Q1 2020 Earnings Call

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Ladies and gentlemen, please standby the conference call would be good momentarily once again, ladies and gentlemen, please stay on the line.

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Ladies and gentlemen, please standby your conference call will be good momentarily once again, ladies and gentlemen, please stay on the line.

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Good morning, and walk the TPG specialty lending ex March 31st 2020 quarterly earnings Conference call.

Before we begin today's call I'd like to remind our listeners are remarks made during the call me could take forward looking statements.

Same softness things that historical facts made during this call constitute forward looking statements are not guarantees of future performance or results no golf and number of risks and uncertainties.

Actual results may differ materially from Belgium, the forward looking statements.

The result of number of factors, including those described from time to time in TPG specialty lending Incs filings with the Securities and Exchange Commission.

And he assumes no obligation to update any such forward looking statements yesterday after the market close the company issued its earnings press release for the first quarter ended March 31st 2020.

Posted a presentation to be investor resources section that much website www TPG specialty lending dot com the presentation should be reviewed in conjunction with the company's form 10-Q filed yesterday with the FCC.

TPG specialty lending Inc.'s earnings releases also available on the company's looks like under the Investor Resources section.

Otherwise noted.

Oh performance figures mentioned in today's prepared remarks are hats off and for the first quarter ended March 31st 2020, I was reminded us probably being recorded for replay purposes I would not from the color to Josh we usually chief Executive officer of TPG specialty lending Inc.

Thank you good morning, everyone and thank you for joining with me today my partner in our President and CFO incentives first and foremost all the T.S. all at a broader Sixthree organization hope that you hear about once a safe and healthy, particularly when it's faster gratitude to all the health care professionals first responders central business.

Workers, the serving our communities during this challenging time.

In this environment whenever top priority has been the health well being of our people, which it turned allows us to be to death protection silver shareholders' capital.

Post implementation or business continuity plan early March we know broader six feet platform have been operating at full capacity with nearly all of our global team members working remotely.

Our organizations quickly adapt it that's new environment, maintaining a high level of collaboration and communication, both internally and externally essential to the success of our business.

Well the past few months your proactively issued public, but it's worth stakeholders with real time updates I business balance sheet and preliminary financial results.

If you found them to be helpful and consistent with a culture and transparency in 18 and ongoing dialogue with the stakeholders.

Well known could've predicted tiny nature of it is leading to the economic downturn.

I believe we're enjoying the next phase.

That's great given the actions we have taken for the past few years as Tony will discuss later in more detail afford planning investments is they would result in what we believed to be a defensive portfolio robust liquidity on the capital positions that we have today.

Immediate days a week following the market, probably we shifted our focus in building out a daily.

All four of our balance sheet capital liquidity position as part of our list. It's been disappointed in this environment, we believe only with a clear on this seems to be constrained.

Are we able to make sound.

Capital allocation decisions on behalf of our stakeholders I'm sure with hindsight, which is always 2020 <unk> would have done things differently.

Those insights will provide us valuable learnings that will benefit us and our shareholders.

With that contacts and turn to our first quarter results, which are consistent with the preliminary results and provide an equal 60.

After market close yesterday, we reported first quarter net investment income per share 51 cents, which corresponds to an annualized return on equity at 12%.

Net loss for sure he said.

Net loss this quarter was driven by my wife's losses.

As we have been reflected the impact of credit spreads widen and evaluation of a portfolio.

No that this practice falls, a fair valuation security climate for Bdcs under the four yeah.

Actually my which which in our mind includes incorporating market spreads this evaluation of.

Portfolio security and is there for something we expect all BDC peers will be dealing as well.

March 30, correct LPD personally is likely spreads have tightened by Ernie and 91 basis points, respectively, Retracing, 20% of the Q1 spread widening per person and 13% for second we.

Assuming this holes and have sent permanent credit losses late to the Q1 and realized losses from the spread why do you expect it see reversals are these unrealized losses over time.

Effectively pushing or any that's a feature parity holding all else equal.

In Q1, our net asset value per share declined by approximately 7.1%.

It was 77, which includes the impact of the Q4 supplemental dividend.

He 57 inclusive of the impact of the 50 cents aggregate special dividends that was previously declared and payable on Q2 core pro forma net asset value per share at quarter end with 15 or so.

As mentioned the primary driver the decline was $1.21 per share of unrealized losses, and the impact of credit spread widened in the valuation of our portfolio.

Walk through the other drivers for this quarter is net asset value, Brad you more detail, but I'd like to reiterate a processing arriving at this quarter's portfolio looks good the importance of its management tool for business.

As we shared and detailing our recent letter or valuation pretty work begins by incorporating quarterly market spread movements into the valuation of all of our investments.

The next step over like additional justice adjustments to the valuation for each investment as applicable reflecting the respective sector.

This is available for expected weighted average life in other bar specific factors such as over.

For underperformance, let me walk through each of these in more detail.

The first and most significant factor mitigating the impact to the market spread movement is that relative short weighted average life of loan portfolio at quarter end.

Parts of that approximately five year weighted average you mean contractual life of the probably syndicated loan market our portfolios weighted average me any contractual life, what was 35% shorter at approximately 3.2 years.

The features we underwrite and terabyte of either that's just approximately two financial covenants per loan agreement on a weighted average basic effectively controlled 83% of our debt investments.

Other indebtedness and restricted payment limitation has had the effect of making the actual life of our investments even shorter by contrast, approximately 80% of that probably syndicated.

Market Covenant Lite, along with greater and definitely we started paying a possibility and I'm really not agreement.

No that approximate 80% of our portfolio this quarter and we failed to asking that Nexstar had a very short weighted average life.

Given you the contractual maturity of visibility unexpected pay off <unk> post quarter end.

All these factors combined resulted in a weighted average life.

Our portfolio that was shorter than 3.2 years he means contractual life.

At March 31st consistent with our expectation so on that car or both fully repaid post quarter end.

Well that's affecting me.

At quarter end up approximately 70% of our portfolio when less crowded presses in sectors of the overall loan market.

For a fine corrpro incorporating sector adjustment the market spreads that we applied to each of our investment that's mitigated the overall decline in the fair value loan portfolio.

We have lie before us across 95.1% of our debt investments.

Which averaged 1.2% core compared to a floor of approximately 35 basis points, the probably syndicated market.

As discussed report also help us allows them to get to a degree and PPACA spread why do you on the fair value of our investment.

Reflecting on evaluation process, which is the thing that happened since our inception, we believe that we have a player in place a framework that allows us to incorporate market signals regarding that's.

An opportunity than our portfolio, which help us got overall investment that's management decision making process.

Moving back to this quarter's Holly yesterday, our board declared a second quarter based and 41 cents per share and shareholders of record assets June 15, Keppel July 15th.

Given the decline massive value this quarter.

Warrants with existing mechanics of like given a framework no supplemental definite with a clear every way into Q1 earnings.

This was determined by the Nab limit or.

Supplemental different formula, which allow for no more than 15 cents declined to net asset value per share over the current and preceding quarter inclusive of the impact of any supplemental a special dividend.

As it relates to our base dividend.

We've increased the score the quarterly level from 39 cents 41 cents per share at the beginning this year. We determined this new levels by stress testing the very powerful portfolio across a variety of economic and up are you scenarios, we give it because we do a bit different is ongoing cash liability toward that can shift sometimes unpredictable.

As it did this past March.

Therefore, we have a strong level of confidence that are being seven can be supported by the court repairable portfolio in the near to medium term. We currently have no plans to change or previously, particularly given.

With that I'd like to turn the call over the boat to walk through a portfolio.

Thanks, Josh.

Given the rapid market downturn in March and low visibility surrounding the duration of the economic shutdown.

Middle market M&A activity since come to a halt.

And the liquid loan markets there were significant volatility due in March as retail loan funds with the liquid assets in order to meet daily redemption rate we crossed.

This supply surplus drove significant price declines across both higher quality and little quality credits in resulted in the steepest monthly price decline and leverage loan markets. Since the 2008 2009 financial crisis.

Against this backdrop, our Q1 originators activity was light as expected with 134 million of commitments in 80 million to fundings across three new and for existing portfolio companies.

The three new investments, which comprise 88% of the findings this quarter.

Two were completed in January <unk> prior to the market turbulence. The other new investment was vertical or small opportunistic secondary market purchase that we made in last late March at a price of 78 that is now trading around 91.

Similar to the market volatility we've experienced in late 2015 through early 2016.

We believe there will be outsize risk return opportunities with respect to the secondary markets and companies in sectors, where we have a differentiated view.

You may recall that following the 2015 2016 period, we had approximately $260 million of liquid data holdings in our portfolio as we purchase certain loans in the secondary markets I don't believe it weighted average price in the high Eightys and rotated out of them as they pulled back to par.

Different from the 2015 2016 period, we think the opportunity set for both opportunistic liquid investments.

And our direct origination strategy in this downturn will be longer term in nature, given the amount of capital and economic destruction. This pandemic will ultimately inflect.

We believe there will be significant need for us to provide capital.

The company's a management teams that's the full impact if covert 19 rolls through different parts of the U.S. economy, and variance speeds and time horizons.

Based on our observations the leverage loan market is currently only open for select issuers.

Most of our BDC pairs and peers have limited ability to deploy capital into new investments given our strong liquidity in capital position combined with a significant dry powder across our sixth Street platform.

We're very optimistic about our ability to create highly attractive risk adjusted returns for our shareholders in the period as I had.

Moving to this quarter's activity there were $212 million a pay downs across four fall into partial realizations.

This combined with our Q1 fundings resulted in net portfolio repayments of $132 million for the quarter.

Our repayments in Q1 included our first lien loan for curriculum associates at a price of one or three.

Maybe I'll follow term loan for fear is at a blended price of one or 1.3 and the majority of our ABL dip loan for Forever 21, along with the recognition of our contractual economics.

Activity related income for these repayments supported the over earning of our base dividend this quarter.

As Josh mentioned post quarter end receive the full repayment over 85 million dollar principal value investment apparel gas at a price of one of those 6.1 compared to a fair value Mark of one of 4.4 at March 31st.

Our 75 million dollar principal value investment in that car was repaid at par.

This quarter the weighted average total yield on our debt in income producing securities at amortized cost was 9.9% decrease of approximately 80 basis points from the prior quarter.

Approximately 50 basis points of this was related to the movement in rates during the quarter.

Central banks, what word target interest rates to near zero to help stem the financial impact of covert Nike.

Quarter over quarter, the three month LIBOR decreased by 46 basis points from 1.91% to 1.4 or 5%.

The one month LIBOR decreased by 77 basis points.

From 1.76% to 0.99%.

The remaining 30 points of downward impact of this quarter's portfolios was primarily driven by new versus exited investments.

This quarter's weighted average total yield on new investments at amortized.

<unk> <unk> relatively robust at 11.7%.

Supported by higher weighted average spread this was offset by effective yield of 12.4% on exited investments due to forever 21.

Excluding forever 21 yield on exited investments at amortized cost would have been 9.8%.

I wanted to take some time to review our portfolios repeal a b L and energy exposures.

Quarter over quarter, our retail they'd be all exposure decreased from 13.8% to 9.1 person on the portfolio on a fair value basis due to a full repayment of Sears and the partial pay down of forever 21.

44% never retail maybe all exposure at March 31st as represented by 99 cents.

Save a lot and staples.

Generally deemed as essential businesses, given the nature of the products they provide and therefore, we're performing well in this environment.

DB, Marcus representing 3.5% of the portfolio.

On March 31st continues to face challenging operating environment, which has been exacerbated by the economic shutdown.

Challenging operating scenarios were contemplated in our underwriting process and our base case going forward is that we'll continue to be well secured and receive current interest on our principal position.

As for energy our exposure at quarter end was limited to 3.9% of the portfolio at fair value on March 31st.

Largest energy position for dad resources, representing 1.9% of the portfolio at fair value was approximately 50% of our total.

Energy exposure is a first lien reserve based phone and an upstream company with significantly hedged production volumes through 2023 and hedged collateral value.

Our second largest energy position energy alloys represent a 0.9% of the portfolio at fair value is an asset based loan secured by working capital collateral.

Which we believe provides more downside protection than the typical energy services alone.

Mississippi resources represented in 0.1% of the portfolio at quarter end was our only investment on nonaccrual status.

Well the company made its regularly scheduled cash interest payments during the quarter, we elected to apply it to the loan principal instead of recognizing that as income for reference Mississippi resources contributed approximately two cents per share or 1.0% to our net investment income in 2019.

Moving onto our overall portfolio composition and credit stats, we believe our portfolio continues to be defensively positioned with approximately 97% of our portfolio on a fair value basis comprised of first lien loans at quarter end.

We continue to have limited cyclical exposure at 2.8% of the portfolio on a fair value basis, which we classify based on end markets and excludes our retail E B L and energy investments that we just discussed.

Our portfolios top industry exposures were to business services at 20% of the portfolio at fair value, followed by financial services and health care at approximately 16, and 11% of the portfolio at fair value respectively.

We'd like to reiterate that our financial services portfolio companies are probably be to be integrated software payments businesses with limited financial leverage and underlying bank regulatory risk or health care portfolio companies are primarily information technology providers with no direct reimbursement risk.

Given our efforts in de risking the portfolio over the past few years and based on the 12 31 2019 financial results of our borrowers we feel that the credit profile of our portfolio was in good shape headed into this downturn.

At quarter around across our core portfolio companies. Our average net attachment point was 0.3 JAKKS or average last dollar leverage was 4.1 acts and our average interest coverage ratio was 3.2 back.

To date based on an ongoing engagement with our borrowers we do not expect any.

Any defaults on debt service obligations in the near term, but we do expect an increase in amendment activity in order to provide our borrowers with additional flexibility on certain covenants.

Until there was visibility on when the shutdown will be lifted we cannot pinpoint with a strong level of certainty what the full impact of covert 19 will have to our borrowers in the meantime, we continue to have frequent dialogue with C suite executives to proactively identify a managed risk as well as be solution providers and the chance.

Mm.

We believe our longstanding practice of conservative late cycle portfolio construction and high underwriting standards have positioned us well to navigate the period ahead.

With that I'd like to turn it over to end.

Thank you bye.

I'll begin with an overview.

Even net repayment activity and the impact of valuation maxing out portfolio. This quarter total investments at fair value decreased from 2.25 billion to 2.05 billion.

Total principal amounts of debt outstanding was 987 million net assets were 1.04 billion or $15 57 per share, which is tied to the 50 cents per share aggregate special dividends that will be paid during Q2.

Average debt equity ratio was 0.99 times.

Ending debt to equity ratio was 0.96 times down from one time in the prior quarter.

At quarter end, we had meaningful cushion or the old financial covenant threshold under our revolving credit facility.

Before turning specifically to our results I would like to reiterate the strength for that liquidity funding profile and capital position.

Sure view, a concept sheds and that we said, let up we think about liquidity as the some about cash flows freely accessible committed credit that together are available to fund our operations and make investments.

Note that I'm like typical corporate issuers bdcs have limited ability to create liquidity from cash flow from operations given Rick distribution requirements at quarter end, we had 1 billion of Undrawn capacity on our revolving credit facility again, only 66 million of unfunded portfolio company commitments.

A little to be drawn based on contractual requirement in the underlying loan agreement.

As of today, given the net repayment activity with experienced quarter today.

Liquidity stands at 1.0 billion with an estimated 61 million of unfunded portfolio company commitment available to be drawn and our leverage is approximately <unk> 0.86 times.

We also think about out liquidity in the context of our ability to so the liabilities in future periods across a variety of operating environment.

This is informed our objective to maintain a dividend and flexible funding profile.

We do these by extending the maturity of the five year revolving credit facility every 12 to 15 mode.

Accessing funding through the unsecured buckets and creating staggered maturity is going out debt obligations.

As a reminder, in January we upsized the commitments an extended the maturity of our revolving credit facility and Opportunistically added 50 million to our existing 2024 unsecured notes.

As a result, we feel very good about illiquidity in funding position.

At quarter end now funding mix was comprised of approximately 68% unsecured and 32% secured debt and the average remaining lots of our investments funded with that was approximately 2.3 years compared to a weighted average remaining maturity on their debt commitments of approximately 4.4 years.

Oh earlier <unk> debt maturity is more than two years away in August 2022, and relatively small at 172.5 million.

On the capital side, we have long been preparing for potential scenarios, where you saw genus shocks could impact I liquidity needs and have you have expected losses across our portfolio.

We designed our financial and capital allocation policy, specifically to preserve our capital flexibility in potential periods of volatility.

I will target leverage range <unk> 0.9 times to 1.25 times, they said well below the regulatory leverage limit at two times and have parents leverage of approximately 26 times provides us with ample cushion to absorb potential losses as well as to capitalize on attractive investment opportunities for our shareholders.

Likewise, a dividend framework is centered on the sustainability about base dividend by the cool and earnings power of that portfolio across varying operating scenarios.

This much purchasing they'll still what triggered under a tenbfive one program totaling approximately 207000 shares at an average price of $14.15.

Given the significant market volatility lagging the timing of reported net asset value and uncertain impact of macro events on the valuation about portfolio. We took the decision to temporarily suspend purchases until we had greater visibility on the current net asset value have portfolio and the liquid you need.

I'll now existing bar borrowers.

This decision is consistent with our objectives of allocating capital to accretive opportunities for our shareholders as well as preserving capital flexibility in volatile operating environments.

Yesterday upon the approval and really although financial results aboard reauthorized out Tenbfive, one stock repurchase program.

Turning to our presentation materials slide eight is the and a big bridge for the quarter.

As judge Josh mentioned, the impact of credit spread widening undervaluation of that portfolio was by far the most significant driver in a big movement this quarter with unrealized losses of $1.21 to share.

Again absent permanent credit losses related to these unrealized losses, we would expect to see a reversal of these unrealized losses over time as our investments approach their respective maturities.

Walking through the other drivers of anything movement. This quarter, we added 51 cents to share from net investment income against the base dividend of 41 cents per share.

It was a 10 cents per share reduction to in a b as we reversed net unrealized gains on the balance sheet related to investment realizations and recognize the gains into this quarters net investment income.

They were 14 cents per share of net mark to market gains on the interest rate swaps on fixed rate securities due to movements in the forward libel could during the quarter.

Other changes in net realized and unrealized losses resulted in an 11 cents per share impacted this quarter is in a b.

This was primarily due to our investment in Mississippi resources.

No there was a positive one cents per share impact and they come the investments we made enough stock during lunch.

Inclusive of the impact of the 50 cents a shade aggregate special dividends that were previously declared and payable in Q2 pro forma in 80 per share at quarter end was $15.07.

Moving to the income statement on slide nine suddenly investment income was 66.3 million relatively stable.

Compared to 66.5 million in the prior quarter.

Taking it down interest and dividend income was 55.9 million down 1.8 million from the prior quarter, primarily due to the decrease in effective libel across sub debt portfolio.

Other fee, which consist of prepayments fees and accelerated amortization of upfront seats from unscheduled pay downs was elevated this quarter at 7.6 million compared to 1.8 million in the five corridor.

This was primarily due to the prepayment activity, but I mentioned.

Other income this quarter was 2.8 million compared to 7.1 billion in the prior quarter.

Net expenses decreased slightly from 31.9 billion to 31.6 million quarter over quarter, primarily driven by lower interest expense from a lower effective libel and now that outstanding.

Given the approximate one called the timing lag on the libel reset date on their interest rate swaps, you trucks, and a 20 basis point decline on our weighted average cost of debt outstanding. This quarter was consistent with the decline in LIBOR during Q4 29 team.

Before given these timing lag in the movement in libel during Q1.

I would expect to see an even more meaningful benefits cost of debt outstanding in Q2, holding out funding mix and leverage constant.

If we would do apply the spot libel today, which is below average floors on F Q1 asset yields and overlay our expected Q2 weighted average cost of debt outstanding we would expect to see a net interest margin expansion of approximately 55 basis points from Q1.

So if we would have reset the effective LIBOR on that debt outstanding as of today, who we would expect over 100 basis points of net interest margin expansion from Q1, holding all else equal.

At quarter end, 100% about their liabilities were effectively floating rate obligations.

Given the interest rate swaps, we implemented it issuance on l. fixed rate debt.

We believe our risk management policy of matching the interest rate exposure that our assets and liabilities in combination with our practice of underwriting LIBOR floors into our assets will provide meaningful downsides and he's protection in what we expect to be an extended low interest rate environment.

As of today libel has fallen below the average libel for that portfolio and based on the current three month LIBOR workers.

All else equal we would expect an estimated net interest margin expansion a year from now of approximately nine cents per share.

Let me wrap up without current thinking on hourly.

When I last coal in February we communicated the full year 2020 are we talking of 11% to 12%.

Which implies a full year net investment income per share of $1.84 to 2001 based on Q4 29 team performed in a the $16 77.

In the near term.

We expect economic uncertainty to persist, which will likely result in a low interest rate higher credit spread environment.

As a result, we would expect the spread related driver repayments to moderate which will allow us to maintain our balance sheet leverage and support our lease through interest and dividend income.

As Bob mentioned, we think the perspective opportunity set for us to generate outsized risk returns will be longer time in nature, given the unprecedented economic destruction oppose it.

In light of these updated views we would expect a full year 2020 net investment income per share to be closer to the lower end about previously communicated range.

With that I'd like to turn it back to Josh for concluding remarks.

Thank you mean before moving to Q and eight or a few housekeeping items I'd like to wrap up on a makers are broader platforms. Sixthree partners completed previously announced a new TPG to operate as independent unaffiliated businesses. As you know Sixthree has already been operating autonomously. So it's been business as usual for us to treat.

Today has over 34 billion assets under management with more than 275 team members and nine locations around the world with our platforms diversified investment platforms and flexible.

Long term capital base, we believe we are well positioned to serve our Lps and stakeholders capital and them in the same prudent and create a matter that's an hallmark of a partner group over the last 20 years.

Against fixed rate will continue to operate the Si partner the same investment strategies in decision making process.

Likewise, T.S. lots will continue to be side by the same dedicated management personnel and ours stakeholders will continue to be a sense in the same sourcing underwriting operational capabilities and six feet platform that they have since our inception.

As part of the evolution of our platform will be junior need from TPG specialty lending to Sixthree specialty lending.

Our ticker symbol in New York Psaki, Shimon will continue to be can't talk.

The legal process for I mean change is expected to be completed in June upon which we will make an official announcement.

Moving onto our upcoming new specialty you can't fill up shareholders that will be held on May 20.

Consistent with the past three years, we will be seeking shareholder approval to issue shares below net asset value effect, it's about coming 12 month to be clear you have no plans to issue equity under the authority dilute our existing shareholders.

However, as stewards of our shareholders' capital we believe it's always possible you secure all tools available financial flexibility.

Hey, Chris you in person market volatility. This is a responsible that we take seriously with all capital allocation decisions, we make on behalf of a stakeholders with shareholders. The please reach out to us within questions or concerns.

Finally, I'd be happy I wonder if he would like to think.

All of our stakeholders for their engagement over the past few months.

As we collectively navigate these historic in an uncertain times, we had been humbled by our stakeholders the confidence in our ability to create long term value I Miss economic disruption.

Our current views that the market is under afternoon full long term economic disruption of cobot 19, given the diversity gap between asset prices and underlying fundamentals of the real economy.

We are confident it will be that will be opportunities and generate significantly high risk adjusted returns for shareholders, but we're being patient imprudent to ensure that we have the capital deployed at the appropriate time with that I'd like to thank you for your continued interest for your time today operator, please open lines for questions.

Ladies and gentlemen, good question or comment at the time. Please press Star then one key on your touched on telephone. If your question has been introduced him or herself from the Q. Please press the pound key.

Our first question comes from Rick Shane JP Morgan.

Hey, guys. Thanks for taking my questions in a I hope everybody as well its all sort of tied together when we think about D.

Way that this is going to play out we think it's going to play out in three stages. There was initially the liquidity stage that we're we seem to be emerging from.

The second is the transition phase where were we are right now and I think the real key is going to be how sponsors behave as boppers between the short term slowdown in the longer term impact and then finally, a will move into sort of the cards on the table what plays out a with.

In portfolios and within companies I'm curious in your conversations with sponsors right now what types of behaviors, you're seeing and if you could specifically talk about you have a couple of a significant maturities this year a better analytics.

And our Nektar Therapeutics, I know you can't necessarily speak specifically to those credits, but conversations around a near term maturities in the risk of maturity defaults.

Sure Hey, good morning, and hopefully with your family or save and I apologize in advance I can't control the 1 million schedule in the suburbs.

Here are the noise in the background I apologize so on that car I know prepared remarks, I know if you're caught it it's actually paid off at a previous two quarter end I mean after quarter end, so paid off and.

Early April on many that company is performing very well, we added proactively extended the maturity from Mehdi after quarter and other companies performing well.

Obviously, the sponsors view and not the best time to sell the business.

And so.

<unk>.

I suppose to near term maturities one is what we paid in cash and when we weixin. It given the performance of the business and so anything to add on on those two.

No nothing to add I mean, maybe analytics, we actually started that process is pretty cool the business is performing well. It's a it's the I.T. business that is actually seeing some benefits in this market and you know wrote a really nice levers position. So.

Extended the maturity there.

Generally look <unk>.

Yes, it's all about be a heavy.

Transparent a and constructive dialogues with both management teams and sponsors we're having those dialogue.

On a regular basis.

Most of them on a weekly basis, we've asked most of our portfolio company. That's all of our portfolio companies provides there can we cash flows.

And try to be partner with them and giving them tools.

I think about.

How do how to operate in this environment, which is measuring K.P. eyes, and measuring dsos and de Peos and think about what can happen the cash and liquidity and so those have been very constructive dialogues.

You know.

At some point.

<unk> hit the road.

After if the capital after need it.

These that have capital I put in the business and we expect to have constructive dialogues and the more people can be transparent today about where companies are operating in the challenges. They face like that you hear those conversations will be in the future and today, it's been very very constructive bow anything that are Mike.

No I you know I think the point on transparency, we're really encouraged that we have good relationships with our borrowers and with our sponsors and that transparency allows us to be you know solution providers of a issues arise you know in any environment, including this one so that's you know those.

Conversations are fleet frequent and we feel like all of our relationships are being very transparent with us.

A couple of other thing to know I'd look at we had at the and.

Obviously, the numbers are a little delayed but at the end of Q4 or or risk. We were we were kind of de risking the portfolio or bars were de levering significantly. So kept the eyes were generally up leverage or last our attachment point went from four point.

Two times the previous quarter to 4.1, the average between 2017 2019 was four and a half and so you've seen interest coverage was up and so overall the portfolio in Q1 quite frankly, the portfolio is performing pretty well across much.

Each of the portfolio.

Pre cove it and so you know there I think there are fortunately there is going to be more degrees of freedom or given the nature of the portfolio and the performance up to cope with obviously the violence of co bid and or the relatively if it will impact to differ.

Degrees.

All businesses and all business models.

Will be felt but we felt like to position. The portfolios you know physician pretty well given it's typically you know asset light services businesses with high free cash flow and robust this is Bob.

Got it great. Thank you very much cats.

<unk>.

Our next question comes from kind of leave with RBC capital markets.

Hi, Thanks for taking my questions and good morning.

Just wondering if you could just further expand upon your outlook for potentially see more amendments versus debt defaults I'm wondering.

Specifically, whether there were any specific factors driving dispute.

Yeah look I think.

The great thing about or.

Portfolio that weve constructed for our shareholders is.

Were you know we're typically a you know.

Control and or where we have very.

Hi, baskets regarding indebtedness in restricted payments, which don't provide the opportunity for issuers to do liability management trades without working with us and we have.

Two financial covenants, and so we're going to be in a position the have conversations with companies.

And to be solution providers and protect raskin. So I think you can expect a decent amount a dialogue.

Quite frankly as small as they have to come to us.

Incur a P.P.P. alone I'm, because they don't have that that encourages basket to meeting you know from some relief on financial covenants.

But given you know we actually think it's a positive thing.

It keeps effectively this does the portfolio to a shorter weighted average life.

And allows us to manage risk.

And gives us optionality to.

Do many things enhance.

Position, so I see.

At quarter end I think there was only two to three amendment.

Or.

Related the co bid or but I think generally they were like eight in the quarter and that's a typical cadence given how are docs are constructed.

And so I would expect that you know were costing lean dialogue, given you know or the the structure over a long agreements in place and I think that will ultimately benefit or our stakeholders ER and walk you off allows to be construct of solution providers with sponsors and management teams.

Both fish anything that there.

Yeah, I think those pretty well. So you know all these you know we've been talking about the importance of type loan documentation.

Over the past few years and you know all of these are guard rails to get us back to the table to reevaluate risk and top in times be solution providers as well to our portfolio companies and you know we're seeing the beginning of that but activity levels up and you know relatively muted given the backdrop.

Ray very helpful and just one follow up if I may it looks like.

Leverage ratios are closer to the lower and be a the target range and.

Gratitude or realize that leverage ratios could move around depending on investment valuation changes, but wondering over the near term would you be targeting closer to that lower end of that target range. Thanks.

Yeah, So I know what you see that so.

Right now I got to equities 26, that's kind of on depressed.

Asset values and so we actually have a whole bunch of capital and a whole bunch of talks ability to expand into what we think is gonna be a much more lender friendly environment or less competitive from the leverage loan market less competitive from a high yield market for kind of issuers that our target.

Range.

Less competitive from the private credit markets, given people were inwardly focused or liquidity or capital constrained and so.

You know we have from both a capital perspective in a liquidity perspective.

We are in a I think you know as well position as we could be a tad Kinda Creek.

Find good risk adjusted returns going forward.

The other thing I would say is the actual existing book.

And these time in these in these moments 10, not that not given given credit spreads have widened tends to stay in place and these existing book given the combination of our floor.

And our hedges and our liability actually have a decent amount of net interest margin expansion on a go forward basis, the discussed and so.

Existing book is pretty well positioned from a net interest margin perspective, we have a ton of capital it sounds liquidity, a pet to make smart capital allocation decisions that drive economic return for shareholders and go forward basis, and so we're pretty happy with.

As as as we're pretty happy with how it played out you know given you know just a little color around that the colored up you have a billion dollars of unfunded commitments.

Only dollars of liquidity, we have about $60 million of contractual unfunded commitments. So I think we're like 16 times coverage, we only have a a the nearest term maturity or is 172 and half million dollars in August of 2022 and so.

So you know, we basically have a billion dollars plus the liquidity.

And for or against various one out of unfunded commitments and you know 872.

<unk> million dollar maturity, that's gonna be and ER.

Over two years away, so I mean from a capital and liquidity perspective.

I feel pretty good you know it really good shape.

And from an opportunity standpoint is there anything out there.

I think you capture the Josh it's all about just giving you also putting ourselves in a position where we have options and feels like we've we've come to that stage.

Great very helpful. Thanks, again, everyone stay safe.

You too.

Our next question comes from Finian O'shea with Wells Fargo.

Oh, Hi, everybody. Good morning, everyone is well I just to follow on on the last question.

She was more related to leverage but I wanted to ask on.

Equity issuance I think you should be.

Be officially above book again, if the.

Market opens here today does does that change your position and if not what what conditions are holding you back from raising more equity given your Warner <unk> companies that can are accretive we do so is it more your liquidity position or the lack of good.

Deal flow.

Hey, if and so look.

That's great question.

We've always been I think we've always.

Five or sauces.

Very prudent allocators of capital we've never raised you know there's there's always this agency principal issue.

Kind of existing all businesses, but people to think about any asset management business, where there's the virgin interest between the manager and and the a and the ER and the people actually providing the capital and for US we've always put our capital before or interest it will.

Continue to operate that way and so when you look at where we sit today we have.

We're overcapitalized web 0.86 times debt to equity onwards, relatively we think are depressed asset prices.

And so if you actually normalize that.

For spreads tightening or at some point that those unrealized losses going through as we get the maturities and airline investments, we actually have more capital than that.

Less levered and we have a ton of liquidity. So there is no need or desire to raise capital because we have a lot of capital and we are quite frankly, we don't need to raise capital. We've got a lot liquidity. So I think we are you know well take the will pick up.

Vision, we always have is which is we're only raise capital went as accretive for men.

Book value basis, and or are we basis, and you know a hard to imagine it's accretive from an hour he basis, given that we have a whole bunch of excess capital to deploy well, we think to be a pretty good investment opportunities that as Adam is the as that.

We have line of sight into that investment opportunities that are and how quickly it comes and.

And how good we think it is our view might change on rate raising equity capital, but quite frankly, raising equity capital given the liquidity position and given the and given the capital positions not even close the on top of or less.

And is that you have anything at or below.

Yeah, I think you. The the thing was just making sure we stay true to the discipline that we've articulated in the past about being accretive to any the and then on our OE basis.

It's important to us.

So in any any equity capital. We've raised today you know look we had massively grown the book would be dilutive given that we would be de leveraging that that the the deleveraging the business and so I you know I it.

You know as I can I could see you know as the the opportunities that evolves ER and where there's clear line of sight.

To be liquidity capital providers to the middle market and middle market sponsors.

That you know we might be raised we might raise equity capital, but you know we have a talent putting capital. So I I don't see that as a as a near term.

I I and.

The near term process.

So I'm very hopeful and just one more can you remind us on the mechanics of first out leverage and specifically.

If you you know you talked a lot about having to potentially provide amendments.

Would that require typically consent from your first out lenders and would that you know perhaps trigger a diversion of the waterfall is that an issue that you grapple with going forward zero. So so typically not in addition to.

The you know I think the average attachment point.

On our.

Our first lien last out positions is about half a turn in our detaches Ah Ah less than four turns.

And so we're we're typically is a big part of those capital structures control Rec lenders.

We have you know ER and and typically the version as you know triggers you know on on payment default <unk>, that's not even not even close to being an issue.

But when you think now there no correct everything well sub.

Okay. Thank you guys so much.

Take care of fan.

Our next question comes from Chris York JMP Securities.

Good morning, guys. Thanks for taking my question.

So josh or maybe even though we understand that secondary form of repayment supporting your extension of the NGL.

Discount to net order meta liquidation value.

Now that support seems reasonable in orderly markets, but clearly it's environment is anything but ordinary its especially post you is you know do you still feel comfortable both the collateral supporting your retail HDL strategy that maybe approaching bankruptcy at a time when there could be an abundance of inventory available.

Yeah. So this is great question. So so you have to have just kind of have to have to put it in two different factors. One is that the value of your inventory in the second is the liquidity is airline company and so what was on top of or worry list would have been a series for example.

Which had no liquidity.

And that you were liquidity you would've been forced to liquidate into an environment, where there were a whole bunch of close stores are mandated stores.

That off so that was or kind of that the scenario. We're talking about it was fears are highest risk position that got paid off or in the middle of a quarter when they sold.

A series of logistics assets or that they were forced to repair alone.

The or the next one and then when you look at kind of everything else.

In our book you have the essential business is staples nice and save a lot.

Business is performing well the secondary source or repayment is is not affect is actually given that turnover in inventories probably have increased.

And those businesses are performing well and have liquidity and have more free cash flow never had so put those beside the there's really two that are in kind of that vector you're talking about a one as a more resets, which is relatively small and the next is.

Neiman and so on Murray says what I would say is kind of liquidity had been performing very very very well, we feel very good about where we said on Murray says.

Given that there is a reasonable time period for.

Most of them back off which as you know called called late summer early fall on Neiman, obviously, they overlevered a a balance sheet very public we actually feel and this will this will actually come to head and neck, you know probably today or tomorrow. So.

It's hard to talk about what would I would say is is that that my sense is that will be a going concern business that the full from the and I think it's gonna reported that the fulcrum is putting up at today, where over secured and being in that we will not face a liquidation that business.

And the focus we're putting up a capital in that business.

For B or capital create liquidity ER and ER to get it the other side, which was the existing first lien term loan.

Group, So nani be lender. So my sense is is that well that will be fine. There that that is the that is a vector that we were concerned about which is liquidity, but quite frankly, the liquidity issues being solved by I. You know my expectation is that business will be.

Capitalized.

With a debt and will be a going concern business.

I think great color, Josh being consistent and news as well and so that would away bankruptcy work. This year over secured day. One you know you get a you get a you get a interest and then you get admin claim for any degradation in years.

Lateral and we know that could be degradation or collateral given that there will be liquidity to buy you know you inventory that was for a collateral.

Perfect. The colors very helpful and you got we're always going with the reasons.

Uneven.

On the on the topic of retail I noticed you didn't mark down your JCP loan a meaningfully or the investment, but not nevil what drove the write down there and why do you feel this one retail investment was supported by enterprise value.

We underwrote it as opposed to the hard assets, yeah, So I'm actually JC Penney.

ER so it wasn't a inventory alone, but it was a is a collateralized loan or it has a whole bunch of fee simple and leasehold.

ER and so obviously the value.

Of the fee simple leaseholds change, it's a level to loan.

We may think it's cheaper we may think it's expensive, but you know we market you know to where it's trading I think is traded up post quarter, a little bit but it to be clear. It is a it is a a it does have a collateral package it happens.

Not to be inventory, a I think it actually has a second on inventory, but quite frankly, that's going to be absorbed by the existing a b L where the value will be four by the existing E. B L. But it was a you know a fee simple and Ah Ah and Leaseholds, primarily as collateral.

And so obviously that that's a little different situation.

Okay.

Are you feel pretty good about mark there.

Yeah, well the more.

<unk> for level to Mark I think it's up.

A little bit and set up a little bit post quarter, I think a little bit, but it's a level to mark and so you know we choose to revise everyday we could use a rebate everyday which we have.

Got it yep okay.

And then bow talk little bit about the expansion the opportunity set in the secondary markets very helpful. There, but I'm curious if this environment has had any impact on your allocation of capital towards your investable teens or Alternatively has it created any new sector themes for what you plan to.

Yes.

Yeah, I mean, most definitely Ah so I look I think the the liquid market was really interesting.

For a period of you know a couple of weeks quite frankly, you know we were getting or are you know we spend our time, making sure that we had enough capital liquidity.

To support our existing portfolio companies.

And so we had her head down we did one small secondary trade. My guess is that you know there's gonna be divergence in the secondary market.

Which will probably create a lot of opportunity over time.

But we're going to be patient there.

The quite frankly, the that the themes as you know the big seen as being a capital and solution provider uncomplicated situations I think that is plentiful in a post covered world and that is where our skill set.

It is that is our skill set I think we do best stat.

And have historically have done best and created a ton of value and to put this in perspective, you know we are and kind of special sets kinda rescue oriented financings weve originated four and a half billion dollar since inception, that's about 35.

5% to 40% of the total originations.

The gross I ours on those investments, even and Im more benign investment was a a benign investment environment looks about 24%.

35% of originations post a a 35% of originations is perception has been non sponsor.

The growth high or unrealized investment for 23% and so in a world where you know where we were not focused <unk> you know much of the world with focus either on sponsored finance or focus on growing market share.

We were we were focused on really trying to drive and create value for shareholders and in a world where it's going to be.

Very complicated both from an.

Underwriting from both from a balance sheet perspective for companies and from an operating environment and really the devil in the details understanding the fours, earning power of the business, which will probably have been massively diverge from this historical earnings power of the business and what they what their unit economics are it's kind of its you know kind of.

This is you know this is kind of what we do and what we do best and worst Skillset lies and so on the go forward opportunities that we're really excited given that you know the opportunities that matches up with our capabilities very very well and with the.

<unk> platform very well I'm not being said you know obviously you know given that the world. We're in today was you know kind of set off by in health care crisis, you know on a on a personal level and every other level as you know very upsetting to us.

Given you know the the amount of disruption in amount of loss of lives and that.

People worried and amount of uncertainty people filling both about their economic personal economic situation in their health.

But I would say the go forward opportunity set matches up pretty well with our skill set.

Third again very helpful. Last question is the I noticed you said you temporarily suspending your buyback program intra quarter, what's the thought process. There because it appears you had a line of sight to an abundance of liquidity, especially with barrel and metric coming back yet so presumably that shouldn't causey the need to hold maybe a couple of.

Buck for buybacks, yeah. So look I mean, you. It was obviously very fluid at March credit spreads were like credit spreads.

There was not a bottom of credit in credit spreads. So we mark or book the fair value and you know or the buyback program is backward looking not forward looking so a set off a historical NAV and as credit spreads are widening everyday every moment you rule, we don't know where there's a bar.

And you really you know we wanted to get our arms around you know making sure.

That you know get arms around our debt to equity.

Our arms around you know and and quite frankly make sure that we were being thoughtful users of capital given that we didn't know what the new net asset value, what's gonna be in the moment given the the violent move in credit spreads you know so you know I think getting that you know hindsight is always 2020.

And you know given how the quarter ended I, probably wish we wouldn't have done that but you know we were in a multi variable situation regarding the following of credit spreads talking the rating agencies every day I'm, making sure that we protected are investment grade rating.

And so you know we did what we thought Wisconsin. The moment in hindsight is always 2020, and you know you know it will be a lesson in anything that there.

You kept you know what Josh.

Great. That's it for me and obviously the market knows that you are a good allocator of capital. So appreciate the comments.

Our next question comes from Ryan Lynch with KBW.

Hey, good morning, Thanks for taking my questions and hope you guys are all well.

My first question has to do with the opportunity set I mean, this is kind of under no and unknowable question going forward, but it just love to hear your your opinion I mean right now the primary issuance market is come to a grinding halt.

Secondary market as his when it's kind of snap back pretty quickly, but as you guys since you're at a really good capital position for you know for the remainder of the of the year.

How do you guys you yourselves as far as allocating capital when when it seems that the primary market maybe held up for a pretty long time that there seems to be steers about you know second and third waves of potential spikes as the economy starts to reopen do you think you guys are gonna be more tracking it.

The secondary market opportunities looking forward dislocation there to try to deploy capital or just kind of how are you thinking about that kinda further the remainder of the year.

Yes, so we surely have there are or opportunities I think there are a lot of opportunities. Both you know and our own in our own capital structure I. If the stock trail truly trades below book value I think given you know the work we've done our capital and liquidity.

We think that will be a good investment I also think that you know when you.

The you're exactly right. The M&A market is going to its come to a halt and we'll be very very slow. The good news was our business wasn't that levered to spot for M&A.

Again, I think 45% of or <unk> originations from inception were more kind of.

You know special fifth oriented and so and refinancing related and so I think that opportunity set will massively grow and quite frankly lines up with our skill set very very well.

But the you know and then quite frankly, if you do see M&A, you're gonna see M&A, that's more strategic in nature, So, it's going to be sponsored portfolio companies or or or or non sponsor portfolio companies and can be strategic where I think given that there's not that much supply of capital.

Both from the BDC market, because I don't think generally people as well position as a from a capital liquidity perspective or from the private fund market, where people are and where we focused.

Either on their portfolio are solving liquidity issues themselves. There's no FILO creation. The high yield market is open for a big issuers and highly rated issuers, but for kind of our core business I think there's going to be a decent amount of opportunity, it's not going to be levered to M&A.

It's probably more more connected to our existing skill set.

Oh, you have anything that there.

No.

Listen I think we'll see an evolution of the opportunity set as I've mentioned in her prepared remarks.

You know with the high volatility new issuance froze, we're starting to see the and thawing of that in the in the back end of the pipeline for opportunities, where our skill set matches as Josh mentioned complex situation special situations. You know good companies balance sheets those type of opportunities are appearing.

And we are well positioned to to be liquidity before there's some of those those environments.

Okay that makes sense.

You know as we kind of looking to this this aren't coming down turn I think one of the differentiators could be in the BDC space. Besides the you know about the liability structure that bdcs set up and you guys seem to be set up really well there and the quality of the asset book could be just the size scale, but that's what the platform.

As Bdcs or you know works through challenge credits and you're trying to get the best optimal outcomes for somebody's credits. So can you just talk about your confidence in the size and the scale your platform to work through both challenging credits in your own existing portfolio find new opportunities and then.

Peculiarly.

In light of the Finalization of the split with TPG, Yeah, Yeah, so well be like we have one of the biggest private credit platforms.

And in the World So $34 billion of a U M that will my guess probably grow we have a kind of dry powder across our platform, where we were going to be a you know active participant and providing solutions for company.

Ladies and issuers that quite frankly that the T.S. helocs platform will benefit from and so I think people saw that we were involved and the financing for ever being be.

Given the the the structure that loan and and or the ability to company to pick it wasn't really appropriate for the BDC, but I think that's a good example of the that that the how the platform at work that the scale the platform.

Our ability to see a large opportunities the amount of resources, we have in our platform. We have 275 people the the partner group.

I think we have like 18 partners now the BARDA group much of US has been working together for somewhere between 12 and 20 years.

And so.

As it relates to the or the the the scale the skill set.

You know and our historical in our investment process.

You know and our and our ability to protect and create cap a value for shareholders and Lps.

And the brand we have I feel I I cannot feel better about how we're positioned situated for the environment were coming into.

Okay that makes sense it's helpful color.

Those are all my questions I appreciate the time hope you guys are all safe.

Our next question comes from Robert Dodd with Raymond James.

Hi, guys glass everybody's doing okay. Yeah, I'm, just just wanted some some of mindful that already been answered all well when you look at the capital allocation going forward can you tell is give us any color on on the relative.

Just Vincent and hurdle rate, if you will mute deployment versus reserving capital for existing portfolio companies. Obviously, if you put a follow on investment into an existing portfolio company with yields well, it's protecting the already invested capital. So do you potential while oh could be materially higher.

Buses knew where the yield might be hot spots, if asset like <unk> match, the <unk> the excess <unk> Oh, you've got some some of those sweat where things that we paid quickly make may come in so that there's no new basis versus existing opportunity cost I all savings.

Tetra how's that going to be balanced over say the next.

Three months versus the next year.

So first of all look we Mark all you know, we mark all of our investments that fair value and so I think.

You know and I I think I understand the question, but the.

The as it relates to our existing investments.

And given that we market the fair value like the the you know I'm not sure the hurdle rates deferred that much given that you know we're we were you know there was a sunk cost you know a and so you.

I.

I'm trying to think through your question on five but like the the sunk cost as it relates to the existing investment is.

It is what it is and so we market you know what we're going out we're going to say.

You know here's here's a cost the cat, here's our opportunity invest in our and our stockers or investment opportunity to invest in the new owners opportunities vacs its existing loan and you know like those things should all line up where and and we should you know that's how we're going to allocate capital but I.

I don't I'm not sure there's a different cost of I'm not sure we're going to allocate capital you know at a lower cost or existing for portfolio company versus making new investments.

You might do for that but you would but you would look at the return.

The fair value effectively the incremental value, creating we were when you mark the investment.

You know to market on your existing investment.

Okay I I appreciate that just when we can follow up on that that later as well thanks a lot.

Our next question comes from Nike Swim Ladenburg.

Yes, good morning, everyone, Josh just one sort of high level question obviously.

You are companies had great experience and solid returns in the retail segment.

No we see airlines completely dislocated for reasons, you know greatly out of their control, but you have blue chip names with <unk> and in some cases with very high quality assets and there will be a day when when you at all and everybody else on this phone call or or getting back on airplanes.

Traveling and visiting companies and visiting clients. So I'm curious, whether you're you're thinking about that sector something in which the BDC could invest I realize you're not investigator now, but it would seem that there would be opportunities there.

Could generate some really outsized dire ours, if the deals are structured correctly.

Yeah look so leave that the challenge with the airline industry first of all I think the.

Some of that opportunity set has been displaced a phone or in the short term through public policy, a and so they've they've they've got a decent amount of support.

Through the existing policy programs and so I think the challenge generally with airlines is that we always thought asset value was a little bit illusionary given at the time you need to define needed your asset value was where the the ER was typically.

They correlate to environment, where there was a time, where it was oversupplied and it was given that there if it was over supply there would be no bid for your underlying asset values. So I think the the airline industry given the amount of.

The strong I think amount of kind of permanent the man disruption.

And given the operating leverage I think if it makes it very very challenging to invest a broadly there might be opportunities in the future to do things, but you know you're looking at industry, where it's going to have there's real demand disrupt.

And I think it took six years post 911 for for demand to fully come back I would expect this is actually longer. This relates the you know people have internalize their personal health you might see that you might see come back a little bit quicker.

With the if you do see anti viral or a vaccine.

Especially vaccine, but I I quite frankly, I'm not given that the given that there's been a lot of public resources devoted to their their line industry and given that the mountains to meet demand destruction in asset values are tied to effectively or how much you know what the supply as.

I think as is is very challenging not that's not investable, but that you know you might find stuff opportunities, but I'm very happy that were not long either airline credits or not long a underlying assets in the airlines today.

It's you know I think when you take a big step back.

I think there are.

The travel industry, especially the asset heavy either asset heavy models, which I think differentiates from kind of there being be models.

The and and real estate.

I think there as well be long tail demand disruption or both for real estate and for the transportation industry, especially those people own assets will be very.

Very much effect.

Josh how do you feel about.

Education, and I'm not talking about you know online products or for profit you know universities, but oh I'm hearing about just enormous liquidity constraints that.

Across the University system.

I I imagine some of those are actually your clients are there opportunities developing there that you know we haven't thought about that might be interesting.

Yes, so first of all most of <unk> or would you say our clients, you mean in our lps or or or or portfolio company customer.

I'm, Tom you know the endowments as part yeah.

Yeah look I think I think the I think the.

No I think.

I mean, what well, we're always going to be or want to be a solution provider or two horizontal cline as if its endowments or pension plans et cetera.

They're or as as it relates to trying to find good assets for their balance sheet and so I do feel you know the you know and that the education industry is gonna be under a ton of pressure, but I you know at what we're always say solution.

Right or for our clients.

Where we if we can find good assets that help then you know either meet their liabilities such as pension plans to grow their assets as it relates endowments.

But you know.

I don't see I I was being you know are providing loans.

Two.

Either private or or private universities or private down and say I don't I don't think that's an opportunity set for us.

I understand so those are all my questions are today, I hope everyone stays a safe and healthy thanks for that.

And I'm not sure I'm sure I was hoping for a structured credit question.

Well [laughter].

No I'm not showing any further questions at this time.

Great. Thanks Mickey.

Very much appreciate a everybody's a well wishes and please feel free to reach out to the team with any questions.

Obviously, a memorial day, it's going to be a very different this year.

But I hope people pick the moment to spend time with their families and and friends and.

And enjoy.

The time, they have with their loved ones and people so be facing a wish only health and happiness.

Film I should have a [noise].

Thank you, ladies and gentlemen, suppose concludes todays presentation. You may now disconnect have a wonderful there.

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Good morning, and walking to TPG specialty lending next March 31st 2020 quarterly earnings Conference call.

Before we begin today's call I'd like to remind our listeners are remarks made during the call me could take forward looking statements.

Things up in the same some historical facts made during this call constitute forward looking statements are not guarantees of future performance or results no walk a number of risks and uncertainties.

Actual results may differ materially from those are the forward looking statements.

The result of number of factors, including those described from time to time in TPG specialty lending, thanks, largely to Securities and Exchange Commission.

He assumes no obligation to update any such forward looking statements yesterday after the market close the company issued its earnings press release for the first quarter ended March 31st 2020.

Posted a presentation to the Investor resources section that much upside www TPG specialty lending dot com the presentation should be reviewed in conjunction with the company's form 10-Q filed yesterday with the FCC.

TPG specialty lending <unk> earnings release is also available on the company's looks like under the Investor Resources section.

Unless otherwise noted.

Well performance figures mentioned in today's prepared remarks, or hats off and for the first quarter ended March 31st 2020, as a reminder, that's probably being recorded for replay purposes.

I'll now turn the color to Josh we used to <unk>, Chief Executive officer of TPG specialty lending.

Thank you good morning, everyone. Thank you for join up what we said my partner in our President and CFO in tenants first and foremost all that's a T.S. So that's a broader sixthree organization hope that you'll hear about once a safe and healthy the particularly when it's faster gratitude to all the health care professionals first responders.

Business workers for serving our team turned the challenging time.

In this environment whenever a top priority if that's been health well being of our people, which it turned allows us to be today after taxes silver shareholders' capital.

Post implementation or business continuity plan early March we bought a victory platform has been operating at full capacity with nearly all of our global team members working remotely.

Oh originations quickly adapt it that's new environment into high level collaboration and communication, both internally and externally essential to the success of our debt.

Well the past few months, we are proactively it's your public but it's too our stakeholders real time updates that doesn't that balance sheet and preliminary financial results.

If you found them it'd be helpful. Because it's all of the culture and transparency I mean, an ongoing dialogue with our stakeholders.

Well no I predicted tiny nature of it does lead to the economic downturn.

I believe we are entering the next phase.

That's great given the actions we have taken for the past few years as Tony will each discuss later in more detail affordably. That's made the they work with all doing what we believed to be upset the portfolio robust liquidity <unk> capital positions that we have today.

And we need it day two weeks following the market.

We shifted our focus ability now a daily.

Well part of our balance sheet capital liquidity position as part of our risk management displayed in this environment. We believe all with a clear on any of these goods true.

Are we able to make sound.

Capital allocation decisions on behalf of our stakeholders will show what kind of site, which is always 2020 wheel would have done things definitely.

Those insights will provide us valuable learnings that will benefit us and our shareholders.

With that kind of cats I'm, turning to our first quarter results, which are consistent with the preliminary results, which by the people 60.

After market close yesterday, we reported first quarter noted that they kind of pressure at 51 cents, which corresponds to an annualized return on equity at 12%.

Well first <unk>.

And that lots this quarter was driven by all I popped it.

As we have been reflected the impact of credit spreads widen and evaluation of a portfolio.

No. That's the pack this fall the fair valuations security requirements for Bdcs under the four yeah.

Which in my which which an online include incorporating market spreads is the valuation.

Portfolio security and is therefore, something we expect all BDC peers, well be doing as well.

March 31st LPD correctly, it's like with spreads have tightened by Ernie and I had one basis points, respectively, retracing, 28% of the Q1 spread widening personally and 13% precisely.

During this whole than absent permit credit losses late to the Q1 I realized losses for the spread why do we would expect that the reversal.

Lies losses overtime.

Secondly, cooking, that's future periods, holding all else equal.

In Q1, our net asset value of course, you had declined by approximately 7.1%.

So at least that which includes the impact of the Q4 supplemental dividend the 50 57.

The impact of the 50 cents.

To get special dividends that we previously declared and payable Q2 core pro forma net asset value per share at quarter end were 57.

As mentioned the primary driver the decline was $1.21 person care of unrealized losses.

Impact that credit spread widely evaluation of our portfolio.

Ill walk through the other drivers for this quarter, if net asset value gradually more detail, but I'd like to reiterate a processing arriving at this quarter's portfolio mugs given the importance.

Management tool for business.

As we shared as detailed in our recent letter or evaluates UK work begins by incorporating quarterly market spread movement, the valuation of all of our.

The next step overlays additional adjusted adjustments to the valuation for each investment as I recall, we fought the.

Active sector.

A whole lot more floor expected weighted average life.

The bar specific factors such as over.

Or under performance, let me walk through each of these in more detail.

The first and most significant factor mitigating the impact of the market spread movement that relative short weighted average life of our portfolio.

At quarter end.

Parents is up approximately five year weighted average you mean contractual life of the broadly syndicated loan market.

Portfolios weighted average in the contractual life, what was 35% shorter had approximately 3.2 years.

The features we underwrite these horrible such as approximately two financial covenant prolong the agreement on a weighted average basic effective voting control, 83% of our debt investment.

Other indebtedness and we check the payment limitation has had the effect of making an actual life of our best nothing short by contrast, approximately 80% of that probably syndicated.

Market Covenant Lite, along with greater and doesn't have to restricted payment flexibility and I'm really not.

No that approximately 8% of our portfolio this quarter, namely feral gasoline that nexstar had a very short weighted average life.

Given you the contractual maturity of visibility on it but yeah per post quarter end.

All these factors combined with albeit at a weighted average life.

Have a portfolio that was shorter the 3.2 years he lead contractual life.

At March 31st.

And with our expectation so on that car, but both fully repaid post quarter end.

Well, that's affecting mix at quarter end up approximately 70% of our portfolio when less credit spread sectors of the overall loan market.

Therefore, thank her incorporating sector adjustment the market spreads that we applied to each of our investment.

Mitigated the overall decline in the fair value what portfolio.

Finally, we have LIBOR floors across 95.1% of our data that's it.

Which averaged 1.2% core.

Parents to a floor of approximately 35 basis points, but probably syndicated market.

Assets that leaves fourth also help that allows them to get to a degree and pappas spread why do you.

You have one basket.

Reflecting on evaluation process, which is the thing that has done since our inception, we believe that we have a point in place a framework that allows us to incorporate market signals regarding risk.

Opportunities in our portfolio, that's how it's got overall investment and that's we haven't decision making process.

Moving back to this quarter.

Yes, our board declared a second quarter based <unk> 41 cents per share and shareholders of record assets you have to several July 15th.

The decline massive value this quarter accordance with existing mechanics of I've given up framework no supplemental definitely the clarity way into Q1 earnings that's was determined by the NAV limit or on our supplemental different formula which allows for no more than 15 cents declined net asset value per share over the current and proceeding.

Quarter inclusive of the impact of any supplemental a special dividend.

As it relates to our base dividend, which would increase the score the quarterly level from 39 cents 41 cents per share at the beginning this year, we determined that new levels, but stress testing or you have a portfolio across a variety of economic property. It's now.

If you look because we do a bit different ongoing cash liability to was actually shift sometimes unpredictably. Other good this past March.

Therefore, we have a strong level of confidence that they said they can be supported by the court repairable portfolio.

Near to medium term, we currently have no plans to change our previously, particularly the <unk>.

I'd like to turn the call over and above the walk through a portfolio.

Thanks, Josh given the rapid market downturn in March and low visibility surrounding the duration of the economic shutdown.

Middle market M&A activity since come to a halt.

Well, what good loan markets there were significant volatility during March as retail loan funds with the liquid assets in order to meet daily redemption rate request.

This supply surplus drove significant price declines across both higher quality and little quality credits and resulted in the steepest monthly price decline and leverage loan markets. Since the 2008 2009 financial crisis.

Against this backdrop, our Q1 originations activity with light as expected with 134 million of commitments and 80 million to fundings across three new and for existing portfolio companies.

Of the three new investments, which comprise 88% of the funding for this quarter.

Two were completed in January <unk> prior to the market turbulence.

Other new investment was vertical for a small opportunistic secondary market purchase that we made in last late March at a price of 78 that has now trading around 91.

Similar to the market volatility we've experienced in late 2015 through early 2016.

We believe there will be outsize risk return opportunities with respect to the secondary markets and companies in sectors, where we have a differentiated view.

You may recall that following the 2015 2016 period, we had approximately $260 million of liquid data holdings in our portfolio as we purchased certain loans in the secondary markets at a wave it weighted average price in the high Eightys and rotated out of them as they pulled back to par.

Different from the 2015 2016 period, we think the opportunity set for both opportunistic liquid investments and our direct origination strategy in this downturn will be longer term in nature, given the amount of capital and economic destruction. This pandemic will ultimately inflect.

We believe there will be significant need for us to provide capital.

The company's a management teams as the full impact of covert 19 rolls through different parts of the U.S. economy, and variance speeds and time horizons.

Based on our observations the leverage loan market is currently only open for select issuers.

Most of our BDC parasite peers have limited ability to deploy capital into new investments given our strong liquidity in capital position combined with a significant dry powder across our sixth Street platform.

We're very optimistic about our ability to create highly attractive risk adjusted returns for our shareholders in the period as I had.

Moving to this quarter's activity there were $212 million a pay downs across four fall into partial realizations.

This combined with our Q1 fundings resulted in that portfolio repayments of $132 million for the quarter.

Our repayments in Q1 included our first lien loan for curriculum associates at a price of 103.

Maybe I'll follow term loan for Sears at a blended price of one on 1.3 and the majority of our ABL dip loan for Forever 21, along with the recognition of our contractual economics.

Activity related income for these repayments supported the over earning of our base dividend this quarter.

As Josh mentioned post quarter end receive the full repayment of our 85 million dollar principal value investment a barrel gas at a price of 106.1 compared to a fair value Mark of one of 4.4 at March 31st.

Our 75 million dollar principal value investment in Nexstar was repaid at par.

This quarter the weighted average total yield on our debt and income producing securities at amortized cost was 9.9% decrease of approximately 80 basis points from the prior corridor.

Approximately 50 basis points of this was related to the movement in rates during the quarter, a central banks lowered target interest rates to near zero to help stem the financial impact of covert 19.

Quarter over quarter, the three month LIBOR decreased by 46 basis points for 1.91% to 1.4 or 5%.

The one month LIBOR decreased by 77 basis points.

From 1.76% to 0.99%.

The remaining 30 points of downward impact of this quarter's portfolio yields was primarily driven by new versus exited investments.

This quarter's weighted average total yield on new investments at amortized.

Costs was.

Relatively robust at 11.7%.

Supported by higher weighted average spread this was offset by effective yield of 12.4% on exited investments due to forever 21.

Excluding forever 21 yield on exited investments at amortized cost would have been 9.8%.

I wanted to take some time to review our portfolios repeal Abbeel and energy exposures.

Quarter over quarter, our retail maybe all exposure decreased from 13.8% to 9.1 person on the portfolio on a fair value basis.

Due to a full repayment of Sears and the partial pay down of Forever 21.

44% of a retailer JBL exposure at March 30, Onest as represented by 99 cents.

Save a lot and staples.

Our generally deemed as essential businesses given the nature of the products. They provide and therefore, we are performing well in this environment.

Neiman, Marcus representing 3.5% of the portfolio.

On March 30, Onest continues to face challenging operating environment, which has been exacerbated by the economic shutdown.

Challenging operating scenarios were contemplated in our underwriting process and our base case going forward is that we'll continue to be well secured and receive current interest on our principal position.

As for energy our exposure at quarter end was limited to 3.9% of the portfolio at fair value on March 31st.

Largest energy position for to add resources, representing 1.9% of portfolio at fair value was approximately 50% of our total.

Energy exposure is a first lien reserve based upon an upstream company with significantly hedged production volumes through 2023 and hedged collateral value.

Our second largest energy physician energy alloys represent a 0.9% of the portfolio at fair value is an asset based loan secured by working capital collateral.

Which we believe provides more downside protection than the typical energy services alone.

Mississippi Resources representative to your 0.1% of the portfolio at quarter end was our only investment on nonaccrual status.

While the company made its regularly scheduled cash interest payment during the quarter, we elected to apply it to the loan principal instead of recognizing that as income for reference Mississippi resources contributed approximately two cents per share or 1.0% to our net investment income in 2019.

Moving onto our overall portfolio composition and credit stats, we believe our portfolio continues to be defensively positioned with approximately 97% of our portfolio on a fair value basis comprised of first lien loans at quarter end.

We continue to have limited cyclical exposure at 2.8% of the portfolio on a fair value basis, which we classify based on end markets and excludes our retail AB Allen energy investments that we just discussed.

Our portfolios top industry exposures worked and business services at 20% of the portfolio at fair value followed by financial services in health care at approximately 16, and 11% of the portfolio at fair value respectively.

We'd like to reiterate that our financial services portfolio companies are primarily be to be integrated software payments businesses with limited financial leverage and underlying bank regulatory risk and our health care portfolio companies are primarily information technology providers with no direct reimbursement risk.

Given our efforts in de risking the portfolio over the past few years and based on the 12 31 2019 financial results of our borrowers we feel that the credit profile of our portfolio is in good shape headed into this downturn.

At quarter end across our core portfolio companies. Our average net attachment point was 0.3 JAKKS. Our average last dollar leverage was four point onex and our average interest coverage ratio was 3.2 left.

To date based on an ongoing engagement with our borrowers we do not expect any.

Any defaults on debt service obligations in the near term, but we do expect an increase in amendment activity in order to provide our borrowers with additional flexibility on certain covenants.

Until there is visibility on when the shutdown will be lifted we cannot pinpoint with a strong level of certainty what the full impact of covert 19 will have to our borrowers in the meantime, we continue to have frequent dialogue with C suite executives to proactively identify a managed risk as well as be solution providers and the.

Uh huh.

We believe our longstanding practice of conservative late cycle portfolio construction and high underwriting standards have positioned us well to navigate the period ahead.

With that I'd like to turn it over to end.

Thank you about I'll begin with an overview about balance sheet.

Given net repayment activity and the impact of valuation loss in that portfolio this quarter.

Total investments at fair value decreased from 2.25 below 2.05 billion.

Total principal amounts of debt outstanding with 987 million and net assets were 1.4 billion well $15 57, a share which it prior to the 50 cents per share aggregate special dividends that will be paid during Q2.

Average debt equity ratio was quite nine nine times now ending debt to equity ratio was 0.96 times down from one time in the prior quarter.

At quarter end, we had meaningful cushions old financial covenant threshold under our revolving credit facility.

Before turning specifically to our results I would like to reiterate the strength of our liquidity funding profile and capital position.

To review a concept shed recent letter we think about liquidity as the sound about cash flow freely accessible committed credit that together are available to fund our operations and make investments.

Note that I like typical corporate issuance.

I see it has limited ability to create liquidity from cash flow from operations, given Rick distribution requirements.

At quarter end, we had 1 billion of Undrawn capacity on our revolving credit facility against 66 million of unfunded portfolio company commitments available to be drawn based on contractual requirements in the underlying loan agreement.

As of today, given the net repayment activity with experienced quarter today, our liquidity stands at 1.0 billion with an estimated 61 million of unfunded portfolio company commitments available to be drawn and our leverage is approximately <unk> 0.86 times.

We also think about our liquidity in the context of our ability to so that liabilities in future periods across a variety of operating environment.

Informed our objective to maintain the flexible funding profile.

We there that by extending the maturity of the five year revolving credit facility every 12 to 15 month.

Accessing funding through the unsecured buckets and create well staggered maturities on our debt obligations.

As a reminder, in January we upsized, the commitments and extended the maturity of our revolving credit facility and Opportunistically added 50 million to our existing 2024 unsecured notes.

As a result, we feel very good about our liquidity in funding position.

At quarter end, how funding mix was comprised of approximately 68% unsecured and 32% secured debt and the average remaining lots of our investments funded with debt was approximately 2.3 years compared to a weighted average remaining maturity on debt commitments of approximately 4.4 years.

Our earlier debt maturity is more than two years away in August 2022, and relatively small at 172.5 million.

On the capital side, we have long been for parents of potential scenarios, where lajeunesse chuck's could impact our liquidity needs and our view of expected losses across our portfolio.

We designed our financial and capital allocation policy, specifically to preserve our capital flexibility in potential periods of volatility.

I will target leverage range <unk> 0.9 times to 1.25 times, they said well below the regulatory leverage limits at two times, an apparent leverage of approximately 0.86 times provides us with ample cushion to absorb potential losses as well as to capitalize on attractive investment opportunities for our shareholders.

Likewise, a dividend framework is centered on the sustainability about base dividend by the core earnings power of that portfolio across varying operating scenarios.

This much purchasing although still what triggered under our Tenbfive one program totaling approximately 207000 shares at an average price at $14.15.

Given the significant market volatility lagging the timing of reported net asset value and I also had an impact that macro events on the evaluation of that portfolio. We took the decisions are temporarily suspend purchases until we had greater visibility on the current net asset value have portfolio and the liquidity needs of our existing bar borrowed.

[music].

This decision is consistent with our objectives of allocating capital to accretive opportunities for our shareholders.

As well as preserving capital flexibility in volatile operating environments.

Yesterday upon the approval and their lease Odell financial results aboard reauthorized Tenbfive, one stock repurchase program.

Turning to our presentation materials slide eight is the end Ivy bridge for the quarter.

As judge Josh mentioned, the impact of credit spread widening undervaluation of that portfolio was by far the most significant driver anything movement this quarter with unrealized losses of $1.21 so share.

Again absent permanent credit losses related to these unrealized losses, we would expect to see a reversal of these unrealized losses over time as our investments approach their respective maturities.

Walking through the other drivers of any movement. This quarter. We added 51 cents per share from net investment income against the base dividend of 41 cents per share.

It was a 10 cents per share reduction to innovate as we reversed net unrealized gains on the balance sheet related to investment realizations and recognize the gains into this quarter's net investment income.

They were 14 cents per share of net mark to market gains on the interest rate swaps on that fixed rate securities due to movements in the forward libel occurred during the quarter.

Other changes in net realized and unrealized losses resulted in an 11 cents per share impacted this quarter and Avi.

This was primarily due to our investment in Mississippi resources.

No there was a positive one cent per share impact to anybody from the investments we made in our stock during lunch.

Inclusive of the impact of the 50 cents a share aggregate special dividends that were previously declared and payable in Q2 portfolio in 80 per share at quarter end was $15 in seven cents.

Moving to the income statement on slide nine suddenly investment income was 66.3 million relatively stable.

Compared to 66.5 million in the prior quarter.

Breaking it down interest and dividend income was 55.9 million down 1.8 million from the prior quarter, primarily due to the decrease in effective libel across sub debt portfolio.

Other fee, which consist of prepayment fees and accelerated amortization of upfront. It seems from unscheduled pay downs was elevated this quarter at 7.6 million.

Led to 1.8 million in the prior quarter.

This was primarily due to the prepayment activity, but I mentioned.

Other income this quarter was 2.8 million compared to 7.1 billion in the prior quarter.

Net expenses decreased slightly from 31.9 billion to 31.6 million quarter over quarter, primarily driven by lower interest expense from a lower effective libel and now that outstanding.

Given the approximate one quoted timing lag on the libel reset date on our interest rate swaps.

The approximate 20 basis point decline on our weighted average cost of debt outstanding This quarter was consistent with the decline in LIBOR during Q4 29 say.

Before given the timing lag in the movement in libel during Q1.

We would expect let's say, an even more meaningful benefits cost of debt outstanding in Q2, holding out funding mix and leverage constant.

If we would do apply the spot libel today, which is below average floors.

Q1 asset yields and overlay our expected Q2 weighted average cost of debt outstanding we would expect to see a net interest margin expansion of approximately 55 basis points from Q1.

Further if we look to reset the effective LIBOR on our debt outstanding as of today.

We would expect over 100 basis points of net interest margin expansion from Q1, holding all else equal.

At quarter end, 100% about their liabilities were effectively floating rate obligations.

Given the interest rate swaps, we implemented the issuance on out fixed rate debt.

We believe our risk management policy of matching the interest rate exposure that our assets and liabilities in combination with our practice of underwriting LIBOR floors into our assets will provide meaningful downside protection in what we expect to be an extended low interest rate environment.

As of today Lydall has fallen below the average liable for that portfolio and based on the current three month LIBOR to all else equal we would expect an estimated net interest margin expansion a year from now of approximately nine cents per share.

Let me wrap up without current thinking on out our lead.

On that last coal in February we communicated the full year 2020, ROI target of 11% to 12%.

Which implies a full year net investment income per share of $1.84 to 2001 based on Q4 2019 pro forma in the $60 77.

In the near term.

We expect economic uncertainty to persist, which will likely result in a low interest rate higher credit spread environment.

As a result, we would expect the spread related drive the of repayments to moderate which will allow us to maintain our balance sheet leverage and support our lease through interest and dividend income.

As Bob mentioned, we think the perspective opportunity set for us to generate outsized risk returns will be longer term in nature, given the unprecedented economic destruction opposed but.

In light of these updated views, we would expect out full year 2020, net investment income per share to be closer to the lower end without previously communicated range.

With that I'd like to turn it back to Josh the concluding remarks.

Thank you in before moving to Q and aid or a few housekeeping items I'd like to wrap up on.

For us our broader platforms Sixthree partners completed our previously announced agree with TPG to operate as independent unaffiliated businesses.

As you know Sixthree has already been operating autonomously. So then business as usual for us that treat today has over 34 billion assets under management.

275 team members and nine locations around the world without platforms diversified investment platforms and flexible.

Long term capital base, we believe we are well positioned to serve our Lps stakeholder capital and then in the same prudent and create demand has been the hallmark of apart over the last 20 years.

Against fixed rate will continue to operate the theme partners. The payment that's the shadier attained decision making process.

Likewise, Ts lots will continue to be side by the same dedicated management personnel.

Darren stakeholders will continue to be essentially the same sourcing underwriting operational capabilities and fix your platform that they have since our inception.

As part of the evolution of our platform, we will be changed your need from TPG specialty lending to fix rate specialty only the.

Our ticker symbol in New York Saakashvili, we'll continue to be Ts all.

The legal process party changes expected to be completed in June upon which we will make an official announcement.

Moving onto our upcoming yield specialty catalog shareholders that will be held on May 20.

Consistent with the past three years, we will be seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 month to be clear you have no plans to issue equity under the authority dilute our existing shareholders. However, as stewards of our shareholders' capital we believe that both possible gets cure all.

Tools available financial flexibility and value creation person market volatility. This is a responsible that would take seriously with all capital allocation decisions, we make on behalf of us stakeholders with their shareholders. The please reach out to us with any questions or concerns.

Finally, I'd be happy I wonder if he would like to thank.

All of our stakeholders for their engagement over the past few months.

As we collectively navigate these historic in uncertain times, we had been humbled by our stakeholders the confidence in our ability to create long term value and net economic disruption.

Our current view that the market is on your estimated full long term economic disruption of public 19, given that you're breaking gap between asset prices and underlying fundamentals.

Economy.

There are cost that will be that will be opportunity that generate significantly high risk adjusted returns for shareholders, but we are being patient and put in to ensure that we have the capital deployed at the appropriate time with that I'd like to thank you for your continued interest for your time today operator, please open lines for questions.

Ladies and gentlemen, you have a question or comment at this time. Please press Star then one key on your touched on telephone. If your question has been introduced him or herself from the Q. Please press the pound cake.

Our first question comes from Rick Shane JP Morgan.

Hey, guys. Thanks for taking my questions and I hope everybody as well.

It's all sort of tied together when we think about the.

Way that this is going to play out we think it's going to play out in three stages. There was initially the liquidity stage that we're we seem to be emerging from.

The second is the transition phase where were we are right now and I think the real key is going to be how sponsors behave as boppers between the short term slowdown in the longer term impact and then finally I will move into sort of the cards on the table what plays out with.

In portfolios and within companies I'm curious in your conversations with sponsors right now what types of behaviors you're seeing.

And if you could specifically talk about you have a couple of a significant maturities this year.

That analytics and Nektar Therapeutics, I know you can't necessarily speak specifically to those credits but conversations around.

Near term maturities in the risk of maturity defaults sure Hey.

Good morning, and hopefully with your family or save.

And I apologize in advance I can't control, the 1 million schedule in the suburbs of you hear the noise in the background.

I apologize so on Nexstar in our prepared remarks, I know if you're caught it it's actually paid off at a previous two quarter end I mean after quarter end, so paid off and.

Early April.

In many that company is performing very well, we added proactively extended the maturity from Matti.

After quarter end.

Companies performing well and obviously the sponsors view not the best time to sell the business.

And so.

And with those two near term maturities.

One is fully paid in cash and when we extended given the performance of the business and so anything to add on on those two no nothing to add I mean, maybe analytics, we actually started that process pre covert the business is performing well, let's see I T business that is actually.

Seen some benefits in this market and <unk>.

We're at a really nice levers position so we.

We extended the maturity though.

Generally look.

Yes, it's all about being a heavy.

Transparent.

And constructive dialogues with both management teams and sponsors we're having those dialogue.

On a regular basis.

Most of them on a weekly basis, we've asked most of our portfolio company. That's all of our portfolio companies right. There can we cash flows.

And try to partner with them and giving them tools.

I think about.

How do how to operate in this environment, which is measuring CPI is in measuring dsos and depots and think about what can happen the cash and liquidity and so those have been very constructive dialogues.

At some point.

Never will hit the road.

After if the capital after need if if there are these the have capital I put in the business and we expect to have constructive dialogues and the more people can be transparent today about where companies are operating in the challenges they face that'd be easier to those conversations will be in the future and today, it's been very very constructive Boeing.

Hey, Matt or Mike.

No I you know I think the point on transparency, we're really encouraged that we have good relationships with our borrowers and with our sponsors.

And that transparency allows us to be solution providers of issues arise.

In any environment, including this one so thats those those conversations or food frequent and we feel like all of our relationships are being very transparent with us.

A couple other things to know I'd look at we had.

At the end.

Obviously, the numbers are a little delayed but at the end of Q4 or.

Our risks we were we were kind of de risking the portfolio or bars were de levering significantly. So kipp you guys were generally up leverage our last our attachment point went from four point.

Two times the previous quarter to 4.1, the average between 2017 2019 was four and a half.

And so you've seen interest coverage was up and so overall the portfolio in Q1 quite frankly, the portfolio is performing pretty well.

Much of the portfolio, a pre Cove, Ed and so you know there I think there are fortunately there is going to be more degrees of freedom or given the nature of the portfolio and the performance up to cope with obviously the violence of Cove, Ed and.

The.

And with it will impact to different degrees, all businesses and all business models.

We'll be felt but we felt like the position the portfolio's physician pretty well given.

It's typically asset light services businesses with high free cash flow and robust this is Bob.

Got it great. Thank you very much guys.

<unk>.

Our next question comes from the kind of lead with RBC capital markets.

Hi, Thanks for taking my questions and good morning, just wondering if you could you just further expand upon your outlook for potential assume more amendments versus debt defaults I'm wondering specifically, whether there were any specific factors driving this view.

Yes look I think.

The great thing about or portfolio that weve constructed for our shareholders is.

That we're we're typically a you know a control lender.

Well, we have very.

Hi, baskets regarding indebtedness in restricted payments, which don't provide the opportunity for issuers to do liability management trades without working with us and we have.

Two financial covenants, so we're going to be in a position to have conversations with companies.

And to be solution provider.

And protect risk and so I think you know you can expect a decent amount dialogue quite frankly as small as they have to come to us.

Inquiry PPP alone.

Because they don't have the debt incurrence basket.

To meeting you know from some relief on financial Covenant.

But given you know we actually think it's a positive thing.

It keeps effectively this that the portfolio to a shorter weighted average life.

And allows us to manage risk.

And gives us optionality.

Ah, yes, do many things enhance our risk position so.

I think pre quarter and I think there was only two to three amendment.

Oh.

Related the co bed, but I think generally there were like eight in the quarter and that's a typical cadence given how our docs are constructed.

And so I would expect that war coughing lean dialogue given.

Are the structure over a long agreements in place and I think that will ultimately benefit our stakeholders.

And we'll oh off allows to be construct of solution providers with sponsors and management teams.

Oh or fish anything to add there.

Yeah, I think those pretty well said that.

All these you know we've been talking about the importance of tight loan documentation.

Over the past few years and all of these are guardrails ticket us back to the table to reevaluate risk and top in times be solution providers as well to our portfolio companies and we're seeing the beginning of that but activity levels have been relatively muted given the backdrop.

Great very helpful and just one follow up if I mean, it looks like.

Leverage ratios are closer to the lower and of the target range and.

Gratitude to realize that leverage ratios could move around depending on best may valuation changes, but wondering over the near term would you be targeting closer to that lower end of that target range. Thanks.

Yeah, So I know aim.

So.

Right now I got to equities 26, that's kind of on depressed.

Asset values and so we actually have a whole bunch of capital and a whole bunch of flexibility.

To expand into what we think it's going to be a much more lender friendly environment.

Less competitive from the leverage loan market less competitive from the high yield market for kind of issue or is that on our target range.

Less competitive from the private credit markets, given people are inwardly focused or liquidity or capital constrained and so.

We have from both a capital perspective, and a liquidity perspective.

We are in a I think as well position as we could be a tad kind of create.

Find good risk adjusted returns going forward.

The other thing I would say as the actual existing book.

And these time in these in these moments 10, not not given given credit spreads have widened tends to stay in place any existing book given the combination of our floor.

And our hedges in our liability actually have a decent amount of net interest margin expansion on a go forward basis, the being discussed and so these existing book is pretty well positioned from a net interest margin perspective, we have a ton of capital it sounds liquidity to make smart capital allocation decisions that drive.

Economic return for our shareholders on go forward basis, and so we're pretty happy with you know as as as we're pretty happy with how it played out given you know just a little color around that the colored up $11 billion of unfunded commitments.

Only dollars of liquidity, we have about $16 million of contractual unfunded commitments. So I think we're like 16 times coverage, we only have a a the nearest term maturity.

As a 172 and half million dollars in August of 2022, and so you know, we basically have a billion dollars plus of liquidity.

And for against very small amount of unfunded commitments and.

872.

Million dollar maturity, that's going to be and ER.

Over two years away, so I mean from a capital and liquidity perspective, or I feel pretty good you know it really good shape.

And from an opportunity standpoint is there anything out there.

I think you capture that Josh it's all about just giving out though putting ourselves in a position where we have options and feels like we've we've got to that stage.

Great very helpful. Thanks, again, everyone stay safe.

You too.

Our next question comes from Finian O'shea with Wells Fargo.

Hi, everybody good morning, everyone is well.

Just a follow on on the last question.

Actually was more related to <unk> leverage, but I wanted to ask on.

Equity issuance I think you should be.

Be officially above book again, if the.

Market opens here today does does that change your position and if not what what conditions are holding you back from raising more equity given your Warner <unk> companies that can credibly do so is it more your liquidity position or the lack of good.

Will flow.

Hey, if and so look.

That's great question.

We've always been I think we've always.

Her sauces, a very prudent allocators of capital we've never raised you know there's there's always this agency principal issue.

Kind of like this and all businesses, but people tend to think about in the asset management business, where there's the Virgin interest between the manager and and the and the and the people actually providing the capital and for US we've always put our capital before our entry.

So it will continue to operate that way and so when you look at where we sit today.

We have.

Overcapitalized web 0.86 times debt to equity on whats relatively we think are depressed asset prices.

And so if you actually normalize that for spreads tightening or at some point that those unrealized losses going through as we get the maturities and airline investments, we actually have more capital than that and so were less levered and we have a ton of liquidity. So there is no need.

Need or desire to raise capital.

Because we have a lot of capital and we quite frankly, we don't need to raise capital we've got a lot liquidity. So.