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Capital Southwest Corp (CSWC 0.74%)
Q1Â 2020 Earnings Call
Aug 6, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for joining today's Capital Southwest First Fiscal Quarter 2020 Earnings Call. Participating on the call today are Bowen Diehl, CEO; Michael Sarner, CFO; and Chris Rehberger, Vice President, Finance. I will now turn the call over to Chris Rehberger.
Chris Rehberger -- Vice President, Finance/Treasurer
Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information and management's expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release except as required by law.
I will now hand the call off to our President and Chief Executive Officer, Bowen Diehl.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Thanks, Chris, and thank you to everyone for joining us for our first quarter of fiscal year 2020 earnings call. Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found on our website at www.capitalsouthwest.com. We are pleased to be with you this morning to announce our quarterly results for the first quarter ended June 30, 2019. During the quarter, we continued to advance the credit strategy we laid out for our shareholders four-and-a-half years ago. A prudently building and well performing credit portfolio, utilizing conservative late cycle underwriting principles. We continue to be committed and excited about our core investment strategy of building a predominantly lower middle market portfolio, consisting largely of first lien senior secured debt with equity co-investments across the loan portfolio where we believe significant equity upside exists.
Executing our investment strategy under our shareholder-friendly internally managed structure closely aligns the interests of our Board and management team with that of our fellow shareholders in generating sustainable long-term value through recurring dividends, capital preservation, NAV per share growth and operating cost efficiencies. During the June 30, 2019 quarter as laid out on Slide 6, we generated $0.44 per share of pre-tax net investment income, representing 42% growth over the $0.31 per share generated in the same quarter a year ago, while paying out a regular dividend of $0.39 per share for the June quarter, representing 34% growth over the $0.29 per share paid out in the same quarter a year ago. Additionally, we distributed $0.10 per share through our Supplemental Dividend Program funded by our sizable undistributed taxable income balance or UTI, which was generated by excess income and capital gains accumulated from our investment strategy today.
As of June 30, 2019, we had approximately $19.5 million or a $1.10 per share in UTI, providing visibility into continuing a quarterly Supplemental Dividend Program well into the future.
For the June quarter, the $0.49 per share paid out in total dividends, generated a total annualized dividend yield of 9.4% based upon our June 30, 2019 share price. We are also pleased to announce further growth in our quarterly regular dividend for the September quarter as our Board has declared dividends of $0.50 per share for the September quarter, made up of a $0.40 per share regular dividend and a $0.10 per share supplemental dividend. This will mark our 15th consecutive quarter of increasing shareholder dividends.
During the June quarter, we grew our portfolio on a net basis to $533 million from $524 million as of March 31, 2019, originating $35 million in new commitments and exiting one portfolio company for $20 million in total proceeds. Our senior loan fund I-45 also continued its solid performance, providing a 17.7% annualized yield at fair value on our capital in the fund for the quarter. Additionally, during the quarter, we raised $4.2 million in gross proceeds through our Equity ATM Program and upsized our revolving credit facility by $25 million to a total of $295 million in total commitments from 10 banks.
Turning to Slide 7, we illustrate our continued track record of growing shareholder dividends as we continue to migrate the balance sheet toward target leverage levels through thoughtfully building a portfolio of well performing income-generating assets.
Turning to Slide 8. As a reminder, our investment strategy has remained consistent since its launch in January 2015. We continue to focus on a blend of lower-middle market and upper-middle market assets, providing a strategic flexibility as we have built the robust capability to seek attractive risk-adjusted returns in both markets. In our core lower-middle market, we directly originate opportunities consisting of debt investments and equity co-investments. Building out a highly performing and granular portfolio of equity co-investments is important to driving any deeper share growth while aiding in the mitigation of any future credit losses.
At the same time, our capability and presence in the upper-middle market provides us the ability to opportunistically invest in a more liquid market when attractive risk-adjusted returns exist. Overall, we believe that maximizing the top-end of our deal origination funnel in both markets is critical to generating strong credit investment performance over time as it ensures that we consider a wide array of deals, allowing us to employ our conservative underwriting standards in a competitive market and thoughtfully build a portfolio that will perform through the economic cycle.
Our own balance sheet credit portfolio, excluding I-45 as shown on Slide 9, grew to $382 million as of June 30, 2019 from $368 million as of March 31, 2019. We continue to heavily emphasize first lien senior secured debt lending to the lower-middle market in our investment strategy. As of the end of the quarter, we had 76% of our on-balance sheet credit portfolio invested in lower-middle market companies, while having 87% of the credit portfolio in first lien senior secured debt.
Turning to Slide 10. We originated $35 million in first lien senior secured debt this quarter, consisting of two new portfolio companies and two add-ons to existing portfolio companies. One of the new portfolio companies was a club deal in the upper-middle market and the other was a first lien senior secured loan to a lower-middle market company in which Capital Southwest is the sole lender. Both of the add-ons were in the lower-middle market with one being Capital Southwest-led deal in which we brought in a co-lender and one being a deal in which Capital Southwest is a sole lender. The weighted average yield to maturity on all originations this quarter was 11.1%.
As shown on Slide 11, we also exited one portfolio company during the quarter for $20 million in total proceeds, generating a realized gain of $226,000 and an IRR of 10.9% on total invested capital. This continues our strong track record as we have now had 26 portfolio exits since launching our credit strategy back in January 2015, generating $182 million in proceeds and a cumulative IRR of 15.7%.
On Slide 12, we breakout our on-balance sheet portfolio, again excluding I-45 between the lower-middle market and the upper-middle market. As of the end of the quarter, the total portfolio was weighted approximately 77% to the lower-middle market and 23% to the upper-middle market on a cost basis. We had 26 lower-middle market portfolio companies with an average hold size of $12.5 million, a weighted average EBITDA of $8.8 million, a weighted average yield of 12.2% and a leverage ratio, measured as debt to EBITDA through our security of 3.4 times. Within our lower-middle market portfolio, as of the end of the quarter, we held equity ownership in 69% of our portfolio companies.
Our upper-middle market portfolio consisted of 11 companies with an average hold size of $8.8 million, a weighted average EBITDA of $65.6 million, a weighted average yield of 9.9% and a leverage ratio through our security of 3.4 times. We should note that our balance sheet, upper-middle market metrics on shown excluding our investment in American Addiction as the EBITDA is not meaningful and thus skews the total upper-middle market portfolio ratios so as not to be able to clearly show the ratios of the remainder of the upper-middle market portfolio.
With respect to American Addiction, the company continues to struggle, albeit with recently improving operating metrics. Since American Addiction is a public company, we want to be careful not to effectively announce developments prior to the American Addiction management team appropriately communicating to their shareholders. What we will say is that the lender group continues to work with the company on solutions to the capital structure. The company's leading market position in the substance abuse industry, the company's cost savings and business development initiatives and its large owned real estate portfolio all provide reasons to be optimistic on the prospects of a favorable resolution. American Addiction remains rated at three on our internal rating system.
As a reminder, all investments upon origination are initially assigned an investment rating of two on a four-point scale with one being the highest rating and for being the lowest rating. Overall, we are pleased with the performance of the investment portfolio as a whole. As of the end of the quarter, of the 40 loans in the portfolio, we had four with the highest rating of one, representing 17% of the credit portfolio. We had 32 loans rated at two, representing 77% of the credit portfolio, and we had three loans rated at three, representing 4% of the credit portfolio.
We did reduce AG Kings to a four this quarter, making it the only investment rated at four in the credit portfolio. The investment is our first and only non-accrual among the investments made since launching our credit strategy four-and-a-half years ago. As a reminder, AG Kings was placed on non-accrual during our December 2018 quarter.
As illustrated on Slide 13, we have established a portfolio well diversified across industries, which we believe is well positioned for late in the economic cycle. Further, our portfolio asset mix should provide strong security for our shareholders' capital. The portfolio remains heavily weighted toward first lien senior secured debt, with only 7% and 3% of the portfolio in second lien senior secured debt and the subordinated debt investments respectively. Our last remaining legacy equity investment, Media Recovery, which does business under the banner SpotSee represents 10% of the portfolio, and other equity co-investments as of the end of the quarter represented 6%. As we have mentioned on prior calls, Media Recovery is currently undergoing a sale process. The process is going well and our expectation continues to be that this company will sell during the 2019 calendar year.
Shown on Slide 14, as of the end of the quarter, the I-45 portfolio was 95% first lien with diversity among industries and an average hold size of 2% of the portfolio. The I-45 portfolio had a weighted average EBITDA of approximately $71 million and a weighted average leverage through the I-45 security of 3.9 times. We also excluded American Addiction from these ratios for the aforementioned reasons.
We should also note that the increase in weighted average leverage to 3.9 times from 3.6 times last quarter was driven primarily by the prepayment of two lower levered loans in the I-45 portfolio during the quarter. Overall, we have been pleased with the solid performance of I-45 since its inception back in 2015. We and our partner in I-45, Main Street Capital, have invested approximately $500 million to the fund primarily in first lien senior secured syndicated loans. Since inception, we have harvested 54 exits, generating $223 million in proceeds at a weighted average IRR on the exits of 11.3%.
I will now hand the call over to Michael to review the specifics of our financial performance for the quarter.
Michael S. Sarner -- Chief Financial Officer
Thanks, Bowen. As seen on Slide 15, our investment portfolio produced $15.8 million of investment income this quarter with the weighted average yield on all investments of 11.6%. This represents an increase of $1.5 million from the previous quarter, mostly attributable to net portfolio growth. The weighted average yield on our credit portfolio was 11.7% for the quarter, a slight increase from the previous quarter. As of the end of the quarter, there was one asset on non-accrual with a fair value of $7.9 million, representing 1.5% of our total investment portfolio. Excluding interest expense, we incurred $4.3 million in operating expenses this quarter, which was an increase of roughly $500,000 from the prior quarter.
As noted on our prior quarterly call, the increase was expected as we incur seasonal expenses in the June quarter of each year associated with payroll taxes and the annual shareholder meeting. Additionally, during the June quarter, we incurred a one-time charge for the accelerated vesting of restricted stock awards for a long time employee upon his retirement.
For the quarter, we earned pre-tax net investment income of $7.7 million or $0.44 per share, compared to $0.42 per share during the prior quarter. We paid out $0.39 per share in regular dividends for the quarter, an increase of $0.01 per share over the $0.38 per share regular dividend paid out in the prior quarter. We continue to focus on growing our regular dividends in a sustainable manner, demonstrated by our cumulative regular dividend coverage of 108% over the last 12 months and 105% since the launch of our credit strategy four years ago.
As Bowen mentioned earlier, we also paid out a supplemental dividend of $0.10 per share this quarter, as part of our Supplemental Dividend Program. This program allows our shareholders to meaningfully participate in the successful exits of our investment portfolio. The program will continue to be funded from our UTI earned from both realized gains on debt and equity as well as undistributed net investment income earned each quarter in excess of our regular dividends.
On Slide 16, we illustrate our operating leverage, which as of the end of the quarter, was 3.1%. Excluding the aforementioned seasonal expenses and one-time charge, our operating leverage for the quarter was 2.8%, which continues to migrate toward our target operating leverage of sub-2.5%. We are fully committed to actively manage our -- managing our operating costs in lockstep with portfolio growth and expect to achieve our target operating leverage over the next few quarters. With senior professionals and corporate infrastructure largely in place, operating leverage should continue to improve as the investment portfolio grows due to our internally managed structure.
As Bowen mentioned earlier, our NAV per share as of the end of the quarter was essentially flat at $18.58 per share as seen on Slide 17. The slight decrease for the quarter was primarily driven by the $0.10 per share quarterly supplemental dividend paid to shareholders. Our total pre-tax NII return on equity for the quarter was 9.4%.
On Slide 18, we laid out our multiple pockets of capital. As of the end of the quarter, we had approximately $160 million in cash and undrawn commitments available between our balance sheet and I-45 with the earliest debt maturity at December 2022. During the quarter, we added an additional $25 million commitment from a new lender to our credit facility, increasing total commitments to $295 million. Our balance sheet leverage ended the quarter at a debt-to-equity ratio of 0.69:1. We feel good about our liquidity and capital structure flexibility and believe that would allow us to thoughtfully grow our investment portfolio.
With that being said, a strategic priority for our company is to continually evaluate approaches to derisk the liability structure of the company, while ensuring that we have adequate investable capital throughout the economic cycle. During the quarter ended June 30, 2019, the company sold 195,549 shares of its common stock under the Equity ATM Program at a weighted average price of $21.66 per share, raising $4.2 million of gross proceeds. Cumulative to-date, the company has sold 459,205 shares of its common stock under the Equity ATM Program at a weighted average price of $21.55, raising $9.9 million of gross proceeds.
We continue to believe our Equity ATM Program is a prudent and cost-effective way to issue equity over time at tight spreads at the latest trade, while selling equity on a just-in-time basis, so it can be thoughtfully invested in income-generating assets.
I will now hand the call back to Bowen for some final comments.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Thanks, Michael and thank you, everyone for joining us today. Capital Southwest has grown and business portfolio -- the business and portfolio have developed consistent with the vision and strategy we communicated to our shareholders four-and-a-half years ago. Our team has done an excellent job generating significant returns for our shareholders. Everyone here at Capital Southwest is totally dedicated to being good stewards of our shareholders' capital by continuing to deliver strong performance and creating long-term sustainable value for our shareholders. This concludes our prepared remarks. Operator, we are ready to open the lines for questions.
Questions and Answers:
Operator
Certainly. [Operator Instructions] And our first question comes from the line of Tim Hayes from B. Riley FBR. Your question please.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Hey, guys, this is actually Mike on for Tim and thank you for taking my questions. My first question is when you look at Slide 13, it looks like you added MRI to the graph, which implies a $53 million or so mark, which is largely unchanged quarter-over-quarter. So I was just wondering if this is a reflection of more or less interest you're seeing from bidders? Or I guess if you could just broadly provide any additional commentary on the sale process?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. So, you're right, we put MRI SpotSee on the chart. It has been previous quarters a yielding equity. We denoted as yielding equity. We just decided this quarter to be more specific and separate out from our other general equity co-investments. I would say generally the sale process is going well, as I said in my prepared remarks. There is obviously interest in the asset and it's progressing forward. So that's really from the sale process. It's really all I want to say given the buyers looking at the business, but we still think it will act before the end of the year. As we -- our valuation process methodology hasn't changed, so we incorporate DCF, we incorporate comps. We also incorporate awaiting from the valuations in the market and as the valuation or as a sale process progresses forward, that waiting influence on the valuation increases over time.
So we did have a -- we'll see in the queue this afternoon. We did have a $1.2 million write up this quarter. So it's not exactly flat as you said, but again the weighting of the valuations in the market increases as they influence on evaluation over time as the sale process progresses and you get more clarity and visibility on where it might ultimately trade.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Thank you. Thank you. And then just a follow-up. Do you have any updates on the decision once the sale process is complete, or is that something you guys are still thinking about in terms of retaining versus paying out a special dividend?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. So I mean, the Board is going to make that determination and we'll make that determination once it sells. So the answer is no, we don't have anything else additional to tell the market other than a reminder that we'll have the option to -- we will restuff -- we will replenish the UTI bucket, first and foremost. The gain, obviously most likely -- very likely be much in excess of that. So the remainder of the gain, we will -- where we have option, we can either retain it and do a deemed distribution to the shareholders, pay a 21% tax or we can distribute as a special dividend or a third option, do a combination of both. And so the Board, like I said, will ultimately decide that once the sale is complete and will announce it.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Got you. Thank you. And then one more question. How does the pipeline look maybe compared to a year ago?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. The pipeline is as far as number of deals that are in the shop that we're reviewing is up year-over-year. Hence my comment of the pipeline is strong. Market competitiveness is still very competitive. I wouldn't say it's more competitive today than it was six or nine or even 12 months ago. It's been very competitive for a while, but our pipeline as far as deals we're reviewing looks good. We're being very careful in diligence. We definitely had a couple of deals that have -- closings have been pretty materially delayed based on diligence findings and needing to see a few more months of performance that type of thing, but that's pretty normal in our business. So it makes it -- tends to make it like I've always said a lumpy business. But overall, we're pretty happy with the pipeline. We're certainly getting a lot of looks.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Got you. Thank you, sir. And have you seen any changes in the upper-middle market versus lower-middle market? Have you seen any improvements in the upper-middle market or vice versa?
Bowen S. Diehl -- President, Chief Executive Officer and Director
No. We definitely right now continue to see the best opportunities in the lower-middle market with a few exceptions. iEnergizer this quarter is actually an upper-middle market deal. But I would say still same environment largely in the lower-middle market and I would say same -- generally same environment in the upper-middle market. It's -- the upper-middle markets, we all know the frothiness in that market, so that continues today.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Got you. Thank you for taking my questions.
Bowen S. Diehl -- President, Chief Executive Officer and Director
You bet. Thanks.
Operator
Thank you. Our next question comes from the line of Mickey Schleien from Ladenburg. Your question please.
Mickey Schleien -- Ladenburg Thalmann & Co. Inc. -- Analyst
Yes. Good morning, Bowen. I wanted to follow up on that last question about upper-middle market versus lower-middle market. There is I think investors and analysts are struggling with the outlook for defaults and recoveries in those two different markets if the economy were to slow meaningfully down the road. So when you look at those two markets, how do you gauge the risk-adjusted returns and how do you judge the differences in the potential default and recovery probabilities in those two markets?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. Thanks, Mickey. I hope you're well. So on that, I would tell you that clearly a textbook view is well, larger companies are more established and therefore they do better in a recessionary environment. And while that's not wrong, the other thing that goes into that is structure and leverage levels. And so with we're a first lien lender and if we can lever our business appropriately versus the potential volatility of that business and we're dollar one risk and so we can control the dialog and ultimately have much better control of our destiny, which is ultimately what our shareholders care about with our capital.
So in the lower-middle market where leverage levels are lower and structures are tighter, they're smaller companies clearly, and so we've got to pick the companies correctly, but it's not correct to say that there aren't good sustainable full cycle businesses in the lower-middle market. That's not -- that's -- I don't -- we don't believe that that's the case, but you have to have less leverage, and you have to have tighter structures and indeed the market follows that largely because lower-middle market has definitely tighter structures lower leverage. In the upper-middle market, we all know very loose structure, lot of covenant-light deals, a higher leverage even if they are larger [Indecipherable] larger company. So if you think about a full cycle in our recessionary environment, I've got a lot more options if I'm dollar one risk at a lower leverage level going into the cycle than I am if I'm -- even if I'm dollar one risk going into the cycle at a higher leverage level. So as a general -- and then also in the lower-middle market, absent a recession, when things are going well, we have some equity upside in our portfolio as well.
So, as an investor, I see that, I'm like, "Okay. Good times, I'm going to make some money, in bad times, I can control my destiny. The company survives, the capital structures and we write out the other side of the recession, which are typically what 18 months or so long and so you can basically live to play for another day and you've gotten appropriate full cycle returns for your shareholders.
So, long-winded answer, but that's kind of how I look at those two markets. So both can have -- both have their advantages and there is disadvantages, but that's why we do find full cycle, the lower-middle market being more interesting.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
So just a follow-up if I can Bowen. When you talk about cycles and weathering the storm, we are in the longest expansion in the history of the country, obviously off of a very low base. But my sense is that a lot of the borrowers in a lot of BDC portfolios are -- weren't around in the Great Recession. So you don't necessarily have data to look at it how revenues and margins behaved in 2008/2009 and so forth. So with that in mind, how do you underwrite the downside to a borrower that didn't exist or wasn't really perhaps was a very different business model that far back in time?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. Good question. So one of the things we said from the beginning is we do look at the Great Recession as an analog for the current situation. We've been doing that since 2015. And you're right, I mean, not every company we invest in was even here in 2008. I would tell you a lot of them were, but even the ones that -- some of the ones that were over a lot smaller maybe had one special customer, large customer in 2008 and 2009, which skewed the results.
So a lot of times we have to go back and we do and you can do this when you work. But we go back and look at the industry, we look at other players that were there and we do a pretty deep dive into exactly what was happening in that time frame in that industry and in that company with respect to suppliers, customers, customer behavior pricing. And then we basically then construct a simulation, that if we do a loan today, it's '20 and '21, a simulation of that same dynamic happening to the company. And so, are we going to get that perfectly right every time? Of course not, but I think we're going to get pretty close. And we're going to be right more than we're wrong. And so we've been doing that and our team goes -- our deal teams go through a fair amount of work to construct that simulation or that downside economic case.
And so, we've done that loan-by-loan. And from the very beginning, we believe that if we do that loan-by-loan, we're going to be better positioned as a whole as a portfolio to weather that storm and hence you see our weighted average leverage in our lower-middle market portfolio was lower than many of the BDCs and that I believe in part reflects what I just said.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Bowen, just one last question, because you jog my memory about something I'd like to follow up on. Given that you've looked at a variety of industries, and I know the question I'm going to ask is going to be very much dependent on the industry, but when you look at '08 and '09 in the lower-middle market, can you tell us broadly, how did revenues behave and EBITDA during that recession? Again, I know comparing a software company to somebody manufacturing widgets, it's not a fair comparison but in broad brush strokes, how did they do?
Bowen S. Diehl -- President, Chief Executive Officer and Director
I mean, obviously, the answer is, as you said, it depends on the company and the industry. I mean, more fundamentally, we're trying to match the capital structure we're putting on that particular company and that industry to match the potential volatility so that your dollar stay with an enterprise value and your interest continues to get paid. As far as the macro lower-middle market asset class, if you will, stats, honestly, I don't have that in front of me. So I actually -- I don't know the answer to that. We just always focus on a company-by-company basis.
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Okay. I appreciate that and I appreciate your time this morning. Thank you.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Thanks, Mickey.
Operator
Thank you. Our next question comes from the line of Kyle Joseph from Jefferies. Your question please.
Kyle Joseph -- Jefferies -- Analyst
Hey, good morning, guys and thanks for taking my questions. I wanted to just focus on yields. We've seen a modest bit of upward pressure on yields for the overall portfolio. Is that more of a sense of the portfolio mix rather than yields on new deals being higher than yields coming off?
Bowen S. Diehl -- President, Chief Executive Officer and Director
That's probably a portfolio mix. We've done recently a couple of first-out last-out deals, where we'll invest in -- we'll sell a small first-out piece, which -- that pays at a much lower rate and then we'll scrape the rest to our position controlling alone along the way. So that's going to have an influence.
Michael S. Sarner -- Chief Financial Officer
Yes. So, that will be on the debt. Overall -- the overall yield went up based on the dividend, one from MRI produced a larger dividend this quarter based on it having additional free cash flows and then I-45, we had a refinancing of a portfolio company that had a $400,000 gain that flow through as a dividend to Capital Southwest. So those two enhanced the overall yield for the entire portfolio.
Bowen S. Diehl -- President, Chief Executive Officer and Director
It's got [Phonetic] all those things.
Kyle Joseph -- Jefferies -- Analyst
Got it. And then given sort of the rate outlook and everything, can you give us a sense of where you would anticipate that yields heading going forward?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Well, I think, based on the -- assuming the last cut, I think it's going to be flat based upon -- assuming that Fed doesn't make additional cuts in the future, what we would say is, from our yields, the LIBOR reset date doesn't occur until the first of the next quarter. So we're going to see a 25 basis point hit. And so that's about a $0.01 a quarter reduction in yield.
Kyle Joseph -- Jefferies -- Analyst
Okay. Got it. And then one last one from me. Obviously, this is dependent on market conditions, but can you remind us your sort of target leverage ratios in the near term intermediate term and longer term?
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. Target leverage ratios at the BDC?
Kyle Joseph -- Jefferies -- Analyst
Yes.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. So, we -- our target leverage ratio, we're kind of define it as a fairway, but a fairway between kind of 1:1 to as high as 1.2:1 and the speed at which we get there is completely dependent on originations and the culture here is we're not going to rush to get there, we're going to get there intentionally step-by-step as we find good deals to do. But -- so, longer term and -- intermediate and longer term is really to get leverage up to kind of that 1:1 -- slightly above 1:1 kind of economic leverage, I should say.
Michael S. Sarner -- Chief Financial Officer
I think Bowen said in past calls too, sort of a glide path, we're going to be issuing a little bit equity of our ATM program and making certain we always have borrowing capacity on the debt side to sort of steadily moved leverage up toward those levels and not just bring it up in a quick fashion or raise large amounts of equity and bring it crashing down.
Kyle Joseph -- Jefferies -- Analyst
Got it. That's helpful. Thanks very much for answering my questions.
Bowen S. Diehl -- President, Chief Executive Officer and Director
You got it. Thank you.
Operator
Thank you. Our next question comes from the line of Chris York from JMP Securities. Your question please.
Chris York -- JMP Securities -- Analyst
Hey, good morning/afternoon, guys.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Good morning.
Michael S. Sarner -- Chief Financial Officer
Good morning.
Chris York -- JMP Securities -- Analyst
Hey. So Michael, you touched on my question a little bit here in your answer to the last question. But given that the queue is not out, could you elaborate on the drivers of the increase in the dividend from controlled portfolio companies in the quarter and whether you think this increases sustainable?
Michael S. Sarner -- Chief Financial Officer
Yes. The [Indecipherable] I noted earlier. So MRI being the one control portfolio company and then I-45 being the other. So the dollar amount I think I noted was the MRI dividend increased by $150,000 and the I-45 was $400,000.
Chris York -- JMP Securities -- Analyst
Got it. And then, so are either those sustainable, so the sequential [Speech Overlap]?
Michael S. Sarner -- Chief Financial Officer
No. So -- yes, correct. Neither of those are going to be sustainable going forward. So that $500,000 is a run rate for -- this is a one-time for this quarter. You will see that it was sort of met by $400,000 of additional expenses this quarter that were not run rate as well.
Chris York -- JMP Securities -- Analyst
[Speech Overlap]
Bowen S. Diehl -- President, Chief Executive Officer and Director
Yes. I just got that. MRI's increase -- slight increase was a function of the cash flows on MRI. The I-45 was a refinancing. So, most of it is I-45.
Michael S. Sarner -- Chief Financial Officer
And probably to answer [Phonetic] your question two, Chris, I would tell you the $0.44 of NII, of that, the run rate on that was really around $0.43 going forward.
Chris York -- JMP Securities -- Analyst
Okay. So, you...
Michael S. Sarner -- Chief Financial Officer
Yes. Take out the revenue one-time hits and the expense as well.
Chris York -- JMP Securities -- Analyst
Okay. And just to be clear on the share-based comp, $400,000 of the $837,000 were non-recurring or one-time?
Michael S. Sarner -- Chief Financial Officer
No. So, of the $837,000, $150,000 was one-time in nature, and the rest is ongoing and recurring.
Chris York -- JMP Securities -- Analyst
Got it. Those were my only questions today. So thank you very much.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Thanks, Chris.
Michael S. Sarner -- Chief Financial Officer
Thanks, Chris.
Operator
Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bowen Diehl, Chief Executive Officer for any further remarks.
Bowen S. Diehl -- President, Chief Executive Officer and Director
Thank you, operator. Thanks everybody for joining us today. We really appreciate it. I appreciate all your support and we look forward to keeping you apprised on the business as we move forward. Have a great week.
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Chris Rehberger -- Vice President, Finance/Treasurer
Bowen S. Diehl -- President, Chief Executive Officer and Director
Michael S. Sarner -- Chief Financial Officer
Michael Smyth -- B. Riley FBR, Inc. -- Analyst
Mickey Schleien -- Ladenburg Thalmann & Co. Inc. -- Analyst
Kyle Joseph -- Jefferies -- Analyst
Chris York -- JMP Securities -- Analyst
