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Fidus Investment Corporation (FDUS 1.04%)
Q2 2019 Earnings Call
Aug. 02, 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 Second Quarter 2019 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, you may begin.
Jody Burfening -- Investor Relations
Thank you, Catherine and good morning, everyone. Thank you for joining us this morning for Fidus Investment Corporation's second quarter 2019 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 the 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 today that this call is being recorded. A replay of today's call can be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived webcast replay will be available on the Investor Relations page of the company's website 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 flows of Fidus Investment Corporation.
Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, August 2, 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 Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.
With that, I would like to now turn the call over to Ed. Good morning, Ed.
Edward H. Ross -- Chief Executive Officer
Good morning, Jody and good morning, everyone. Welcome to our second quarter 2019 earnings conference call. I'll start today's call with a high level perspective on our results, and then I'll cover our investment portfolio performance and conclude with comments regarding our view of the market and activity levels, as we move into the second half of 2019. Shelby will go into more detail about the second quarter financial results and our liquidity. Once we have completed our prepared remarks, we'd be happy to take your questions. On our call last May, I mentioned that M&A activity appeared to be picking up and has played out in the second quarter, while we remain very careful about the types of business that we invested in, we continue to selectively build our portfolio debt and equity investments.
Adjusted net investment income was redefined as net investment income excluding any capital gain and synergy attributable to realized and unrealized gains and losses of $8.4 million or $0.34 per share compared to $8.7 million or $0.36 per share for the same period last year. While we continue to proactively manage the portfolio, the impact of a non-accrual investment overshadowed increases from higher assets under management during the quarter.
As of June 30, 2019, our net asset value or NAV was $398.5 million or $16.29 per share. On June 21, 2019, Fidus paid a regular quarterly dividend of $0.39 per share. At June 30, estimated spillover income or taxable income in excess of distributions was $16.5 million or $0.67 per share. On July 29, the Board of Directors declared a regular quarterly dividend of $0.39 per share which will be payable on September 20, 2019, to stockholders of record as of September 6, 2019.
Originations during the second quarter continued to position our portfolio to provide us with a high level of current and incurring income from debt investments and a margin of safety along with the opportunity for incremental returns from equity investments. We invested $48 million in debt and equity securities nearly all of the $48 million or $42.9 million went to four new portfolio companies, three of which were M&A related.
Reflecting our ability to offer customized financing solutions that are designed to generate attractive risk adjusted returns, second quarter investments in new portfolio companies encompass three first lien and one second lien debt investment in addition to preferred income and equity.
Let me give you a brief description of each of them. French Transit, LLC is a developer and marketer of a portfolio of established personal care brands. We invested $8 million in first lien debt and made a $1 million revolving loan commitment, with $0.5 million funded at close.
Hoonuit, LLC, is an education technology platform that provides online data analytics and professional development primarily for K-12 school districts. We invested $7.4 million in first lien debt and preferred equity.
Specialized Elevator Services Holdings, LLC, is a provider of elevator maintenance, repair and modernization services. We invested $5.5 million in first lien debt and common equity.
And finally, we invested $21.5 million in second lien debt and preferred equity in Wheel Pros, Inc., a leading designer, marketer and distributor of branded aftermarket wheels, performance tires and accessories.
The remaining $5.1 million in originations consisted of add-on investments in six existing portfolio companies. Collectively, these investments illustrate our adherence to our investment strategy of focusing on high quality company to possess defensible market positions and proven business models that generate excess cash flow for debt service and growth and that operate in industries we know well.
In terms of repayments and realizations, we receive proceeds totaling $17.9 million which primarily came from payment in full of $9.6 million including a $0.1 million prepayment fee on our second lien debt investment in Transco LLC. And payment in full of $6 million on our second lien debt investment in Trantech Radiator Products Inc., and we realized a $0.3 million loss on our equity investment.
As reported in our second quarter press release, subsequent to quarter end on July 19, we exited our second lien debt investment in Pinnergy limited and received payment in full of $4 million as the company refinanced its debt to lower cost of capital. On July 31, 2019, we invested $21.5 million in a new subordinated debt investment of an existing portfolio company Allied 100 Group Inc.
Turning to our portfolio of construction and metrics, the fair market value of our investment portfolio as of June 30, 2019 was $697.3 million equal to 106.4% of cost. The breakdown of the portfolio on a fair value basis by investment type was as follows. First lien debt 10%, second lien debt 53%, subordinated debt 18% and equity 19%. We ended the quarter with 64 active portfolio companies and four companies that have sold their underlying operations. As of June 30, 2019, we had debt investments in two portfolio companies on non-accrual status. US GreenFiber and Oaktree Medical Center doing business as pain management associates. Together these two investments represent 0.9% of our portfolio on a fair market value basis. We continue to actively manage both portfolio companies with respect to Oaktree Medical, I want to take a moment to explain the reduction in value of our investments to zero. As you may recall on last quarter's call I mentioned that Oaktree Medical has experienced certain unexpected exogenous events.
These included an FBI raid on several of the company's locations and whistleblower lawsuits in which the US Department of Justice subsequently intervened. More significantly in Q2, the DOJ filed a new civil lawsuit alleging fraud and material violations of various federal and state laws. As you might imagine these types of claims can have a wide range of adverse effects on any healthcare services business such as lower patient visits, higher employee turnover, the incurrence of material professional and legal defense costs and significantly reduce payer collection rates.
After evaluating the uncertainty and amount of time and costs needed to resolve the litigation and the cost that would be required to restructure the company's balance sheet we reduce the valuation of our investments to zero to reflect the substantial change in risk. This is an unfortunate turn of events.
Moving to portfolio performance, we tracked several quality measures on a quarterly basis to help us monitor the overall quality, stability and perform of our investment portfolio. First, we tracked 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. At June 30, weighted average investment ratio for the portfolio is 1.9 on a fair value basis in line with prior periods.
Another metric we tracked is the credit performance of the portfolio which is measured by our portfolio company combined ratio of total net debt we provided debt investments to total EBITDA. For the second quarter, this ratio is 4.6x compared to 3.8x for the same quarter last year and compared to 4.5x for the first quarter of 2019 and the fourth quarter of 2018.
The third metric we tracked is the combined ratio of our portfolio of company's total EBITDA to total cash interest expense which is indicative of the cushion our portfolio of company have in aggregate to meet their debt service obligations to us.
For the second quarter, this metric was 3.8 times compared to 3.9 times for the same quarter last year. We believe the soundness of these metrics reflect our debt structuring philosophy and maintaining significant cushions to our borrower’s enterprise value in support of our capital preservation and income goals.
As we move into the second half of 2019, the M&A market remains relatively healthy which should generate new investment opportunities as well as the potential for both debt and equity realizations. Due to our underwriting discipline and focus on capital preservation, our portfolio remains healthy, well diversified and structured to preserve capital and generate attractive risk-adjusted returns. While our debt investments continue to provide us with a high level of current and recurring investment income, our equity portfolio valued at a little more than two times cost is positioned to offer opportunities to monetize mature equity investments.
In closing, we remain focused on our primary goal of delivering stable dividends and growing net asset value over time.
I will now turn the call over to Shelby to provide some details on our financial and operating results. Shelby?
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
Thank you, Ed and good morning everyone. I'll review our second 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 Q1, 2019. Total investment income was $18.1 million for the three months ended June 30, 2019, a $2.3 million decrease from Q1.
Interest and PIK income decreased by $1.1 million, primarily due to the placement of Oaktree Medical Center on full non-accrual status in Q2 and the one-time positive impact from collecting past due interest in Q1 upon the exit of our debt investments in K2 Industrial Services. PIK income as a percentage of total interest income, roughly 17.6% was higher than average at approximately $1.5 million of cash interest due from Accent Food Services was paid in kind in Q2. Fee income decreased by $1.5 million in Q2 due to reduced investment activity and lower prepayment fees. Dividend income was $0.6 million, a $0.3 million increase versus Q1, primarily due to a $0.5 million dividend from our equity investment in Pinnergy. Total expenses, including income tax provision, were $8.4 million during the second quarter, approximately $2.3 million lower than the prior quarter, primarily due to a $2.8 million decrease in incentive fees.
Capital gains incentive fees decreased by $1.6 million and income incentive fees decreased by $1.2 million, both primarily related to the write down in our investments in Oaktree Medical Center. Base management fees increased by $0.1 million while interest expense increased by $0.3 million. Total G&A expenses were flat quarter-over-quarter.
Interest expense includes interest as well as any commitment in unused line fees. As of June 30, 2019, the weighted average interest rate on our outstanding debt was 4.5%. As of June 30, we had $319.8 million of debt outstanding comprised of $171.3 million of SBA debentures, $119 million of public notes and $29.5 million outstanding on the line of credit. Our debt to equity ratio was 0.8 times or 0.4 times statutory leverage excluding exempt SBA debentures.
Net investment income or NII for the three months ended June 30, 2019 was $9.6 million or $0.39 per share, in line with Q1, 2019. Adjusted NII was $0.34 per share in Q2 versus $0.41 per share in Q1. 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 June 30, 2019, Fidus had approximately $0.1 million of net realized losses primarily related to the exit of our equity investment in Trantech Radiator Products. We incurred $0.3 million of tax expense related to estimated state tax extension payments made in Q2. Our net asset value at June 30, 2019 were $16.29 per share which reflects payment of the $0.39 per share regular dividend in June.
Turning now to portfolio statistics. As of June 30, our total investment portfolio had a fair value of $69.3 million. Consistent with our debt oriented investment strategy, our portfolio on a cost basis was comprised of approximately 12% first lien debt, 59% second lien debt, 19% subordinated debt and 10% equity securities. Our average portfolio company investment on a cost basis was $10.2 million at the end of the second quarter which excludes investments in four portfolio companies that sell their operations they're in the process of winding down.
We have equity investments in approximately 93% of our portfolio companies with a weighted average fully diluted equity ownership of 6%. Weighted average effective yield on debt investments was 12.4% as of June 30. The weighted average yield is computed using the effective interest rates for debt investment of cost including the accretion of original issue discount and loan origination fees, but excluding investments on non-accrual if any.
Now I'd like to briefly discuss our available liquidity. As of June 30, our liquidity and capital resources included cash of $21.9 million and $7.5 million of availability on our line of credit, an FNC3 debenture respectively resulting in total liquidity of $99.9 million. Subject to SBA regulatory requirements and approval, we have access to 167.5 million of additional SBA debentures under our third SBIC license.
Now I'll turn the call back to Ed for concluding comments. Ed?
Edward H. Ross -- Chief Executive Officer
Thanks Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support. I will now turn the call over to Catherine for Q&A. Catherine?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Robert Dodd with Raymond James. Your line is open.
Robert Dodd -- Raymond James -- Analyst
Just looking at Oaktree, I mean obviously some of the things we're going on as you say before Q2. So without focusing on that one which obviously I know you've marked down to zero, I guess the question is, is there anything else in the portfolio where you're starting to see maybe some unexpected events, maybe not the DOJ filing suit. But where there's any other assets in there that are showing some signs that maybe don't justify a big markdown today, but Oaktree did in two quarters ago either?
Edward H. Ross -- Chief Executive Officer
Sure, sure. Robert, great question. I personally view the Oaktree situation as being very I use this term exoplanets and and off the beaten path to a huge degree. So we hope to never experience that again. You know, given. But to answer your question more specifically, I mean, given our focus. There is always the risk of a negative turn of events or just incremental poor performance that could take place with regard to any name whether it's performing really well now or there's one that's under budget. But in particular that could create a non-accrual clearly, but overall, we feel very good about the overall health in the outlook of our portfolio and also the health and outlook for our equity portfolio. So I hope that's helpful. When you have 64 names you always have some that are underperforming and some that are exceeding expectations and you can be assured that we're managing the portfolio on a very tight basis if you will.
Robert Dodd -- Raymond James -- Analyst
Yes. I appreciate that color and one of those names, Shelby you said, I think it was Accent Food Services, this quarter they paid their interest in pick instead of previously in cash anything we should read here, any color you can give on and obviously it's a private company. But any color you can give us on why they did that or if somebody is suffice to stop paying and pick instead of cash I would, all other things being equal suspect some level of incremental stress of that business?
Edward H. Ross -- Chief Executive Officer
Sure. Let me as a reminder I'll try to give you some context here. Accent Foods is a leading provider of customized refreshment and break room food and beverage services to a diverse base of over 3,500 customers in the Texas marketplace and other states as well. Their core services include vending services, micro markets and coffee services and they're focused on the small to medium sized business market as well as the government market. Overall it's a day in, day out business with meaningful size which we like. Since our involvement, the company has been acquisitive and they've also invested in the infrastructure of the company to help facilitate its growth objectives.
Companies had to digest a lot as a result which has proved to be more difficult than expected. Recent results have been positive and our view of the long term is positive as well. So the situation that I would say is a company found itself in more leverage than we all agree to and so we had to work with all the capital structure constituents to facilitate a go forward path. But as I mentioned, the outlook is positive from our perspective.
Robert Dodd -- Raymond James -- Analyst
Thank you for the color on that. We had a lot of deployments in the quarter, can you give us an indication of timing on those, where those late in the quarter because it doesn't look like they, if I adjust for the non-accrual etcetera, it doesn't look like the new deployments generated a lot of income this quarter, but that may be a case of timing. So anything you can give us on that front?
Edward H. Ross -- Chief Executive Officer
Yes. I can and that's a great question Robert. As you remember last quarter when we had our call, we had no subsequent events to speak of and so you're exactly right. The investments that we made were all second half of the quarter and some of them were very end of the quarter. So that did impact the financial results to a certain degree.
Robert Dodd -- Raymond James -- Analyst
And then just a housekeeping one, was there anything reversed in the top line, obviously Oaktree, a decent chunk of that was pick, was any of that reversed from what was accrued in the first quarter or was it just a zero and no reversal?
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
No, there was a reversal as it related to Oaktree that we took in the second quarter, as we only had Oaktree on, takes non-accrual in the first quarter. So we reversed about 449,000 of income in the second quarter.
Robert Dodd -- Raymond James -- Analyst
Thank you, that's it for me. Thank you.
Edward H. Ross -- Chief Executive Officer
Thanks Robert, good talking to you.
Operator
Thank you. Our next question comes from Ryan Lynch with KBW. Your line is open.
Ryan Lynch -- KBW -- Analyst
Hey, good morning. Thanks for taking my questions. I want to follow up with a question in response to Robert's question. You talked about a couple of companies that you're keeping a close eye on today. You just wanted to know what exactly does that mean? What is the recourse if, you know, as you review your portfolio, if there's companies that are starting to under perform or some things aren't going exactly the way you guys had anticipated? What exactly is keeping an eye on it? I mean, what -- what is the exact legal recourse that you guys could do to optimize and manage that portfolio?
Edward H. Ross -- Chief Executive Officer
Sure. Great, question Ryan. I think first and foremost when we said keeping an eye on it and just call it 90 plus percent of our portfolio companies that we have a debt investment in. We are attending board meetings. So we are pretty active in these situations and pretty close to them. So from a monitoring perspective, we're looking at things monthly and obviously you know usually visiting the company on a quarterly basis and if there's stuff going on whether acquisitions or under performance is much more dialogues.
So, that's our monitoring. From a recourse, it really depends on the debt structure and is as you all know that we are doing some first lien investments, we're doing some first lien investments where we are the last out lender. We have some secondary investments and that's the majority of our portfolio and we have subordinated debt as well.
And so, the recourse varies, right, and first lien I think you obviously have more of ability to act and impact things, from a second lien perspective we still have strong maintenance covenants which is one of the beauties of our market from our perspective. So, we have a seat at the table when covenants are broken but you still go to work through whatever situation it is.
And they obviously they vary from time to time. So, it varies but we have a seat at the table, we are very close to the company and but what we can do and not do depends on things like our repayment subordinated or not in that structure and that varies deal by deal.
Hopefully that's helpful.
Ryan Lynch -- KBW -- Analyst
Yes, that's helpful color. I had a question with the originations to this quarter, I think you said about 48 million originations; about 43 million were to new portfolio companies. Is that a higher percentage for you historically. Is the vast majority of your originations coming from new portfolio of companies versus add on?
I'm just wondering if this quarter was any different than kind of historically, that percentage versus new versus add-ons.
Edward H. Ross -- Chief Executive Officer
I would say this quarter was a little bit higher from a new perspective. We over the last several years we've had a portfolio that quite frankly has been pretty acquisitive. And so, typically when acquisitions are being made, we are participating with new dollars in those financings. And so, if would look at this quarter for instance, we have an existing portfolio company Allied 100, we initially invested in that company several years call four years ago plus or minus. And we the debt was repaid due to the company come in leverage coming down and then being able to reduce their cost of debt capital. They're making a sizable acquisition or just made one this week and we participated again in that in the form of a $21 million second lien investment. So, this quarter it will be different than that. So, it really varies quarter-to-quarter but I would say by-and-large this Q2 was a little bit more weighted toward new investments rather than just in portfolio of the companies.
Ryan Lynch -- KBW -- Analyst
Okay, that's helpful. The reason I was going to asking is we heard some other BDCs maybe a little bit of a different market, a little bit larger, talk about with a competitive environment that everybody's well aware about there, kind of leaning into some existing portfolio companies for new originations and shouldering some of the benefits of incumbency and so that was a little strategy versus your guys end result of mostly new companies. And so, just wondered to know if you had any comments on that.
Edward H. Ross -- Chief Executive Officer
No, I think look, we do try that. When we find good/great companies, we do try to stay involve with them but when you think about where we're playing in the lower end of the market, that's a large majority the number of businesses, it's much more fragmented than the bigger market and so then it's I would argue it's harder to stay involved. And so, but we do try and for instance we got a couple of companies in our portfolio today that or initially originated in 2007. So, it's definitely a goal when we can but it's probably less than some of the larger BDCs.
Ryan Lynch -- KBW -- Analyst
Sure. Okay, that's helpful color, I appreciate your time today.
Edward H. Ross -- Chief Executive Officer
Yes well, thank you. Good talking to you, Ryan.
Operator
Thank you. Our next question comes from Mickey Schleien with Ladenburg. Your line is open.
Edward H. Ross -- Chief Executive Officer
Good morning, Mickey.
Mickey Schleien -- Ladenburg -- Analyst
Picture, and how would you gauge the performance of your borrowers to be in the current environment. I appreciate your comment on relatively healthy outlook but I'd like to understand how was revenue trending, how are margins trending given that we start to see more and more clear signs that the economy is slowing?
Edward H. Ross -- Chief Executive Officer
Sure, great question Mickey. Again, as I said before, we feel very good about the overall health and quality of the portfolio. I would characterize it as being in a slow growth mode from both a revenue and an EBITDA perspective. What we have seen though is growth has slowed a little bit over the last couple of quarters.
And so, there is a slower growth that's in line with what we're reading about in the newspapers obviously. And as I mentioned earlier, we have some companies that are exceeding expectations despite the slower growth and some that are underperforming or a couple that are underperforming but that is that's how we think about it.
When you look the overall portfolio, it's valued at a 126% of cost. We feel very good about our debt portfolio, the average enterprise value question is about 50% today. And so, we feel also good about the prospects of generating some capital gains in the next call it 60 to 90 days, not our larger investments just to clarify, just I don't want to set that expectation.
But there's some good activity going on here in the second half of the year and I think that will result in some repayments that also result in some equity realizations for us.
Mickey Schleien -- Ladenburg -- Analyst
Thank you. And that's helpful. Ed, giving the nature of your borrowers in other words the sectors that they're operating in and the types of end customers they have and their balance sheets, how stimulative do you think the recent rate cut is going to be for them?
Edward H. Ross -- Chief Executive Officer
I don't think it's that material from my perspective, it's just not enough of a change that's going to really lower their cost of borrowings if you will in a material way. So, does it free up a little bit of cash? Yes, absolutely, where which can be used on growth or other initiatives.
But I don't think it's going to be overly stimulative. But again what we're seeing is in our portfolio is stability and just a little bit slower growth. We're not seeing any sectors that were invested in where we have major concerns about while there's a slowdown happening.
That it's more stability just kind of slow growth steady as it comes kind of thing.
Mickey Schleien -- Ladenburg -- Analyst
Okay. And as you mentioned and as it's clear from the results, you had an active quarter. Could you -- how would you characterize the deal terms that you were able to get on these new transactions relative to a very competitive market?
Edward H. Ross -- Chief Executive Officer
I think they were, I mean, I feel good about it. We are maintaining our highly selective stance in there, now we view it that we're in the later stage of an economic cycle obviously it's been managed very carefully by the fed and others.
But so, what we're doing is investing in businesses that we believe are very resilient, could handle a recession even though recession like the one that we had last time around. And then, also coupling that with structures that helped protect us.
And so, this last quarter, three of the four investments we made or new investments we made were first lien investments. Those all have covenants and we have a fair bit of control over that capital structure. As you might imagine, we also made a second lien investment as well but that is a well-structured piece paper, second lien and it's also a very larger company actually a larger-than-average company for us.
And so, again we feel very good about the risk adjusted returns that we are focused on.
Mickey Schleien -- Ladenburg -- Analyst
Alright. And my last question. FDS Avionics, could you give us an update on trends there, I see the valuation was relatively stable, I mean what's the outlook for that business?
Edward H. Ross -- Chief Executive Officer
Sure, great question. I would say it's a company that we now control for the shy of two years. So, it's a situation that we're very active in. company performance more recently has been up and so we've seen an uptick in the business and that's been a positive.
But it's, look it's a work in process is what I would say and but at the same time we're feeling good about the value proposition that the company delivers to its marketplace and we view this is more of a medium-to-long-term type of exits.
So, they've got to be in our portfolio for a while. But we're working it very hard. Because it is it's the only company that we control today.
Mickey Schleien -- Ladenburg -- Analyst
I understand. Those are all my questions this morning. I appreciate your time. Thank you.
Edward H. Ross -- Chief Executive Officer
Thank you, Mickey. Good talking to you.
Operator
Thank you. And our next question comes from Chris Kotowski with Oppenheimer. Your line is open.
Chris Kotowski -- Oppenheimer -- Analyst
Yes, good morning. I just wanted to go back to Robert, that something that Robert touched on. I mean, basically versus our models, the loan volumes looked fine but the interest income was a little light.
And so, basically if I've heard your answers right, your response to Robert right, I mean it's basically a combination of the drag of the non-accruals or reversals and then also just the fact that the new investments were all late in the quarter.
That was it, right, there was nothing else on the interest income line?
Edward H. Ross -- Chief Executive Officer
No, I think that's it.
Chris Kotowski -- Oppenheimer -- Analyst
Okay. And then, next on the non-accruals I just was looking at your screen [Phonetic] and I noticed the PIK is like carried at like $0.90 on the dollar and the 12% notes are carried at like $0.35 on the dollar or something like that.
And normally, I think of pick as being subordinated, is it senior in this case?
Edward H. Ross -- Chief Executive Officer
I don't know if PIK is the right word, Shelby will look for that. What I would suggest is that the company has been through a lot over the last couple of years. And just to remind you, it's a company that manufactures and sells cellulose insulation. It competes against traditional insulation.
Has many attractive characteristics relative to the competition including being a green product. Just a couple of years ago or several years ago, the company consolidated, thee plants into one, the execution was poor and consolidation caused some problems in their operations.
And paper prices spiked which impacts this business to a certain degree but that is normalized which is a good thing for the company. And then, the company has been plagued by some operating events in particular in 2018. One more confidential that I want to talk about, where they had a plant burned down and they also had a tragic death of their CFO which created some issues during the difficult time. It's tough. So, but the company remains the market share leader in its niche and its outlook has meaningfully improved here recently. What I would say is the situation remains fluid and then the valuation reflects the risk profile of our investments as of the end of the quarter but again it has -- it is -- the overall situation is improving, which is a good thing.
Have you – could you find it?
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
Yes. No, so it's just a little bit of a nuance and that we have a couple of different loan securities and it just so happens that the loan security that happens to be 0% cash pay and 16% PIK and the liquidation is higher in the capital structure.
Chris Kotowski -- Oppenheimer -- Analyst
Okay, alright. And then, Shelby you were going a little fast, how much available the availability that you say you had on your SBIC license?
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
It's a little bit of a complicated answer. So, as of 6/30 we had approved $7.5 million available for us to draw immediately and we have up to an additional $167.5 million of capacity. But there is a variety of SBA approvals and processes that we would need to go through.
Chris Kotowski -- Oppenheimer -- Analyst
Okay.
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
It shouldn't be an issue but formally would require approval.
Chris Kotowski -- Oppenheimer -- Analyst
Okay, great. That's it from me, thank you.
Edward H. Ross -- Chief Executive Officer
Thanks Chris, good talking to you.
Operator
Thank you. And our next question comes from Tim Hayes with B Riley FBR. Your line is open.
Tim Hayes -- B Riley FBR -- Analyst
Good morning everyone thanks for taking my questions. My first one, just outside of Oaktree Medical, it seems you had $4 million of net unrealized appreciation. I think a large part of that might have been Pfanstiehl deal and sorry if I'm butchering that name. But can you just speak to some of the positions that contributed there including that credit I just mentioned and what the outlook is for those companies?
Edward H. Ross -- Chief Executive Officer
Sure. We had, you said appreciation, right. So the one credit -- we had a number of companies that appreciated this quarter of a couple of equity only companies and then I would say, I think Simplex appreciated. And look at the list, FMI appreciate it a little bit, Vanguard and New Era. So we had a number of companies that are performing well and where we had appreciation as well.
Tim Hayes -- B Riley FBR -- Analyst
Yes. So I guess back to and again correct me with the pronunciation but Pfanstiehl was up I think $2 million this quarter and has grown to be a pretty large position for you guys. I know that you've mentioned in the past, rotating some of out of these outsized equity positions into debt. So just wondering if you have any comments around that credit itself, your outlook for that one and if you think that's potentially one that you might target to rotate out of in the not-too-distant future?
Edward H. Ross -- Chief Executive Officer
Sure. Sure. Great question. So Pfanstiehl is a company, to keep it short, it is very well positioned in its marketplace. It's a market leader and it's growing as well and has a path towards a much more growth. So we feel very good about the overall company and its outlook. And so we obviously also like the equity investment that we have. Having said that, with regard to this name and others, we do think it makes sense and it's kind of a strategic initiative of ours to try to monetize or partially monetize some of our equity investments to obviously rotate them into income producing investments. And so that is -- we're not focused on Pfanstiehl as I sit here today and trying to get a deal done. But what I would say in the -- in the medium term it makes good sense to lighten that load to the extent we can. And so that's something we're very focused on as a company and that's a good name that we should target also, is what I would say.
Tim Hayes -- B Riley FBR -- Analyst
Okay. Appreciate those comments. And I guess the credit that you've largely pointed to in that van is Pinnergy and you exited the second lien investment this quarter, still have your large equity position there. Do you see an opportunity to potentially exit the equity position in near future? Can you remind us are there any third parties expressing interest in M&A there or any other means of exiting this position you're considering?
Edward H. Ross -- Chief Executive Officer
Sure. No. We've been working through it and considering it along with the company over the past year what makes sense. So there's strategic dialogue that's going on. What I would say, is the company is very well positioned when the time is right. At the same time the oil and gas market is out of favor today. And so I think you need to look at it from when does it make sense to transact either for us or for the whole -- for the company. This is not a private equity owned company. So it's independently controlled and so we're not in control of that exit.
Having said that, at the right time, we do think it makes sense to try to monetize either part or all of that investment. But again, it's an out of favor industry as I sit here today and I make that statement relative to the beginning of the year where there was more stability. Gas prices are down to three or five year lows at the moment. And the company is performing fine and extremely resilient and so we're pleased on that front. But I do think you got to pick your spots when you're going to try to monetize these investments.
Tim Hayes -- B Riley FBR -- Analyst
Okay. That makes sense, thanks for the comments there. And this one's for Shelby. You mentioned or highlighted that the incentive fees were down this quarter pretty much non-existing. Was that because of the calculation itself or because management decided to forego some of the incentive fee as a result of the non-accrual in the quarter?
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
That was just a function of the calculation.
Tim Hayes -- B Riley FBR -- Analyst
Okay. Got it, calculation. Okay. And then last one for me, just as it relates to the dividend, I know it's a Board decision and that you declared a $0.39 quarterly dividend for the third quarter. Can you just remind me, how you guys approach your policy and what went into the decision to keep the dividend there after kind of seeing how our earnings power or adjusted earnings power declined with the non-accrual. Is it your expectation that you'll be able to cover the dividend on an annual basis? Is the dividend set just one quarter out, any comments around that would be helpful?
Edward H. Ross -- Chief Executive Officer
Sure. Great question. What I would say is, we at Fidus believe we built a strong foundation for the future. We have a well-diversified portfolio that is performing well. A strong equity portfolio that can be rotated into higher yielding investments, and gains are hopefully harvested, and a strong balance sheet including a modestly leveraged one. We're optimistic about the future and believe that we're positioned to continue to perform well for our shareholders.
In short, we are very comfortable with our dividend as we sit here today. And obviously we like having $17 million of spillover income to support any shortfalls along the way. So what I would say is, our strategy that's kind of a 90% debt, 10% equity strategy, we continue to believe that is the right strategy for BDC that you want the ability to offset losses and do better than that and we've been able to have a track record of doing that. So we're very comfortable where we are today. Obviously, we do have some work to do from a rotation of our equity portfolio, but I think we're comfortable where we are as a Board and as a Company.
Tim Hayes -- B Riley FBR -- Analyst
Great, thanks for all those comments and for taking my questions.
Edward H. Ross -- Chief Executive Officer
Absolutely, good talking to you, Tim.
Operator
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Ed Ross for any closing comments.
Edward H. Ross -- Chief Executive Officer
Thank you, Catherine and thank you everyone for joining us this morning. We look forward to speaking with you on our third quarter call in early November 2019. Have a great day and a great weekend.
Operator
[Operator Closing Remarks]
Duration: 51 minutes
Call participants:
Jody Burfening -- Investor Relations
Edward H. Ross -- Chief Executive Officer
Shelby Sherard -- Chief Financial Officer, Chief Compliance Officer and Secretary
Robert Dodd -- Raymond James -- Analyst
Ryan Lynch -- KBW -- Analyst
Mickey Schleien -- Ladenburg -- Analyst
Chris Kotowski -- Oppenheimer -- Analyst
Tim Hayes -- B Riley FBR -- Analyst
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