Fidus Investment Corporation
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good day, ladies and gentlemen. And welcome to the Fidus Investment Corporation’s Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded. I would now like to introduce – this conference call to Ms. Stephanie Prince, of LHA, you may begin.

[Stephanie Prince:]

Thank you, Kevin, and good morning, everyone. Thank you for joining us for Fidus Investment Corporation’s second quarter 2013 earnings conference call. With me this morning are Ed Ross, Fidus Investment Corp’s Chairman and Chief Executive Officer; and Cary Schaefer, Chief Financial Officer and Chief Compliance Officer. Fidus Investment Corporation issued a press release yesterday afternoon with details of the Company’s quarterly financial and operating results. A copy of the press release is available on the Investor Relations page of the Company’s website at fidus.com. I’d like to remind everyone that today’s call is being recorded. A replay of today’s call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived webcast replay will be available on the Investor Relations page of the Company’s website at fdus.com following the conclusion of this conference call. I’d also like to call your attention to the customary Safe Harbor disclosure regarding forward-looking information included in the earnings release. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential operating results and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, August 2, 2013, these statements are not guarantees of future performance. Time sensitive information may no longer be accurate at the time of any telephonic or webcast replay, actual results may differ materially as a result of risks, uncertainties and other factors, including but not limited to the factors set forth in the Company’s filings with the SEC. Fidus undertakes no obligation to update or revise any of these forward-looking statements. I’d now like to turn the call over to Ed Ross. Ed?

[Edward H. Ross:]

Thank you, Stephanie. Good morning, everyone. And welcome to our second quarter 2013 earnings call. I’ll begin our discussion with a brief summary of our strategy and follow with highlights of the first quarter before discussing the investment activity and performance of our investment portfolio. I’ll then turn the call over to Cary, who will go into more detail about our financial results and liquidity position, before we open up the call to questions. For those of you that are new to Fidus, I’ll briefly review our strategy. The primary goal of Fidus Investment Corporation is to deliver stable and growing dividends to our stockholders. Our strategy is to build a well diversified portfolio of debt and to a lesser extent equity investments in high quality lower middle-market companies that are market leaders in their respective niches. In executing this strategy, we strive to maintain an acute focus on capital preservation while generating attractive risk-adjusted returns. We seek to invest in businesses that we believe will perform well over the long-term with an emphasis on companies that operate in industries we know well, that generate excess free cash flow for debt service and investments, and have positive outlooks. From a debt structuring perspective, we look to maintain significant cushions to a borrower’s enterprise value in support of our capital preservation and income goals. And finally, our senior investment professionals, most of who have worked together for over 14 years have deep experience in the industries that we invest in. Turning to our second quarter results, Fidus had a very active and productive three months. We generated net investment income or NII of $3.2 million or $0.23 per share. However, our adjusted NII was $0.38 per share. Adjusted NII is defined as net investment income excluding any capital gains incentive fees attributable to realized and unrealized gains and losses. We are focusing on adjusted NII as we believe it better reflects our core level of earnings. As evidence in this quarter, fluctuations and valuation of our portfolio can result in corresponding volatility in the capital gains incentive fee, which for GAAP purposes can meaningfully impact NII. In the second quarter, the driver of such volatility was the large valuation write-ups and consequent unrealized depreciation of our portfolio. In particular, our equity investments in Worldwide Express and Goodrich Quality Theaters. These changes in valuation are reflected in our net asset value or NAV, which increase to $16.06 per share as of June 30, compared to $15.46 per share as of March 31, 2013. We ended the second quarter with approximately $56 million of cash on hand and $5.5 million of available committed FBA debentures. In May 2013, Fidus received its second FDIC license, which provides its access to $75 million of additional low cost long-term debt. As a result, we believe that we are well positioned from a capital standpoint to continue to grow and diversify our portfolio. We are pleased to report that our Board of Directors has declared a special dividend of $0.04 per share in addition to a regular quarterly dividend of $0.38 per share for the third quarter of 2013. Special dividend is related to a second quarter realized gain. Both of these dividends will be paid on September 26, 2013 to stockholders of record as of September 12, 2013. And as many of you know, an important goal of ours is to cover our dividends from earnings on a long-term basis. In terms of market conditions, the financing markets remain vibrant. Deal flow for Fidus remains at healthy levels, well above the initial slower pace of early 2013. And we currently believe that the increase in activity will continue through the second half of this year. While the broader market remains very competitive, our target to lower middle-market remains more attractive, which we believe is a result of this year, number of lower middle-market companies and its fragmented nature. In this segment of the market, relationships, industry knowledge and the ability to offer flexible capital solutions are key drivers of our success. As of June 30, 2013, we had debt and equity investments in 34 portfolio companies for the total fair value of $309.8 million. This is up from 27 portfolio companies for the total fair value of $234.1 million a year ago. Year-over-year, the fair value of our portfolio increased 32%, largely driven by new investment originations over the last 12 months. As of the end of second quarter, the fair value to cost ratio of the portfolio was 108% and we had no loans on non-accrual status. During the second quarter, we invested a total of $37.2 million in two new and five existing portfolio companies. These new portfolio companies fit well within our investment criteria, advancing our goal of constructing a well diversified portfolio debt and to a lesser extent equity investments that we believe will perform well over the long-term and can withstand the challenges of the current economic environment. The second quarter additions include a leading designer and manufacturer of primary packaging for the cosmetics and skin-care industries and a leading provider of custom designed and expendable packaging products to original equipment manufacturers. As we indicated on our last two earnings calls, we have been expecting a higher level of refinancing and realization activity in 2013 than we had in 2012. This is a consequence of the natural maturation of our portfolio, combined with the robust financing markets. During the second quarter, repayments totaled $33.5 million, representing realization activities for three of our portfolio companies. First, our subordinated loan investment in Westminster Cracker Company was fully repaid. However, we continue to hold our equity investments. The repayment was driven by improved company performance, which enabled them to lower their cost-to-debt capital. Second, we successfully exited our debt and equity investments in Caldwell & Gregory in connection with a sale of the Company, and as a result, recognized a net realized gain on our equity investment of $1.1 million. Caldwell & Gregory remains a part of our investment portfolio, as we participated in the financing of the ownership transition investing a total of $5 million in new debt and equity securities in the Company. And third, Worldwide Express refinanced its outstanding enabling the Company to lower its cost-to-debt capital. As part of the refinancing transaction, our original senior subordinate notes and junior subordinate notes were repaid in full. However, we invested $11.7 million in new senior subordinate notes in the Company. In addition, subsequent to the end of the quarter on July 17, we received an $8.5 million partial repayment of our subordinated loan investment in Goodrich Quality Theaters in connection with a refinancing transaction. As part of the transaction, we also sold our warrants back to the Company for $3.1 million that in a realized gain of $2.4 million. And last but not least, we’re very pleased to announce that late yesterday we successfully exited our investment in Worldwide Express Operations, LLC, in connection with the sale of the Company. We received payment in full on our subordinated notes and recognized a gain of approximately $22 million on our equity investments. Since our original investment in 2007, we’ve had a tremendous partnership with the management of Worldwide, and we’re thrilled that we were able to maintain this partnership as we participated in the ownership transition financing with an investment of $15 million of new subordinated debt and equity securities. We continue to be pleased with this ability and overall quality of our investment portfolio. The quality measures that we track, includes the portfolios, weighted average investment ratings based on our internal system, under our methodology one is outperform and five is in expected loss. As of June 30, 2013, the weighted average investment rating for the portfolio is $1.9 million, generally inline with prior periods. The credit performance of the portfolio remains strong as well. At June 30, 2013, our portfolio companies had a combined ratio of total net debt through Fidus’ debt investments to total EBITDA of 3.6 times, consistent with last quarter, which we believe reflects a prudent level of risk for our portfolio. Lastly, our portfolio companies have a combined ratio of total EBITDA to total cash interest expense of 2.9 times, which we believe provides a significant cushion for them to meet their debt service obligations to us. Our approach remains conscious and deliberate with an intense focus on capital preservation and attractive risk-adjusted returns. As we move forward, we will continue to maintain our highly selective investment approach emphasizing quality over quantity. We believe that our strategy of investing in high-quality businesses with strong market positions and that have positive long-term outlooks will continue to result in the generation of attractive risk-adjusted returns that work well for our stockholders. I’ll now turn the call over to Cary to provide some details on our financial and operating results. Cary?

[Cary L. Schaefer:]

Thank you, Ed and good morning everyone. I’ll now review our second quarter results in more detail and close by commenting on our liquidity position. Total investment income was $10.5 million for the second quarter of 2013, an increase of $2.8 million or approximately 37% over the $7.6 million recorded during the second quarter of 2012. This increase was primarily driven by the increase in average outstanding debt investments in the second quarter of 2013, compared to the second quarter of last year. Dividend income increased $0.02 million in Q2 2013, compared to the prior year, primarily due to a distribution from a portfolio equity investment. Fee income which may fluctuate from quarter-to-quarter depending on a level of new investments and or prepayment activity was $465,000 for the second quarter of 2013, up from the $191,000 in last year’s second quarter. Total expenses for second quarter 2013 was $7.3 million, compared to $4.3 million for the second quarter of 2012. Interest expense on our SBA debentures was approximately $1.8 million for the second quarter of 2013, compared to $1.6 million for the second quarter of 2012, due to a higher average level of outstanding debentures. As of June 30, 2013, the weighted average fixed interest rate on our SBA debentures was 4.6% before fees. Administrative service expenses, professional fees and other general and administrative expenses totaled approximately $831,000 for the quarter, 25% higher than the second quarter of 2012, which totaled approximately $665,000. The increase was primarily driven by an increase in professional fees and other expenses related to our second SBIC license application and approval process, shelf registration update and proxy related activities during the quarter in some part driven by timing through the year. The base management income incentives and capital gains incentives fees totaled $4.7 million for second quarter of 2013. The base management fee increased $345,000 due to higher average net assets during the second quarter 2013 versus comparable period in 2012. Incentive fees increased $2.3 million of which $1.9 million was due to capital gains incentive fee accruals related to the increase in net unrealized depreciation on the portfolio, during the three months ended June 30, 2013. A significant driver of the increase in net unrealized appreciation and therefore the capital gains incentive fee accrual was the write-off in the fair value of our equity investments in Worldwide Express driven by the anticipated sales transaction. As a reminder capital gains incentive fees are only payable annually and only to the extent that cumulative net realized capital gains, are in excess of growth unrealized depreciation. As a result of these operating activities net investment income for the three months ended June 30, 2013 was $3.2 million a decrease of 5.6% compared to the $3.4 million reported in the second quarter of 2012. On a per share basis NII was $0.23 for the second quarter of 2013 compared to $0.36 for the second quarter of 2012. However, as Ed introduced earlier, we believe adjusted NII or NII excluding capital gains incentive fees better reflects our core level of earnings. During Q2 2013 adjusted NII was $5.2 million, an increase of 48%, from the $3.5 million of adjusted NII in Q2, 2012. On a per share basis adjusted NII was $0.38 in the second quarter 2013 compared to $0.37 in 2012. A reconciliation of NII to adjusted NII can be found in our earnings press release issued yesterday, which is posted on the Investor Relations page of our website. During the three months ended June 30, 2013, we recorded a net realized gain of $1.1 million or approximately $0.8 per share, resulting from the sale of equity investment in Caldwell & Gregory, as Ed highlighted in his comments. We had no realized gains or losses in the comparable period last year. Net unrealized appreciation in the second quarter 2013 increased $9.2 which was comprised of $10.5 million of net unrealized depreciation on equity investments, partially offset by $1.3 million of net unrealized depreciation on that investment. The $10.5 million of net unrealized appreciation on equity investment is net of $1 million of unrealized depreciation due to the reclassification from unrealized to realized gain. These activities resulted in net increase in net assets from operations of $13.4 million, or $0.98 per share for Q2 2013. The income per share numbers above reflect a 45% increase in our weighted average shares outstanding year-over-year, due to follow on equity offerings in September 12, and February 2013, both of which were completed at offering prices accretive to NAV.. After our second quarter dividend payment of $0.38 per share, net asset value as of June 30, 2013 was $16.06 per share. This compares to a net asset value of $15.46 per share at March 31, 2013 and $15.32 per share at December 31, 2012. Turning now to portfolio statistics, as of June 30, 2013, our total investment portfolio had a fair market value of $309.8 million or 108% of cost. Consistent with our debt oriented investment strategy, our portfolio on a cost basis was comprised of approximately 74% subordinated debts, 11% senior secured loans and 15% equity and warrant securities. Our average portfolio company investment on a cost basis was $8.4 million at the end of the second quarter. We had equity investments in approximately 88% of our portfolio companies, with an average fully diluted equity ownership of 8.6%. The weighted average effective yield on debt investments was 15.1% as of June 30, 2013. We continue to have no investments on non-accrual status. Regarding our liquidity position and capital resources, as of June 30, 2013 total cash was approximately $56 million and combined with our remaining unfunded SBA commitments, we believe that Fidus has ample capital available for additional investments and operations as of June 30, 2013. In addition, we are pleased to report that in July 2013, Fidus received a commitment from the SBA for $25 million of SBA debentures related to our second SBIC license. Now I’ll turn the call back to Ed for concluding comments. Ed?

[Edward H. Ross:]

Thanks, Cary. In closing, I’d like to thank the outstanding team at Fidus for their continued commitment and great work, as well as our shareholders for their confidence and support. Thank you all for joining us today. I’ll now turn the call back over to Kevin for Q&A.

[Operator:]

(Operator Instructions) Our first question comes from Chris Kotowski with Oppenheimer.

[Chris Kotowski:]

And congratulations on your – on the gain from Worldwide Express, it’s a great win for your shareholders.

[Edward H. Ross:]

Thank you, Chris. Good morning.

[Chris Kotowski:]

Yes. So I wanted to understand what you said about – first of all is it your intention that the debt realized gain, is it your intention to distribute that as a dividend by year end or can you retain and recycle any of that?

[Edward H. Ross:]

Sure. I think it’s a great question and it’s one that I don’t have a definitive answer on. I think we could distribute it obviously this year we also could retain some of it and distribute it later as well. So there’s different options and quite frankly, just to talk about dividend policy for a minute, which we haven’t done in the past as much, we generally try to run the company with a healthy margin of safety, I think as you all know, meaning that we have a goal of covering dividends from NII and capital gains. At this point, we don’t have any hard and fast rules regarding dividend policy, as we believe it is a fact and circumstances issue. Having said that, we’ve obviously had a very positive event for all of our shareholders like yesterday in the recognition of the Worldwide Express capital gains; as of yesterday we now have a problem that our Board needs to solve meaning that and we need to figure out what’s the best way to manage the capital gain proceeds as we move forward. From our perspective it’s obviously a good issue to deal with, but it’s one that requires a fair bit of work in with alternatively the Board making that decision. So it’s going to be a major focal point of ours here moving forward and we will endeavor to let everyone know kind of what those answers are as soon as we derived them. So hopefully that helps a little bit, but we have some work to do on the issue.

[Chris Kotowski:]

Okay. Then secondly I was trying to understand what Cary said about how to calculate the incentive fee on that transaction that it was net of the unrealized appreciation and so I mean I did it on the fly here but I was just looking at all the equity investments where you have unrealized appreciation, I think it added up to somewhere around $4 million. Does that mean you take that $24 million of gains that you had close subsequent to the end of the quarter net that $4 million against that and then you would have the incentive fee on the remaining $20 million. Is that roughly how it works?

[Cary L. Schaefer:]

Chris it’s a good question, it is a little complicated because it’s a cumulative approach. So what I mean the capital gains incentive fee calculation is on the entire portfolio. So we kind of look at everything and in its entirety and that concludes realized, unrealized both capital gains having both the gains and losses. We were actually looking at what payable again on a cumulative basis what we’ve realized on net gains, if we are in a net gain position, really from inception as of June 2012, less all of the gross depreciation. So right now we accrued in connection with the unrealized valuation of write-ups and write-downs for the portfolio as of June 30, 2013 which the mark-up we had in the worldwide investments is very, very close to what was actually realized here late yesterday. So most of that incentive fee has already been accrued in our financial statements, and then at the end of the year, we’ll be measuring what is realized compared to the cumulative growth depreciation at that time. Does that help?

[Edward H. Ross:]

Realized or unrealized…

[Chris Kotowski:]

Yeah. Maybe I will do follow-up with specific…

[Cary L. Schaefer:]

Yes.

[Chris Kotowski:]

But then, the last question I had is Worldwide Express was your only control investment and made obviously during the early days of Fidus and before you were a public company, do you have a philosophy about making when you make control investments and is it something that you don’t look to do in the BDC or is it something that just when the opportunities come up you will do it or is it?

[Edward H. Ross:]

Well, it’s a good question. It’s a very good question. I think the way control investment for the 40 Act really and how they define control investment has a little bit to do with it as that we owned just less than 25% of the company on a fully diluted basis. And so we really didn’t have what I would call effective control. Having said that if we had one or I had one of the three board seats, so we were very active with regard to this portfolio company, but I’d say generally speaking Chris we continue to primarily make debt investments we like making equity investments in conjunction with those investments, but they are minority in nature most of time, but that doesn’t mean that we’re not active at board level at all, because we are very active in many situations. So, in terms of real control investing like many private equity groups, I would say our approach is different and that most of the situations that we invest and it’s more debt oriented with a – in conjunction with an equity investment where we were active, but probably not the control investor if you will.

[Chris Kotowski:]

Okay, great. That’s it from me. Thank you.

[Edward H. Ross:]

Okay. Thank you. Good speaking with you.

[Operator:]

Our next question comes from Robert Dodd with Raymond James.

[Robert Dodd:]

Hi guys. Congratulations, again yeah a couple, just on the market first, I mean and you talk much more positively I think about the – well somewhat positively about the expectations of activity level to remain high, before you expected to pick up a little bit in the back half, it certainly seem to in the second with $34 million in gross origination. Now that’s 25 net of the Worldwide Express and the $12 million you put – 11.5 you put in. When you are talking about that in kind of sustainability of that higher level, are you talking basically about the 37 or about the 25?

[Edward H. Ross:]

I’m not sure I can – actually want to put numbers on it. I guess what I would say Robert is, early on as we know in January kind of February timeframe; things were slower in nature for good reason. And as we’ve moved forward, I think the market has continued to pick up and I would characterize the market as healthy at this point, probably not robust, but healthy from just a market activity perspective. Having said that, we at Fidus I think we still are very fortunate and we’ve made a strong focus on origination, and we continue to do that and so at this point we actually are quite busy, whether its portfolio activity or new investment activity, we remain quite busy here, as an investment team. And so I think we feel fortunate that our origination have been relatively strong this year, and as we look forward, I think we see status quo with that. So I think that’s what I’m trying to say, I think the market is at health levels, but I wouldn’t use the term robust, but it’s healthy and but we continue to be very busy right now.

[Robert Dodd:]

Okay, I appreciate that color. Couple of the little – well wanted to ask you some more. On the Worldwide Express refinance in the quarter that you put 11.7 and then got that repaid, where as the in the third quarter, were there any customary pre-payment fees structures tied into that or may call or any thing like that, I mean basically I mean you can get in addition to the gain, as they are going to be unusually large fee contributions from relatively rapid turn around from refinancing to exit on the debt curve.

[Edward H. Ross:]

In this case which is unusual when you are making another long dated commitment, which is what we did in June, but there is not any fees associated with it, we obviously knew as an investor group who we were evaluating strategic alternatives this had been a long dated investment, and this was a – we had to refinance the senior debts so it made sense to refinance the junior debt as well and lower the Company’s cost of capital, but we did that in light of knowing we were going to evaluate strategic alternatives at the same time.

[Robert Dodd:]

Okay, thanks. On the senior, lot of good news, lot of good exits, I’m going to ask the one negative question. You got no non-accrual at the moment, (inaudible) on the debt side was marked down a bit more, 66% of cost versus 79% if I’ve got my math right last quarter. What’s your confidence level qualitatively that that is not going to end up as a non-accrual in the near-term?

[Edward H. Ross:]

But it’s a good question. It’s a very good question, and as you know we don’t really get into the details of any portfolio company for confidentiality reasons, but obviously to-date, so I see from the financial performance perspective, the company has not performed as we would have expected. As a result, the risk level of our investment has increased. Having said that, the company is executing on a plan that was put into place late last year, and as we sit here today we continue to have confidence in that plan. So what I would say is, risk is summarized saying, risk is clearly up, but management is working very hard and trying to remedy that situation. So we remain very active with regard to that situation and we’re hopeful that progress will continue at the operating level and hopefully the financial level.

[Robert Dodd:]

Okay. Thank you. One last one if I can kind of back to in or corner a little bit more on the special dividend. You paid the $0.6 or you announced the $0.6 tied to the realized gain in the second quarter. My math that looks like you paid out about 50% of or intend to pay out about 50% of the gain realized in that second quarter. Is that in anyway a signal in terms of expect to a mix of retained and distributed from these two pretty substantial ones with Worldwide Express and Goodrich in the third quarter or is that just coincidental?

[Edward H. Ross:]

Let me make sure I understand the question. I think I understood what you are saying, what it was is as going back just dividend policy, I think we are going to strive to maintain a healthy margin of safety if you will, with regard to our dividend. But you’re correct, we are obviously distributing a part of that gain. And so as we move forward here in the third quarter and look at now the Worldwide gain in conjunction with that as well as obviously the Goodrich gain, we need to take a holistic view of the situation and then make decisions based on that. So that’s going to be a big focal point of ours this quarter in trying to figure that out and I think we will hopefully and will communicate with you guys as soon as we pop with that answer. But you’re correct in that we distributed part of the gain this time around.

[Robert Dodd:]

Okay thank you.

[Edward H. Ross:]

Absolutely, good talking to you Robert.

[Robert Dodd:]

Good talking to you.

[Operator:]

Our next question comes from Bryce Rowe with Robert Baird.

[Edward H. Ross:]

Good morning Bryce.

[Bryce Rowe:]

My topic had been covered partially, just wanted to ask about how you guys think about managing cash now that you’ve got the additional SBIC license and additional access to funding. In assuming on a static basis that the cash balances would actually go up here for the activity so far into the third quarter?

[Edward H. Ross:]

Sure. It’s a great question Bryce. I think well as you know as of yesterday our cash balances did go up and I think we have some decisions to make as we’ve talked about in terms of dividends and dividend policies and when we make additional dividends, but obviously that cash largely needs to be put aside for distribution, but we still as you know at June 30th prior to the Worldwide transaction had a $56 million of cash, which we are working on investing at this point in time. And so I think we’ll continue to use cash first, and then we will to a certain level where we are confident that we can cover our dividends and as you know historically we’ve kind of tried to keep a year’s worth of dividends on our balance sheet for conservatives and purposes. And so as we move forward, we’ll probably utilize cash first and then would start using SBIC debentures at that point in time.

[Bryce Rowe:]

Okay. And then maybe a follow-up to one of Robert’s question you touched on some of the investment activities and in your preliminary comments or your prepared remarks you talked about some of the repayment activity. Just curious, we’ve seen some repayment activities accelerates here and wondering what the outlook for that is relative to the investment activity?

[Edward H. Ross:]

Sure. That’s obviously a great question as well and it’s one you can’t fully predict, you never know just like when you are making new investments if you are going to ultimately close on those investments or if there are companies either being so older refinancing their debt as those transactions will take place, so it’s very hard to predict. I would say obviously that the second quarter was quite healthy from a repayments perspective. I don’t view that a bad thing, I think we look at that as a very healthy thing, we are – obviously, when we’re making investments, we expect to get repaid in typically a five-year period, and obviously we’re making equity investments. The goal is to create realized gains, and so we view it as a healthy thing, having said that it creates some work on the other end, because we do want to stay invested. But I think, going forward I think repayments and realizations will continue to be part of the business. And I do think there’ll be incremental repayments this year. Hopefully it will slow down a bit, would be my guess and that will be the hope and that’s our expectation as we speak, speak here to this morning. As we look forward to 2014, our portfolio is bigger today than it was two years ago and so I think we would expect for repayments to probably look like this year, would be my expectation and that’s obviously a very rough estimate. So it will continue to have more repayments than we have said a year ago, and it will be a part of the business going forward, but at the same time, I think it was very big quarter from repayments perspective. Hopefully that slows down here at the second half of the year a little bit, but it’s hard to predict.

[Bryce Rowe:]

Okay. Thanks Ed, I appreciate it.

[Edward H. Ross:]

Yeah, absolutely, good talking to you Bryce.

[Operator:]

Our next question comes from Vernon Plack with BB&T Capital Markets.

[Vernon C. Plack:]

Well my questions have been answered. I did have a question about the rate on the midst of that Worldwide what was the rate on that?

[Edward H. Ross:]

The new rate was 12.5%

[Vernon C. Plack:]

12.5% okay, what is your equity ownership now in Worldwide?

[Edward H. Ross:]

In the new transaction?

[Vernon C. Plack:]

Yes.

[Edward H. Ross:]

It’s about 2.5%.

[Vernon C. Plack:]

Okay. All right, that’s great. Thank you very much.

[Edward H. Ross:]

I think just a comment on the rate, just to give you, Worldwide has grown to a larger EBDTIA business, and in the bigger market the rates are a little bit lower, but obviously we were thrilled to be part of the new transaction and feel great about the company and so that is reflective of the market just giving you a little commentary on that.

[Vernon C. Plack:]

Sure, thanks again.

[Edward H. Ross:]

Absolutely, good taking to you.

[Vernon C. Plack:]

Likewise.

[Operator:]

I’m not showing any further question at this time, I would like to turn the conference back over to Ed Ross for closer remarks.

[Edward H. Ross:]

Thank you Kevin and thank you everyone for joining us this morning. We look forward to speaking with on our third quarter call on early November, hope you have a great day and great weekend. Thanks again

[Operator:]

Ladies and gentlemen that conclude today’s presentation. You may now disconnect and have a wonderful day.