AM&AA Winter Conference 2016 - Transaction Structuring: Current Financing Strategies & Techniques

Hello, good afternoon everybody. If I can have everyone's attention, we'd like to start off our next program. I know it's standing room only here, so, you know. Hopefully you can find some seats. Um, my name is Tom Kessoglu. I am a partner at Ice Miller, a law firm with over 300 lawyers. I head up the private equity practice in New York, and I represent private equity funds, SBICs, BDCs, and a number of their investment transactions. We have a strong panel today. And the topic is transaction structuring, current financing strategies and techniques. And we have on the panel here Michael Lash from Pine Street Capital. We have Eric Sloan from mezzanine— Southfield Mezzanine Capital, and Glenn Harrison from Presidian Capital. I will have each of them introduce themselves, tell us a little bit about their fund before we get into the, uh, the questions.

Thanks, Tom. Uh, Mike Lash, I'm a partner and co-founder of Pine Street Capital. We formed Pine Street in 2005 to invest primarily mezzanine debt along with growth equity into lower middle market companies that we define generally as $1 to $5 million of EBITDA. We have a general industry, uh, focus as well as a geographic preference area in the eastern half of the United States. We're completing our— investing our Fund 2 first quarter of this year, and also raising our Fund 3, which we expect to start investing midway through this year.

Hi, this is Eric Sloan. I'm a partner at Southfield Mezzanine Capital. We're an SBIC fund. This is our first fund on the Southfield platform. We raised $150 million, and we look to make investments in companies that have at least $3 million of EBITDA throughout the U.S. We're pretty much industry agnostic. The only area that we don't have any experience in is oil and gas, but my sense is this is probably not a good time to jump in. We make investments anywhere from $4 million up to $20 million, and we make that in the form of mezzanine loans, unitranche financings, and also do equity co-investments. Our main office is in Greenwich, Connecticut, and then I work out on the edge of the western frontier in Los Angeles.

My name is Glenn Harrison. I'm a partner at Presidian Capital. We are a lower middle market debt fund primarily investing in companies with $3 million to $10 million of EBITDA. We will do first lien unitranche, second lien mezz, kind of play all over the capital structure. We'll do some equity co-investments when the— for the right deal with the right partners. We invest both with sponsors and in direct with companies. So, you know, we differentiate ourselves a little bit that way by going the direct route. And we also like doing a lot of deals with fundless sponsors. We're investing in our third fund in the US, which actually just closed. We're putting stuff in the warehouse. And then we also have a fund in the UK. So if anyone has any deals in Germany or in kind of northern part of Europe, we can look at those. Across our three US funds, And with including UK, we manage just about $1 billion.

Great, thank you. So as I said before, the topic is transaction structuring, current financing strategies and techniques. So the lending markets have been hot for a while for the past couple years, and we're going to explore in this panel the latest information about the debt markets, current financing strategies, what dealmakers should be looking for to finance these transactions, and we'll also discuss the current state of the debt markets, mezzanine finance, while exploring the many, several sources of debt and financing sources. So the first question is, I want to talk about first the general economy. How are you guys seeing the market today? And this question is going to be to the three of you, and whoever wants to take it can take it. Consensus seems to be limited supply, lots of capital, cheap debt pricing, expensive valuations. Is it getting better? Anybody?

I think that the market for debt is one of the most competitive I've seen. Just on Monday, I lost a transaction that had $4 million of EBITDA, was being bought out. and I lost it to a traditional senior bank that was doing a senior stretch piece, which I haven't seen in that end of the market in a long time. So that made me a little sad. I was happy, you know, the sponsor's a friend of mine, so I was happy for him, but it was a nice deal. But I am seeing some senior banks tipping their toe back in the water, and then, you know, and there always seems to be a few new debt funds popping up now every couple of months.

Well, there's certainly no absence of capital out in the market, in particular for debt. I would bifurcate the market between those companies that are above $5 million in EBITDA and below. Much more competitive with the larger companies. The companies below $5 million in EBITDA, I'm finding to be less competitive. So in many of those instances, you'll find companies that might be asset light, have customer concentration issues, there's some wrinkle or some story behind the credit of the business that might be a little bit more problematic for a bank to do something meaningful for the company, and so that's an area that I find we can compete a little bit better in.

Okay.

Yeah, I echo the same thing. It's definitely a borrower's market. We're seeing just an abundance of capital available from banks who are sitting on a lot of cash. Non-bank finance companies, BDCs, albeit they're having some issues recently, a lot of mezz funds. You know, historically, down in our end of the market, $1 to $5 million of EBITDA provided a good amount of insulation from some of the broader competition that you saw in the higher end. And I think that's still— while it's less competitive, we're seeing a lot more competition today than we did even a couple years ago down at our end. So So absolutely, abundance of capital, and as I said, a borrower's market.

Glenn, you mentioned that you lost a deal on Monday. What was the EBITDA of that company?

$4 million.

Okay.

Yeah, so it was small.

It was small, but still, how many turns of—

3 turns of debt, $4 million, and they had a 38% customer concentration. Okay. not what I thought would be a typical bankable deal from a senior bank perspective, but—

It's an institutional senior lender?

That's what I was told. So, yeah, they got some single-digit pricing, which is nice for them. Wow.

That's great for them. So the economy's been expanding, and— What do you guys think is going to happen? Is this going to grind to a halt? You know, interest rates are going up, or at least they ticked up just a little bit. What's your sense on where the economy is going to be heading?

Well, I'll take a stab. I'm certainly not smart enough to know what's going to happen in '16. I'm not sure anybody is smart enough to figure out this economy. You know, when you looked at the first half of '15, I think the economy grew at 2.8%. Q4, they're estimating about 2%, and now I think economists are saying in '16, slower than that. So while there is some positive aspects, you know, you read about the consumer confidence seems to be relatively decent, unemployment numbers are down, though albeit they're a little bit skewed depending on your belief on the actual labor market and the, you know, people are not looking for jobs, but I think there's some positives, but then you look at the manufacturing index and how bad that's been, and some people think that's a harbinger for things to come. It's certainly easy to be pessimistic, And, you know, from a broader macro standpoint, when you look at geopolitical issues going on and the slow growth in China and the rest of the world, and then certainly the energy sector, you know, there's a lot of headwinds on this economy. So we, you know, we're feeling a little bit nervous right now going into '16.

Any thoughts?

I think from what I've read and from what I hear, 2016's is going to be pretty close to what we experienced in 2015. When you look at consumer confidence, kind of creeped up a little bit and was a little bit more positive going from November into December. Retail sales were up a little bit. It's expected that you'll see employment improve a little bit and a little bit of expansion in GDP. You look at those statistics within the country, it looks like will be okay. I don't think we'll see anything, any kind of abrupt downturn. There could be some downward pressure when you look at how strong the dollar is right now, and that global demand is starting to fade just a little bit. We could start to see some pressure there, but overall, especially going into an environment of an election year, you're going to find an existing administration doing whatever they can to keep the boat steady.

Right. So the real question is what's going to happen in 18 months, right?

I think the other thing that's interesting, there was an article in the Journal yesterday talking about, you know, the lower gas prices, and if there's any silver lining, it's that it puts more dollars in consumers' pockets and they can spend it. Historically, they have spent it. This article is saying that now, you know, today consumers are saving half of that. So what's while probably a positive from a long-term perspective, it doesn't seem like it's going to provide that little boost into the economy, because people are saving half the dollars they're saving.

So we know that it's a competitive marketplace. The economy is generally pretty solid, at least at this point. And I guess that's heating up the M&A markets and valuations. Are you guys finding people going, or lenders being much more flexible to go deeper in the capital structure? Senior lenders especially, since you guys are mezz, getting squeezed out?

From my perspective, I haven't gotten squeezed out of transactions, just because where I'm playing is usually, you know, kind of that sub-$10 million EBITDA range. But I have seen some senior lenders coming in, and where a company is doing an add-on, they'll step up for a larger piece where, you know, usually I would finance a good part of that. One of our portfolio companies just did a pretty sizable add-on by bringing in all senior debt. And, you know, we stayed in with our piece, but that senior piece came in where it usually wouldn't have before. The company kind of hit a threshold where it would support that. Had $15, $18 million of EBITDA, and they were able to do it with senior bank debt. We let them do it as well just because we wanted to stay and it was good paper. So it was a conscious decision by us rather than get completely taken out and have a whole new partner come in, to let a senior lender come in and build it out.

So, um, so as we know, it's pretty competitive. How do you guys differentiate yourselves?

I think distinction comes over time. It's really something that has to be earned, but in terms of making an initial first impression, it's really basic values. We make our best efforts to do everything that we say we're going to do when we say we're going to do it. Our shop is a pretty lean shop. It's basically myself and one other partner. In our Greenwich office, so we're nimble and quick. We can make fast decisions. We know everybody's time is valuable, and so if it's not something for us, we look to give a fast no, followed only by a second fast yes if it's something of interest to us. We, we emphasize having a little bit of a different kind of relationship with a company. Or sponsor, where we really want to be a partner. And so when it comes to pricing, for example, we're kind of indifferent to 10, 20 basis points difference in pricing, and we'll leave something like that on the table because we feel that there's a premium for good relationships, and we're willing to pay for that.

Okay.

Glenn?

I try to do everything Eric does, just a little better. And then— no, we differentiate through relationships. I think we have a good reputation in the market. At least no one's told me otherwise. We're very patient, long-term investors. We let people work through problems. We try to understand them. We support portfolio companies with additional capital when we need to. And, you know, I guess the biggest value-add is, you know, when companies are performing, everything's going great, nobody, you know, cheapest capital is usually what people want, but people have been through a couple of cycles, and the people who get the value of a really stable long-term partner who understand that, and, you know, that's our reputation, those are— those tend to be the deals that we get. Yeah, and we try to tell people answers relatively quickly, you know, too, and we're also pretty flat. It's myself and two other partners. We all sit together. And I think that's just what you get in our end of the market, right? You get small partnerships, people all kind of in the same mind, and then you get quick decisions. What else we try to do is we try to grow with the companies a lot. So there's a couple people in here we've partnered with on transactions. So we'll take a company from $4 million of EBITDA up to $20 million by— we'll reduce pricing as a company grows, we'll bring in other capital partners, we'll bring in LPs, and we'll take credit facility from $8 million in one transaction all the way up to $80 million. You know, we, we can only hold kind of just shy of $30 million ourselves, but you know, we'll put that together and we've done that over the last year 5 times.

Yeah, for us, it's again, it's the size of the market. I think probably number one, again, down in the 1 to 5 of EBITDA, it's— there are folks there, but it's not as competitive. So I think that separates us a little bit. Second, our willingness to invest in independent sponsor deals and sponsorless transactions. A few years ago, you probably had more people not willing to do independent sponsor deals. That clearly is changing, so it's a little bit less of a differentiator today. Our willingness and ability to invest up to 25% of our capital in the form of equity, which we've done especially with independent sponsor deals. A lot of groups don't want to do that. And then I think lastly, just our longevity in the market now. This is our 11th year in the market. The same team, the same strategy. I think we've proven to be a good partner. We always, you know, for a new company, we open up our CEOs to talk to them, talk to the CEOs that things haven't gone well, see how we behave. We're patient folks. Two of the three partners came from the senior lending background, so that, you know, we're lenders, we know the credit markets, we know, you know, how to interact with banks when things don't go well, when to be patient. So again, I think all that we try to bring to bear, and then certainly if you have the lowest price, that's a differentiator, which we try not to do.

So Mike, then, and specifically, so if you're bidding on a transaction, let's say a sponsored transaction, and all the debt providers— let's say there's two, you and somebody else, and you're near each other on price— what are the other determining factors that going to help you stand out?

With a sponsor, I mean, certainly if we can bring deals to a sponsor, we know it's one way to stand out. So we're constantly trying. If we come across deals, especially in upstate New York where we're based and it's not as actively trolled by the investment banks and PEGs, we'll try to bring deals to sponsors and just get on their radar screen that way. When a deal does come up, we're hoping that that does provide some value to us. Secondly, I think we've done deals in the space. We try to highlight that, that, you know, we know this market, we know the sector, we're comfortable with it. And third, it is relationship. And as we said, you know, panel said earlier, you try to use that relationship.

But yeah, you guys, what's going to help you stand out if the two of you are on a deal? And you guys have similar pricing terms, what makes you guys stand out to whomever it is who's choosing, whether it's a company or a sponsor?

I think it's in part also what Mike had touched on. It's gonna be a combination of relationship and whether you might have an edge in that particular industry or sector. As it relates to relationship, we funded a transaction at the end of the year And I know we were all close on price, but I've been working with that sponsor for 3 years. Haven't done a deal with— hadn't done a deal with them yet. That was the first deal, and I probably looked at 6 or 8 transactions with them, none of which they were able to close on in the past. And this was the one that they got. And so when I mention about being able to earn the relationship, in large part, I believe it was having spent those previous years in that work, working with them on the transactions that didn't happen.

Same thing. It's, you know, all of our money is green. We're probably all within a point or two of each other in pricing. It comes down to, you know, who wants to do business with who on what deal, and you can bring different value. It's industry experience. It's, all right, so you bought this thing, what's your plan? In 6 months, 12 months, 18 months, and then, you know, from day one, how can we set up the facility? How can we give you the capital to help you execute that and, you know, to get to your 3- to 5-year exit? You know, so it's, um, it really is trust at the end of the day, right? It's they're investing in me as much as I'm investing in them because they know I'm always going to be the other side of the table. When they're writing a check, I'm writing a check. And I'm putting my money and my faith in their ability to run these companies, right? And so when something happens, they're going to be looking at me and, you know, we're all on the same page there, right? So that all helps. And, you know, it also helps that I can be a lot of fun at board meetings. So that's a nice differentiator.

Entertainment value?

Yeah. Yeah, basically. You can tell.

So as a MES provider, what role do you guys provide after the closing of a transaction? And my guess is that could also be a differentiator, but what role, Michael?

Yeah, I mean, guess I'd start generally if it's a sponsored or unsponsored transaction, and if it's a company's doing well or not doing well, and probably the least amount of our involvement is sponsored deals that are doing well. We try to be helpful in the margin, but they tend to be— we spend the least amount of time with those. The unsponsored deals that are not doing well is where we spend the most amount of our time. So it is, you know, case by case, but in general, in every deal, you know, we look to provide, especially on whether it's an independent-sponsored deal or more sponsorless deal where maybe the finance function is not as robust as you'd have at a larger company, try to bring our financial acumen with the capital markets, the the debt markets, bring our experience to— we've invested in about 30 other companies, platform companies, over the last several years, bring our experience to that to bear. Board-level guidance, we're always taking seats on the board or a board observer, so we try to bring some strategic advice on that. Open up our Rolodex to the companies, whether it's through our networks, and probably help professionalize The management team, identify if there's gaps in the management team, help identify where those are, and the hiring of those C-level positions. And probably lastly, on the exit process, you know, really trying to position these companies. We know what the market's gonna, what they're gonna value, the metrics they're gonna look at, help the company along the way, and at the end, really to maximize value. Especially on the deals where it's responseless, they're family-run companies, They don't have the sophistication around that, so we'll bring that level of expertise to them.

Glenn?

We, you know, for companies that do do well, you might see us at 2 or 3 of the board meetings a year. You know, we get monthly financials, so we'll have a monthly dialogue, at least with the CFO. We talk to the, you know, to the other executives when necessary, but no less than probably every 6 or 8 weeks, just to talk touch base. And we like to also have that direct relationship with both the sponsor and the company because we find that, you know, it's helpful to get an unfiltered message sometimes. So we always try to maintain that. When companies don't do as well, you know, we know a lot of professionals in the market. We know— we've been doing this for a while. I think we've done 55 deals under the Presidium banner. You know, we've been through a lot of different situations where we can offer some advice and guidance, and, you know, we're always willing to support a business that has a good plan with additional capital. So we always make sure that we always have dry powder to put in the deals. Besides that, you know, it's kind of— if the company is really just kind of rocking and rolling, you know, you might see me 2 or 3 times a year and talk to me once a month. But we just invested in the company in September, and that sells hairbrushes, right? And we had a board meeting on Tuesday before I came down here, and they've been wanting to get on Amazon, and we happen to invest in a company that does Amazon distribution. So we made that introduction, and now just got an email this morning that they're probably going to use our other portfolio company to, you know, kind of push a couple million dollars a year product through the Amazon channel and, you know, get Prime and do all the right stuff So, you know, we try to add value any way we can, and you kind of get those opportunities by going to board meetings and having conversations and just being curious about where the business is going and heading.

Eric, do you think it's better to be more hands-on, more hands-off, just— or just show up to a board meeting, give them some key lime pie and say, you know, hey, have a nice day, thanks a lot, take— here's my money, and just walking away?

Well, we only want to add value in the process, and we don't want to get in the way in the process. We do both sponsored and non-sponsored transactions, and with the sponsored transactions, most of our contact is with the sponsor, and we have board observation rights in both instances. In those cases with sponsors, we're probably less involved because the sponsor is really taking the key role with management, and we have less contact with management, although we're being kept well apprised, as Glenn mentioned, because we'll typically receive, you know, monthly financials, and have any questions, we'll start first with the sponsor. With non-sponsored transactions, we tend to have a little bit more of an active role. It's usually project-specific, but it seems to be across the board. That most of the non-sponsored transactions do not have fully in place a board of directors or an advisory board. It's usually typically just the management team. So we'll find at that point in their growth that we can be helpful in helping them build their advisory board and their board of directors. And at the same time, you can often find some obvious holes in management, and so they'll ask our input, and we look to offer our source— ourself as a resource in every instance, as just another opinion with someone who's very familiar with the company, to be able to offer our insight and advice and open our Rolodex to them as well in terms of any resource they may need.

Okay. So I'd like to talk a little bit about financing techniques. So just an example, I was working with a sponsor who was looking to buy a company. The company was in a somewhat distressful situation, and it seemed to be unfinanceable, given the industry, given what was happening to this particular company. Some— the government had come down and almost shut it down, basically. So it was in a position where it had to basically sell itself. And the sponsor couldn't find any financing for it and went back to the company and said, you know, listen, sorry, you're going to have to take back a $16 million seller note, and the purchase price is, you know, $20 million. So you're only going to get $4 million up front, and $16 million is going to be You know, on you, you're going to be our biggest creditor.

How—

what advice do you think you can give anyone, whether it's a sponsor or a seller in that situation? And maybe there is no— maybe there is no advice. Maybe it's just, you know, it is what it is, right? It's all facts and circumstances. But is there a silver bullet? Is there something to help anybody if they're in need of capital and they can't get it, and the only source would be taking back a seller note?

You know, I think in this market there's so much capital available that if you're fairly well networked and you can't find capital for a deal, then you do got to question whether the thing's bankable, because it seems every deal we're seeing, that if it's a decent deal, they're going to find a home for it and there's going to be capital for it. A lot of our deals, there's seller paper involved, but there's also additional third-party capital coming in. So I guess that would be my first question is, what is going on here that you can't find capital for this deal? Because we're just seeing pockets and pockets and pockets of capital everywhere, willing to finance different strategies, different situations.

[Speaker] And in this deal, it was, the industry was, I mean, it's out of favor, right? So it's firearms. It was the firearms industry. So technically, that's unfinanceable from the beginning, right? You're not going to find many banks in that. So— and that's a unique situation in all that. But outside of that industry?

Yeah, that's a good question. I mean, it's whether it's credit enhancements that the private equity group can provide or the company can provide, whether it's at higher yield, or you're going to get warrants. I mean, you know, any of the easier solutions that to get the deal done, you know, obviously have to try. But at the end of the day, I'm obviously not knowing the situation and what the main issues were. You know, some deals, if it just— you're not gonna be able to bank it, then it's gotta be an equity need, or it's gotta be all seller paper.

[Speaker] Would you back a sponsor who would either provide a guarantee, or if you wanted to— If they wanted you to finance a particular business and you said, "I just can't finance this," but a sponsor is able to either provide, you know, you security with respect to some sort of lockbox where some money is coming in, maybe they'll get you security interest on their LP commitments or anything like that, where they have to draw down on the LP to pay down your debt, something pretty creative. I mean, is that something you'd be comfortable with looking at?

[Speaker:DAVID] Yeah. Before we started Pine Street, I spent a decade with Bank Boston, a leveraged cash flow lending group, and we did a lot of sponsor-backed transactions, and we structured make-wells, and we called them at the time, on a lot of these deals where the leverage was, you know, out of the gates was more than we wanted, and the PEG provided a make-well down to a certain number if leverage didn't get there on its own by a certain date. So certainly we did a lot of those, you know, at the bank. We haven't had that situation come up, you know, with Pine Street, but yeah, that's something we'd probably take a look at. You guys?

My view is generally if it needs that level of security and collateral, then it's probably not a deal I want to do. Just, you know, we get paid to take risk and to hedge risk, and if it's you know, I just don't know if— some ways it would be okay. This is, you know, I don't need to underwrite to the risk of LPs, you know, funding a capital commitment or— yeah, usually at that point it's, you know, just not something that we're going to do. So I think I'd probably refer that deal to Plexus or something.

Is Michael Becker here?

That would be a quick no, for all you guys taking notes.

Eric?

We're looking for certain return parameters, and in many instances, no matter what the return is, the risk is not something that's within your guidelines. And so something like this would be, regardless of what the return would be, would be outside our guidelines. When you find yourself in a situation like that and there are high-yield players that look for something very structured, you get to a point where there's really only so many ways to skin a cat. And so one of the alternatives that you mentioned for them is probably the cleanest, but it might not be the best execution where they would need something far more structured than something that Southfield would do.

Wanted to open it up to the audience, unless you guys had anything else in particular you wanted to espouse. But I wanted to open up to the audience for some questioning. We have about 15, 20 minutes, and that's sort of the time that we reserve for it. So if anyone has any zingers or any other questions— I know Michael wants to ask a question, I know, to somebody. Nobody? Bueller?

Bueller?

Nobody? We did that good of a job? Seriously?

Where do you guys see the market right now? Loosening, tightening? Where the opportunities lie? Just kind of speak to that.

Guys?

Well, the market is still pretty tight in terms of competitiveness, higher leverage with low pricing, and companies that are larger EBITDA. And it's really the threshold seems to be even starting down as low as $7 million of EBITDA. Below $5 million of EBITDA companies has been fairly consistent. And so less competitive, less price pressure. You don't see the same kind of leverage pressure as well.

Anyone else? Any questions? The question is, what are the industries that are out of favor? And energy.

I think it depends on the energy. I think, I think it also depends a lot on who you're talking to. You know, we, we've done some restaurant deals, and we'll do consumer deals and consumer retail. There are a lot of groups that won't do those. So I think it's where the partners have experience, right? We've, we had a bad experience with a rental equipment company. So we're never going to do another one of those things. So if anyone has one, don't call me on it.

Now, now, why though? I mean, why wouldn't you do another one? Is it— was it management? Was it the industry in particular?

The thing about if a rental equipment company has problems, it's because they can't rent their equipment and you're going to have to keep buying equipment that's going to have to rent at a lower rate. So it's just really— and it's just not a good situation. There's no way It's a pretty capital-intensive business, which I generally don't like something that's very capital-intensive. And that's one of those— in my mind, it's one of those examples where if the guys who know the business infinitely better than you can't make money at it, there's no way you're making money at it. And you don't want a big field of shitty equipment, right? You just don't want it. So it really depends upon, I think, the group group, but, you know, we don't do biotech. We don't do startup. We don't do energy, but everything else, you know, we'll take a look at and spend some time on.

[Speaker] For Southfield, we're industry agnostic other than the particular sector that you mentioned. It also, for us, it depends where we feel we are in the economic cycle. Right now, there's no particular industry of concern, but as we start to see some pressure on the economy, something perhaps that might be more cyclical in nature or being driven something such as pertaining to housing, any industries related to that, we would have concern with something that we feel would have a long cycle or an industry that there could be some obsolescence related to the products that what they have.

Yeah, the same. I said we're industry agnostic. There's some industries we just can't do. We're an SBIC. We don't do financial service companies. We're not investing in real estate. Energy clearly is the obvious one that either we were lucky or good not to have done any in the energy sector, so we successfully dodged that. But we'll look at any industry. For us, it's as important as the capital structure. When we look back to '07-'08, and how we got through that, and we— our fund got through that well. We didn't have any write-offs. It was the structures we put in place, the flexible structures. So as we look sort of forward now, especially into this uncertain economy, we are putting on our independent sponsor deals, which we've done several of them in this fund, we're starting out with just doing mezz and equity in the balance sheet, and we'll put a revolver in place. We don't like big-term loans into the structures. Especially coming out of the gates, they provide, you know, just not enough cushion or flexibility if things go wrong, which they inevitably do, you know, in the first year. So we're trying to build that kind of structure and that flexibility into the structure to withstand some uncertainty over the next 12 to 24 months.

Great.

Next question?

Nope.

OK, well, thanks everybody. Hope you enjoyed it. And I think we have a break until 3 o'clock or so. Thank you.