ArrowMark Financial Corp.
Q3 2015 Earnings Call Transcript

Published: 13 Nov 2015

[Operator:]

Welcome to the StoneCastle Financial Corp. Third Quarter 2015 Investor Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Now, I would like to turn the call over to Rachel Schatten, General Counsel of StoneCastle Financial. Thank you, Ms. Schatten. You may begin.

[Rachel Schatten:]

Good afternoon. Before I begin this conference call, we’d like to remind the audience that certain statements made during the call maybe considered forward-looking statements based on current management expectations that involve substantial risks and uncertainties. Actual results may differ materially from the results stated in or implied by these forward-looking statements. This would depend on numerous factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of shares of common stock, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the company’s filings with the SEC including annual and semiannual reports of the company. StoneCastle Financial has based the forward-looking statements included in this presentation on information available to us as of September 30, 2015. The company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of today, November 12, 2015. Thank you. Now, I will turn the call over to StoneCastle Financial’s Chairman and Chief Executive Officer, Josh Siegel.

[Josh Siegel:]

Thank you, Rachel. Good afternoon. And welcome to StoneCastle Financial’s third quarter 2015 investor call. In addition to Rachel, joining me today are George Shilowitz, President; and Pat Farrell, Chief Financial Officer. On the call today, I will highlight StoneCastle Financial’s quarterly results, review the current portfolio and comment on the investment in Community Funding CLO, which close subsequent to the end of the quarter. As always, Pat, will follow with details on our financial results. I am pleased to report that in the third quarter, StoneCastle delivered another increase in total income, our eight consecutive quarterly increase since inception of the company. Reported earnings in the third quarter totaled $0.37 per share. Net investment income for the quarter reached $2.4 million, also $0.37 per share, a 2% increase from the previous quarter. The company also generated approximately $18,000 in capital gains. At quarter end the company’s net asset value per share was $22.09, up $0.04 from last quarter. StoneCastle Financial deployed $12.8 million in net new investments. Total investment of $30 million in five new assets was offset by issuer repayments of $9.3 million from seven investments and sales proceeds of $7.9 million from 10 investments. As of September 30, company had total assets of $203 million, consisting of total investments of $197 million, cash of $4 million and other assets of $2 million. Other assets include receivables of $1 million and prepaid assets of $1 million. Total investments were comprised of 40% term loans and debt securities, 24% trust preferred securities and 30% preferred and convertible preferred stock. The remaining 6% includes equity positions, short-term investments and other securities. The quarter end schedule of investments can be found in the company’s end Q and on the company's website. Subsequent to the end of the quarter, StoneCastle Financial purchased $45.5 million of preferred shares issued by Community Funding CLO Limited, which closed on October 15th. Let's spend a moment to discuss this transaction, 35 community banks and bank holding companies from 24 states issued $250 million of securities, predominantly in the form of subordinated loans. These subordinated loans account as Tier 2 capital for the issuers, the component of a bank holding company's total capital requirements. These securities rank senior in priority to trust preferred securities, TARP, SBLF, preferred shares and common shares, roughly 97% of the banks in this pool received an investment grade equivalent credit score by Crow ratings and roughly 91% received an investment grade credit score from Moody’s RiskCalc, the name that were not investment grade were scored BB equivalent. To allow these banks to access the capital markets and benefit from capital markets pricing, the majority of them came to market together to issue on the same day as a group. This group of subordinated loans was funded with 82% debt and 18% equity. The 82% debt was comprised of $205 million of Senior Secured Class A Notes rated A3 by Moody’s. The 18% equity or $45.5 million of preferred shares was purchased entirely by StoneCastle Financial. In order to fund the purchase, StoneCastle Financial contributed $45.4 million of securities, with the balance paid in cash. The securities consisted of $26.4 million of investments made in the third quarter, including Bankwell, Linden, Market and Sandhills. Approximately $19 million of existing investments made prior to Q3 were also contributed and included CornerStone, Country Bank, Freeport, MidWest Community and Williams Holding. All the securities were contributed subsequent to the end of the third quarter. To understand the transaction it is best for us to first review the sources and uses of proceeds for the CLO. Funds we needed to purchase collateral with an aggregate cost of $248.3 million and to pay $44.9 million of deal related expenses for a total of $253.2 million needed to complete the transaction. The CLO source of funds to pay for this was comprised of $205 million of senior debt, $45.5 million of preferred shares and $2.7 million received from the banks as upfront origination fees. Now let's discuss the straightforward economics of the preferred shares, which is how StoneCastle Financial will make a return on this investment. Quarterly income is generated by the $250 million pool of collateral, which has an approximate yield of 7%. That income is used to pay three types of expenses, administrative expenses of approximately 5 basis points per annum on the amount of collateral, interest expense on the $205 million of senior notes, which is initially 5.75% fixed rate and then increases to 6.4% fixed rate after year five and the servicing fee of 10 basis points per annum on the amount of collateral. After these expenses are paid, StoneCastle Financial is entitled to receive all of the remaining cash flows each quarter. Income received on a preferred shares looks to the characterization of income from the underlying loans, which is ordinary income. It is important to note that the servicer for the CLO is StoneCastle Investment Management LLC, an affiliate of StoneCastle Partners. The servicers will fully repay the servicing fee back to StoneCastle Financial each quarter as additional income. I want to take a momentum to explain securitizations. A securitization by definition is a secured financing of assets, where investors have a security interest in the collateral. The CDO or collateralized debt obligation is used liberally in article but it is typically used to represent a very specific type of securitization. One backed by asset-backed securities comprised of subprime mortgages. Securitizations have been used for decades to bring funding to many asset classes including but not limited to student loans, auto loans and commercial real estate. They were also used in the early 2000s to fund poorly underwritten subprime mortgages, which became a component of the credit crisis. However, subprime mortgages were only one small part of a well-functioning multi-trillion dollar market of pool or securitized financing. By comparison, Community Funding contains no more it is all derivatives, subprime or otherwise. In fact, the portfolio of non-deferrable loans owned by Community Funding is comprised of healthy highly-regulated predominantly investment-grade quality banks. To emphasize this point in comparison to the $300 billion current CLO market, those transactions have 10% equity supporting a pool of mostly single B rated loans. Community Funding in contrast has 18% equity, supporting a pool of mostly BBB quality loans. We believe in a pool vehicle it is the quality of the underlying asset that should really matter to investors. In closing, I would be remiss if I did not mention that the key point that distinguishes StoneCastle Financial from many other income vehicles, credit quality. A majority of the banks in which we invest are deemed investment grade quality, BBB or better by Crow ratings. Most of the high-yielding income focused investment companies have majority of their portfolio and investments rated well below investment grade. We believe that investors should focus on the underlying credit quality of StoneCastle Financial assets relative to our share price, currently at the discount to NAV. Now I want to turn over the call to Pat Farrell to discuss the financial results in greater detail.

[Pat Farrell:]

Thank you, Josh. I would like to present the financials by going through the detail components, which help many of you understand the value of the company. The net asset value at September 30th was $22.09 per share. The NAV for StoneCastle Financial is affected by four components, net investment income, realized gains and losses, the change in value of the portfolio investments, and finally, distributions paid during the period. Let me walk through these components. Net investment income for the quarter was $2,396,410 or $0.37 per share. Net investment income reflects gross income from dividends and interest received from our portfolio investments minus operating expenses. Gross income for the third quarter was $4,105,132 or $0.63 per share. Gross investment income was up 4% from the last quarter. The company’s operating expenses are comprised of various expenses such as advisory fees, interest expense related to our use of leverage, custody and administration fees, legal fees, ABA fees and other expenses. Operating expenses net of advisory fee waivers for the quarter were $1,708,722 or $0.26 per share. As a result of the growth in assets, expenses were up approximately 6% from the second quarter primarily due to an increase in the use of leverage and related advisory fees which have variable expenses. The realized gains and losses reflect securities which were sold or called during the quarter. For the third quarter, this amounted to a gain of $18,202. The third component, changes in unrealized appreciation or depreciation of the portfolio, relates to how the value of the entire investment portfolio has changed from the previous quarter end to the current quarter end. The vast majority of the portfolio is valued by market quotations and broker quotes. For the third quarter, the value of the portfolio increased $7,998. The fourth component, affecting the net asset value, is distributions. The cash distribution for the quarter was $0.33 per share, paid on September 29th to shareholders of record on September 21st. To recap, we began the quarter with a net asset value of $22.05 per share. During the quarter, we generated net income of $2,396,410, realized gains of $18,202, and the value of the portfolio increased $7,998. The sum of these components offset by a distribution of $0.33 per share resulted in a net asset value per share of $22.09 per share at September 30th. Now, let me update you on our credit facility syndicate led by Texas Capital Bank. As of September 30th, the company had $58 million outstanding from the facility. In accordance with the Regulated Investment Company rules, we may only borrow up to 33.3% of our total assets. Our leverage percentage at the end of the quarter was 29%. Let me also update you on a few additional items which will have an effect on future quarters. The voluntary fee waiver the advisor had in place which expired on August 31, 2015 was extended to September 30th. Effective October 1st, this waiver is no longer in effect. I’m pleased to report we’ve renegotiated our exclusive contract with American Bankers Association. Effective September 1st, the annualized ABA fee is $250,000 if 50% reduction from the initial contract. In addition, the contract was extended to August 2017. The ABA agreed to a reduced fee in recognition of the important source of capital the company provides to community banks. We value this strategic partnership. Finally, as Josh mentioned subsequent to the end of the quarter, StoneCastle Financial invested $45.5 million in preferred shares of the community funding CLO. Further discussion of the CLOs financial impact on the company will be made on the fourth quarter call. Now I’d like to turn it back over to Josh.

[Josh Siegel:]

Thank you, Pat. We appreciate you taking time and be with us on this call. Now operator, we’d like to open up the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Greg Mason with KBW. Please proceed with your question.

[Greg Mason:]

Great. Thank you guys and congratulations on the new CLO. Regarding that income, are you able to accrue that income or does it just count when dividends for the equity is paid. And when do you expect the cash flows to the equity to start turning on with that CLO?

[Pat Farrell:]

This is Pat. We’re going to be accruing daily on that since it is going to be interest income to StoneCastle Financial Corp. The first cash flow, I believe, is coming in February but that won’t affect our income accrual in any way.

[Greg Mason:]

All right. Great. And then just another question on the waiving of the management fee, I know when you did your equity raise, the idea was to waive that as long as the dividend isn’t being earned and the dividend at that time was $0.50 and now it’s been cut. So just curious as to the reason for no longer doing fee waiver and the impact on business going forward?

[Josh Siegel:]

Sure. This is Josh. We had when we did that raise, agree to keep it reduced through August. We spent in the enormous part of this year getting $0.25 billion of new investments lined up for the CLO, which we believe will have a meaningful impact in the future income of the company. And we made the decision to stop the rebate about a month after we agreed to it. It sort of been recognition for what we think is potentially a higher level of income from this piece of paper and the other work that we’re doing going forward that sort of continue this trend if we can continue to do it.

[Greg Mason:]

And then one last question, is there any limitations on you doing another one of these CLOs. Is there any kind of investment restrictions if not are there any thoughts to do more of this or expand the current CLO?

[Josh Siegel:]

Good question. I’ll go in reverse order. The CLO itself is a separate living breathing entity. So there is no re-opening. It is static fourth life. So that is what it is. There is no restriction under the 40 Act of IRS Regs that restrict what we can do. That doesn’t mean that we will be able to get another one done, we’d like to but that’s of course going to be dependent as with the first one on the number of banks, diversification of banks, capital markets activity and hopefully it’s possible but there is no guaranty.

[Greg Mason:]

Okay. Great. Thank you. Appreciate it guys.

[Josh Siegel:]

Of course. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Devin Ryan with JMP Securities. Please proceed with your question.

[Devin Ryan:]

Thank you. Good evening. Just wanted to follow-up on the CLO. Thanks for all the details from calculations. Just wanted to make sure I have the math correct. If you just run through what you guys walked through. Is that like about $2.4 million of net investment income? And then secondly, what are the one-time costs should we be thinking about from the formation that will be hitting over the next quarter or two?

[Josh Siegel:]

Good question. I can talk about anything in the future. But as I mentioned a moment ago, the vehicle is sub contained. So StoneCastle Financial simply purchased $45.5 million and that’s extensive without lift of dollars. Anything that was expensive of that deal was covered by that deal itself. So there are no separate expenses for it. So the income as I sort of walked through on the call, the best way to think about to calculate one self is 7% on $250 million of assets. For the first five years, there is an expensive 5.75% on $205 million and running fees of 15 basis points. But as we mentioned, we should basically discount 10 out of 15 because that will come back to StoneCastle financial as additional income. That’s really only 5 basis points of third-party expense and that is what will generate the free cash flow with fixed assets and fixed liabilities. So fairly predictable of course with the variation being if there were to be any defaults on the underlying portfolio. Clearly, it hasn’t affected but outside of that, it’s a predictable stream of cash flow.

[Devin Ryan:]

Okay. Got it. That’s helpful. And then with respect to the investments in the quarter, foreign investments and the term loans, so that was a big outlay. Was there a particular reason why term loans were more attractive this quarter and maybe why the specific ones were not included in the CLO?

[Josh Siegel:]

Well, we’ll get into sort of next quarter with what is in the CLO versus not in the CLO. We can really disclose that as fourth quarter materials. But to the first question, as we really said from the past two years, we can’t really dictate what the bank demand is. That sort of their function of whether they want preferred to sub debt and it seems like the flavor of the months and the quarter in a year for 2015 has been sub debt be it filled by Crow or others. That seems to be the greatest demand. I do think that part of that is fueled by small bank holding companies, the policy act changed, heading over 600 banks to be able to issue holding company level debt. That really counts solely for regulatory purpose, there is common equity at the underlying banks. So that seems to still be the most interesting component. I think that what you’ve seen so far in 2015 with early SBLF either repayments to the treasury directly or refinancing sort of reflecting a cost of 9% with no tax deduction and being able to finance that aftertax could have 4.5% cost. That’s clearly something you could with sub debt which you can’t get with non-tax deductible preferred. So I think those are some of the drivers that maybe are changing the choice from a bank level.

[Devin Ryan:]

Got it. Okay. That’s it from me. Thank you.

[Josh Siegel:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Bryce Rowe with Robert W. Baird. Please proceed with your question.

[Bryce Rowe:]

Thanks. Good evening Josh and team. Josh, I wanted to understand or maybe have you repeat the $45.4 million of securities that was -- that you contributed as part of your investment. In the CLO, I got it for that you mentioned $26.4 million but $19 million, can you just go over those again, you said it little bit too fast?

[Josh Siegel:]

Sure. Give me a second. The other $19 million, there were investments we made earlier in the year and this was CornerStone Country Bank, Freeport, Midwest Community and Williams Holdings. And so to your question there to purchase the preferred shares of Community funding CLO, there were just two semantic ways to do it and that was just the choice of the most efficient way. We could have sold those securities to the CLO and then bought preferred shares or what was easier was just contributing them as like kind rather than selling and turning into cash, it was really just semantic. So there were assets that StoneCastle Financial held that satisfied the CLOs criteria and were good assets. So those would contribute in and we took back with a little bit of extra cash. We took back the 100% of the preferred shares.

[Bryce Rowe:]

Yeah. Okay. Make sense. So the remaining assets went into the CLO, well, we have some disclosure as to what the CLO earns? That’s one question. And then number two, you StoneCastle, the parent organization sources or were they sourced from a different source?

[Josh Siegel:]

Good question. So from the sourcing question, the majority of those came to the CLO from a wide variety of broker-dealers who brought those transactions. Clearly as the buyer of the equity, as with the buyers of the senior debt, they all have an opportunity to look at the portfolio prior to close to decide if they were comfortable, not everything that was originally looked at made it in. And so we had input and affiliates of StoneCastle do the underwriting on those. But ultimately it was a group selection of all the investors in community funding CLO. I think what was the first part of your question again, the disclosure. Right now the list is still subject to some existing nondisclosure agreements with those banks. There are some public banks in the portfolio that haven’t necessarily gone out with their notifications yet. But we would expect that some point in the not distant future that that will be available.

[Bryce Rowe:]

That’s great. And then I’ve got two more questions if I can so.

[Josh Siegel:]

Yeah. Of course.

[Bryce Rowe:]

The five basis points of fees will take -- will smoke up some of the cash flow that’s on the $250 million?

[Josh Siegel:]

That’s correct.

[Bryce Rowe:]

Okay. And then the second question and my last question, you still have some level of price holder investments in the investment portfolio. Beyond the CLO, how do we think about future investment? Are there other opportunities out there that would fit the subordinated debt category or some banks still considering preferred [Indiscernible] et cetera. Thanks.

[Josh Siegel:]

That’s a great question. We have things in the queue that are preferred and sub debt. I would say honestly right now its probably SKU more to sub debt still. So as I mentioned in the previous question, it’s still the flavor right now. But we do have some preferred opportunities in front of us. In terms of the percent of the portfolio, how we think about placeholders, we still have a number of placeholders that I would say, currently earmarked for rotation out the higher-yielding investments but depending on what could happen in the future. We still have a number of top positions that are yielding 9 and if we can find putting and it’s yielding 9.5 or 10 and we don’t see that we’re taking more risk to get there than we would trade out of that as well with the goal of minimizing risk and maximizing return for our shareholders.

[Bryce Rowe:]

Okay. That’s great. And then I guess one more follow-up. The bank that contributed our product, the $250 million in the CLO, was a lot of that tied to refinancing of it, the loss preferred?

[Josh Siegel:]

That’s a great question and the answer is about a third. About a third of the portfolio, use the proceeds for taking out SBLF and a little bit of HARP. As I think, we mentioned over the last couple of years, it really hasn’t changed for us in 15 plus years. It’s always been about a third, third, third. And I think you’ve heard me repeat that before. And this pool is no difference about a third refinancing, a third acquisition financing and the third growth. I don’t know how it’s always a third, a third, a third but it always seems to be that way.

[Bryce Rowe:]

Right. Well, thank you, guys. I appreciate it.

[Josh Siegel:]

Our pleasure.

[Operator:]

Thank you. Our next question comes from the line of Merrill Ross with Wunderlich Securities. Please proceed with your question.

[Merrill Ross:]

Hi. Good evening. You sort of adjusted a number of times that I want to kind of maybe hit it a little more hit on. Was this a CLO one off or do you anticipate that the need or desire for sub debt among community and regional banks could facilitate further transactions?

[Josh Siegel:]

That’s a great question Merrill. I’d like to hope with all the effort put in that it’s not a one time thing. But I can’t promise, there will be an other one. It so dependent on the factors out of our control. Would be like to do another one? Categorically, yes but I couldn't tell you when we could do one or if one can get done. That said to the second part of your question, I always rely on people's good sense of their pocketbook and that is going to come down to cost of capital for a bank. And so long as banks prefer, on the BANX but banks can make opportunity at a 4.5% after tax cost of capital versus something more expensive. I think there will be opportunity. If you think about your average bank in America throwing off today roughly about a 9% ROE as per FDIC, they would have to basically issue common stock at two times book to be at the same cost as raising this tier 2 capital. And given that under the new policy, they no longer have any capital directives for sub billion of our banks at the holding company level. It should just economically be hood unto to consider a portion of their capital in this form, not an oversight amount but a prudent amount. So I do think that there academically should be a good audience for this but I couldn’t tell you how quickly they show up, do they show up and the numbers we need that will be proven out over time.

[Merrill Ross:]

Okay. It just seems so compelling. The second question is a minor point but the marking with the ABA. Has that actually been productive? Do you really feel like what you’re spending is worth even though its not have, right? Does it still make sense for you?

[Josh Siegel:]

The short answer is yes. We’ve had a number of direct investments come from the ABA, not as many as I would’ve like that the outset. But as where we set from the beginning there is two ways we think about the ABA, offensive and defensive. So, from a franchise standpoint protecting the investors that we have and making sure that we get more opportunity shown to us that hopefully anyone else, the ABA still serves an amazing capacity there. The ABA also has as on every piece of marketing material, every news they put out, every conference on every wall, almost they are agreeing of others, even not in our space. We get an enormous amount of billing because of the imports. So to us it is very worthwhile and I have to be honest I have to price even more interesting. And that’s why we extended into another year of August 2017 because that have the price for all the same reach and benefit. It seems to be a very good value.

[Merrill Ross:]

Okay. Thank you.

[Josh Siegel:]

Thank you Merrill.

[Operator:]

Thank you. Our next question comes from the line of Christopher Testa with National Securities. Please proceed with your question.

[Christopher Testa:]

Hi. Good evening. Thank you for taking my questions. Just on the quarterly activity with the investment comp, the senior term loans went up significantly well, the first kind of backlog, was that just an anticipation of what was getting funded into the CLO or was that just opportunistic based on pricing?

[Josh Siegel:]

It’s a good question. It’s a little of both. There is definitely less preferred activity going on in the market generally for billion plus banks expecting the money center and with large regional. So it’s just been more sub debt issuance in the last six to 12 months in the market. But at the same time, clearly, with the pool that we did and another pool that closed after us, there seems to be a focus on sub debt. So if we think about the origination that came our way in the last three to six months, it was a quarter billion dollars of institution, so pretty happy about that. And not all of that would have been possible if we try to earn a rate of 8.5 or 9 from all of those, some of them just that was too expensive, but at the pricing they were able to within average of 7, they found that to be economically compelling and in the right structure financed appropriately. It creates a piece of paper but we are very happy with. So, yes, our answer is ...

[Christopher Testa:]

Okay.

[Josh Siegel:]

Yeah.

[Christopher Testa:]

And do you expect the preferred issuance to kind of remain muted until at least the SBLF refinances are done?

[Josh Siegel:]

I would have to imagine that’s the case, because SBLF stepping up at 9. So to do another preferred to replace a preferred with only a 50 basis point benefit, not as compelling to 450 basis point benefits. So I would agree with you.

[Christopher Testa:]

Okay. And I just want to verify the first cash flow for the CLO is going in February, is that correct?

[Josh Siegel:]

The first cash flow but as do probably the only other two risk out there which is I think Eagle Point and Oxford Lane.

[Christopher Testa:]

Right.

[Josh Siegel:]

Who buys CLO equity their GAAP basis is to accrue and that is the same way that we’re doing. We’re not trying to do anything different then what the market convention under GAAP is.

[Christopher Testa:]

Right.

[Josh Siegel:]

So it will accrue through the quarter…

[Christopher Testa:]

Okay.

[Josh Siegel:]

… but the cash flow is up in February.

[Christopher Testa:]

Okay. And just some nuances here, so the CLO interest is that going to just show up as preferred equity or are you going to have a separate category for that on your schedule of investments?

[Josh Siegel:]

No. It will be in the preferred category. So it is a preferred security, just -- it’s not a DRD QDI, so its ordinary income, but it will be a preferred and will be accrued in that category.

[Pat Farrell:]

And the income will show up on the interest line item.

[Christopher Testa:]

Okay. That’s all going to be in the interest. And is that going to also be netted for the 10 basis points of the rebate?

[Josh Siegel:]

No. They’ll actually be a separate line item for the 10 basis points…

[Christopher Testa:]

Okay.

[Josh Siegel:]

… show which is roughly $250,000 a year.

[Christopher Testa:]

Okay. That’s all for me. Thanks for taking my questions.

[Pat Farrell:]

Thanks.

[Josh Siegel:]

Of course.

[Operator:]

Thank you. [Operator Instructions] Our next question is a follow-up question from the line of Greg Mason with KBW. Please proceed with your question.

[Greg Mason:]

Hey, guys. Thanks. A couple of just real quick modeling questions on the CLO as well. The -- for the GAAP accrual, the $4.9 million a deal related expenses? Does that get accrued over the life of the fund as a -- in expense as well that we need to account for and how many years is that amortized over?

[Josh Siegel:]

Good question. No. It does not. It was capitalized in the CLO itself as that separate company. So the only thing we have is a $45.5 million investment in the preferred. There are none of the expenses of the CLO are StoneCastle Financials expenses.

[Greg Mason:]

Okay. And so then we don’t have to subtract $5 million out of the $250 million asset. That $250 million yield 7% even with that deal expense capitalized in that number, is that correct?

[Josh Siegel:]

That’s correct.

[Greg Mason:]

Great. Okay. Thanks, guys.

[Operator:]

Thank you. Our next question is another follow-up question from the line of Devin Ryan with JMP Securities. Please proceed with your question.

[Devin Ryan:]

Hi. Thanks for taking my follow-up here. So, just again on the CLO, just trying to get any perspective that you can share around how many of the participating banks you already in discussions with around some type of financing or you already had relationship with? Really what I’m trying to determine here is how fast this one came together for everybody to think about a future CLO really how fast it came together?

[Josh Siegel:]

Slow is the answer, but it wasn’t a linear slow. As you can imagine and this -- as we talk to more vagly last quarter and the quarter before when it was from sort of the R&D phase to exploratory to as we move through, there was an enormous amount of education required in the bank community. What is this again? I haven’t seen this type of instrument in awhile. How do I think about it? That’s a small banks, so there was a lot of that and then as we moved into the fall, it sort of picked up pace. Now does that give any future look? No, I mean, it really depends on ebbs and flows, and how you are getting into the holidays and then banks have their Q1 covered portal, is there any number of things that could change the pace. So it’s a short question, are we going to return to the tour days of capital markets issuance by small banks? I have no idea. But there is still demand. There were banks that did not make it into this pool that expressed interest. So I’m hoping that there is some continued flow as we -- I think it was Merrill Ross how asked, we’re hopeful. We can get another one done and other one and other one, but there is no way to know. We’re just going to take it day by day and still do things on the balance sheet as they come in.

[Devin Ryan:]

Okay. Got it. Thanks. And then just with respect to the CLO leverage is that kind of the standard level that in prior deals that you’ve structured? Is that kind of the right way to think about leverage dynamic?

[Josh Siegel:]

Well, there is a lot of question. I’ve never structured anything like this. This was the first of its kind. So in that case being the one purple bird with feathers, that’s what they look like. It’s hard to say what the next one looks like, but generally as with most things in rated finance with any rating agency 10 plus 10 to be created. So I don’t think it’s an unrealistic assumption, I think the next one would look like this one, but could change.

[Devin Ryan:]

Got it. Yeah. I know you write-down the number of structured products in your day at [Smith Barney] [ph], but anyways that’s helpful. Thank you very much.

[Josh Siegel:]

Absolutely.

[Operator:]

There appear to be no further questions at this time. I’d like to turn the floor back over to management for closing comments.

[Josh Siegel:]

Great. Thank you, Operator. Well, as always, we appreciate your continued support to StoneCastle Financial. Since our next call will be in 2016, at this time, I want to wish everyone a healthy and happy holiday season, and Happy New Year, and we will talk to you next year.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.