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Fidus Investment Corporation  (NASDAQ:FDUS)
Q4 2018 Earnings Conference Call
March 01, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Fidus Investment Corporation's Fourth Quarter 2018 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, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Jody Burfening. Ma'am you may begin.

Jody Burfening -- Investor Relations

Thank you, Lauren, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Fourth Quarter 2018 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer.

Fidus Investment Corporation issued a press release yesterday afternoon with details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.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 in the Investor Relations page of the company's website 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 on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flow of Fidus Investment Corporation.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, March 1st, 2019 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.

With that I would now like to turn the call over to Ed. Good morning, Ed.

Edward H. Ross -- Chairman and Chief Executive Officer

Good morning, Jody, and thank you, and good morning, everyone. I'll start today's call with a high level perspective on our fourth quarter results, and then I'll cover the performance of our investment portfolio and conclude with comments regarding our view of the market and activity levels in early 2019. Shelby will go into more detail about the fourth quarter financial results and our liquidity. Once we have completed our prepared remarks, we'd be happy to take your questions.

The fourth quarter was as expected very busy from our originations and realizations perspective. Continued execution of our investment strategy of selectively investing in high quality companies and generate excess cash flow for debt service and have positive long-term outlooks served us well.

Solid execution was matched by a solid adherence to our underwriting discipline focused on capital preservation and generating attractive risk-adjusted returns from our debt and equity investments. Quality over quantity in the long-term over the short-term. In short, we have tunnel vision when it comes to our primary goal of delivering stable dividends and growing net asset value per share over time for the benefit of our shareholders.

Our operating results for the fourth quarter were strong. Diversified portfolio generated a 29.2% increase year-over-year and adjusted net investment income to $11.2 million or $0.46 per share, reflecting continued growth in recurring interest and fee income with an additional boost in dividend income from equity investments.

For the full year adjusted net investment income was $37.7 million or $1.54 per share versus $35.7 million or $1.52 per share for fiscal year 2017. As a reminder we define adjusted net investment income as net investment income excluding any capital gains incentive fees attributable to realized or unrealized gains and losses.

As of December 31st, our net asset value or NAV was $403 million or $16.47 per share, 2.5% higher than the net asset value as of December 31st, 2017 and representing the fourth consecutive year of NAV growth. On December 21st, 2018, Fidus a regular quarterly dividend of $0.39 per share and a special cash dividend of $0.04 per share. At the December 31st, estimated spillover income or taxable income in excess of distributions was $17.3 million or $0.71 per share.

On January 31st, the Board of Directors has declared a regular quarterly dividend of $0.39 per share, which will be payable on March 22nd, 2019 to stockholders of record as of March 8th, 2019. From an originations perspective, the fourth quarter was active, as expected there was a push to close deals before the end of the year. We invested $67.7 million in debt and equity securities. $30 million was channeled to three new portfolio companies. In addition we made add-on investments in several companies that successfully completed strategic acquisitions.

Diversity of these investments encompassing first lien debt, second lien debt and subordinated debt reflects our ability to offer customized financing solutions, while remaining focused on generating attractive risk-adjusted returns.

We also invested in the common equity in two of the three new portfolio companies, creating the opportunity for us to enhance returns for our shareholders. Let me briefly recap each of our new portfolio company investments.

We invested $7.5 million in first lien debt and common equity in Alzheimer's Research and Treatment Center, a leading clinical trial site services provider with a focus on trials targeting the treatment and prevention of Alzheimer's disease.

$7.5 million in subordinated debt and common equity in Palisade Company, a leading provider of risk modeling and decision analysis software, and $15 million in second lien debt in Argo Turboserve Corporation, a leading provider of parts management and the outsourced logistics services to the aerospace and industrial markets.

As I mentioned on prior earnings calls, we expected to see a fairly robust level of realizations as the year came to a close as several portfolio companies were evaluating strategic alternatives are going through sales processes, and that is in fact what happened.

Proceeds from repayments and realizations for the fourth quarter amounted to $96.2 million representing a little more than half of the total for the year and came from payment in full of $10 million on our second lien debt investment in Toledo Molding & Die. Payments totaling $24.3 million including pre-payment fees related to the exit of our debt and equity investments in Thermoforming Technology Group.

Payment in full of $12.6 million including pre-payment fees on our subordinated debt investment in Midwest Transit Equipment. A payment of $4.7 million related to the exit of our equity investment in FAR Research. Payment in full of $9.1 million including pre-payment fees on our subordinated debt investments and Revenue Management Solutions.

Payments totaling $10.9 million including pre-payment fees related to the exit of our second lien debt and equity investments in SimplyWell. Payment of $8.1 million related to the exit of our equity investments in Apex Microtechnology.

Payments totaling $5.1 million related to the exit of our subordinated debt and equity investment in Caldwell & Gregory. Payment of $2.5 million on our second lien debt investment in restaurant finance and payment in full of $7.7 million on our second lien debt investments in Plymouth Rock.

As a result of exiting the equity investments mentioned above, we generated realized gains from four companies totaling $11.7 million partially offset by a $6.8 million loss on our second lien debt investments in restaurant finance.

While the fourth quarter was very busy from an originations and realizations perspective that activity level has stretched into the first quarter of 2019 helped in part by some holdovers from the fourth quarter and in part by acquisitions completed by some portfolio companies.

Subsequent to year-end, we closed investments totaling $56.9 million and received repayments amounting to $50.3 million. In terms of new deals, we invested $17 million in BCM One Group Holdings Inc in the form of subordinated debt, preferred equity, and common equity and made a $11 million additional commitment in the subordinated debt tranche.

BCM One Holdings is a provider of managed technology solutions and services. $18.4 million in subordinated debt and common equity of BCC Group Holdings Inc, a leading provider of software and data solutions designed to enhance direct mail processing, and $10.5 million in first lien debt and common equity of Diversified Search LLC, a leading multi-practice retained the executive search firm.

And in terms of repayments, we exited our debt investments in Gurobi Optimization LLC and received payment in full of $20.4 million on our subordinated debt, which included a prepayment penalty. We exited our debt investment in Fiber Materials Inc. and received payment in full of $4 million on our second lien debt, and we exited our debt investment in Tile Redi LLC and received payment in full of $10.2 million on our first lien debt.

In addition, K2 Industrial Services Inc, was sold in late January. As you may recall, we placed K2 on non-accrual status during the third quarter and as of September 30th, 2018 the fair value of our debt investments totaled approximately $6.9 million. Asserting our creditor rights we took control of the company, identified a strategic buyer and successfully sold the business.

We have received a total of $13.4 million in cash proceeds representing payment in full of two of our debt investments and including pre-payment fees and past due interest. We hope to receive residual proceeds, which we believe will cover our remaining debt investment at which point our original debt investment will be fully realized. As part of the sale transaction, we recognized a loss of approximately $1.3 million on our equity investments.

Turning to our portfolio construction and metrics, the fair market value of our investment portfolio as of December 31st, 2018 totaled $643 million equal to 107.4% of cost. The breakdown on a fair value basis between debt and equity was 81.3% in debt and 18.7% in equity investments. We ended the quarter with 60 active portfolio companies and three portfolio companies that have sold their underlying operations.

As of December 31st, 2018, we had debt investments in two portfolio companies on non-accrual status. In addition, the K2 Industrial Services, which I just mentioned, and we substantially exited. In January, we placed US GreenFiber on non-accrual during the quarter. This investment represents 1.2% of our portfolio on a fair market value basis. We are extremely active with regard to this situation.

Moving to portfolio performance, we track several quality measures on a quarterly basis to help us monitor the overall quality, stability, and performance of our investment portfolio. In the fourth quarter, these metrics remain solid.

First, we track the portfolio's weighted average investment rating based on our internal system. Under our methodology a rating of one is outperform and a rating of five is an expected loss. As of December 31st, the weighted average investment ratio for the portfolio was two on a fair value basis in line with prior periods.

Another metric we track is the credit performance of the portfolio, which is measured by our portfolio companies combined ratio of total net debt through Fidus' debt investments to total EBITDA. For the fourth quarter this ratio was 4.5 times compared to 3.7 times for the same quarter last year and largely reflects the average leverage of the deals we invested in over the past 12 months.

The third measure we track is the combined ratio of our portfolio of companies, total EBITDA to total cash interest expense, which is indicative of the cushion, our portfolio companies have in aggregate to meet their debt service obligations to us.

For the fourth quarter, this metric was 3.6 times compared to 3.7 times for the same quarter last year. We believe the soundness of these metrics reflect our debt structuring philosophy of maintaining significant cushions to our borrower's enterprise value in support of our capital preservation and income goals.

Looking back on 2018, I'm pleased with the health of our investment portfolio at the end of the year through deliberate and proactive portfolio management, we have flushed out some riskier investments and successfully exited a couple under-performing situations, while we realized losses on some debt investments in 2018, we also strengthened the quality of our overall portfolio.

At the same time, we invested a fair amount of capital and new investments. As a result, our portfolio remains well positioned to generate high levels of current and recurring income from debt investments and through our equity portfolio ability to provide us with a reasonable margin of safety along with the opportunity to enhance returns.

As we look forward, the lower-middle market, where we operate remains active and highly competitive. M&A transactions continued to drive the majority of the deals we evaluate. In this environment, our strong relationships with deal sponsors, our industry expertise, and our ability to provide customized and flexible financing solutions continues to differentiate us in the marketplace.

From a macroeconomic perspective, we are mindful of the likelihood that we are late in the economic cycle and growth may slow down in the not too distant future. Nevertheless, our underwriting discipline with regard to new investments enables us to navigate any choppy waters that may lie ahead.

We will stay focused on investing in companies that have defensive characteristics and positive long-term outlooks that operate in industries we know well, and that generate excess free cash flow for debt service and growth.

At the same time we will avoid investments in companies operating in more cyclical industries that are subject to sharp profitability swings. As a result, we remain well positioned for the future. In addition, our recent debt offering which brought us about $66.5 million in net proceeds positions us well from a capital perspective. Our goal remains to selectively grow our portfolio in a cautious and deliberate manner, while maintaining an acute focus on capital preservation and generating risk-adjusted returns.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

Thank you, Ed, and good morning, everyone. I'll review our fourth quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q3 2018.

Total investment income was $22.2 million for the three months ended December 31st, 2018, a $4.3 million increase from Q3, 2018. Interest and PIK income increased $5.2 million. Fee income increased by $1.5 million primarily due to various pre-payment fees totaling $1.1 million and a $0.3 million increase in structuring and advisory fees in Q4.

Dividend income in Q4 was $3 million, a $2.7 million increase versus Q3 primarily due to a $2.5 million dividends from our equity investment in Pinnergy. Total expenses, including income tax provision were $11.3 million for the fourth quarter, approximately $0.9 million higher than the prior quarter.

Base management and income incentive fees increased by $0.5 million. Total G&A expenses increased by $0.1 million. Accrued excise taxes increased by $0.9 million, while accrued capital gains incentive fees decreased by $1.3 million.

Interest expense was $0.6 million higher in Q4, including a $0.1 million of non-cash accelerated amortization expenses related to the repayment of $23.5 million of SBA debentures. Interest expense includes interest as well as any commitment and unused line fees.

As of December 31st, 2018, the weighted average interest rate on our outstanding debt was 4.1%. As of December 31st, we had $277.5 million of debt outstanding comprised of $191 million of SBA debentures, $50 million of public notes and $36.5 million outstanding on our line of credit. Our debt-to-equity ratio was 0.7 times or 0.2 times statutory leverage excluding exempt SBA debentures.

Net investment income or NII for the three months ended December 31st, 2018 was $10.9 million or $0.45 per share versus $0.31 per share in Q3. Adjusted NII was $0.46 per share in Q4 versus $0.37 per share in Q3. Adjusted NII is defined as net investment income excluding any capital gains incentive fee expense or reversal attributable to realized and unrealized gains and losses on investments. A reconciliation of NII to adjusted NII can be found in our earnings press release that was issued yesterday afternoon and is also posted on the Investor Relations page of our website.

For the three months ended December 31st, 2018, Fidus had $4.9 million of net realized gains primarily related to the exit of our equity investments in FAR Research, Apex Microtechnology, Caldwell & Gregory and Thermoforming Technology Group offset by a partial write-off of our debt investment in Restaurant Finance Co.

Our net asset value as of December 31st, 2018 was $16.47 per share, which reflects the payment of $0.39 per share regular dividend and a $0.04 per share special dividend in December. Turning now to portfolio statistics as of December 31st.

Our total portfolio had a fair value of $643 million, consistent with our debt oriented investment strategy, our portfolio on a cost basis was comprised of approximately 9% first lien debt, 63% second lien debt, 18% subordinated debt and 10% equity securities.

Our average portfolio company investment on a cost basis was $10 million at the end of the fourth quarter, which excludes investments in three portfolio companies that have sold their operations are in the process of winding down.

We have equity investments in approximately 94% of our portfolio companies with an average fully diluted equity ownership of 6%. Weighted average effective yield on debt investments was 12.6% as of December 31st. The weighted average yield is computed using the effective interest rate for debt investments at cost including the accretion of original issued discount and loan origination fees, but excluding investments on non-accrual if any.

Now I'd like to briefly discuss our available liquidity. In Q4, we up-sized our line of credit facility to $90 million and repaid $23.5 million of SBA debentures and our first SBIC fund, FMC, which is in the process of winding down. As of December 31st, our liquidity and capital resources included cash of $42 million and $53.5 million of availability on our line of credit, resulting in total liquidity of $95.5 million.

In February, we completed a public debt offering of $69 million in aggregate principal of 6% notes due 2024, raising net proceeds of approximately $66.5 million including the exercise of the over-allotment. Since the beginning of the year in addition to completing a debt offering, we've paid down $19.8 million of SBA debt and had a number of subsequent events resulting in current liquidity of approximately $125.4 million comprised of $35.4 million in cash and $90 million of availability on our line of credit.

Now I will turn the call back to Ed for concluding comments. Ed?

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you, Shelby. As always, I'd like to thank our team and our Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support.

I will now turn the call back over to Lauren for Q&A. Lauren?

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Robert Dodd with Raymond James. Your line is open.

Robert Dodd -- Raymond James -- Analyst

Hi. Just one housekeeping one, if I can. Shelby, I may have missed it, if you gave it, can you tell us how much accelerated OID that was in the interest income line rather than the fee income line in the fourth quarter?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

You know what, let me, why don't you ask your other question, let me, just look at some real quick, and I'll get right back to you.

Robert Dodd -- Raymond James -- Analyst

Perfect. And then the repayment environment, I mean, obviously you have a very high, doesn't really do, isn't the right word. There's a lot of repayments in Q4 then obviously that has continued in Q1, I mean, pushing 20% of your portfolio kind of repaid in the last two quarters including kind of in Q1. I mean, what's the level and it's very difficult to predict, but the environment, is the environment conducive to repayments remaining highly elevated going forward or can you give us kind of any color on what you expect. What's plausible on that front compared to the really elevated levels we've seen recently?

Edward H. Ross -- Chairman and Chief Executive Officer

Sure. Robert, it's a great question. I think what drove a large majority of our repayments in Q4 was M&A transactions. We did have a couple situations where the debt was just refinanced for sure, but a large majority of the repayments and realizations was M&A driven. I would say here in Q1, it's been a little bit different. We had a company that was performing too well, if you will, and had a large repayment there. And then we have proactively and K2 would be one of them really pushed for the realization or repayment of several loans here over the last year three to four months in certain situations.

And so it's been a combination of M&A activity and quite frankly proactive portfolio management. What I would say is, we're going to continue to have a healthy level of M&A, but we don't have the same level or the same number of companies in our portfolio today that are pursuing strategic alternatives like they were last fall.

So, I think, it's a little different scenario on a look-forward basis. I'm sure that will change at some point, but we don't anticipate the same level of repayments over the next call it three to four months that we've had in the past.

Robert Dodd -- Raymond James -- Analyst

Got it, got it. And I mean in your prepared remarks, I think, you meant you talked about that you've strengthened the quality of the portfolio by these proactive measures, I mean, without -- not trying to completely back you into a corner, but of course I am. Are you done with that portfolio rotation today or are you continuing to seek to strengthen the quality of the portfolio by proactive measures with assets that you have on the books right now?

Edward H. Ross -- Chairman and Chief Executive Officer

Yes. You are backing me into a corner, but what I would say is, look, we're not done, we're never done, this way I would answer that. We're always looking for ways to optimize our portfolio, and if we think situations are risky, and they could get riskier then we move to do that.

But you're not always in a position to do it at the same time, and so I would d say we're opportunistic on that basis. And we obviously have had some success in moving some under-performing situations out of the portfolio, but it's -- we're never done.

I think it's something we're always looking at and always trying to accomplish. But I think we -- at the same time we feel very good about the health of our overall portfolio as we sit here today. And we -- a lot of the purposeful moves event, what if there is a recession or if we have a slowdown, it's unclear and when that may or may not happen, it will eventually, but we are -- we have been for a couple of years really working hard to position the portfolio for that kind of event, and so we can withstand that. So we -- again we feel good about the portfolio, but it's a -- valuation.

Robert Dodd -- Raymond James -- Analyst

Got it, got it. I really appreciate that color. If I can, one more, if I can. I mean, listen, when we look at your equity book north of $50 million in unrealized depreciation cost that's concentrated into asset really into assets, right, Pinnergy and Pfanstiehl. So can you give us an update anything that's going on with those two assets that have obviously been very successful on from the value of your equity piece there and Pinnergy actually generated income as well. So, can you give us any update on those two?

Edward H. Ross -- Chairman and Chief Executive Officer

Nothing material other than they continue to perform very well on our operating and financial basis. We're always evaluating the opportunity to monetize our investments where we're also looking out in the future and say it's now the right time or should we wait. So that's part of the equation.

But I don't have as an update any more than the companies continue to perform very well, and we are as you would expect, always looking for ways to monetize our more mature equity investments, and so we'll continue to do that with regard to both names. But that's probably the only update that I can give you.

Robert Dodd -- Raymond James -- Analyst

Okay, thank you.

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

So, Robert, back to your question. In Q4, we had about $800,000 of OID, if you will, but $245 million was from the acceleration of closing fees related to debt investments that were repaid and the remainder was related to warrant that was issued against the Midwest Transit Equipment debt that got repaid in Q4.

Robert Dodd -- Raymond James -- Analyst

Got it. Thank you.

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you, Robert. Good talking to you.

Operator

Thank you. Our next question comes from Paul Johnson with KBW. Your line is open.

Paul Johnson -- KBW -- Analyst

Good morning, guys. Thanks for taking my question. I just was wondering if you guys could talk about the book value resilience, I guess, that you had in the quarter, given your net appreciation that you had last quarter. And then maybe also what you saw in your -- in the lower-middle market space during that time of volatility. And then also, I guess, just in conjunction with that, if you could describe your quarterly valuation process that would also be helpful? Thanks.

Edward H. Ross -- Chairman and Chief Executive Officer

Sure, absolutely. I'll let Shelby take the valuation process. I'll jump in on the book value. I think what I would say is, the valuation process, what we found was the companies in our portfolio on average were in a slow growth mode, and growing both revenues and EBITDA. So, a majority of the companies were growing on both of those facets, which is obviously helpful from a valuation perspective.

And so the underlying performance of our portfolio was strong throughout the year and continue to be very good in the Q4 time period. And so that is what's reflected in the book value appreciation. Other things obviously K2 that we mentioned in our prepared remarks was a nice ride up at the end of the quarter. And so that was also a positive to the overall portfolio. But what I would say is, generally speaking, the portfolio companies and their underlying performance whereas probably as strong as they've been in a while in Q4. And so that's what's driving the stability of the portfolio -- of the book value. And also we -- if you look at NII it was -- we exceeded the dividend by $0.06 or so and that also drove some of the appreciation. Shelby?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

So, in terms of our quarterly valuation process. We do internal valuations on 100% of our securities every quarter, and I would probably highlight that the team that does the valuation team from the senior deal team members of the same team that did the originations.

So, it's cradle to grave in terms of their touch on the investment assets, and then we also use Lincoln to do a third-party valuation. In Q4, Lincoln looked at 16 of our portfolio companies, which represented about 36% of our investments at fair value.

And I would say that's pretty typical of what we do every quarter, and Lincoln will review all of our investments at least once per year. The Board does have them look at riskier investments more frequently sometimes is every quarter, and we'll take a look at some of our larger investments and potentially value them more than once per year.

After we complete our internal valuations that we have Lincoln's recommendations we present all of that information to our audit committee, which consists of all the independent members of the Board. Our audit committee will have a very lengthy probably usually redefined our conversation as it relates to discussing all the portfolio companies with the valuations and business updates.

They'll make any potential recommendation and changes that will incorporate into the financial statements and then ultimately the final recommended fair values are presented to the full board for review and approval and inclusion in the financial statements.

Paul Johnson -- KBW -- Analyst

Okay. Thanks for that detail. That's very helpful.

Edward H. Ross -- Chairman and Chief Executive Officer

Absolutely. Good talking to you, Paul.

Operator

Our next question comes from Chris Kotowski with Oppenheimer. Your line is open.

Christopher Kotowski -- Oppenheimer -- Analyst

Yes, good morning. I wonder if, maybe I missed a bit. Could you give us an update on accessing more SBA financing?

Edward H. Ross -- Chairman and Chief Executive Officer

Great question. Good morning, Chris.

Christopher Kotowski -- Oppenheimer -- Analyst

Good morning.

Edward H. Ross -- Chairman and Chief Executive Officer

We are continuing to work through the process is our understanding. Obviously, the government shutdown in January and part of February was, I think, slowed things down just a little bit, but we are hopeful and we're continuing to work through the process is what I would say.

Christopher Kotowski -- Oppenheimer -- Analyst

Okay. And remind us, do you had a Green Light letter or that had not yet been issued?

Edward H. Ross -- Chairman and Chief Executive Officer

No, that has been issued.

Christopher Kotowski -- Oppenheimer -- Analyst

That has been, OK.

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

We should be toward the tail-end of the process. We're just not a 100% at the finish line yet, but we are definitely making to that progress.

Christopher Kotowski -- Oppenheimer -- Analyst

Okay. And then just since there -- rare when you have a new non-accrual -- always I'm curious and GreenFiber is listed as a building products company. And I'm wondering is the issue there is obviously with rates rising, housing stocks were under pressure last year, and then there is concern about I guess housing and building is there. Do you see stress in the sector or is it a more idiosyncratic issue?

Edward H. Ross -- Chairman and Chief Executive Officer

Yes, it's more a company-specific issue, it's not a -- not an industry issue. The company manufacturers and sells cellulose insulation, which competes against traditional insulation. As many character, many attractive characteristics relative to the competition including being a green product, company consolidated several plans a few years ago and the execution of that was four.

And then -- more recently paper prices or certain types of paper prices recycled paper, it hurt the company, but actually that's subsided, but last year is a tough year had more couple of negative events included a plant fire and also the death of the Company's CFO, which was a hit among other things.

So, the valuation reflects the risk of our investments as of the end of the year. We're very active in this situation, but, yes, it was a tough 2018, it wasn't really an industry issue, it's more just company specific stuff.

Christopher Kotowski -- Oppenheimer -- Analyst

Okay. And otherwise, in general, it's still sounds like you are overall constructive and -- on the outlook for -- how are things going at your portfolio companies, generally, I guess is the question?

Edward H. Ross -- Chairman and Chief Executive Officer

Sure, sure. It's a great question and obviously a top of mind subject for us. I think as I was discussing with regard to the valuations in our NAV, I mean, what we saw in Q4 as we looked at the portfolio and obviously we're continuing to look at it is there was a pretty good growth on the revenue side of things and also from an EBITDA perspective.

And so, at the moment, we aren't seeing any real pockets of uncertainty, I mean, there's issues out there, you got to pay attention to tariffs increasing certain input costs and things like that, and we're obviously being very careful with regard to consumer investments healthcare services, reimbursement rate risk is something we're paying attention to and really trying to stay away from things like that, but when I look at the underlying portfolio that we have today, I think, we feel very good about the -- it's overall health and also just a trajectory at the moment. So it's a -- it feels like it's in a very solid place at the moment.

Christopher Kotowski -- Oppenheimer -- Analyst

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

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you. Good talking to you, Chris.

Operator

Our next question comes from Mickey Schleien with Ladenburg. Your line is open.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Yes, good morning, everyone. I wanted to follow up on the valuation question. Could you help us understand how credit spreads impact valuation and could that potentially provide a tailwind for NAV in the current quarter?

Edward H. Ross -- Chairman and Chief Executive Officer

Well, I would say, does it impact our valuation, it does. It's an input that goes into -- when comps go down, does it impact our equity valuations. We do take that into account with regard to those, and then also on the debt side. But to a much lesser degree than the whipsaw that we saw in the more liquid markets in December. We then -- with the private debt investment and with cushions of call it 50% from an equity cushion perspective, we didn't see that kind of volatility in our marks.

And so I don't think you would see a material uptick from an NAV perspective, I think, could there be modest jumps, the answer to that is, yes, but I wouldn't look for a material uptick is what I would say, Mickey.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Okay. If I heard Shelby correctly, the dividend, the large dividend in the quarter was from Pinnergy. Is that sustainable or was that some sort of a true-up perhaps due to taxes or something else?

Edward H. Ross -- Chairman and Chief Executive Officer

No, I mean, the company is in a very, it's performing very well in a very unlevered position. So, there's not a lot of debt on the books. And so it's more of an opportunistic dividend that we don't control this company, but that the Board decided to make. So, I would -- what I would say is it sustainable could you do more and the answer is yes, but I also wouldn't say that's not something that we are expecting to repeat when we are not in control of that. So, I can't say never, but definitely, it's not a quarterly type of dividend. I would not think of it in that manner. But I didn't feel good about the prospects of the business, and it's very unlevered. So, there is an opportunity to do more dividends, but we're not in control of that aspect.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Thanks. And turning to K2, what is the principal amount of the new debt in the company and presumably, that's going to be back on accrual. Is that right?

Edward H. Ross -- Chairman and Chief Executive Officer

That is correct. It's actually not in the company. The company was sold. So, it's in a side entity where we have residual proceeds that are expected to come from a variety of sources. I can't get into too much detail, but it's $2.5 million that are still left behind, and our current expectation would be that would be repaid in full over the call it medium-term, it's probably a 24-month type of a situation, but we feel good about the prospects there. There is risk that those residual proceeds. I'll come back as you might expect, but I think we feel good about those prospects.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Okay. And just a couple of sort of modeling questions. It looks like exits for the fourth quarter were back-end weighted. Is that a correct assumption?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

I would probably say it's just really spread throughout the quarter and we did have some a little bit.

Edward H. Ross -- Chairman and Chief Executive Officer

We had quite a bit preview at the time of our call, we had some in October for sure. But I would say it was spread across the quarter, in general, that's what I would say.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

All right. And just looking at the SBA. I appreciate your comments on the Green Light letter. On the flip side, when do you expect to repay fund ones remaining debentures?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

So, we have about $21 million left, since we made the last payment in February. And that will be truly dependent on when we get repayments of the underlying investments. It's possible we could finish repaying that this year, but those are just really depend on various sales processes and what really closes between now and September 1st.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Okay. So, $20 million were repaid this month and that leaves $21 million for the future. Is that right?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

That's right.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Okay. And my last question, I apologize, maybe you've already announced it. Do you have a target leverage number that you've announced?

Edward H. Ross -- Chairman and Chief Executive Officer

No. Mickey, I think, what we've talked about in the past is 0.7 to 0.8 is something that for the long-haul we've been very comfortable operating. With the new legislation, quite frankly, we have a lot of SBIC debt. We're comfortable going higher upto 1. I don't see us going over 1, even with SBA debt. But we're comfortable going up there, but we're also find our target is more in the 0.7 to 0.9 range, I would say.

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

Okay. I appreciate that. Those are all my questions this morning. Thank you for your time.

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you. I appreciate it. Good talking to you, Mickey.

Operator

Our next question is a follow-up from Robert Dodd with Raymond James. Your line is reopened.

Robert Dodd -- Raymond James -- Analyst

Hi. Just a detailed question on K2. On the markup that occurred in the fourth quarter, obviously, it was control investment at the end of the quarter, but it wasn't at the beginning. So, where did that markup because this was $4.8 million unrealized appreciation to get it toward where it was exited. Was that embedded in the non-control line or in the control line on the unrealized appreciation?

Edward H. Ross -- Chairman and Chief Executive Officer

The control?

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

Oh, yes. K2 was a control investment in Q4.

Edward H. Ross -- Chairman and Chief Executive Officer

So, it will be embedded in that line, right?

Robert Dodd -- Raymond James -- Analyst

Okay. Got it. Thank you.

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you, Robert. Good talking to you.

Operator

Thank you. (Operator Instructions) And I'm not showing any further questions at this time. I would now like to turn the call back over to Ed Ross, CEO for any further remarks.

Edward H. Ross -- Chairman and Chief Executive Officer

Thank you, Lauren, and thank you, everyone for joining us this morning. We look forward to speaking with you on our first quarter call in early May. Have a great day and a great weekend.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.

Duration: 47 minutes

Call participants:

Jody Burfening -- Investor Relations

Edward H. Ross -- Chairman and Chief Executive Officer

Shelby E. Sherard -- Chief Financial Officer, Chief Compliance Officer & Secretary

Robert Dodd -- Raymond James -- Analyst

Paul Johnson -- KBW -- Analyst

Christopher Kotowski -- Oppenheimer -- Analyst

Mickey Schleien -- Ladenburg Thalmann & Co. -- Analyst

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