstanding cash or is it a change in strategy that you’re now willing to fund the lower middle market in the revolver going forward?.

I would say it’s not a change in strategy, Robert, it’s more with the investment grade rating and the discussions we had with some of our supporters on the capital market side.

The opportunity to issue a five year fixed rate debt at 4.5%, which if you will look at our SBIC debentures is not significantly higher than the weighted average rate that we have on the debentures, it was pretty attractive. So, we look at it more as an opportunity to access a different type of capital other than just our revolver.

The debentures and our periodic equity offerings, to do that on a long-term fixed rate basis that your cost of capital is significantly below our cost of capital on the equity. So, we found that attractive and decided that the opportunity was there and make sense to access the markets.

And when you look at substituting net debt or front equity offering, we think that’s going to serve our shareholders very well over the next couple of years..

In addition, Robert, on the asset side of the equation, the vast majority of our lower middle market companies are really in different as between offering them a L plus a thousand rate structure versus 12% fixed..

Fine..

Sometimes we give them and sometimes we give them a choice, most of the time we kind of pick where it is. So, we have some flexibility on the asset side too. We do not have flexibility on the middle market and private loan tends to be a floating rate market..

All right, all right. Got it. Secondary on one of your differentiators in the lower middle market obviously as you tax planning and essentially the state planning you do and that does differentiates you from other competitors in the financing.

Do you think, I mean obviously election results and there is already talk about changing proposal on the tax front.

Do you think that’s going to have any impact on either your near-term expectation to lower middle market, are people going to sit back and wait a little bit or do you think additional complications there just play into your hands from a differentiation point of view?.

I know lower middle market business owners are a lot more tax-sensitive now, because their rates are higher. I mean we were in 2012; we were at 15% rate on qualified dividends compared to federal level and long-term capital gains and that’s a pretty benign rate.

It’s now at 23.8% on both if you have more than like 400,000 tax all of these guys do think they typically have course or LLCs have flow through income. So, they hit those Obama Care thresholds to hit that extra 3.8% rate. And of course your rate on ordinary income and operating income from an [asset] in LLC is close to 43% if not a little higher.

And then most of them are in states, the tax in as well. So, I think the tax sensitivity has only gone up and our willingness to be more flexible and work with them is even more important. On the state side, nothing has really changed. These guys now they’re probably worried about the law changing.

They can give $10 million away if they’re married, $10 million in change to the next generation free of any state or give tax. So, a lot of times in connection with transacting with us, but for them limited partnership gives -- utilize that $10 million or portion of the (inaudible) kids. We work with them, we’ll go ahead and transact.

I don’t see a lot of things changing and I don’t think there is a big fear that that goes away, particularly after these elections. But mostly, it’s the income tax planning and minimize, absolutely minimizing the part of the exit proceeds they have that are taxed at 43%..

Okay, got it. Thank you..

Thank you..

Thank you. (Operator Instructions). Our next question is coming from Christopher Nolan, MLV & Company. Please proceed with your question..

Hi guys..

Hi Chris..

Vince, quick question. You mentioned earlier that your institutional debt investors feel a little bit more comfortable with you guys investing in the middle market area.

How does -- has taking on institutional money like that changed the risk tolerance thinking of Main management at all?.

No, I don’t think. So, I mean when we went through the S&P process, I mean they kind of understood and were very familiar and comfortable with the middle market world, the names we had in the portfolio et cetera.

Lower middle market, it was a real education for them to bring them around to see that that really is a superior asset class on a risk adjusted return basis. Although, that makes more of an equity argument than it does a debt argument, when you talk by the equity piece of the equation.

So it’s really not so much them preferring middle market, it’s done having in terms of when they first shared the story, a much higher comfort level with middle market. And we’ve just been educating them rather than wanting to change our strategy..

And on the strategy front, is there any consideration as to new products that you might be able to offer lower middle market clients like equipment financing, receivable factoring things like that?.

Yes, we’ve spent a fair amount of time on that. We’ve looked at several factoring type companies Chris. the SEC now has said you can’t control; not only can you not control a “investment company as defined by the 40 Act, you can’t treat it as a portfolio investment; you have to put it on your balance sheet”.

But they’ve extended that definition to in other kind of finance companies. And so there is, what was pretty certain accounting is now uncertain accounting. And we think that if we control an equipment lease company, finance company; correct me if I am wrong Dwayne, that that have to come on our balance sheet and also more highly levered businesses.

And so what that means we think is you’ve got to go find one or two other co-investors, so you could do a 40-40-20 or something like that type of ownership. That’s a lot of brain damage..

Got it..

And Dwayne, you had a close look, would you express any differently?.

No, Chris, I think you are right. I think some other -- these struggle with what they do, don’t have to consolidate, what they can do as a portfolio company.

And I think while we’ve liked a lot of the businesses that have come to us as Vince said, we really want to make sure that we don’t do something that complicates our capital structure, causes the SEC to look at our portfolio company and start asking questions like you have some of the other groups.

It’s just not worth the brain damage to go through that unless we can have a structure that is very clear as we get the type of the accounting treatment that we have for all of our other portfolio companies. .

But I’ll make a prediction, by this time next year, we will have introduced another platform. We will have figured out a way to get it done in a way we’re comfortable with, because we’ve been close enough now, I don’t think we’ll go in other year and have nothing to show for..

Got it. No, I told you you’re doing a brain damage thing. Okay, great. Thanks for the color..

Thanks Chris..

Thank you. Our next question today is coming from Vernon Plack from BB&T Capital Markets. Please proceed with your question..

Thanks very much. Hey Vince, I was looking for perhaps a little more clarity just in terms of what impact your investment decisions will have on the balance sheet. I’m trying to figure out. So should ‘15, should we view ‘15 as a rotation year or growth year from a balance sheet perspective.

I’m looking at growth, your balance sheet has grown, your investment portfolio has grown quite nicely this year, we’re probably looking at mid-teens type of growth.

Could we see more rotation in the next year where your balance sheet, your investment portfolio actually grows perhaps less than that?.

Well, we’re going to grow the balance sheet next year, I don’t think there is any question about it and I’d predict that we’re going to grow it horizontally. So, a year from now instead of having 64, lower middle market companies whatever the count is now, it will be more.

And we’re averaging 5.25 in EBITDA among those companies that will go up as well. And if that goes up, there is less pressure on growing on horizontally, because you can put more money to work without having to add more people and more teams et cetera.

And in addition the real wild card for us is the HMS, the growth in the HMS platform, because they now have about $400 million of assets growing by the day.

They are fund raising periods and they are now taking about 20% of each of our deals, which is kind of nice, because we’ve historically had to go out and find co-investors for about a third of our deals.

So, having a captive one now has actually allowed us to really not add any people and have a real nice, an opportunity to do deals of the larger hold size than we would normally do without having to worry about finding a co-investor, are they going to shop, are they actually going to close et cetera.

Are they going to accept our diligence, are they going to mark up our documents. So that’s been real nice too. If they want to launch a 2.0 vehicle that would lower the growth rate on our balance sheet, because then you have potentially another group that we’re originating assets for and/or it might be a fall in offering our first or even larger.

And as you know in the non-listed space when they announce the closing, that’s when the growth really occurs. It’s in the last kind of quarter of the fund raising period. So, we’re not able to predict our growth, we can kind of predict our originations, but what we can’t really predict who is going to own them, but we’re going to grow.

One lesson learned about the investment grade offering is that you guys go manage was a really, really don’t like less than $0.25 billion issuances, we kind of learned the hard way. And so, to try to do $135 million was tough. And so, we have to take that into account in terms of our thinking because we will not do another $175 million work.

So, we like that space, we like to be repeat issuer, we’re going to get significantly lower rates if we do a bigger deal particularly that’s not a first time issuer. And unique growth to be able to utilize that market, just one of the small size of utilizing that market..

Okay, thanks.

And a follow-up question is, does the lower oil prices have any impact your energy related portfolio and does this change your approaching or thoughts on the approach and should be taking to energy investing?.

I don’t know, I think there is more talk about it that action. You’re seeing some CapEx budgets for some of the upstream companies get cut, but midstream is still blowing and going. So, we had one of our portfolio goes in that sells into that end market, I don’t know maybe half of the business or third of the business and actually what he told us.

You sure guys (inaudible)..

He was here just yesterday actually and the feedback was clearly at something that he is watching that he is paying attention to it and he is talking to his customers as much as possible to get increased visibility and to any slowdown. But as of today, they have not seen him yet.

As Vincent mentioned, when you take the oil and gas industry and you put it into the segments at lease on the midstream side it’s still very, very strong.

So we’re still optimistic today that we haven’t seen it and he is trying to pay as much attention to it through conversations with our portfolio company managers to see what they’re saying on each individual situation. So, we have that visibility for the portfolio as a whole..

And Vernon when you read the Wall Street Journal they have more of oil price focused and you read it in Houston Books much more gas price focused..

Okay..

That’s kind of drives the economy relatively more than oil here. And the gas industry that gas industry has learned how to deal with 380 in Mcf world..

Okay. That’s helpful. Thank you..

Thank you..

Thank you. Our next question today is coming from Doug Mewhirter from SunTrust. Please proceed with your question..

Hi, good morning. I actually have the same question about the oil prices and it’s been answered, so thank you..

Thank you Doug..

Thank you. Our next question today is coming from Mickey Schleien from Ladenburg Thalmann. Please proceed with your question..

Yes. I just wanted to step back for a minute Vince and understand your perspective on 2015, when you talk to the board about the budget in terms of the economic cycle in the U.S.

and where you think we’re at and also where we’re at in the credit cycle and how that’s affecting your budget for next year?.

Well, I don’t really -- I mean I think that we’re always going to have volatility in terms of our NAV on the middle market side of the equation because we mark that to market based upon loan prices and loan prices, the liquid loan prices that have a bid (inaudible) impacted by CLO activity; they’re impacted by retail flows in and out.

And so there is kind of volatility there. So, we really don’t have -- we predict some volatility; we don’t really have any guesses. So it directionally which way it’s got to go. But we kind of feel like that those prices are probably towards the bottom rather than -- well absent, really probably in the economy we don’t see them following a lot more.

But that kind of is what it is. We’re much more focused there on individual credit issues and what we can do about it.

And then with respect to lower middle market Mickey, we don’t really again, we’re transacting in that market based upon a unique idiosyncratic credit, if you will, family need or family event, illness; generational transfer; divorce; business; partners not getting along; maybe an acquisition; maybe some expansion financing.

And those events don’t wait or really not particularly dependant on the overall credit cycle, they’re pretty delinked. So, we don’t really consider it at all. .

Okay, understand.

I also wanted to -- since you are so close to the proposed legislation to expand the SBIC program and potentially allow BDCs to have higher leverage, I was just curious what your thoughts are on the impact of the election on the outlook for those pieces of legislation?.

Well, I’m anxious to talk to our [Robbie], because I think he and we feel a lot better about the prospects now. While we had really support on the set of democratic side and small business committee, with Senator who -- we’re going to have equal support from Senator [Rice] and I think if he is going to -- if he takes oath, I think he has.

And he is also a member of the highly conservative kind of Senate group that has the ability to kind of individually derail legislation. So, I think we’re very happy about his potential leadership on the Senate side. And on the House side, we’ve never really had an issue, I mean the legislation has passed the House on a couple of occasions.

The issue has kind of been in the Senate. So, I think our prospects are much better, maybe there is a 50% likelihood, we can get something done next year..

And if that happens, then so given that you’ve tapped into the institutional debt market, would you consider running the balance sheet with higher leverage?.

No, we wouldn’t, because we tapped into the institutional debt market because we’ve targeted 75% total leverage in debt-to-equity inclusive of SPA, whatever the SPA limit is we’ll be at that limit no matter what it is.

And because we don’t want -- there is some materially negative implications to us if we lost that investment grade rating and we would lose it if we levered up the balance sheet. And again that’s your respect to what happens on the BDC legislation side.

We think the investment grade rating is more important than the opportunity to put more leverage on the balance sheet. So that’s kind of our current thinking..

Okay, fair point, I understand. Thanks for your time..

Thanks. Our next question today is a follow-up from Christopher Nolan with MLV & Company. Please proceed with your question. .

Dwayne, you mentioned the contribution from HMS income and I didn’t quite catch you, could you go over it again please?.

Sure. So, in the third quarter, the total fees of the HMS Income Fund relationship was just over $800,000. And out of that we have expenses that we allocated to the subsidiary that manage that relationship and provide the services. So, we have about $600,000 of expenses that were allocated to the portfolio company.

And then after taxes, we had a dividend of about $130,000. So, when you look at the total contributions, it’s just over $700,000 for the quarter, which just to be shy a $0.02 per share..

And did you gave the outlook in terms of where HMS is going in fourth quarter or so?.

Yes. We gave guidance of $0.02 to $0.03 per share of NII for Q4 based upon the expected growth and that’s where it will be, the balance of the year..

Great. Thanks for the color..

Thank you..

Thank you. We’ve reached the end of our question-and-answer session. Now let’s turn the floor back over to management for any further or closing comments..

Great. Again, well thank you all for joining us today and we look forward to speaking to you again in February. Bye..

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..