Gladstone Investment Corp (NASDAQ: GAIN) Q4 2020 Earnings Call Transcript

Gladstone Investment Corp (GAIN) Q4 2020 earnings call dated May. 13, 2020

Corporate Participants:

David J. Gladstone — Chairman and Chief Executive Officer

Michael LiCalsi — President, General Counsel and Secretary

David Dullum — President

Julia Ryan — Chief Financial Officer and Treasurer

Analysts:

Ryan Carr — Jefferies — Analyst

Bryce Rowe — National Securities — Analyst

Mickey Schleien — Ladenburg — Analyst

Kurt Hambacher — Private Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Gladstone Investment Corporation’s Fourth Quarter and Year Ended March 31, 2020, Earnings Call and Webcast. [Operator Instructions]

I would now like to hand the conference over to your speaker today, David Gladstone. Please go ahead, sir.

David J. Gladstone — Chairman and Chief Executive Officer

All right. Thank you, Joel. That’s nice introduction. This is the fiscal year ending 2020 earnings call and conference call for shareholders and analysts of Gladstone Investment. As traded on NASDAQ GAIN, and we have two preferred shares out there as well, GAINM and GAINL. Thank you all for calling in. We’re always happy to provide an update for the shareholders and the analysts and provide a view of what’s going to happen in the future as best we can figure it out.

We start out with General Counsel, Secretary, Michael LiCalsi. Michael, go ahead.

Michael LiCalsi — President, General Counsel and Secretary

Thanks, David and good morning everybody. Today’s call may include forward-looking statements under the Securities Act of 1933 and Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties and other factors even though they’re based on our current plans, which we believe to be reasonable. And many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors on our Forms 10-Q, 10-K, and other documents that we file with the SEC. You can find these on the Investor Relations page of our website, which is www.gladstoneinvestment.com or on the SEC’s website, which is www.sec.gov. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise except as required by law.

Please also note that any past performance or market information is not a guarantee of any future results. We ask everybody to take the opportunity to visit our website, once again, gladstoneinvestment.com, sign up for our e-mail notification service. You can also find us on @GladstoneComps; and on Facebook, keyword there is The Gladstone Companies.

Today’s call is an overview of our results through March 31, 2020, so we ask that you read our press release and Form 10-Q, both issued yesterday for more detailed information.

Now with that, I’ll turn the presentation over to David Dullum, who is the President of Gladstone Investment. Dave?

David Dullum — President

Thanks, Mike, and good morning everyone, and happy sheltering wherever you are. We’re at our station here and working away. And actually, we’d be very happy to report a very good operating results for the fiscal year ending 03/31/20, especially when we consider the challenges that we, along with a lot of other folks, obviously, in the fourth quarter have to go through regarding COVID-19. So we actually ended our fiscal year 03/31/20 with adjusted net investment income of $0.90 per share. And we — at the same time, we increased our monthly distributions to an annual run rate of $0.84 per common share or $0.07 per month. This year has been a very active fiscal year, we exited six buyout portfolio companies and generated a combined net realized gain of over $43 million. We also made three new buyout investments for about $79 million during the year.

Our net asset value, which is book value of course was $11.17 per share at 03/31/20 and that does compare to $12.40 at 03/31/19. This decline was in part the result of the reversal of net unrealized depreciation, which is related to the six exits. The total of which was, of course, partially offset by the significant net realized gains from those exits. Also valuations for the remaining portfolio, we’ll talk more about this, reflect the COVID-19 impact, thereby contributing to this amount of unrealized depreciation of 03/31/20. The exits though have allowed us to reduce our borrowings, and therefore, we’ve ended the fiscal year with a very strong balance sheet and extremely low leverage. So this is a very important obviously in this very uncertain environment with the pandemic.

So let’s talk a bit though about pandemic and some of the actions that we took and as a result of that sort of where we are with the portfolio. In general, a number of the portfolio companies obviously have been affected but to varying degrees. And we are continuing to actively monitor all the potential issues and we are very engaged with the management teams, which helps provide support as necessary for those companies. To give you an idea, very early in the shutdown phase, we did a number of things.

First, we initiated a conference call format for all of our portfolio management teams in which we provided legal and human resource information and guidance to help navigate the various rules and regulations by State in that shutdown phase. So much of a learning process, which was very helpful to our companies. Most of our companies actually were able and have been able to maintain their operations, even if they’re not at 100%, some very — from very high percentage of operation to a much smaller number obviously based upon the industry that they’re in.

Similarly, number two, we help the companies navigate the PPP, which allowed a couple of our companies actually to access those loan programs where they were possible, that was very helpful. Third, each of our managing directors and our team worked with each portfolio company to assess the worst case forecast and potential temporary capital needs, as we look forward over the next nine months to 12 months. Obviously, it’s not easy to do that, but we really felt it was important to get on top of this. Fortunately, we are in a strong liquidity position as a fund and therefore, we are able to provide a support if our companies do face a temporary liquidity need as a result of COVID-19. So far we’ve not had to provide much support either through additional investment or some accommodation on interest obligations that they may have to us, in other words, the debt securities.

And fourth, we do continue noted this detailed monitoring daily. And we are moving into more of this reopening phase with our companies through the HR and insurance guidance that’s important to each portfolio company to navigate the rules and all the plans for bringing employees back to work safely and all the implications that may go along with that. Absolutely, we’re looking forward to getting our economy back to work, and we’re doing everything we can with our companies to be sure that they continue to contribute with that on a very aggressive basis.

Now as a result of the large net realized gains that I mentioned earlier and similar to last year, we have opted to retain a significant portion of these gains and declare another deemed distribution to common shareholders. We do believe this is a very prudent action and especially in these uncertain times and further strengthens our balance sheet. As noted earlier, our fair values have been impacted by the effect of the pandemic mainly on market multiples, to some degree, and obviously, operations of some of our portfolio companies. Some have been impacted more than others depending on the sector and their geographic location. Now depending on the duration of these lockdowns from the pandemic, we could obviously see some more devaluation as we roll through the next 12 months, and we’re very sensitive to that and very much involved with keeping on top of this.

So this is why I keep stressing this. It’s in times like this that our fund based on [Phonetic] [0:08:37] investment is in a fortunate position to assist our companies. And we are proactively involved with all of them, which is a strength of this differentiated investment approach that we do bring to it, where we’re providing both a significant portion of the equity and most of the debt in these transactions. And again, this provides an advantage in that we do have more flexibility with financial structuring of any one portfolio company and also the cash management. So again, bringing intense, as best as we can, management assistance internally and outside to help these companies through this period of time.

I’d like, though — even with these challenges and these uncertainties that we face in the near term, it is still useful to briefly review, because it helps us think forward to where we are and where we’re going, to really briefly review some of our past results because they do provide the basis for the position that we’re in to work and support our portfolio companies as we navigate the crisis and move forward. So very briefly, again, for the past fiscal years, from about 03/31/15 to 03/31/20, we have been able to grow our total assets from about $484 million to over $575 million at fair value. And this, of course, is inclusive of all the numerous exits’ significant realized gains. So there’s cash in and cash out, which has allowed us to grow very nicely and generate gains along the way. It’s allowed us to also — for our regular monthly distributions, so we’ve been able to grow them from $0.72 per share annual run rate to $0.84 per share annual run rate for the fiscal year. And during fiscal ’20, we also paid $0.21 per common share in supplemental distributions, and that’s an area that we obviously look to continue in some fashion. Our NAV per share over the five years has increased from $9.18 a share to, of course, $11.17, as I mentioned.

Our balance sheet, as a result of all of this, and this is one of the key points, is very strong. We have asset coverage right now of about 294% and availability on our line of credit with our bank syndicate of today of about $137 million. During this time, also, we had 28 companies in our portfolio at 03/31/20. Through that date, we have exited 22 companies, which is since our inception in 2005. In aggregate, these exits have generated over $220 million in net realized gains and about $30 million in other income on exit. The aggregate cash-on-cash return on the equity portion of these exits was approximately 4.4 times.

I mentioned all of this, it’s important in looking back as a way to think about how we continue to manage and will manage from a conservative at the same time, the type of business that we are looking forward. And even though we’re going to have to pull up our bootstraps and work in a slightly different way with our pandemic, we certainly look forward to believe we can maintain and continue the type of operation that we have exhibited over the last five years.

So with that, what’s our outlook? And focus right now for the near term, obviously, is helping our portfolio companies, maintaining our distributions to shareholders at the current levels. We actively continue to review potential new acquisitions as well, including a few that we were very close to before the pandemic hit and, in fact, are probably going to be able to keep moving forward on these. We obviously have to operate in a different type environment. We’re all facing this, I know, with Zoom calls and lots of conference calls, etc. So the challenge for us in pursuing new companies, obviously, is maintaining our level of quality due diligence, being able to do it on a long distance basis. At the same time, also valuations are going to be a little bit more interesting. And we do believe that we are going to have acquisition opportunities where we will be in a position to take advantage of these attractive valuations as we look forward over this next year. So it’s continuing what we’re doing, taking a hard work with our portfolio companies during this period, but, at the same time, maintaining our approach to the type of business that we are and the success we’ve generated to date.

So without further ado, I’m going to turn it over to Julia Ryan, our CFO, so she can give you a bit more detail on the income statement and balance sheet. Julia?

Julia Ryan — Chief Financial Officer and Treasurer

Thanks, Dave. Let me start with a summary of the fund’s operating performance for the past year and last quarter. Fiscal ’20 was a very successful year for us. We increased total investment income, NII and adjusted NII year-over-year and realized over $44 million of net gains. As for the most recent quarter, we generated net investment income of $14.8 million as compared to NII of $6.2 million in the prior quarter. Investment income declined approximately $4 million, primarily due to a decrease in other income, the timing of which can be variable and, to a lesser extent, due to lower interest income which was driven by placing one investment on non-accrual this quarter and the exit of another company in the prior quarter.

Net expenses decreased by $12.6 million compared to the prior quarter, which was primarily driven by an $8.4 million reversal of previously accrued capital gains-based incentive fees due to the net impact of realized and unrealized gains and losses in the current quarter. And that, of course, compared to $1.4 million of capital gains-based incentive fees in the prior quarter. And this is all based on GAAP accruals and then the income-based incentive fee decreased by $1 million as well and credits to expenses by $1 million as well. When adjusting net investment income to exclude the capital gains-based incentive fee reversal, adjusted net investment income per weighted average common share was $0.19 in the current quarter. We continue to believe that this metric is useful and representative of operations exclusive of any capital gains-based incentive fee as net investment income does not include those realized or unrealized investment activity that are associated with this fee.

During the quarter ended March 31, 2020, we recognized a net realized loss on investments of about $11 million, which was primarily from exiting one of our portfolio companies. As Dave noted, our balance sheet and liquidity remained strong as of March 31. While our NAV has declined as a result of the unrealized depreciation, distributable income to shareholders remains high. On a book basis, undistributed net investment income combined with net realized gains totaled almost $12 million or about $0.35 per common share. This amount is already net of the $38 million deemed distribution that we declared as of the end of the fiscal year and is also reduced by the book accrual of the capital gains-based incentive fee. All else equal, the $0.35 per common share would be available for distribution to shareholders in future periods even if the entire capital gains-based incentive fee accrual were to be paid.

And speaking of distributions, and as we previously announced in April 2020, our Board of Directors declared another $0.09 supplemental distribution to common shareholders to be paid in June of 2020. Assuming the current monthly distribution run rate of $0.84 per share and estimating $0.18 per share in supplemental distribution, the total of which has not yet been determined or declared, our annual distributions would total $1.02 per common share, and that’s a yield of about 9% with yesterday’s closing price of $10.94.

And this covers my part of today’s call, and back to you, David.

David J. Gladstone — Chairman and Chief Executive Officer

All right. Thank you very much, Dave Dullum, Julia, Michael. This is good information for our shareholders and that presentation plus the 10-K and other filings that we have should bring everybody up to date.

This team has reported solid results for the fiscal year, including buyout investment transactions and exit activity with significant net realized gains. I think we all believe the team is in good position to continue these successes for our fiscal year ending March 31, 2021. Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and then supplemental distributions and from time to time, potential capital gains and other income. The team hopes to continue to show you a strong return for your investment in our fund. And of course, there’s no guarantees in this life, but this company has a great team and many years of experience.

So operator, if you come on now, we’ll get some questions from the people who are listening.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Our first question comes from Ryan Carr with Jefferies. Your line is now open.

Ryan Carr — Jefferies — Analyst

Hi, good morning, guys. Congratulations on the good fiscal year, and thanks for taking my question. My first question is around NAV in the quarter, you saw a decline about 11% linked quarter, which isn’t surprising given the COVID-19 impact from the portfolio. For peer BDCs who have reported up to today seeing a typical quarter-to-quarter decline in NAV about 20%, granted most of them have more equity exposure. So can you give us a sense for the drivers behind the NAV decline and how much of it was related to the mark-to-market impacts versus the six portfolio exits you had?

David Dullum — President

Why don’t I take a crack at that, and Julia, please feel free. Just so everybody knows on the call, we’re not in the same room, so we might speak across each other a little bit. But yes, basically, it had to do with some — we had one or two companies that because of the various sharp results because of COVID-19, and we hadn’t factored that in. We wanted to be as conservative as we could, obviously. So we had a couple of companies that did have an — were impacted by it. Ironically, one of them is a company we actually exited right at the end of 2019 that actually contributed significant capital gains for us. Given that transaction at the time, we actually maintained a small, for us, equity portion, which is — shows up in our portfolio. That had a fairly significant decline. So ironically, again, from operating companies that we own their portfolio, that one had a fairly large contributor to the overall decline, even though it’s one where we have a relatively small portion, if you will. Julia, would you like to add to that or say something else?

Julia Ryan — Chief Financial Officer and Treasurer

Sure. Let me — so for the year, I always find it helpful to think about it in terms of the whole fiscal year as well. So for the entire fiscal year, we had unrealized depreciation of $78 million. And of that, $27 million related to exits, so reverting to the current portfolio. Now obviously, not all of that occurred in the current quarter but a good chunk did give that COVID pandemic.

David J. Gladstone — Chairman and Chief Executive Officer

Ryan, any other questions?

Ryan Carr — Jefferies — Analyst

Yes. And — thank you for that answer. And a follow-up to that, can you give us a sense of what happened around non-accruals in the quarter? I know you exited Meridian, which was NPA last quarter, and you added B&T. Did you mark down the other three non-accruals further in the quarter? And could you maybe provide any color on what you’re seeing in terms of quarter-to-date portfolio trends? Thanks.

David J. Gladstone — Chairman and Chief Executive Officer

Julia?

Julia Ryan — Chief Financial Officer and Treasurer

Sure. So you’re right, Meridian was exited this quarter. And B&T was a new loan placed on nonaccrual this quarter. That’s the activity. We believe that the ones that are currently on non-accrual are in what we call workout. So we’re working with those portfolio companies to make sure they are getting back up to speed. Again, the pandemic, of course, is providing maybe a little bit more of a lag on that process versus where we thought we were even three months ago. But as of now and where we stand, we do believe that those loans will come back on as soon as we can get out of the current crisis.

Ryan Carr — Jefferies — Analyst

All right. Well, thank you guys very much that you’ve taken the question.

David J. Gladstone — Chairman and Chief Executive Officer

Okay, great. Joel, do we got another question?

Operator

Thank you. Our next question comes from Bryce Rowe with National Securities. Your line is now open.

Bryce Rowe — National Securities — Analyst

Thanks. Good morning, and I appreciate the opportunity to talk to all this morning. Wanted to — David, you mentioned the origination activity maybe got pushed back. You were looking at a couple of buyout deals that were disrupted, obviously, by the COVID-19 emergence. I was curious, you said they could get back on track, and was just wondering if you could kind of talk us through how that might happen and what factors you’re considering as that — as those processes get back on track? What you’re looking for to get to a point where you’re comfortable making those investments?

David Dullum — President

Right. So Bryce, we’re not going into, obviously, detail on any of — each of these, just there are one or two that we were, I’ll say, far enough along prior to where literally, virtually all the due diligence had been done, QV, the management meetings, etc. Obviously, we then put that on hold. And the challenge, well, for those companies, it’s easier to the extent that what we really have to do now is to –this time we continue to move forward, there will be adjustments to some degree, on the valuations, maybe even the structure of the investment to really take into account what we’re looking forward to for, let’s say, this fiscal year and, frankly, almost not this year because we’re already halfway through it, as much as next year, 2021. So the challenge on ones we’re with — we’re pretty far down the road, it’s really sort of updating, taking a really hard and critical look at how and what their effect has been so far and then how we project out. So that’s more — those can be done, in great part, somewhat obviously, as I mentioned, either by Zoom type meetings, which we are all getting used to now, or obviously, lots of conference calls as there are not much face-to-face or travel.

In terms of net new deals, let’s call it, which we are continuing — staying in touch with investment bankers, all the folks that we generate business from, all other guys is still working hard on that area. As we look at a new deal in that regard, what we’re trying to do is, first and foremost, really understand as best as we can what the impact, obviously, of COVID is, how can you really judge when that one particular company is going to start really coming back online and really thinking through structurally how to, again, do such a transaction. So with those that are I’ll call the net new meeting. We didn’t know about them until perhaps a month ago or something like that, is really doing enough work, including all the sort of market-related stuff we can do offline, understanding the business as best we can without obviously meeting people but having conversations so that as we continue over the next couple of months, and we start having the ability to physically get out there and so on, we’ll be in a position to move forward. So it’s really more of a desk evaluation, I guess, the good way to say it, of diligence and a big part of which we can do. So we’re trying to just maintain our overall diligence efforts. And again, the biggest issue might be how do you properly try to evaluate what the next two years might look like if you indeed do make the investment. I hope that helps.

Bryce Rowe — National Securities — Analyst

That does help. I appreciate that. That does help. I appreciate that. wanted to ask Julia, you highlighted what the undistributed position was as of March 31 and $0.35. Obviously, you’ve got a $0.09 special coming up. It sounds like you expect to continue that trend of, I guess, $0.18 of supplementals here in fiscal year ’21. I was — just wanted to get a better understanding of that $0.35, is there — what’s the timing in terms of that having to get distributed under BDC rules? And then if you could kind of talk about how you expect to — I guess, to cover that in the monthly — in light of potential shortfalls in coming quarters given weakness related to COVID.

Julia Ryan — Chief Financial Officer and Treasurer

So the $0.35 has to be distributed within that 12-month period after our fiscal year-end, and that’s how we usually do it. Now there is an in-and-out process of any type of taxable income spillover that has to be distributed. So it might just be a wash with current performance. But again, we’re hopeful we can continue what we have currently in place, and that’s our goal. And we want to work with our shareholders and for our shareholders in that regard, and we’ll do our best to continue that.

David J. Gladstone — Chairman and Chief Executive Officer

Bryce, I don’t know if you’re going to be able to do much on the projection side, mainly because you’ve got the medical people saying don’t open up and slow down and there are deaths involved, so please be careful. And at the same time, you’ve got workers with bad health because they have no place to go. There’s the destruction of assets. So until the government decides to open up, I’m not sure most people can make much in the way of projections. We can say if the government does A, B and C and they’re opening up, we can get to some point. But I think those are fairly strange things to do because we really can’t count on the government for any kind of statement that they’ve made in the past. Here in Virginia, we’ve seen the governor elongate the lockdown period and no do this and no do that over and over and over again. So we really have no idea here in Virginia, how if we had a business here, including our own. So I feel for you trying to make a projection. We’re in good shape today. And I think just looking at the way things are going, we’ll be in strong shape by the time we get to next year this time. Do you have any other question?

Bryce Rowe — National Securities — Analyst

Appreciate — I don’t, David. I appreciate those comments and tend to agree with you, and certainly appreciate the balance sheet position that Gladstone Investment came into this with. So — and definitely appreciate the difficulty in trying to understand what projections might be. And we’re just doing our best and hoping that the government, including Virginia, kind of wrap their head around it and make the right decisions for everyone. So, thanks for your time this morning.

David J. Gladstone — Chairman and Chief Executive Officer

Okay. Joel, do you got any other questions out there?

Operator

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

Mickey Schleien — Ladenburg — Analyst

Yes, good morning, everyone. I’m glad to hear that it sounds like everybody is doing well. I have more questions than normal, given everything that’s going on, so please bear with me, but I hope you appreciate we’re trying to get our arms around very complicated issues. I just wanted to go back to the valuation question for a moment. Because I do understand that the Meridian exit impacted overall valuation of the portfolio as it was a first lien and a preferred that was fully marked down, but when I look at the overall portfolio, your first and second lien debt investments when looked at fair value as a percentage of cost, we’re actually marked up. And as you mentioned, there was a meaningful decline in the equity side of the investments. But I’m surprised to see markups on debt investments given that spreads widen. So how did that process unfold?

David J. Gladstone — Chairman and Chief Executive Officer

Julia, why don’t you take that one?

Julia Ryan — Chief Financial Officer and Treasurer

Mickey, so — we perform our valuation in our normal course. We go through each deal. As you know, we talked about this before, and go through projections and appropriate market multiples for each of those and then obviously evaluate whether those valuations and fair values make sense in the grander scheme of things especially with this pandemic. Now the mark on the first lien loans, as you said, you’ll have to take into consideration Meridian coming out, obviously, totally written down in prior quarter now coming out. So values are going to go up for this alone. We also originated new debt this quarter that is new and is market par, so you see another write-up as a result of that. Is that helpful?

Mickey Schleien — Ladenburg — Analyst

Yes. And actually, that’s a segue into some of my other questions. But before I ask those, Dave, you mentioned two companies got PPP assistance. I — it’s a relatively low number in terms of the number of companies. I imagine that has to do — something to do with the SBA affiliation rules. Is that correct?

David Dullum — President

Precisely.

Mickey Schleien — Ladenburg — Analyst

Right. So, that would imply that relatively speaking, you may need to position yourself to provide more support than someone who doesn’t — who’s not subject to those affiliation rules. And therefore, I imagine you’re taking that into consideration in terms of allocating what is currently extremely scarce capital, correct?

David Dullum — President

Yes. Well, look, I’d say it this way, the ones that — most of our companies, fortunately, right now are not — even if they did want to or could access it, wouldn’t necessarily have accessed it. A number of them are actually, where we do have a senior lender in the company, they’re working with their own senior lenders and so on. And so as — yes, I mentioned, we are in a position and are going to provide what we can right now. We feel like we’re in pretty good shape. So the PPP thing, a couple of them might have wanted to access. It was obviously relatively cheap money, as you well know. It was a little complicated because they’re tied in somewhat to employees and employment coming back in, etc. So I feel like we lost a lot as a result of those companies that did not need to or could not access it.

Mickey Schleien — Ladenburg — Analyst

I understand. Dave, looking at this fiscal year, it’s interesting, right? We — I’ve covered your stock for a long time. And for most of that period of time, it’s been a seller’s market. And now all of a sudden, it’s a buyer’s market. But capital is scarce, and you may need to provide portfolio companies support. So could this result in a year where we may see pressure on your dividend income and success fees, but you also mentioned that you’re spending a lot of time with your portfolio companies, which makes a lot of sense. And the external adviser charges for that help. And ultimately, that ends up as a credit on your income statement to the base management fee. So, could we actually see a boost in the credit and the sort of depression of the dividend and success fee income?

David Dullum — President

Well, I can’t give you precise because as we mentioned and David Gladstone accurately represented issues around projections in general, not only ourselves but for our portfolio companies, right now, what we’re doing, Mickey, is business as usual. As time goes on, I can’t — don’t know. I wish I knew with a crystal ball, again, how soon things start turning on, etc. Again, as I mentioned, fortunately, a number of our portfolio companies continue operating, continue paying their interest, etc. Would I expect and we might need to limit or not take as much, call it, from our exit fees, which is a big part of our other income, just because companies are harvesting their own cash, that’s probably so. So we’ll probably have, relative to prior years, where we’ve had a lower level of other income, that’s probably the case.

As far as interest income, obviously, we — to the extent, any of the companies we might need to help them a little bit with either some adjustment on their interest income, we’ll do that as well. So overall, some potential decline in income, yes, one might expect that just because of the circumstance. If we hadn’t had COVID, we absolutely have no issues, right? So — but I don’t have a good answer other than we’re working hard to be sure we do it. Given that and given our liquidity situation, and where we are, again, we’re going to do whatever we need to do to help the portfolio companies.

So as far as the work we do with our portfolio companies, again, I think as you know, because of the significant ownership positions we have in these businesses, we are not going to charge on a normal basis if we ramp up our efforts because that’s what we do anyway. So in other words, what we generate, which run back to credits, will continue running back to credits and not just because we’re putting more energy. It’s really normal for us. It’s normal course. It’s just that it’s a little more intense just because of COVID.

Mickey Schleien — Ladenburg — Analyst

Okay. That’s interesting and really helpful. Dave, just in terms of helping us gauge risk in the portfolio, could you give us a sense of the portfolio’s average EBITDA in terms of the borrowers and sort of where your portfolio leverage is at?

David Dullum — President

Well, that’d be really hard to give an average because we’ve got such a variety of companies, some of that have middle teens EBITDA and some that are up to $5 million EBITDA kind of thing. So I don’t know how to really give a good answer on the average. Suffice it to say, one of the things we obviously look at with each of our portfolio companies, and we’ve been projecting this out and we’re very focused on it, is the thing with leverage with any of these portfolio companies, and I’m sure it’s true with every other type of company like ours, you look at leverage on a trailing — with a trailing 12 basis.

And obviously, as we move through this year, you’re going to have good quality earnings from the prior year start dropping off. So the further you go into the air, TTM EBITDA is going to generally going to decline somewhat. And therefore, the leverage in each portfolio company is going to probably increase somewhat. But again, it’s a company-by-company basis. And we’ve got some companies that they’ve continued to perform and EBITDA has continued strong, in fact, increased. So it’s each company, and we take each company separately and are doing everything we can with each of them to maintain the level and value of the portfolio.

David J. Gladstone — Chairman and Chief Executive Officer

Hey, Mickey, you know a pond with a three inch average depth of water, a lot of people drown in that because it’s an average. And so some parts are six feet deep and other parts are 0.5 inch deep. And there’s just no way to go across this portfolio and give you our sense from a gross perspective.

If we were in one industry, say, for example, some part of health care and we were running a program that was pretty much the same all the way across, you could make some real statements there. But I think you might get thrown off completely if we went back and did the tally to come up with an average in our portfolio. I know it’s easier to do your projections that way, but unfortunately, I don’t think it works in this portfolio. It’s just too diverse.

Mickey Schleien — Ladenburg — Analyst

All right. I appreciate that, David. Just moving on then. You reported practically no dividend income this quarter, which is pretty unusual. I mean it was practically zero. So was there some sort of reversal or another reason that we saw literally no dividend income this quarter?

David Dullum — President

All right. Remember, the line item you’re talking about, again, generally falls in other income. And remember that we generally do not create a lot of dividend income on a normal basis, in part, because our portfolio companies, first of all, they have to have earnings and profits out of which to make a dividend payment. Where you normally see increases in dividends are generally when we have exits, in part, because we have accrued dividends on the preferred securities that we own in those companies. And when we have exits, a lot of these companies, obviously, and especially the ones we’ve done in the last couple of years, they’ve been really strong companies. And as a result of that, they do have earnings and profits, so we’ve been able to — and it’s very sporadic and as we keep saying, I hate the word but I use it, it’s very lumpy. So that’s as it relates to dividend income.

The other aspect of our other income line item is one I mentioned earlier, and that has to do with what we call exit fees. So it’s the success fees. It’s the ones that our portfolio companies pay from time to time even though we’re not necessarily exiting. So that’s the line item that, again, we’ve always stressed is an important one, but it’s also one that is less predictable, and we manage it very carefully. So what you’re probably seeing there is the fact that as we — this end of this quarter, we obviously had no real exits and certainly nothing to generate dividend income per se. But I wouldn’t focus in on just as dividend income necessarily or that’s a bad thing. It’s just that in the past, when we’ve taken dividends from portfolio companies, it’s usually because we’ve exited, and we have accrued dividends that we’re actually having them to pay out.

Mickey Schleien — Ladenburg — Analyst

I got it, David. I guess it’s more a matter of semantics really than anything else. In terms of the spillover, I know Julia mentioned $0.35, but when I look at the K, I see undistributed ordinary income of almost $18 million and undistributed capital gain of $5 million. And that’s roughly double the $0.35 on a book basis. So wouldn’t it be the tax basis, that’s the number that’s going to drive the undistributed — I’m sorry, the special dividend that potentially could be paid later this year?

David J. Gladstone — Chairman and Chief Executive Officer

Julia?

Julia Ryan — Chief Financial Officer and Treasurer

Mickey, it’s a combination of the two. So the book basis is obviously what we generally refer to because that’s the hard and fast number that’s reported under GAAP. That’s what we do every quarter. At year-end, when you look at the K with the details on the footnotes and the tax basis, those would be absent other changes. Those would be those numbers, but there are other temporary differences that could come against those that had been deferred. So that would be trigger for tax in the current year that would go against that.

Mickey Schleien — Ladenburg — Analyst

Okay. That’s fair enough. I understand. Dave, you made the investment in Maids International early in March prior to covered really developing, and it was market par, which is normal for a new investment. But did the stay-in-place orders affect that business post your acquisition? In other words, we’re — I understand the business model, but were those folks even allowed into people’s houses as COVID developed?

David Dullum — President

Yes. Well, so obviously, that’s one that has had some impact because of that. Interestingly, they are one of the ones that got PPP, in part, because they are a franchise operation. So that was — there was an exemption for that, and that has been helpful for them. They did a restructuring — not restructuring but laid off folks where they had to, et cetera. They’ve done a hell of a job managing it. And because a lot of they’re — generate revenue from their franchisees. They own a couple of company stores, but most of it is the network of franchisees over 100. And what they’ve been finding, actually a couple of things: one, they were smart enough to start figuring out, realizing, you know what, it’s not just home cleaning but there’s industrial type cleaning.

So they’ve been doing some work around that, and they’ve been finding that franchisees are actually coming back online. Some of those that have slowed down, they’ve also had a fairly significant increase in the number of folks that want to be franchisees. So that one, without question, its business was impacted because of, like you said, people are not — whether they were allowed in or not, people didn’t want people in their homes necessarily. But as we roll forward, we are very impressed with what the management team has done, and we feel like they’ve maintained — and from a credit standpoint for us right now, actually, they’re in really good shape. So they’ll continue to pay their interest as well, etc., so we’re pleased with what they’re doing. And as we see them now starting to come back online, we feel pretty good about where they are.

Mickey Schleien — Ladenburg — Analyst

I understand. And again, I appreciate your patience, but I do have a couple more questions. Was B&T impacted by COVID? Or are these other operational issues that caused it to go on non-accrual?

David Dullum — President

Yes. So B&T, again, I don’t want to go into any detail with any of these companies. B&T has been affected a bit by COVID, but somewhat theirs is more the relationship with large — some of their large customers. Actually, it’s more of a timing thing. They’ve got a really good backlog of business. They’re actually doing fairly well. It’s more of a payment somewhat from their major customers. But again, with that one, and we feel they, again, are going to be in good shape, and we just decided it was the right thing to do for the near term. And gradually, as they move through this year, which is not necessarily really affected by COVID, we will see them get turned back on at some point.

Mickey Schleien — Ladenburg — Analyst

Okay. That’s helpful. And Dave, I understand that there’s limits to what you can say about specific companies. But Galaxy Tool is an important investment. How exposed is that to the airline shutdown effectively and all of Boeing’s problems?

David Dullum — President

Yes. So that one, believe it or not, is they’re doing very, very well. They’re performing extremely well, and they’re not that impacted by Boeing because of the kinds of tools that they make, their customers, people like Spirit and others, plus they have a very robust, call it, government type business, aerospace related and, actually, in the plastics area. So for them, they’ve broadened their product line, so to speak, their offerings and have had, truthfully, not much impact. They’re working on other projects for Boeing, not necessarily related to the 737 MAX and some of the other issues that they’ve had. So they’re actually performing extremely well.

Mickey Schleien — Ladenburg — Analyst

That’s great news. Dave, the market risk language in the K would seem to imply that your LIBOR floors are above the current level of LIBOR. Is that correct?

Julia Ryan — Chief Financial Officer and Treasurer

That’s correct, Mickey.

Mickey Schleien — Ladenburg — Analyst

Can you tell us what your average LIBOR floor is?

Julia Ryan — Chief Financial Officer and Treasurer

So they are generally around 2%. If you were to work through the SOI, if you want not to pick any one company, you can see what their current cash pay is, and we also know the current LIBOR, so that will give you an indication of where the floor is for each of them.

Mickey Schleien — Ladenburg — Analyst

Right. So we’re way below that, I understand. And lastly, Julia, you mentioned a stub piece of equity that was marked down. And I apologize, we’re scrambling with a lot of earnings. Which company are you referring to there?

Julia Ryan — Chief Financial Officer and Treasurer

I don’t know that I mentioned anything about equity write-downs.

Mickey Schleien — Ladenburg — Analyst

You mentioned — or maybe it was Dave that said you had a remaining equity investment from an exit from the fourth quarter that was exposed to COVID that was written down this quarter. Would…

Julia Ryan — Chief Financial Officer and Treasurer

Yes, Mickey, that was Nth Degree. If you recall, we exited that in the quarter ending 12/31. And so our remaining equity piece was written down this quarter.

Mickey Schleien — Ladenburg — Analyst

I understand. That’s really helpful. Listen, I appreciate your patience with me as always. And thank you very much, and I hope everybody stays safe and healthy.

David Dullum — President

Thanks, Mickey.

David J. Gladstone — Chairman and Chief Executive Officer

Okay. Next question.

Operator

Thank you. Our next question comes from Kurt Hambacher [Phonetic], a Private Investor. Your line is now open.

Kurt Hambacher — Private Investor — Analyst

All right. Thanks for taking the question. On a more mundane matter regarding the deemed dividends, as an individual shareholder, parts of the deemed distribution are not going as planned for a shareholder with stock in a street name brokerage. I did not get from the brokerage relevant tax information for last year’s March IRS Form [Technical Issues] 39 supposedly mailed in May of 2019. Now for this year’s March 2020 deemed distribution, the brokerage says that they did not get any information and are not responsible for such matters. There is no tax basis benefit, tax credit for the 21% tax already paid, nor for an IRA account, any of the 990-T refunds. How can we break the log jam between Gladstone, Computershare Incorporated and the brokerage custodians? Are you aware of other shareholders with similar problems?

David J. Gladstone — Chairman and Chief Executive Officer

We’re going to let our lawyer…

Kurt Hambacher — Private Investor — Analyst

[Speach Overlap] any way that communications can be improved?

David J. Gladstone — Chairman and Chief Executive Officer

Kurt, thank you.

Michael LiCalsi — President, General Counsel and Secretary

Sure. Thanks, Kurt. This is Michael LiCalsi. [Speach Overlap] I’m the General Counsel of the company. I’m going to give you my phone number here, so you can call me offline. I’m not sure which brokerage firm you’re referring to, but I have been in contact with…

Kurt Hambacher — Private Investor — Analyst

Yes, I wouldn’t want to say it. I’ve had good results with them in the past. But I have written you a letter, and I would take your number to call you.

Michael LiCalsi — President, General Counsel and Secretary

Sure. So let me give you my number. I’m going to give you my cell number because I’m working from home. It’s 571-213-4713. And that number is out there now. Anybody can call me, which is fine. I have a feeling I know which brokerage firm you’re talking about. I’ve been in contact with several of them over the last 10 to 11 months. We filed the 24-39 information for all the registered shareholders on May 15 of last year. And so what the process is from there is the information goes from Computershare to the registered shareholders, of which there’s a couple of dozen, and those are people who just hold their shares at Computershare. The main shareholder is Cede & Co. that’s C-E-D-E and company, and that’s the nominee for all of the Street named shareholders, in other words, everyone who holds their shares at a brokerage firm which is, as you would imagine, 99.9% of shareholders out there.

Kurt Hambacher — Private Investor — Analyst

Yes. [Speach Overlap]

Michael LiCalsi — President, General Counsel and Secretary

That’s right. What happened from there is Computershare, our transfer agent posted all of the aggregate deemed distribution information for those 99.9% of shareholders through the DTC system. And the individual brokerage firms are supposed to go in there and get their aggregate information and then break it down by each shareholder and mailed them a 24-39 if they have a taxable account. And if they have an IRA account, the 24-39 goes to the custodian, which is usually the same thing as the brokerage firm, just a different wing of it. So if you had shares in an IRA account and shares in a taxable account, you should have received a 24-39 sometime in July or August. And if you had…

Kurt Hambacher — Private Investor — Analyst

No, it did not come.

Michael LiCalsi — President, General Counsel and Secretary

Exactly. And I have a feeling I know who you’re talking about. Give me a call after the call, and we’ll talk about it specifically, but we are working with that brokerage firm. On a side note, out of all the firms I’ve dealt with, no one has gotten their tax refund yet from the IRS in regard to the forms 990-T that they filed on everybody’s behalf, and that’s for shareholders who have their shares in an IRA type of account. And most people, though, have received their 24-39s if they hold the shares in a taxable account. But again, I have a feeling I know who you’re talking about, and I put in touch with some people who are trying to work through it and have now acknowledged that they’ve dropped the ball, and they’re trying to fix it. So just give me a call after this, and we can get into specifics in your case, if you don’t mind.

Kurt Hambacher — Private Investor — Analyst

Thank you very much for your help.

Michael LiCalsi — President, General Counsel and Secretary

You’re welcome.

David J. Gladstone — Chairman and Chief Executive Officer

Okay. Do we have another question?

Operator

I’m not showing any further questions at this time.

David J. Gladstone — Chairman and Chief Executive Officer

All right. We’ll end this call now and talk to you again in about 30 days. That’s the end of this conference call.

Operator

[Operator Closing Remarks]