Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Other capital Ltd Learning Conference call.
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I'd now like to him that conference over to your speaker today, Michael gross Chairman and co CEO . Thank you. Please go ahead Sir.
Thank you very much a good morning, welcome to solar Capital's earnings call for the quarter ended September Thirtyth 2019, I'm joined here today by Bruce for our my co CEO enriched for Teco Solar Capital's Chief Financial Officer, Richard <unk> again would you. Please start recovering the webcast and forward looking statements.
Before thanks, Michael.
I would like to remind everyone that hey, hauling webcast the being recorded.
Please note that they are the property of solar capital limited and that any unauthorized broadcast in any form my 50 prohibited.
This conference call is being webcast on our website at Www Dot Fuller cap L.P.D. that.
What do you replays of this call will be made available later today is disclosed in our earnings press release.
I would also like to call your attention to the customary disclosures in our press release regarding forward looking information.
Statements made in today's conference call and webcast may constitute forward looking statements, which relate to future events or future performance of financial condition.
These statements are not guarantees of future performance financial condition or results and involve a number of risks and uncertainties.
Additionally, past performance is not indicative of future results actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the FCC.
So a captive limited undertakes no duty to update any forward looking statements unless required to do so by law.
To obtain copies of our latest SEC filings. Please visit our website more costs that you want to nine nine free.
One 670.
At this time I'd like to turn the call back for Chairman and co CEO Michael growth.
Thank you rich.
So a couple delivered solid operating results in the third quarter continue our long running history of strong credit quality and earnings power.
That's September Thirtyth solar capital's net asset value was $21.90 per share.
During the quarter solar capital Jolie generated 44 cents of net investment income per share and paid a distribution of 41 cents per share.
Overall credit performance remains solid supported by continued corporate earnings growth.
The market and economic environment have changed significantly over the last year with the fed and we are moving from rate increases to rate decreases amidst the backdrop of elevated recess concerns and host of uncertainties headlined by trade wars.
Brexit and and certain political environment.
Castle, Lenny remains extremely competitive due to inflows of capital to private credit funds and reduce middle market transaction volume the third quarter 2019, compared to a year ago.
In the face of continued aggressive structures type pricing elevated risk. We believe it is paramount to maintain our disciplined with castle lending.
While facing competition for the higher quality castle leverage lending it investment opportunities, our specialty finance businesses, namely Crystal financial Nations equipment, Finance and life science lending provide us with investments have been collateral coverage and other strong structural protections.
These niche businesses continue to originate investments that are very attractive on both an absolute and relative value basis.
During the third quarter, we originated $256 million, new investments, 86% of which were in the specialty finance verticals.
Our repayments of $196 million were distributed across our forward lending strategies, resulting in $60 million of net portfolio growth.
At September Thirtyth, approximately three quarters of our comprehensive portfolio was comprised of specialty pants investments, reflecting our successful transition to revert to a diversified specialty finance platform folks unsecured lending across a number of middle market niches.
Not only door specialty finance loans carry strong credit protections and yield superior to those available to raise capital market, but the higher inquiry. We receive from these loans enabled us to be extremely selective when evaluating middle market capital transactions.
In the face of continued frothy castle lending market conditions, our approach to portfolio construction has allowed solar capital to achieve a weighted average comprehensive portfolio yield of approximately 10.7% at fair value without having to take additional risk by investing in secondly, cash flow loans or mall more volatile sectors.
Cyclicals or energy.
Notably second lien castle loans now represent only about 5% of solar capital's comprehensive portfolio, reflecting our preference for dollar one risk in a bar with capital structure.
We intend to move closer to our target leverage of 0.9 times to 1.25 times by growing our portfolio, but only as market opportunity presents itself with investments that meet our strict underwriting criteria.
We view the increased leverage flexibility as simply another investment and risk management tool that provide significant capacity to expand our specialty finance platform as well as to enhance our ability to invest opportunistically when the primary and secondary cash flow markets offer more compelling risk rewards.
In the current environment will continue invest in first lien senior secured loans for the current emphasis on specialty brands transactions. At this time, we'll turn the call lowered our chief financial officer Rich for tickets take through the financial highlights.
Thank you Michael.
Well the captive limited net asset value at September Thirtyth, 2019 was 925 million or $21, a 90 cents per share.
Compared to 929 million for $21, a 98 cents per share at June Thirtyth 2019.
At September Thirtyth 2019, solar capital's on balance sheet investment portfolio had a fair market value of 1.5 billion in 110 portfolio companies across 28 industries.
Compared to a fair market value of 1.5 billion in 109 portfolio companies across 28 industries at June Thirtyth.
At September Thirtyth.
Solar capital had 571 million of debt outstanding and leverage of 0.61 times net debt to equity compared to 563.2 million.
And 0.59 times net debt to equity at June Thirtyth.
That said, we renewed our credit facility during the third quarter.
The new 545 million facility maturing in 2024 is comprised of $470 million of revolving credit and 75 million of term loans.
When considering availability.
From the company's credit facilities combined with the available capital from the non recourse credit facilities at Crystal and any F.
Solar capital had approximately 570 million to fund portfolio growth as of September Thirtyth 2019.
Subject to borrowing base limits.
Turning to the piano.
For the three months ended September Thirtyth 2019.
Gross investment income totaled 39.7 million.
Versus 38.7 million for the three months ended June Thirtyth.
<unk> expenses totaled 21.3 million for the three months ended September thirtyth.
Compared to 20.3 million for the three months ended June Thirtyth.
Accordingly, the company's net investment income for the three months ended September Thirtyth 2019 totaled 18.4 million or 44 cents per average share.
Compared to 18.4 million were 44 cents per average share for the three months ended June thirtyth.
Below the line.
The company had net realized and unrealized losses for the third quarter totaling 4.7 million.
Versus net realized and unrealized gains of 1.2 million for the second quarter.
Ultimately.
The company had a net increase in net assets, resulting from operations of 13.7 million for 32 cents per average share for the three months ended September thirtyth.
This compares to an increase of 19.6 million or 46 cents per average share for the three months ended June Thirtyth 2019.
Finally.
Our board of Directors recently declared a Q4 2018 distribution of 41 cents per share.
Payable on January Threerd 2020.
To stockholders of record on December 19th 2019.
With that I'll turn the call over to our co CEO .
Bruce polar thank you rich.
Overall, the financial health of our portfolio companies remain sound, reflecting our disciplined underwriting and focus on downside protection.
At quarter end, the weighted average investment risk rating of our portfolio was 1.9 based on our one to four risky to scale.
With one representing the least amount of risk.
As further indication of the strong underlying fundamentals of our investments.
Over 98% of the portfolio was performing at quarter end.
Our 1.8 billion comprehensive portfolio is highly diversified encompassing 233 issuers across 104 industries.
The average investment per issuer was 7.8 million per 0.4%.
At quarter end.
98.4% of the portfolio consisted of senior secured loans comprised of approximately 89% first lien.
Loans, 9% second liens senior secured loans.
With 5.3% of our second lien exposure in cash flow loans and 4% in asset based loans.
We continue to prioritize reducing our exposure to second lien cash flow loans, which generally carry more risk than we believe is prudent given the current environment.
At quarter end, our weighted average yield was 10.7%.
By focusing on our nish commercial finance verticals, we've been able to maintain asset level of yields north of 10%. Despite the decrease in LIBOR and spread compression in cash flow lending.
Notably we've been able to maintain these double digit yields while actively reducing our exposure to second lien cash flow investments, which generally carry higher yields.
Including activity across our four business lines originations totaled 256 million and repayments were 196 million, resulting in 60 million of net portfolio growth.
Now, let me provide an update on each of our investment verticals.
Our cash flow business, which invests in senior secured loans, which are predominantly first lien and stretch first lien investments to upper mid upper mid market companies, where we have a weighted average EBITDA of approximately 60 million at quarter end.
During the third quarter, we originated at $35 million first lien loans, which were primarily add on investments into existing credits.
We experienced repayments and amortization of just over $12 million.
At quarter end or first lien cash flow loan portfolio was 425 million, representing just over 23% of our 1.8 billion portfolio.
During the third quarter, we placed one investment a second lien cash flow loan onto non accrual.
Which represents 1.7% of the cost of our balance sheet portfolio.
The company I Hs is a provider of wellness solutions to mid size corporations and is currently evaluating streeter strategic alternatives together with the support of our co lenders first lien lenders as well as the sponsor.
We will keep you apprised of the developments with this company over the next few quarters.
Across the rest of our portfolio, we are continuing to see healthy financial performance.
At quarter end, the weighted average trailing 12 month revenue and EBITDA of our portfolio companies in the cash flow sector grew in the mid single and high single digits level respectively.
For the portfolio companies in our cash flow segment leverage to our security was just over five times and interest coverage was just over two and a half times.
In addition, the weighted average yield of our cash flow portfolio was just over 9% at quarter end.
Now, let me turn to our asset base.
Strategy Crystal financial.
During the third quarter, we funded $139 million of new and existing investments and had repayments of just under $72 million.
The senior secured NPL portfolio, which includes assets both on balance sheet and in crystals subsidiary.
Totaled $662 million, which represents.
Just over 36% of our total portfolio for the third quarter and carried an average yield of just over 12%.
Crystal paid to solar a third quarter dividend of seven and a half million equating to a 10.7% yield on cost which was consistent with the prior quarter.
Now, let me mention neff.
During the third quarter Neff, our equipment finance strategy invested $47 million and had repayments totaling just over $41 million.
<unk>.
Remember Thirtyth Neff had a total portfolio of just over 400 million of funded equipment asset based loans.
Portfolio was invested across 140.
Borrowers with an average exposure of just about $3 million.
As a reminder included in this segment our equipment financings held both onsolis balance sheet as well as a net holdings a portfolio company that for tax efficiency purposes hold certain of the NDF loan investments.
The equipment finance asset class represents just under 23% of our comprehensive portfolio.
100% of Neps investments are in first lien loans.
And at quarter end, the average yield was just over 10%.
Finally, let me provide an update on our life science lending business.
At quarter end, our portfolio totaled approximately 287 million.
It consisted of 18 issuers with an average investment of approximately $16 million.
Life Science loans represented just under 16% of the total portfolio and yet over 30% of soldiers gross investment income, reflecting the higher yields on these investments.
In the third quarter the life science team originated approximately $35 million of new investments repayments and amortization totaled just over 70 million.
The weighted average higher raw bar on these exits for life Science investments was just over 15% during the third quarter.
The weighted average yield of our life science portfolio is approximately 10.6%, which excludes any success fees or warrants.
In conclusion solos portfolio activity during the third quarter represents a continuation of the investment teams that have been driving our portfolio over the last couple of years.
The gradual increase in portfolio leverage focusing our new originations on first lien loans to existing companies in defensive sectors and increasing our investments in specialty finance assets, where we are able to get both tighter structures and more attractive risk adjusted Roe.
Turns.
Given today's market environment, we intend to remain prudent and deploy capital selectively.
Thereby preserving our flexibility to capitalize on compelling opportunities.
That may arise from a market dislocation.
At this time I'll turn the call back to Michael. Thank you Bruce in closing we are pleased with our third quarter results simply that solar capital is very well positioned.
Our long term strategy of developing diversified specialty finance verticals that enable us to flex our cash flow loan exposure down or up depending on conditions in that more competitive market continues to drive superior results.
Solar is firmly established as a diversified commercial finance company with a solid track record of providing solutions across the capital structure to us middle market businesses.
Importantly, our diversified origination engines and enhanced platform scale affords us greater flexibility to allocate capital to the best risk return opportunities are retaining our investment discipline across credit cycles.
We are seeing interesting origination opportunities, particularly with existing portfolio companies. However, we remain highly selective in castle investing while maintaining a preference for specialty plants lows in this current environment.
We've been prudent in the face of credit market frothiness at a remain disciplined and not compromising credit quality for yield importantly, we've been able to maintain close to a 11% weighted average asset level yield through growing our specialty brands verticals, while active reduce exposure to second lien capital investments.
The result is a solid portfolio well positioned for growth and the credit cycle does shift we believed our history of conservatism will enable us to outperform and will allow us to deliver attractive returns for our shareholders.
At approximately 0.6 times net debt to equity, we have significant leverage capacity and the accompanying dry powder to deploy we are differentiated investment verticals. We currently believe Src has a clear path to increase run rate quarter net investment income per share as we approach target leverage.
As our earnings increase on sustainable basis, our board of directors will evaluate further increasing our quarterly distributions to our shareholders.
11 o'clock. This morning, we'll be hosting and earnings call for the third quarter 2019 results of solar senior capital where sons.
Our ability to provide traditional middle market senior secured financing could this vehicle continues to enhance our origination teams ability to meet our clients capital needs and we continue to see benefits of the value proposition in solar capital deal flow.
We thank you for your time, operator would you. Please open up the line for questions.
As a reminder to ask a question you will need you press star one on your telephone withdraw your question first the pound Keith please standby, while we compile the Q and a roster.
And your first question comes from the line of Rick Shane JP Morgan.
Hey, guys. Thanks for taking my questions. This morning.
Just wanted to talk a little bit about chassis in the implications for.
The rest of the portfolio I'm curious if this is idiosyncratic.
When I look at your portfolio.
I chest screens as a healthcare company and a few of the other healthcare investments are not fair values are marked a little bit below cost as well I'm curious if theres anything thematic there or are we just looking at random data and Sina pattern.
Yes. This.
Hmm is.
Company specific.
It is a business that is focused on.
Using wellness as a means for midsize corporations to provide testing for their employees to try to get ahead of any potential health issues.
Most of our healthcare investments.
Are more focused on acquisitions.
And have been performing extremely well as you know over time this is more.
Situation specific to the company's performance.
Got it and when we look at the other healthcare investments anything there to consider.
No we feel very good as you know between our life science team and overhead solar senior our Geminos healthcare.
Oh platform, we feel that this is a sector that we have very good insight both into reimbursement.
As well as the FDA approval process as well as.
Ongoing growth metrics so.
We feel very good about our health care portfolio.
Great. Thank you guys very much.
Your next question comes from the line of Casey Alexander with Compass point.
Hi, good morning.
Remind us.
Where you are in your target in your leverage ratio compared to your target leverage ratio.
And perhaps would you push that target leverage ratio a little bit depending upon the opportunity set that you're seeing and then secondly on top of that in which you vertical are you seeing.
The repeat lending opportunities many equipment financing would seem to make sense because the equipment is still there and those are fairly short term loans, but I'm curious, where you're seeing repeat opportunities in the legacy portfolio.
Thanks for your question I'll take a shot the first one question. Our current leverage is about points explosively 0.61 at the end of September our target, which we put in place week when we.
With our shareholders approve the ability to do two to one leverage.
Remains at 0.9 to 1.25.
We see no reason to go beyond that as you can see our portfolio is yielding 11%, we don't need to put more leverage on our portfolio to drive our net returns for shareholders. So were comfort with maintain that leverage.
I think the second part of your question Keith regarding repeat opportunities.
Actually the equipment finance sector is one where we generally because of the life of the equipment.
Mike just amortize out and move on most of our repeat opportunities.
Or add on opportunities just to expand your question a little bit come really from our cash flow business as sponsors are adding.
On to existing facilities to fund future acquisition growth that has been a theme where we have selectively found good cash flow opportunities in todays frothy market environment. So we have been growing on the cash flow side with certain issuers as they grow. Additionally in life Sciences that is the sector where.
There.
Sometimes we will see an opportunity to extend or do a new facility for existing issuers. As you may recall life science companies that we lend to are very late stage, but also have portfolios of drugs and devices. So sometimes we may extend our duration we.
The new facility as new drugs in devices that may be further behind that lead drug or device start to get real momentum in the FDA process and then commercialization. So thats been a nice opportunity you see for example, Genmark is the name that's been in and out of portfolio a few times and.
We have extended that facility on a couple of occasions is they've grown their business and expanded their footprint I think.
The ABL business is really business, where you'll see companies come in and out of portfolio based upon.
Either seasonal needs or just.
Headwinds that they may face in the marketplace as they move from us.
Into.
More.
Cost efficient capital and then they may come back into us as the hit additional headwinds and so thats the nature.
Of the repeat business across the solar platform.
All right. Thank you for that and if I can just to follow on to Michael's answer and then I'll get out as a way Michael.
In the past you had said you were sort of reserving that target leverage ratio of 0.9 to 1.25 for an opportunistic acquisition in a more.
You know spread friendly environment.
Okay.
I Didnt actually here that in your answers so is it.
Possible that you might organically move at least towards the bottom end of that target leverage ratio on an organic basis without an acquisition.
Absolutely I think we continue to see growth opportunity.
All verticals, but we are continually looking for acquisitions. We have we have good pipeline there, but again those are incredibly hard to predict.
Given our strict criteria on what platforms were allowing to kind of joined our business, but we definitely see a path to getting.
To the lower end, it's hard for sure on just on internal growth basis.
Okay. So in essence, the potential for a distribution increase is not necessarily based upon executing get accretive acquisition.
Correct correct.
Awesome. Thank you very much I appreciate you taking my questions.
Your next question comes from the line of Ryan Lynch with KBW.
Hey, good morning, Thanks for taking my questions.
Just wanted to follow up on on a question that case was asking regarding the leverage given you. The bottom end to hear your target range 0.9 can you guys do that assuming no change or no growth in the cash flow lending portfolio and purely.
Growth in some of these specialty lending areas.
Yeah, I think the answers, we'd like a little bit help from the cash flow business I don't think we need a lot.
But clearly is at least as you look at our life Science segment, and our Crystal LTL segment those segments as you know, which we greatly.
Our attracted to our short duration assets, so that does create a little bit of headwind generates a lot of income as they repay as you saw we'd life sciences this quarter.
So I think we'd like a little bit of help cash flow, but we're not dependent entirely on that to get to that range. Good beyond that also is where we are we are seeing the benefit of the fact that we've grown our platform to point, we're about we about 6 billion of capital, including the Bdcs in private capital, which is allowing us to take down bigger transactions and spread it across.
Platform. So we're seeing the benefit of that will drive more growth as well.
Okay, and we've heard a couple other bdcs, particularly some bdcs who plan the upper middle market talk about.
Some loans.
That that would maybe be.
Single B rated loans could go as the broadly syndicated loan market. Some of these borrowers are opting for direct lending solutions.
Just wanted to get your opinion are you guys into markers to do you plan are you guys seen any of that and are you guys seen any improvements and what has been a very competitive cashel lending market historically.
I would say.
As we sit here in.
The middle Q4.
Directionally, yes, we are feeling that there are more opportunities that might have historically gone to the syndicated markets coming to the direct market, it's to echo Michaels comment of a moment ago.
As a direct lender you need scale to be a relevant participant in that opportunity set. It is definitely a club environment, where sponsors will pick 345 people that can hold at least 100 million typically.
To participate in that investment opportunity and then grow with the portfolio company.
So we have a number of investments today.
Chris that you would think would have left our private lending world and go onto the syndicated market hundred 200 million of EBITDA and yet they continue to grow with us. So it's too soon to call that a trend, but sentiment is definitely tipping our way a little bit but as the only thing I would add is what we're seeing is that some of the thing.
As you were alluding to these larger single B that are kind of crossing over.
Nominally they have a covenant, but we've been passing on deal for example, where it starts at six times leverage and it's a 10 times covenant for life that to us if not a covenant.
And so we're not prepared to do that kind of stuff.
Okay. That's helpful and then lastly.
You mentioned about $6 billion across your platform.
Can you just comment on what is to hold size that that's sold or as a platform would be comfortable holding across your both your platform as well as what does the maximum hold size you'd be comfortable holding within the BDC structure.
So so.
Good question.
We are typically Ryan I'm looking at up to 200 million dollar holds cross the platform you'll see as you look at SLR see most of the investments are going to be it in the 35 to 40 million dollar size.
In terms of their participation.
And then as you move away from cash flow.
Might be more like $150 million type hold size and life Sciences Arabia well.
But but we find that.
The $200 million capability is a real differentiator.
Okay.
Those are all my questions I appreciate the time today.
Thank you.
Your next question comes from the line of Chris York with JMP Securities.
Hey, good morning, guys and thanks for taking my questions.
Good morning.
Hi, Good morning. It appears there was a nice quarter production at Crystal and then post quarter end I've noticed you guys have the agent.
Larger deals.
At Crystal. So are you could see anything in the market that is leading to some acceleration in demand for El solutions find sponsors or is the value proposition.
Provided by Crystal increasing.
Well I think.
Again to follow up on our comments a moment ago about what's going on in the large syndicated market just as that.
Any dislocation there are tightening trickles down to the Midmarket cash flow. It also benefit crystal on the ABL side again, I think that would be too soon to say, that's a real driver, but they do deliver certainty of capital and that's increasingly value when the markets get a little bit nervous.
And then also they are continuing to capitalize on the secular trend in retail and finding good NPL opportunities in retail, but as you know with with Crystal.
The the will have very strong quarters, and then they may have significant redemptions next quarter as companies leave their portfolio and find more attractive financing opportunities. So I wouldn't read it as a theme yet, but I think from 30000 feet. We're thrilled with the fact that we do have.
He is diversified engines that do in the aggregate allow for a very consistent and very often counter to each other.
Drivers of our originations and just a reminder is the follow up also the question about where our growth could come from to get to lower end of our target.
Chris was business to Bruce what is counter cyclical.
And when we do run into a more difficult economy, which is inevitable, we could easily see the portfolio Prince of double in size because the best numbers will adapt to expand beyond just things like the retail sector today.
Makes some sense and then just staying on some of these conversations so it seems like some of the deals are larger than your average size I think at Crystal, which is like 18 million.
What is the largest side the deal that youre comfortable holding what do you think and then do you think about it as a percentage of crystals assets or the total platforms assets.
So it's definitely total platform within solar itself you might see some on solar crystals balance sheet, that's typically around up to 25 million or so hold and then some on solar is balance sheet. So you may aggregate to that 40 to 50 in the aggregate for solar but then as you look at the scale of the.
Platform that will take you up to about 150 million, which is very very competitive in that market for them.
Just to be quite some 40 to $40 million to $50 million would be the largest size or Hungered said 40, 50 will be the largest we hold within solar capital the BDC.
Between crystals balance sheet and solar balance sheet, and then 150 in total including the 40 to 50 across all the different funds that we manage.
Got it okay, Okay very helpful and then.
No that you guys have continued to emphasize your specialty lending niches, we're being very conservative in cash flow lending given that the crop conditions. There I think investors appreciate that but then alternatively, you worry that that decision on the capital side may have any negative impacts with your sponsor relationships that you can.
Come may be less of a first call.
I think that's a great question I think as you look at our sponsor relationships they actually have been very consistent.
We're not everybody's cash flow solution.
But sponsors who have strong track records in industry verticals that we feel very comfortable with b of health care.
Couple of years ago data centers of as you know, we're very active insurance brokerage.
So sponsors who are strong in those sectors, we have long standing relationships and have been their go to club members and our increased scale only as enhance that relevant.
So it's not a strategy, where we're trying to be all things to all sponsors to very targeted.
Approach.
And we're seeing.
This quarter renewed activity as those sponsors are shying away from the syndicated market.
Got it fair enough and then last question isn't modeling questions.
You could hear what drove the sequential increase of $400000 interest expense as I think outstanding for flat sequentially, and then LIBOR was down sequentially.
That's right. It was really the timing of the investments made and Thats a combination of.
At the end of Q2, there were a lot of expense a lot of deals done at the very end of Q2 would show there for the interest expense in Q2 was a little bit understated on average if you look at it that way and then we also beginning of Q3 ended up having a lot of investment activity and therefore, we levered up earlier in the quarter in had Dennis.
This expense burden the entire Q3, so is that combination that made the interest expense higher quarter over quarter.
Okay. So said another way is maybe the average daily Outstandings on your revolving credit facilities or it can be higher than simple average of just the.
Q3 quarter end in to Q quarter end.
It all depends on the quarter, but you know last quarter like I said the average would have been lower this quarter would have been higher it's all based on the timing of when investments get funded.
Got it that's it thanks guys.
Thank you. Thank you.
Your next question comes from the line of Robert Dodd with Raymond James.
Robert.
Sorry can you hear me.
Yes, we do okay.
Just a follow up on the last question.
And some other what's though anything one time related to the credit facility because you called the even at the new one was new larger than an amendment. So was there anything accelerated on the timing of the old facility.
No.
Okay got it and then just on on the the general.
Trends as we see you involved isn't that the large syndicated market when we look even into the more middle market spreads that we can't that I can see they've been widening somewhat now.
Ted on the cash flow side, obviously spreads alone I'm not something you focus on light you want to structure as well you all comments.
About not doing yeah, effectively come flight loans. If the covenant is we can up are you seeing anything shift in the last couple of months in terms of.
Structural terms that that may potentially start, making the the cash flow business, a little bit more attractive.
Some structural protections.
I think you know we view our just feeling there has been a higher level of inquiry from sponsors who we've got longstanding relationships with that could given the size and.
Performance of a particular business tap into the syndicated market and yet they are opting to come to us in the.
Direct lending market. So we are seeing and they know that with that comes more structure and more covenants.
So I.
I, just a sense that they're looking for more certainty.
And are willing as is typically the case not necessary to give us much more spread but definitely give us much more structure again, it's only been a couple of months.
But our activity is just higher quality in terms of structure and company than it was a quarter ago.
Got it I appreciate that and then if I can kind of following up on on VIX question like from the beginning on health care. When we got the more broadly syndicated markets health care is an area that.
Hi is exhibiting a little bit more stress then some some other that answer the syndicated markets out that and so obviously he said I. It yes, what was a idiosyncratic, but as the any in the areas where the syndicated markets all kinda that basically trading value. So that's.
As shown some weakness is there any overlap between the D. E. C portfolio exposure is you happen to type of industries in the broad market, so the showing weakness.
No caught that not that we see we've been very focused again just to refresh at solar senior we owned Geminos, which is a.
The ABL lender against.
See bubbles into the healthcare sectors. So we have very good insight in terms of reimbursement headwinds.
And so we've been very focused on making sure that we're going into the more stable reimbursement markets.
You know essential services, whether its physical therapy.
Whether its anesthesia. So we've actually had very good performance.
At times, if we've seen issues, it's been just blocking and tackling.
With people on execution of collections for their services, but very good and consistent patient.
Visits so we feel very good about the portfolio from health care perspective, and rely heavily on our team at Geminos when our life science team.
Got it thank you I appreciate it.
Robert.
Your next question comes from the line of Chris Kotowski with Oppenheimer.
Might've been asked but just in the life Sciences segment.
You had pretty heavy pay downs and and it's been one of your best growing areas, obviously over the last two years and with the pay downs. This time around it it was a kind of $36 million down.
Curious I mean, how easily is that volume replaced and was there anything.
Underlying that caused all those prepayments was it just.
Whole bunch of companies could get financing in the public markets or something like that or and how ongoing phenomenon as it.
There you know the repayments as Bruce mentioned earlier this the high churn portfolio. The average life is two years.
So that said, it's it's somewhat episodic you could have a quarter like that where a lot fall of according to the quarter Weathers Theres zero.
And so it's not something that we look at as as a trend in any way shape or form you expect the portfolio rebuild back to its prior size in the next few quarters, yes, and Tierpoint Christy the portfolio from a standing start is.
Still up at 250 million.
As you know with repays come substantial acceleration of income.
So that while it was only 15% of our comprehensive portfolio at quarter end the generated 30% of the quarters income.
So you need them to repay to generate that income so we're thrilled with how they perform.
And.
It's going to vary quarter to quarter, but we still feel great about the underlying drivers, which has really been if you look at.
Venture capital raised for the healthcare sector.
Continues to grow exponentially over the last 10 years and that is the capital that we will eventually 10 15 years down the road.
Lend against as it gets into late stage.
Investing.
Alright, Okay perfect. Thank you.
Thank you.
As a reminder to ask a question you've only two press star one on your telephone.
Next question comes from the minus fin O'shea with Wells Fargo Securities.
Hi, guys. Good morning, Thanks for having me on.
Just first question on the the new credit facility it looks like.
You have venture loans and there are the.
Equipment and specialties financings or they are they lumped in with first lien on your advance rates schedule.
Yes, they are but there are baskets for lifetime.
Okay. Thank you and then on the on the cash flow side.
Yes, but mostly been letting this portfolio.
Maybe not run off but repaid a faster pace as you invest.
If you go into the old the deeper vintages the.
15 16.
And isolated this group.
In terms of performance. According to plan is this generally no risk it looks all reasonably well mark.
It's everything healthy at this point like are these the names that youve added onto overtime or have these names maybe some of them not.
Gone exactly according to plan and that's why they are still there any color on just stats that specific.
Right of your portfolio be appreciated.
Sure I think Theres two dynamics for first of all their companies where have you go back.
Yeah.
We were in a second lien position as part of our focus on migrating towards first lien.
You saw us refinance out of the second lien and move into a first lien position, thereby extending our investment duration in a company that we knew and had good performance in underwriting history with so some of the extended duration came from that.
Transition from second to first lien and then to your commentaries some of it was also we've been growing.
And doing add on investing into some of these businesses that really started in 2015 16 and are getting to the point, where they are rather sizeable we're actually already seeing some of them position for sale, but so a lot of it has also been growing with those companies.
Got it that's all from me. Thank you for the color.
Thank you.
They are no further questions at this time I would like to turn the call over to Michael gross Chairman and co CEO for closing remarks.
I know Mark with time, just thank you for your constructive questions and all your support and for those of you will be per se.
Today's call will close to 10 minute. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.