Hercules Capital Inc
NYSE:HTGC
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
15.22
21.67
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Hercules Capital Inc
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to the Hercules Capital Q3 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Mr. Michael Hara, Senior Director of Investor Relations. Please go ahead Sir.
Thank you, Sara. Good afternoon, everyone, and welcome to Hercules' conference call for the third quarter 2018. With us on the call today from Hercules are Manuel Henriquez, Founder, Chairman and CEO and David Lund, our Interim Chief Financial Officer.
Hercules third quarter 2018 financial results were released just after today's market close and can be accessed from Hercules' Investor Relations section at htgc.com. We have arranged for a replay of the call on Hercules' webpage or by using the telephone number and passcode provided in today's earnings release.
During this call, we may make forward-looking statements based on current expectations. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delayed between the date of this release and in the confirmation in the final audit results. In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, the risks and uncertainties, including the uncertainties surrounding the current market turbulence and other factors we identified from time-to-time in our filings with the Securities and Exchange Commission.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can be prove to be inaccurate and as a result, the forward-looking statements based on those assumptions also can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date hereof and Hercules assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or our website, htgc.com.
With that, I will turn the call over to Manuel Henriquez, Hercules Chairman and Chief Executive Officer.
Thank you, Michael, and good afternoon, everyone, and thank you for joining us on the call today.
I'm happy to report that we continue to have a tremendous and outstanding year in 2018 with just a few months left to the year and we're on pace to set new all-time records across many key indicators, especially as it relates to total new annual commitments and loan portfolio growth, which now we expect to exceed $1.1 billion in total new commitments for calendar year 2018. This is a level that we've never seen before and it amplifies the tremendous amount of deal flow that we're currently seeing in the marketplace.
This performance has been accomplished despite in otherwise tough and volatile times in the capital markets and many ongoing geopolitical uncertainties. However Hercules Capital nonetheless continues to thrive and has achieved another strong and outstanding quarter for our shareholders, generating net investment income of $0.31 per share and once again covering our dividend of $0.31 from NII earnings.
As evidenced by our many Q3 2018 accomplishments, Hercules Capital has both achieved the necessary scale to succeed, but also has established itself as a BDC industry leader in the venture capital lending category as we continue to build our investment portfolio while many other smaller, sub scale BDC venture lenders are still unable to do so as evidenced in their Q3 earnings release and performances.
Furthermore, driving our tremendous growth in 2018 is a strong marketplace awareness and trust that Hercules Capital brand and platform has achieved within the market as the capital partner of choice among many other top tier and select leading venture capital firms as well as many of other innovative entrepreneurs, all have sought out our capital and sought out us as a capital partner.
We have surpassed and set all-time new records of total new commitments in a single year, which as of the end of October, was already at over $1 billion, even though our target is $1.1 billion for the year again with two months remaining.
I truly can't say thank you enough to these amazing and visionary and innovative entrepreneurs and our venture capital partners for entrusting Hercules Capital as one of their trustworthy capital partners of choice.
No other venture focused BDC lender has the market presence, the balance sheet or capabilities that we have to offer our companies and no existing small sub-scale BDC venture lender in the market today has or can probably demonstrate their ability to originate new commitments anywhere near the level of originations or skill that Hercules has achieved in the market so far.
Because our sustained confidence in Hercules Capital and our continued strong transaction demand that we're seeing in the marketplace, I am very proud to announce and declare our additional dividend of $0.02 per share to be paid in conjunction with our regular dividend of $0.31 for a total distribution to our shareholders of $0.33 in Q3 due in no small part to the strong and continued expected growth of our investment loan portfolio and of course, our growing earnings and growing earnings spillover, which currently stand at $27 million or approximately $0.29 per share and this I'd like to highlight excludes any harvesting of realized gains from our DocuSign and another holdings that we have in public securities.
This additional earnings spillover will serve as additional potential future sub rental dividend payments or distributions to our shoulders, especially as we continue to generate ample net investment income to cover and eventually surpass our existing dividend level of $0.31 per share as we anticipate to occur later in 2019.
Although we achieved many new financial records and achievements the first nine months of 2018, we are nonetheless entering Q4 with a revised and high level of caution and controlled optimism especially given the recent market volatilities and of course with our strong year-to-date performance.
This should not be confused that we are somehow pulling back or being more conservative in the overall marketplace. Is none of that, but rather that we're being a bit more selective and a bit more skeptical on new investment opportunities given the fact that we're already at $1.1 billion on track to achieve in 2018.
Notwithstanding is the level of caution or guarded optimism entering Q4 '18 we anticipate continued growth in our investor portfolio in Q4. In fact, we expect the net new loan portfolio growth in calendar -- in the fourth quarter of 2018 to be approximately $75 million to $125 million net up or growth in the portfolio in the fourth quarter representing a 5% to 8% quarter-over-quarter overall loan growth.
To put things in better context with a tremendous growth realized year-to-date, we are also on track to potentially exceed as I indicated earlier the $1.1 billion total in new commitments in calendar '18 and we also expect net -- with the expected new net portfolio loan growth as I previously mentioned, we now expect to end 2018 with an investment loan portfolio balance in the range of $1.7 billion to $1.75 billion, which is higher than original forecast at the beginning of the year that we expected the finish fiscal year-end 2018.
Given this meaningful year-to-date growth, I believe is prudent to proceed cautiously in the remaining few months of the year and protect our balance sheet while also augmenting and maintaining ample liquidity to capitalize on new investment or acquisition opportunities as we are evaluating many of the same.
More than ever, scale has become a critical BDC competitive advantage and Hercules has successfully achieved this global scale as evidenced by our nearly $2 billion in total assets, $1 billion in total net assets as well as our strong year-to-date capital fund raising activity of more than $450 million that we raised in calendar 2018 and a combination of debt and equity capital raise during the first 10 months of 2018.
As we have previously shared with you during our Q2 earnings call, we had forecasted and now I am proud to say achieved net investment income of $0.31 per share, covering our dividend just on net investment income driven by the strong loan portfolio growth of 3.7% quarter-over-quarter and of course the sustained effective yields of over 13% realized during the quarter.
With that said, as we approach year-end 2018, we are increasing our yearend investment portfolio target as I indicated to the $1.7 billion to $1.75 billion and we continue to anticipate generating ample net investment income or NII to cover the dividend in Q4 and beyond. This will allow us to continue to possibly distribute additional dividend from our earnings spillover given the fact that we are now anticipating covering NII from earnings alone.
Much of our success achievement would not have been possible if not for a most important human capital assets our tremendous team of dedicated employees who have once again proving their significant importance and teamwork and strong execution allowing us to realize these great achievements on behalf of our shoulders.
Thank you all very much for continued dedication and loyalty. I take immense pride to see many of these new records and achievements being realized as the Founder and Chairman and CEO of Hercules Capital. It truly underscores the amazing depth and level of talent, discipline and intelligence that our origination team has put forward and all of our employees contribute towards realizing these amazing milestones among many other achievements that we have realized. I deeply regret to you and once again I'd like to say thank you for making this all possible.
Now for today's call, I'll briefly discuss the following select achievements and highlights. I'll provide an overview and highlight of our outstanding financial performance and key achievements during the quarter. I'll provide a brief commentary on our revised level of heightened cautions and controls optimism as we enter Q4 and our upward revision to our outlook and forecast of NII covering our dividend moving forward as well as our anticipated growth in earnings, it's spillover for potential future dividend distribution and payments.
I will also offer some perspective and insight into the very robust and very strong capital marketplace activities as it relates to fundraising investments, IPO and M&A action activities and then of course I will turn the call over to David Lund for a more detailed and briefer overview of our specific financial results for the quarter ending Q3 2018. And finally, as we always do in our calls, conclude with a Q&A session to address any of your questions.
And now for some select highlights and key achievements in the third quarter, let me begin by saying we realized a stronger-than-expected seasonal third quarter than what we anticipated. With this new robust, new origination activities that we're experiencing across all sectors that we focus on, we are proud to announce the following achievements.
We achieved another strong quarterly performance of net investment income of $29.3 million or $0.31 per share up 22% year-over-year. We entered into total new debt and equity commitments of $235 million in the third quarter, up an impressive 52% year-over-year.
We funded over $142 million of new investments for the third quarter for a total of the first nine months of the year through Q3, we have now funded over $706 million of new capital investments representing an equally impressive showing of 45% year-over-year growth.
We realize materially lower early repayments or payout activities that we haven't expected in the third quarter. In fact, we realized $65 million of early payoff activities down from the $114 million we had experienced in Q2 and well below our targets of $75 million and $100 million per quarter.
This has two implications. Number one, it allows us generate higher interest income, but conversely it also translates into lower one-time acceleration fees related to early payoff activities. So there is always a trade-off between early payoff and consistency building a loan portfolio.
During the third quarter, we also took the time to also continue our pruning and selective rotating out of certain positions and in fact during the third quarter, out of the $65 million in early payoff, $42 million early payoff was precipitated by own actions of selectively grooming and pruning the portfolio, out of certain credit positions that we felt more comfortably should cycle off of our credit book and that's exactly what we did during the quarter.
In power of that knowledge this is why you'll see a revised Q4 early payoff numbers are now expected to normalize more in the $35 million to $45 million level. With a combination of strong fundings occurring in the third quarter and the slowdown in early payoff activities, we experienced a net portfolio growth of approximate $54 million in Q3.
As I indicated just a few seconds ago, we're now forecasting our Q3 early payoff numbers to be approximately $35 million to $45 million, with this lower expectation of early repayment activities we also are expecting a higher interest income to be generated from our portfolio given the fact that we'll have higher intra-quarter balances that we had initially anticipated in the fourth quarter.
However because the early payoff activity will also impact other source of income during the quarter, we also anticipate lower income from accelerations on early payoff or nonrecurring fees to the fourth quarter. When combining both of those elements of higher interest income and lower fee income, we actually still expect to achieve $0.31 and NII earnings in Q4.
However, because of the timing of the findings of the new originations in the fourth quarter and the ultimate payoff of some of these loans that may occur that we anticipate early payoff, we can see a swing in NII earnings of anywhere between $0.005 to $0.050 starting to win the early payoff activities to take place or the targeted funding take place in the quarter.
Notwithstanding that statement, we still feel very comfortable that achieving a $0.31 in NII earnings plus or minus that $0.050 to $0.01 in either direction. We also anticipate early payoff activities to materially pull back and remain at these subdued revised levels as we experienced acute for the next few quarters or at least until we see stabilization in evidence of a stable capital markets when we start seeing a pickup in M&A and IPO activities at which time, we expect to see an elevated early payout activities as M&A and IPO activities start picking up again.
Until then we're comfortable saying that we expect early payoff activities to be in the $35 million, $45 million range under normalized basis. As a reminder and as evidenced in Q3 results, predicting early payment is and shall remain a very difficult task since we do not have control or visibility much beyond 30 days from our home portfolio companies on what's going to get paid off or not.
It's also subject to significant market variability and market conditions as I indicated specifically related to M&A and IPO activities.
Another indications of our market leadership position was our ability to maintain and sustain our quarterly yield quarter-over-quarter despite an otherwise competitive market. Both our core and effective yields were busily flat or consistent with our Q2 results of 12.7 and 13.5 respectively on a core and effective yields.
More than ever, as we all face a turbulent and unpredictable market conditions, our proven control discipline of slow and steady growth strategy has once again demonstrated that remaining focus and willing to walk away from ill structured or badly priced transaction are critical fundamentals to building a successful and strong performing loan portfolio.
To provide some context, despite our expected $1.1 billion plus in closing pending new commitments in fiscal 2018 and calendar 2018 we have turned down or walked away from more investment opportunities in the third quarter than I have witnessed or recall ever doing in any prior quarters of Hercules back in 2003. We are acutely focused on certain criteria of underwriting and we're more than happy to walk away from a transaction if doesn't make sense.
In fact, we remain highly selective in our underwriting and I personally would rather miss an earnings EPS forecast or consensus then sacrifice a balance to simply make a quarter in earnings. You do not achieve a level of growth that we have without that steadfast discipline in underwriting that we have achieved over the years and with a strong deal flow that we have, we're able to pick the best opportunities that come before us.
We achieved ways offsetting results while maintaining our historical focus and improving credit discipline as evidenced by historical and insignificant low 20 basis points nonaccrual loans while maintaining a very strong balance sheet and high liquid position with over $137 million available liquidity for new investment and continued growth in our portfolio.
However post quarter growth and as we announced this morning, I am proud to say that we recently completed a very successful $200 million new securitization making it the third securitization that we've completed. We've now secured over $200 million of additional liquidity to further bolster our balance sheet as we turn our attention to the fourth quarter and the first quarter to fund additional loan growth and earnings on behalf of our shareholders.
In addition to the robust new loan origination activities during the third quarter, we remain very active in enhancing our right side of the balance sheet or our liability structure as we continue to proactively manage our debt and equity capital as we look to continue to bolster our growth by augmenting our balance sheet with additional liquidity.
We're also actively managing our overall cost of funds while also managing our leverage within the targeted desired leverage range that we had indicated that we will maintain for the third and fourth quarter of 0.75 to 0.95.
As an example of the activities that we completed just alone in the third quarter, we successfully completed the following capital markets. We raised approximately $31 million of equity capital through our ATM just-in-time program, all done well above book value north of 1.2 times book, making it highly accretive equity offering on behalf of our shareholders.
We also completed a successful 15-year bond offering which I am not aware of any other BDC has successfully been able to place a 15-year part 25 fixed in the quarter bond offering in a marketplace to which we raised $40 million.
We also just recently completed as I indicated just a few seconds ago, a $200 million securitization making it our third securitization as a single A rated by Kroll KBRA, which was well described in a testament to our proven business model and our strong endeavors, asset base that we're able to successfully underwrite and complete a new securitization at a fixed coupon rate of 4.605 with a maturity of approximately 2027.
Further to that, I would also like to remind everybody, during the quarter, we also received a green light letter from the SBA, which seems to be a terrific and fantastic partner for us. We received a green light letter, which we're now in the process of completing the final application for our third SBA license.
The final steps are in process and we expect to complete the final approval from the SBA sometime in the first half of 2019, allowing us to gain access to approximate $175 million of new SBA debentures.
As a reminder, on June 21, 2018, President Trump signed the Small Business Investment Opportunity Act allowing a single license SBA to achieve maximum leverage of $175 million, which with our existing license of $150 million will immediately give us access to $325 million.
As a reminder, the total family of funds capacity on to the SBIC program with the SBA is $350 million in total. Lastly, as we received investment grade corporate and credit rating from DBRS as a BBB flat, which encompasses and includes the approval from our Board to reduce the asset coverage ratio to 150% under the Small Business Credit Availability Act.
This is inclusive or in addition to our existing KBRA or Kroll BBB plus rating that we have today. All these activities allow Hercules Capital to finish the third quarter and enter the fourth quarter with an enhanced and a very strong liquid balance sheet to allow us to continue to access the capital markets when we need to do manage our leverage within the ranges that we first described and continue our portfolio growth and our portfolio growth targets that indicated to you earlier of $1.7 billion to $1.75 billion.
Now let me take a few moments to share with you the activities related to new business and the robust venture capital marketplace activities that are going on. We saw very strong demand for loan and transaction deal flow driven in no small part by the very impressive and robust performance by the Venture Capital investment activities realized during the third quarter.
In fact the VCs were so active, they invested over $27 billion, a record pace of new investments in the third quarter making it one of the best quarter since 2000 according to Dow Jones venture source. At this level and run rate the VC investment activities for 2018 are on pace to shatter all previous records related to new investment levels activities in a single year and are expected to now surpassed by $100 billion outpacing all of 2000 or 1999 in terms of invested capital during the dotcom era itself.
Liquidity activities realized in excess by Venture Capital investments, investment committee were also quite active in certain areas. Our own investment portfolio has benefited from a very strong M&A marketplace and activities. We had a handful of portfolio companies complete and announce the M&A activities, which you can see listed in our earnings release that we published today in the subsequent section.
I feel on the other hand have been much more tepid. We are constantly monitoring the IPO markets we saw an unexpected pullback with only 21 companies completing their IPO activities in the third quarter. This is and down from the 60 companies that completed IPO activities in all 2017. Year-to-date for the first nine months of 2018, we've seen 68 companies complete their IPO activities thus far well below the 126 companies that completed IPOs in 2014.
However unlike the IPO market, the M&A market has continued to be fully resilient. We continue to do play a very strong activities with over 202 companies completing M&A activities in the third quarter, representing over sorry, 574 in the first nine months of the year. The amount paid was overall $102 billion was already surpassed all the activities of transaction fiscal 2017 of $90 billion. As a reminder we had over five companies complete M&A activities alone in the third quarter.
Now let me discuss our pipeline and new commitments in finding as we turn our attention to Q4. As I shared with you earlier during the call and just a few months of October alone, we've already secured or closed over $84 million of new commitments well on our way to eclipsing the 1.1 billion target that we expect to have by yearend with still two months to go in the year.
Assuming all these signed term sheets and commitments continue to convert into newly funded loans in the fourth quarter, we once again will reaffirm our belief in achieving a investment loan portfolio of $1.7 billion to $1.75 billion and representing a year-over-year loan portfolio growth of over 20% to 25% from the year-end balance of 2017 of excuse me $1.44 billion at cost or $300 million net portfolio growth alone in one calendar year.
Now let me take a brief opportunity to discuss our views in our marketplace and activities as we enter the fourth quarter. Again we remain guardedly optimistic, but cautious by what we're seeing developing in the credit markets as we enter the fourth quarter. Notwithstanding that new guarded conservatism than we have, we still have a pipeline of over $1.2 billion allowing us to easily select $100 million to $200 million of transactions to fund and close during the remaining few months of the year.
Our slow and steady strategy has served us very well for many, many years, in fact for over a decade. The slow and steady strategy is credited with our disciplined growth and focus on continuing to grow the loan book despite an otherwise competitive environment and challenging economic outlook.
By remaining focused and cautious and anticipated returns to future acceleration of loan portfolio growth, we are taking our time to methodically grow our loan book to $1.75 billion. You will soon see that when you run your mathematical models at $1.75 billion, we can easily consistently generate interest income or I should say net investment income, that would generate at least $0.31 in earnings or more.
In closing, we had outstanding first nine months of the year. Strong commitment and fundings, we delivered on net overall loan portfolio growth putting us in a position to cover our dividend of $0.31 in the third quarter and beyond, assuming sustained portfolio growth in yields, I recognize it is an important measurement for many of you.
At this point. we feel confident in our continuation of seeing net investment income consistently cover our dividend at $0.31 and in fact we see later on in 2019 exceeding that with earnings of our own portfolio and this is even before adding leverage to our own portfolio.
Our outlook for the fourth quarter although remains guardedly optimistic is nonetheless positive as we navigate to our desired loan portfolio target as I indicated. And finally, as you wrap things up, the update on Hercules Capital is in recently passed small business credit availability by Congress on changes to leverage our asset coverage to 150%.
We receive shareholder approval on September 4 and we expect to receive shareholder approval in a special meeting on December 06. I ask all shareholders to please cast your vote, so we can reach the necessary quorum and move forward with our leverage.
It is very important for us to pursue leverage, but as I indicated on multiple different commentary, we do not anticipate leverage for the first 12 months to exceed 1.25 at any time over the next 12 months as we guardedly increase our leverage to modest levels. I would like to say thank you all institutional and bond equity holders for your time and feedback and support and recognize the many advantages are proposed and modest gradual controlled increase in leverage could have a beneficial impact for Hercules Capital model in generally higher ROEs for our shareholders.
With that, I'll turn the call over to David.
Thank you, Manuel and good afternoon, ladies and gentlemen. Today we are pleased to report our third quarter results. This afternoon I will focus on the following financial areas; our origination platform, the income statement performance, NAV and return performance and credit performance.
With that, let's turn our attention to the origination platform. We continue to demonstrate our strength as the leading venture capital -- leading venture lending platform with total investment fundings of $142.4 million in what is historically our slowest quarter for investment activity.
These investments came from a total of 19 portfolio companies eight of which were new portfolio companies. This investment activity brings our fundings for the first nine months of 2018 to a total of $706.1 million, putting us on pace for a record year.
This investment activity was offset by early repayments during the quarter of $64.9 million and normal amortization of $20.4 million. As a result of this activity, on a cost basis, our investment portfolio balance ended at $1.61 billion representing an increase of 3.5% from the second quarter and 11.7% from the first nine months of 2018.
We have recently been experienced a slowdown in early repayment activity and are projecting early repayments of $35 million to $45 million in Q4. Our core yields maintained at 12.7% in line with prior quarter even in this competitive market. We expect Q4 core yields to be flat with Q3 at 12.7%.
With that, I'd like to discuss a few key metrics from our income statement performance for the third quarter. On a GAAP basis, our net investment income for the quarter was $29.3 million or $0.31 per share, covering our dividend of $0.31 per share from operations.
Total investment income was $52.6 million in the third quarter, an increase of 6.1% from $49.6 million in the second quarter. The increase in total investment income is due to higher interest income of $49.1 million on larger weighted loan portfolio.
Our weighted average principal outstanding increased by $85 million to $1.55 billion from $1.47 billion in the second quarter. Our fee income decreased by 4.8% to $3.5 million during the third quarter, primarily due to lower one-time and facility expiration fees.
NII margin rose to 55.7% in the third quarter from 45.9% in the second quarter. The increase in margin is due to lower interest and fee expense of approximately $2.4 million related to the redemption of $100 million of our 2024 notes in the second quarter and lower compensation expense.
Our SG&A decreased to $12.3 million in the third quarter from $13.5 million in the prior quarter, driven primarily by a decrease in variable compensation due to performance and funding objectives relative to plan offset by higher stock based compensation. We anticipate our operating expenses to be between $13.5 to $14 million in the fourth quarter.
Now I would like to discuss our NAV performance and credit outlook. We saw our NAV increase to $1 billion in the third quarter from $963.7 million in the second quarter, an increase of $0.16 per share or 1.6% to $10.38 per share.
This $40.4 million increase in NAV was primarily the result of our net accretive ATM activity totaling $30.9 million. We saw our return on average equity increase to 6.9% from 5.4%, our return on average equity increase to 12.7% in the third quarter up from 10.2% in the prior quarter. The increase in both returns was due to the higher interest income on the higher weighted average portfolio and the lower interest expense in Q3.
Lastly, I would like to discuss our credit performance for the quarter. Our credit performance remained strong in the third quarter with a weighted average credit rating of 2.23% as compared to 2.21% in the second quarter. Our credit four and five rated companies, which are our primary area of focus, remained stable at just 3.1% of cost in the third quarter and our non-accruals remained at historic lows at 0.2% as a percentage of our total investment portfolio at cost and 0% on a value basis.
This makes five consecutive quarters of non-accruals as a percentage of total investment at cost are below 1%. Based on our remarks today and our overall financial performance, we are very pleased with our third quarter results.
That's in closing we're well positioned at the end of the third quarter, heading into the remainder of 2018. Our long-term focused approach and disciplined underwriting standards and access to diversified funding sources will enable us to deliver strong results for the foreseeable future.
With that report, I will now turn the call over to the operator to begin the Q&A part of our call. Operator, over to you please.
[Operator Instructions] Your ere first question comes from the line of John Hecht from Jefferies. Please go ahead.
Good afternoon, guys. Congratulations on a good quarter. This is two very strong quarters of origination activity, pipeline is still strong. In your opinion what's shifted in the market? Is it better -- is it less competition or is it just higher demand because the addressable market NAV increased?
I think it's a combination of multiple items. I think that we're seeing bank relations have an impact. I think strong venture capital participation in our investment activities is another important issue.
The delay in the capital markets is forcing more companies to rethink their capitalization on bolstering up the liquidity using debt as opposed to just pure equity, given the elongated timing now of our realizing an IPO event.
Companies are wanting to bolster their balance sheet to engage in better valuation discussions for M&A activities and in general we're seeing those companies that have established themselves begin to accelerate customer acquisition costs or customer acquisition by revenue growth by accelerating expenditures to secure more customers as they groom themselves for an M&A or an IPO event also as contributing to those factors.
Okay. And along with the increase in demand your yields have moved above or you guided us earlier in the year. Is it simply more pricing power or something else going on in the market?
In fairness with the comment, I think that the pricing yields that we indicated at the beginning of the year 11.5 to 12.5 don't reflect the increases in the overall levels of prime rate, the fed funds increases they've done recently.
So I think that's one of the factors that we probably need to realize or increase our effective yield range and we do that, we're probably right where we should be, which is slightly above the mean on that range. So I think that the range that we've given at the beginning of the year does not take into account that benefit of the three rate increase that have taken place in the market.
Now we're saying that we have been able to sustain pricing yields as we remain very selective in the transactions is that we are involved with. Despite some of the early commentary of some other BDCs have made, we're not seeing covenant light deals realizing in the Venture Capital marketplace.
I think that that is probably more akin to dealing with sub $10 million venture loan transactions where the commercial banks are there in a very strong occurrence.
All right. And then final question, it looks like new companies in terms of your investments during the quarter. Anything worth calling out in terms of the sectors you're focused on right now for incremental investments?
We've now to learn we're going to do it anymore because as we do, then we see competitors following us. So we're no longer forcefully calling out where we are going to be investigating in from a favorable outlook because we've now been watching several competitors trend right behind us as we identify those sectors.
So as much as like the share that we deal, I think it's becoming a more competitive advantage not to openly discuss that.
Thanks very much for the color guys.
Your next question comes from the line of Ryan Lynch from Hercules Capital. Please go ahead.
Hey good afternoon, guys. First question has to do with the securitization. I am not sure if you mentioned this or not, but is there any sort of reinvestment period on the securitization before starts, amortizing I believe the securitization you guys did, you guys had a one-year reinvestment period. Can you just talk about that?
Sure and just in our third securitization each time we do want it improved dramatically. This one has a 24 months reinvested period and then it goes to [indiscernible] over three years in the process, Hence the life of approximately 2027 if you will when the last loan is scheduled to come off.
So as the 24-month reinvested period it has approximately a 70% advance rate on the collateral that's been posted in the securitization.
Okay. Perfect. That's helpful. And then just wanted to talk about your comments when you said you're going to be more cautious or more selective going forward, it sounded like those comments were made in response to the significant amount of capital the $1.1 billion commitments you guys have already deployed in 2018 and so it seemed like it was the kind of the driving force behind you guys kind of and point back, but just be more cautious, more selective, but I didn't hear anything necessary about the competitive environment that, that was really causing any caution.
Am I framing that right and can you just maybe provide an update on the competitive environment as you mentioned some other BDCs have talked about there will be no little challenges, harsh terms, structures and covenants.
Well, so these are BDCs. They are only growing at maybe $30 million or $40 million a quarter at best. We're not. So I guess I'll say it this way, I think we're seeing a tremendous amount of lion's share of transactions in the marketplace.
So we're not seeing any significant impacts from a competitive environment in terms of our deal flow as evidenced by the trajectory of $1.1 billion and I would say that my caution is that I can probably easily see ourselves doing $1.3 billion in transaction one fiscal year, but I think that growing to $1.1 billion-ish is more than plenty in one year.
So we are the ones purposely holding back, not real competition because we already have achieved a tremendous amount of origination. I think that's enough growth in one fiscal year and so that's allowed us to be even more highly selective on the transactions that we look out for the last two months of the year and allow us really preserve and mange our yields where we want them to be.
Okay. That makes sense and then when I am looking at prepayments, prepayments are dropped off obviously significantly from the beginning of the year and it sounds like they're going to continue to kind of trend lower in the fourth quarter.
Now just kind of looking back, what really drove the big spike in prepayments in really the first two quarters of this year and why has it tailed off so significantly in the back half?
Sure you may recall that we indicated both in Q1 and Q2 that we have embarked on a purposeful grooming and pruning of the portfolio. So in Q1 we enhanced or highlighted that we would experienced about $160 million of the early payoff activities in Q1 were driven by our own doing and vacating to two particular credit loans or loans that we cycled off on the books in Q1.
So that made up $160 plus million of that early payoff activities that we had saw in Q1 and Q2 we also continued the pruning but at bit more modest levels and we saw somewhere around $40 million-ish to $50 million of early payoff activities into two. So that really adjusted.
So again to give you a number we had $243 million of early payout activities in Q1. About $160 million of that was our own portfolio rotation and pruning that we did was included in that number. The $114 million in Q2 had approximately $40-ish million, $50 million or so of additional portfolio rotations and pruning that we did and then culminating in Q3 we had $65 million or payoff, $42 million of that was further portfolio grooming and pruning.
And we were able to do that, we have very strong pipeline of transactions and deal flow coming in. We're able to cycle off sectors that we no longer view as favorable or we see developing longer term trends that could be adverse to our secured credit position that we felt that it's better to cycle off that particular credit and taking advantage of the competitive environment where some of our competitors may not be as astute and credit underwriting we would more that gladly take advantage of that market.
Okay. That makes sense. Those are all the questions for me. Nice quarter and I appreciate the time.
Thank you very much.
Your next question comes from the line of Casey Alexander from Compass Point. Please go ahead.
Hi. Good afternoon. When you talk about 2018 yearend portfolio balance of $1.7 billion to $1.75 billion, you're talking just about the debt portion of the portfolio?
Yes that's just the investment debt portfolio, excluding warrants and the equity, which we add about another $100 million to $140 million to the overall balance.
Yeah. I just wanted to make sure that I was getting that right.
And that was my only question. Thank you.
Your next question comes from the line of Aaron Deer from Sandler O'Neill Partners. Please go ahead.
Hi. Good afternoon, guys.
Hi Aaron. How are you?
I am doing well, thanks. I just have a couple questions, one is with respect to the expenses, what changed in the third quarter performance relative to plan that caused the true-up in the compensation line this past quarter?
Well the answer has to do with -- it's a variable comp plan related to our origination team and there is a natural cadence that occurred typically in the second quarter and often recalibrates in the fourth quarter as individuals achieve certain minimum requirements. We want to achieve those certain minimum requirements and it locks incentive bonus payments to them.
And then as we continue to trend certain percentages after that continuum as we approach the fourth quarter there can be additional benefits or overage incentive comps that can be earned as well based on their yield of their overall performance.
So the cadence is midyear and end of year, you'll see the recalibrations depending on how the overall performance is occurring, that's the driver there.
Okay. That's helpful. And then the guidance on that front, that I think it was 13.5 to 14, that includes the G&A compensation benefits and stock-based compensation, but not loan fees, is that correct?
That is correct.
Okay. And then last question just given the it continues to be a pretty strong growth outlook and very significant capital market actions that you guys have taken on, on the funding capital side year to date. What are your thoughts in terms of using the ATM, the continued use of the ATM as we head into yearend here?
Well obviously, the ATM has been in tremendously strategic year for us. This allows us to manage our leverage ranges in that 75%, 95% leverage that we talked about. I think the ATM program remains an integral part of our strategy as we dial in, in fiscal 2019 with the presumption that our shareholders approve the leverage capacity or as it covers the lower 150%.
We have made it very clear however that our first 12, possibly 15 months of the approval, we do not intend, I'll make it very clear, we do not intend to rise above 125 and our new operating range will be 0.95 to 125, will be the new operating leverage range for the next 12 to 15 months upon shareholder approval, which means that we'll have to use the ATM to ensure that we remain within those tolerances no different than we've done in Q3 and Q4 or expected in Q4, excuse me.
Sure. All right. Very good. Thanks for taking my questions.
Your next question comes from the line of Christopher Nolan from Ladenburg Thalmann. Please go ahead.
Hey Manuel, the 125 leverage ratio, is that changed from before because I recall you saying that you're targeting to stay at 100% and then occasionally have sort of a shock absorber where we can possibly pop up to 125 or so and then come back down or are you looking at 125 on a more sustained basis?
No, none of our models at this point show us sustained at 125. However, the amount of demand for capital right now in the marketplace is so tremendous that we're seeing that I would say my initial outlook on having a flare up and down at 125, that range be in the kind of little more tighter.
I think it's still flare at 125, but I think the cadence is probably more like 105, maybe 1.1, that is if we decide to continue to fulfill that demand that's in the marketplace and we find attractive pricing that we like to see in structure.
I think it's a very important issue to note as I indicated in the call that when the portfolio reaches at $1.75 billion and consistently remains at that weighted average level of $I.75 billion on the loan portfolio at a 13.2 yield effectively, we throw off more than $0.31 in earnings on a consistent basis, which means that the only we're going to decide to pursue levers higher than that, is that the asset quality has to be very, very strong that we're looking for.
And if we do pursue that, any incremental growth about 17.50 at loan book is going to be further additive to driving this little dividends in the loan book, but at this point, I want to just get to the midterm elections. I want to finish 2018 and kind of reassess the marketplace before setting what our offering leverage targets are specifically going to be for 2019. But we don't anticipate hitting the 125 leverage consistently in '19 at this point.
All right. Great. Also I saw reference to a Wall Street Journal article talking about how regulators might be easing up on capital requirements, liquidity requirements for mid-CapEx. Given that your market is so strong and given their cost of capital generally is so low, you seem to -- venture debt seems like a interesting place for our banks to entering going forward? Is that sort of prior to your strategic considerations that the banks become more involved in your market?
I think there are plenty of examples of banks that had weighed into the venture-lending asset class and have not performed very well doing that. I don't want to disparage go to bank, but there are a couple of banks who try that and not worked out well.
I think that Venture leading is a highly specialized asset class, to Valley Bank [ph] is by far a very disciplined and credible provider and frankly a good partner to have in the market, but there's only honestly maybe three or four banks that are having real true domain knowledge in this area.
Many things would like to get in this area, many banks have tried and they've lost tens of millions of dollars relatively quickly. This is not an easy asset class to manage and it's not just underwriting, but you need to have a fairly deep bench of all individuals who have expertise of their vertical.
As a reminder we are not journalists and that's a very, very important distinction amongst many of the other BDC venture lenders that are out there. Being a journalist in his asset class is pretty, pretty dangerous thing that I would not advocate being a journalist in its asset class and that level of expertise is not easily secured by a new bank that de novo our assets in this category.
Great. And final question, what happened to the inter-quarter portfolio update the you guys providing in the past?
A lot of the folks ask us not to keep on doing it because they wanted to have it more in the earnings call, So we listened to a lot of our shareholders and we stopped doing it about two or three quarters ago.
I am torn by that by the way, but a lot of our shareholders have asked us why do it, why get rid of the surprise, the earnings call. So we're kind of trying it out, among all the mix to be honest with you.
Okay. I vote for it, bring it back.
All right. Thank you for that insight.
Your next question comes from the line of Henry Coffey from Wedbush. Please go ahead.
Good afternoon and congratulations. I've heard you talk like this before, it sounds like going into the fourth quarter you just -- everybody is just going to sort of take a breath and digest what you've boarded. There is absolutely nothing to do with any sense of waiting demand or the quality of the business that you think you can put on. Is this accurate or are there some things there that you're really worried about?
No Henry. This team has performed exceptionally well and given the already robust growth of 1.1 maybe it tops talk 1.2 billion in one fiscal year. It's all have to do with a tremendous year already and giving the team a little bit of a break and saying thank you very much for an outstanding performance in the year of 1.2 billion.
But can we do 1.4 probably? Do I think is the right thing to do not really, I think that in on-boarding $1.1 billion $1.2 billion in new commitments in one fiscal year to me feels like the appropriate level to kind of just take a break.
When you look into 2019, will refrain from any comments, but when you look at the political environment in 2019, is there any real political risk that could affect your business or is it just -- it's just kind of the general uncertainty that always surrounds an election?
The China pressure exists, their drug prices exist. There are slowdown in acquisitions related to companies on a market where Chinese are big buyers of technology. There is the SB1 Visa Program. I think we should have a merit based immigration system and to our plethora of issues that can represent constraint in capital deployment and growth in fiscal 2019 and clearly the midterm election has a huge implications with whichever party wins.
Either party has its own challenges by winning or losing and so we are taking the more conservative position of great year, let's wait and see what happens, let's have liquidity available to ourselves to take advantage of the opportunities that serve now and then, but would be in a strong and adjacent position to taking advantage of opening the first quarter '19 and that's exactly what we're doing.
We feel great about where we're at. We have greater earnings momentum. We have strong portfolio growth, outstanding credit, liquidity. I don't know what else to say other than we are sitting in a very advantageous position and we just want to see the political environment stabilize a bit.
In the ancient days a long, long time ago, like 10, 12 years ago now that there were some aspects of your securitization that sort of triggered against you and you fought through that and you survived in great shape and then since then it's been nothing but up.
When you look at how you structure the new securitization, can you -- is that a kind of a totally nonrecourse DO or is there any sort of risk factors that could -- that you might have to live with the future or what is your thought around that -- this new funding?
One of the things that I've learn early on in the credit crises 2008, 2010 was not to have a single castrated funding source. In those days, it was equity and commercial banks. I think that commercial banks should represent an emerging 25% to 30% of your liquidity and I strongly believe like some of the top tier BDCs and stellar names like Aeries, I think that having a diversified liquidity stack and latter maturities is an absolute integral part of risk management and we have that.
We probably have one of the most diversified source of funding than any BDC. We just did a seven-year bond offering this year. We did a 15-year bond offering this year. We did a securitization. We renewed our bank lines. We've kind of convert -- we have just a wide variety of funding sources, all that are staggered maturities in doing so, but I think there is a very, very important aspect of your question is that when you look at the securitization having done two previously securitizations, both done very successfully, both paying off at full par, we learnt from these two securitizations and we wanted to have additional features and benefits that.
So in this case, we have a 24-month revolving credit in front end. We have a 30% advance rate, which means that we bear the first risk of loss of 30%. Some BDCs have actually sold off that risk. I believe that they're trying to be as the first two is miss priced and I felt the miss price we're better off keeping at ourselves.
We just what we did in this case because we believe in our credit writing capabilities strongly. So we kept up but there is no recourse from the securitization up to the parent. We've done an SPV, a special purpose vehicle.
Also holding the B gives you optionality in a completely different environment and the one we're living in today. David, I am sorry, I missed the number. What was the overhead guidance for the fourth quarter?
$13.5 million to $14 million in SG&A is what you're trying to ask?
Yeah.
$13.5 million to $14 million.
Thank you very much.
Thank you, Henry.
Your next question comes from Robert Dodd with Raymond James. Your line is open.
Hi guys. Just going back to your comments, the guarded optimism etcetera as we get into the latter part of the year. On the $1.1 billion, which is a very good number, a record number right in terms of on-boarding and commitments etcetera, but what you seem to be saying is you could do $1.3 billion, there is a $1.3 billion in deals you think obviously yet, but it would check all the boxes that meet the criteria, that meet your underwriting standards, which is strict and you have the capital, but you just don't want to.
I mean because you had a good year already and you're going to push things out to next year. Is that -- am I thinking about that right? That just doesn't seem very consistent with your patent which is when you got capital, don't do a bad deal even when you've got capital and when you've got a good deal, do it.
Well people are human and you don't want to burn out your team. It sound like the [indiscernible] and leave your last pitcher to pitch nine innings and burning his arm out as you saw in the World Series. So I think I approach this business a more practical level, which is I think that people deserve a break. I think they’ve worked exceptionally hard and I think that any of the year $1.1 billion to $1.2 billion is more than fine and like I said I also want to wait and see what the elections bring.
So by the time you miss an election is casted and counted, we've already baked in what that number will be for the remainder of the year since it's only obviously 40 days left in the year at that point. So I think that pricing may be different on the backside of the election and that's another reason why I am going wait. I think the pricing may be better in the back side.
Okay. Okay. Very fair point. So is right now you said $1.1 billion to be clear right, but depending on how things span, when do you get the vote on maybe extended leverage as well, which I think you will get, but it's knocked in stone yet, but if you do get and the elections play out and pricing moves, that $1.1 billion might change.
I think that going on leverage and the outcome of the election whatever that may be, being a favorable environment and stabilizing of the capital markets absolutely that they will go up.
Okay. I appreciate that. That was my only question. Thank you.
Thank you.
Your next question comes from Finian O'Shea with Wells Fargo Securities. Your line is open.
Hi. Thanks for taking my question. First on the asset sensitivity, we often see a schedule here I think of maybe $0.04 of quarter point, looking at your yield slide, you can see the loan coupons increase presumably due to the most of the base rates, but your core yields are pretty stable.
So is there another form of spread compression via perhaps loan discounts and fees, going away in your market? Is that the way to think about it or is there something else?
No it's really as you can see in that Slide 26, you're referring, you saw a 30 basis point increase in the cash loan coupon rate and the overall core yields remain flat at 12.7. I was preliminary that has to do with the recently onboard new loans that are basically onboarded at or similar to the price of the loans that were off-boarded and so you have the net neutral portfolio, which again I'll take all day long which means that portfolio is consistently performing through the same legacy assets that they ran off.
I am going back a couple years though.
Oh Jesus okay. I'll try to answer the question, what we do right now.
You mean, but moving on, we'll take it offline. Another slide that caught me is an uptick and I am not sure if you addressed this on the call in the commentary, the uptick in unfunded commitments, is this just sort of one off its kind of popped up for a couple of quarters now to levels less seen before sort of the SEC pushed on them.
Is this something -- is this a matter of pipeline or how would you describe it?
Well look, I think it's a very, very important question and one that I frankly invite the SEC to really re-scrutinize again. I think there are some players out there that are abusing the unfunded commitments category or in some cases, the unfunded commitment can almost exceed their current outstanding portfolio.
We're $2 billion in size and my unfunny commitment or mirror $170 million versus somebody could have a $350 million loan portfolio and $240 million unfunded commitment. So it's a whole different world and I think that the SEC frankly should be re-looking at that and releasing that more diligently in the industry.
That said, our unfunded commitments are mostly attributed to pharmaceutical companies that have performance-based milestones that are upon FDA approval and other significant milestones would unlock or expire these unfunded commitments.
So ours are truly structural milestones that come into effect. The ones that you see that are fully available, these are companies that have asked us to provide additional strategic capital for them to both pursue acquisition opportunities or sales and marketing, but they have yet decided to step on the gas to engage in those products or engage in those initiatives as of yet and we believe that those companies have an abundance of enterprise value associated with us. So we're more than happy to extend that part of the balance sheet.
But again in context it's still not a very large number for us. In fact, as evidenced in Page 27, it has popped up, but it's 10.7% but a big chunk of that will start running off in the first half of '19.
Sure. Makes sense and just one more question extending I think Mr. Lynch was asking discussing previously the competing venture BDCs and I think you noted that they are smaller and grow less quickly, but to my observation, the other venture BDCs are raising actively in the private side.
So are you seeing those players do sort of larger deals that they can allocate internally and do you see that trend continuing?
I think that there is a matter of rhetoric and reality. I am not aware of any private venture lender that has any significant meaningful pools of capital that they would like to expel that they have, that they really do have and so we're not seeing any competitive advantage or any competitive differentiation within those strategy and I think it has served us to have a public BDC that is then raising money privately at the deference of the public shareholders.
So I question what's your loyalty to the public or the private shareholders you have? So I think that's more rhetoric than reality.
Thanks for taking my question.
Your next question comes from Tim Hayes with B. Riley FBR. Your line is open.
Hey. Good evening, guys and I apologize, I jumped on late. So if I ask anything that's already been asked or covered, but tell me shut up. But the first question is I saw that Grade 1 credits dropped a good amount and just wondering how much of that was due to repayment versus them being downgraded as they approached capital raises versus a deterioration in your outlook?
When the capital market starts pulling back, our rated one deal signify that we have a realized event and the company has an abundance of access to cash flow or liquidity and so when the capital markets did their adjustments, we prudently mark down credits that were rated one back to rated two and that's really probably the biggest driver that kind of led to that.
Okay. And then repayments were nearly half of the last quarters, but GAAP yields were the same despite core yields also being the same. So just wondering if the credits last quarter that we early, were more seasoned credits versus in your credits this quarter and maybe that's why the benefit to GAAP yields is stronger or if there's anything else you should be aware of?
No, it's actually the inverse. A couple of statements you may have missed. The $65 million took place in Q4, excuse me, Q3. $42 million of that was around sector rotations and select portfolio pruning that we encourage the company to refinance us out and games like that on some occasions we may waive the prepayment penalties as a way to simulate a portfolio mitigating developing portfolio of credit risks as a way doing that and when that happens of course, you'll see a materially lower overall income contribution from those early payoff activities when we select to do the portfolio rotation in doing so.
The other element is that you saws more younger loans pay off in Q2 than you saw in Q3 where Q3 had older loans associate with it and therefore the older loans typically have less than one point acceleration benefit from their early payoff versus a younger loan that may have a 2.5 point accretive benefit from early payoff.
Okay. Okay And then shifting gears a little bit, what percentage of your commitments were to SaaS companies this quarter?
So overall SaaS portfolio has grown to approximately I think we were around, what total commitments excuse me, not fundings price. I have a committed number. I don't have the funny numbers in front of me, but total commitment has risen now to approximately $390 million of total commitments in the SaaS group.
When we issued a press release back in I believe it was June we were at $305 million commitment. So you've seen them grow by approximately $80-ish million in one quarter of SaaS activities.
Got it. Okay. And as this newly brand segment continues to gain traction, how do you see that flowing through G&A and also your asset yields because I believe these loans are a little bit lower cash -- lower yield correct?
They tend to do be about 100 basis points or so lower yield, but they have an abundance of enterprise value. So it's a little different underlying methodology there. But the answer to your question, I don't look at it from an SG&A point of view. I look at from a loan portfolio or balance sheet point of view.
And today my SaaS group is about 17% of the loans on a cost basis. I think it's 17% or 18% of the loans total are reflected in a SaaS model.
I don't that SaaS should go much above 25% of the overall loan book, but it's really contingent upon how the capital markets are doing and how the public multiples are looking, but I think that from a portfolio diversity point of view probably 25% is probably the right number to kind of manage it to.
Okay. That's helpful, thanks. I'll jump back in the queue.
Thank you. Go ahead operator.
I'm showing no further questions at this time. I'd now like to turn the conference back to the presenters.
Well, thank you very much and thank you everybody for joining us on the call today, as those of you may be aware effectively next week we're on European Jefferies European roads tour for BDCs or with a handful of BDCs who will be joining throughout Europe with meeting our European investors.
They are out there as part of the BCD community in Europe and then we expect to further doing additional and non-deal road shows in New York, Boston and Chicago in the coming months. I would encourage you to reach out to Michael Hara to schedule any future meetings that you would like to us.
We're more than happy to accommodate you on those scheduling and the cities that we're in. With that, thank you for your time today and thank you for being a shareholder and remember our favorites I think you're being shoulder and remember please cast your vote. Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for participation and have a wonderful day. You may now disconnect.