Q3 2020 Oaktree Specialty Lending Corp Earnings Call
Welcome and thank you for joining it's true specialty lending Corporation's third fiscal quarter 2020 conference call.
Today's conference call is being recorded.
This time, all participants are in a listen only mode, but we'll be prompted Fray question and answer session. Following the prepared remarks, now I would like to introduce Michael must achieve of Investor Relations. So we'll host today's conference call.
Mr must achieve Oh, you may begin.
Thank you operator, and welcome to Oaktree specialty binding corporations third fiscal quarter conference call earnings release, which we issued this morning and accompanying slide presentation can be accessed on the investor section of our website at Oaktree specialty lending dot com.
Our speakers to there aren't that was in Chief Executive Officer in Chief Investment Officer.
President and Chief operating officer, and they'll Carlyle Chief Financial Officer, and Treasurer, we'll be happy to take your questions. Following their prepared remarks before weekend I want to remind you that comments on today's call include forward looking statements, reflecting our current views with respect to among other things or future operating results of financial performance for actually.
The results could differ materially from those implied or expressed in forward looking statements. Please refer to our FCC filings for a discussion of these factors in further detail, we undertake no duty to update or revise any forward looking statements.
I'd also like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in any oaktree funds investors. Another show that Oaktree specialty lending uses the investor section of its corporate web site, you announced material information.
The company encourages investors the media and others to review the information that it shares on its website with that I would now like to turn the call up its Matt.
Thank you, Mike and welcome everyone to our third quarter earnings Conference call. We appreciate your interest in and support Oh, CSL wheel, everyone listening as well the health and safety of our team and the continued management of our portfolio remain top priorities as we navigate the cobot 19 pandemic.
We are capitalizing on Oaktrees first rate technology platform and while the team continues to work remotely we have been very successful to date as a virtual company anvil well, we remain fully operational for the duration of this public health crisis.
Oh CSL delivered strong results for the quarter highlighted by solid earnings robust investment activity and good portfolio performance. We generated these results. Despite the ongoing uncertain economic environment due to the pandemic adjusted net investment income per share was 12 cents earnings work.
Supported by the larger overall size of our investment portfolio higher yields on new investments interest savings from our recent unsecured bond issuance and realized gains from the exit of our debt investment in Sorrento therapeutics, which already will discuss in a few moments.
Adjusted and I was stable from the prior quarter. Despite the decline in library, which has fallen by over 150 basis points. This calendar year.
Based on our third quarter performance the board increase our dividend for the September quarter by 11%.
Well our portfolio was not immune to the extreme market disruption in March valuations substantially improved during the June quarter as market volatility subsided and asset prices, partially recovered from their lows in the first quarter.
Third quarter Dad was up 14% from the prior quarter to $859 million, which represented a recovery of $170 million or 60% of the March quarter Nab write down. This rebound was due to increasing the prices of our liquid debt investments and tighter credit spreads.
As you detailed on our call last quarter, our portfolio has a large exposure to liquid loans one of the benefits. It having these liquid that investment is that allows us to actively manage risk in the portfolio and move in and out of positions Opportunistically one potential drop back to his approach is that our portfolio from time to time.
Well be impacted by Mark to market volatility, which is what we experienced in the March quarter. However, following the rebound in the liquid credit markets. The prices of these investments increased by 9%, which contributed $71 million to the improvement in now he's liquid then investments continue to experience pricing.
Reshaping of approximately 1.5% during the month in July.
Our investments in the Kemper joint venture written up by $18 million or 19%, reflecting improvements in the underlying investment portfolio, which is primarily composed of liquid first lien loans.
And our private debt portfolio was up $15 million in the quarter of which $10 million was attributable to originations made during the June quarter. The increase was primarily driven by tighter credit spreads and improved performance at some of our portfolio companies.
Partially offsetting the unrealized gains this quarter were declines and some of our non core equity investments, which adversely impacted NAV by $8 million.
Liquidity and leverage positions remained strong during the quarter at quarter end, we had $284 million is dry powder, including $233 million availability on our credit facility and $51 million of cash.
We were active on the investment front in the quarter leveraging oaktrees platform to find several compelling investment opportunities, we made $260 million of new investment commitments during the quarter, including 225 million in primary and private market transactions and $35 million of secondary market purchases doing.
Investment commitments in the quarter, we're getting attractively priced within eight with a weighted average yield of 10.5%, which compares favorably to the approximately 6.5% weighted average yield on the investments that we sold during the quarter.
Although we received $120 million from pay down an exit our portfolio grew by $71 million during the quarter as a result of our robust investment activity and our leverage remain relatively flat at 0.83 times net of cash up slightly from point, a two times at March 31st.
Before I turn the call over to arm and I wanted to provide an update on a new initiative that will enhance our firm wide sourcing efforts in June Oaktree announced the formation of a new group to sourcing originate private credit opportunities across all of Oaktree strategies in North America. This new team will support our existing sourcing and origination.
Function going forward, which will facilitate and deepen oaktrees already strong reputation as the go to lender. We believed that this will continue to widen the funnel of opportunities that Oh, CSL, we'll see enabling us to selectively grow our portfolio and deliver improved returns.
All told were very pleased with the third quarter results, particularly in light of the economic uncertainty caused by the pandemic and significant reduction in LIBOR with that I will now turn the call over to Oregon.
Thanks, Matt Good morning, everyone.
After the March quarters historic so often risk assets credit and equity markets rebounded following extraordinary fiscal and monetary stimulus, which boosted liquidity and the availability of credit, thereby supporting individuals businesses and markets and the credit markets, both high yield and leverage loans rallied in their workflows the fed support.
Demand to return to corporate credit markets significant investor inflows into high yield parties led to record issuance as companies opportunistically issue debt to bolster their balance sheets.
New issue activity in the leverage loan market. However was light volumes fell to five year lows as investors prefer the call protection and fixed rate offered by high yield.
The traditional direct lending markets you issue activity was slow as M&A and other corporate activity came to a halt the impact of dependent because had combined with its uncertain long term implication has made it difficult for potential buyers and lenders and value companies.
RESCULA, you're more plentiful in March and April, but as markets rallied we've seen fewer of these opportunities while lenders have generally been able to achieve more favorable terms in this environment spreads and other economics are tighter now than they were just a few months ago.
Well, we've got noted there seems to be a disconnect between the credit and equity markets and company fundamentals as a pandemic remains a highly fluid public health crisis in the U.S.
30 cases, and hospitalizations or continue to rise across much of the country halting reducing reopenings.
With an uncertain path to recovery companies, they make temporary or permanent cuts to payroll for capital expenditures.
We expect numerous industries experienced several years of stress and distress as companies reassess their business models, including how they use real estate you, they employ where and how they distribute their products.
Consumer sentiment and spending which is a major driver of the economy will be closely linked to job and income prospects and aside independently the potential impact at the upcoming U.S. elections represents another area of uncertainty.
That's all to say that we anticipate further volatility in the markets and we remain focused on maintaining our high quality and more conservatively positioned portfolio. We continue to rotate out of mailing sectors that have outperformed expectations. It could be challenged because the recovery slows.
We're being cautious and disciplined about deploying capital reserving dry powder, where possible. So we can go on all fronts quickly if another buying opportunity presents itself.
We're also tracking themes and are you correlated areas of the market, including life Sciences businesses with pent up demand that will benefit when the economy reopened.
Companies that are experiencing neutral or positive results during its hard including businesses in software and information technology.
Now turning to the overall portfolio performance in third quarter.
We feel good about the quality of our portfolio and to help them or borrows over the past two plus years, we've been focused on defensively positioning the portfolio by lending businesses that we believe will be resilient through a recession. We have increased the overall size of our bar focusing a larger more diversified businesses with little exposure to cyclical industries.
To that end or median portfolio company EBITDA is approximately $152 million larger than the typical middle market company.
As we highlighted last quarter, we continue to have limited exposure to industry directly impacted by cobot 19.
We remain in close contact with management teams and private equity sponsors and generally our portfolio companies arent necessarily liquidity to navigate the current environment in the near term and sponsors are supportive.
Credit quality has remained solid no new portfolio companies talk to modify their interest payments from cash to pick in the quarter and only one new investment was added to nonaccrual, a very small position, bringing total nonaccruals, the three investments or 0.2% of our debt portfolio at fair value.
Turning now to investment activity, we had a strong quarter for originations as we were able to identify interesting opportunities and companies with attractive risk reward profile, we generated $261 million of new investment.
Aside from a few opportunistic secondary market purchases in April in early May the bulk of our new investments were the primary private market.
We discussed a few of these newstar energy open.
And the air being be last quarter.
[laughter] I'd like to take a moment to discuss in more detail.
Couple of investments that we made in the June quarter.
The Phoenix is a publicly listed global clinical stage bio pharma company wouldn't be extensive manufacturing and development platform focused on discovering and commercialize a novel cancer treatments the company with seeking to refinances existing senior debt and raise additional capital for the development of new medications Oaktree underwrote $225 million of us.
Next year senior secured debt of which shows here. So it was allocated $66 million.
40% of this loan was funded that close and the remaining charges are subject to certain milestones there must be met by the company.
As long as attractively priced of 11% cash coupon <unk> and includes three points of though I'd and a 2% exit the at maturity in early August we sold 22% of our position to another lender atom bombs game.
William Morrison endeavor is a privately held global entertainment sports content company that generates revenue through media rights sales sponsorships subscription license fees ticket sales and pay per view programming.
Impacted by the restrictions put in place to slow the spread of the CRO to buyers. The company did allude to bridge the gap to economic recovery would oppose pandemic demand resurgence for live event should drive improved performance and cash flow.
The company has a significant equity cushion or loan was priced at LIBOR plus 8.5%.
Oh, she was the largest lender in the $260 million secured debt financings and it was here. So it was allocated $33 million.
In terms of exits we received $128 million of proceeds from prepayments other pay downs and sales during the June quarter.
Included in this amount was approximately $95 million of liquid that securities, which we chose to sell their prices rebounded and we saw more value and redeploying proceeds into private opportunities.
We also received the loan payoff from Sorento Therapeutics, one of our previously privately placed investments.
As you May recall Sorento's, a publicly traded biotech company that develops treatments for cancer and infectious diseases.
During the third quarter or 16 million dollar loan was repaid 105% plus exit fees.
We also had $6.5 million a value in words in the company at quarter end, which we had been exercising because the company stock right. We don't positive news set it at identified several attractive proprietary anti bodies that are candidates to treat cobot 19.
We remain positive on sorento, given its near term prospects and its increased collaboration with large partner companies.
We believe the months ahead, we'll continue to provide associates, though with ample opportunities in both public and private investments and are confident that would oaktrees resources behind us, we will able to identify attractive transactions.
No I will turn the call over to know to discuss our financial results in more detail.
Thank you arm and for the third quarter fiscal year 2020, we reported adjusted net investment income 60.8 million or 12 cents per share up modestly from 16.2 million or 12 cents per share for the second quarter.
The increase was the result of higher investment income and lowered net expenses as you may recall, our adjusted net investment income metric excludes the impact of part to incentive fees.
During the quarter total investment income was 34.4 million up from 34.2 million in the previous quarter.
The slight increase was due to higher interest income, resulting from a larger portfolio and higher yields on new investments.
This was partially offset by downward pressure on the average yield of our floating rate debt investments due to the decreases in LIBOR and lower oil idea acceleration on loan pay offs.
Net expenses for the third quarter totaled 17.6 million down from 17.9 million in the second quarter.
Excluding the impact of the part to incentive fee reversal in the prior quarter.
The modest decrease was mainly due to lower interest expense as a result of a full quarter impact from both our 3.5% notes offering and lower LIBOR.
Net expenses were partially offset by higher management and incentive fees in the quarter in the current quarter due to the larger portfolio and improve performance.
Turning to credit quality during the quarter all of our portfolio companies made their scheduled interest payments with the exception of one company.
That consistent with prior quarter modified its interest payments to pick.
As of June Thirtyth, Nonaccruals represented 0.2% of the total portfolio at fair value.
Down from 0.5% in the prior quarter.
The decrease was primarily due to the exit of Covia.
Which was placed on nonaccrual status last quarter.
The decrease was partially offset by one small investment which had a principal value of 1.5 million that was placed on nonaccrual status during the quarter.
Moving to the balance sheet.
During the quarter, we funded 199 million of investments.
Which was greater than the 128 million in pay off and exits.
As Matt noted our net leverage ratio increased slightly to 0.83 times from 0.82 times at March 31st.
Reflecting the net growth in the portfolio.
Partially offset by the increase in that.
We presently just below the low end of our recently adjusted leverage target target range <unk> 0.85 to 1.0 times.
As of June Thirtyth total debt outstanding with 751 million and had a weighted average interest rate of 2.7%.
Down from 3.1% at March 31st primarily due to decreases in LIBOR during the June quarter.
At quarter end, we had total liquidity of approximately 284 million, including 51 million of cash and 233 million an undrawn capacity on our revolving credit facility.
Unfunded commitments were 155 million, although only 76 million of this amount is eligible to be drawn immediately.
As it remain amount is subject to certain milestones that must be met by portfolio companies.
During the quarter are investment grade credit ratings were affirmed by both Moody's and Fitch, reflecting our strong liquidity position and conservative use of leverage.
On may 22nd it's moved our outlook.
Stable from negative.
Shifting now to the Kemper joint venture.
Investments in the JV totaled 110 million at June Thirtyth.
Up from 92 million last quarter.
Matt touched on earlier the rally in liquid debt markets positively impacted the JV portfolio during the quarter as it consists primarily of first lien liquid investments.
At quarter end, the JV had 315 million of assets invested in senior secured loans to 53 companies. This compared to 330 million in total and but in total assets invested in the same number of companies last quarter.
Non accruals in the JV portfolio remained low at 0.3% of the portfolio at fair value.
Leveraging the JV was 1.4 times at June Thirtyth.
Down from 1.8 times last quarter, and its 250 million credit facility at 76 million of Undrawn capacity at quarter end.
Now I'll turn the call over to Matt.
Thank you Michelle while the environment continues to be uncertain, we nonetheless generated solid operating results for the third quarter. We entered this crisis in very good financial shape. The defensive repositioning that we carried out in the last two and half years has largely been completed and therefore, we feel good about our current holdings.
We continue to be very well capitalized with strong liquidity, our robust balance sheet and financial position has allowed O C. S out to successfully navigate this challenging environment Oaktree has a proven track record investing in private credit across market cycles and as a result, we believe Oh CSL is well positioned to participate in attractive transaction.
That in share downside protection as Harman noted we have continued to invest throughout the pandemic and we expect remain active going forward. However, we will remain patient and disciplined as we believe there will be an increasing number of opportunities that will arise over time as the crisis persists.
We believe that Oh, CSL continues to be well position to increase return on equity going forward.
We will continue to position that portfolio for improved yield by rotating out of liquid senior secured loans with yields below LIBOR plus 450 basis points. During the third quarter, we sold $37 million of these types of investments as of quarter and 219 million remained in the portfolio, which we plan to a place over time.
With higher yielding proprietary investments. In addition, we can increase returns by deploying more leverage at the portfolio level as Mel mentioned, we're operating just below the low end up our long term target of 0.85 times to 1.0 times. So we have the ability to enhance returns as we continue to make investments into play higher leverage.
However.
We will only grow the portfolio as we find opportunities that are consistent with our investment approach that we <unk>, we believe offer an attractive risk reward.
Finally, the Kemper JV continues to present, an opportunity for us to improve returns as of quarter end. The JV was Levered 1.4 times and had more than $75 million investment capacity. We believe that the prudent grows in the JV will be accretive to hourly overtime and conclusion, we're very pleased.
With their overall performance in the third quarter, given the ongoing uncertainty surrounding the pandemic. We remain confident that we'll be able to manage through any challenges that may arise no portfolio as well as identified new attractive risk adjusted investment opportunities, enabling us to deliver improved returns to our shareholders. Thank you for joining us on the day.
This call and for your continued interest in Oh, CSL lift that we're happy to take your questions. Operator, Please open the lines.
We will now begin a question and answer session. If you would like to asking question. Please press Star then one on your telephone keypad.
If you are using a speaker phone you will need to pick up the handset before pressing the Keith.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from Kyle Joseph of Jefferies. Please go ahead.
Hey, good morning, guys. Thanks, very much for taking my questions and congrats on a on a very strong quarter given everything going on.
You know I wanted to start on on deal flow I'm. Obviously, you guys had a lot of dry powder going into the.
In the downturn and capitalize on that list and some secondary transactions in in April and May I wanted to get your sense just over the near term or your outlook for deal flow recognizing it's very fluid out there.
It would where do you gas that we see kind of more primary would it be would you guess, it's more distressed and has kind of the the low hanging fruit in the secondary markets been tech.
Hey, Carla's arm and thanks. Thanks for the question I would say that the market. It has become very efficient in the secondary in terms of pricing of risk and in fact, it's probably gotten ahead of itself and as in appropriately pricing risk at this time in our view so.
Your comment as to primary versus secondary I was I would say its.
Pretty heavily focused on primary secondary just right now given where prices are and how how the market has been bolstered by a stimulus on liquidity from various governmental.
Agencies is a global is just not creating enough opportunity for us in the secondary generally.
Got it that's helpful and then so in that context, and given given the rate environment.
Sounds like you did a nice job <unk> recycling some of the lower yielding investments in the quarter can you give us a sensor your outlook for yields from here you know obviously rates. It can't go much slower you guys have floors in place as well odd to me, it's kinda feels like the bottom for a yield and would you get that senses.
Well.
Yeah, I mean, I think generally speaking we are you know we're near the bottom I I would I would hesitate to the timing on it but it was but it's probably you know in the during the second calendar quarter that that the impact of low lie bore you with most acute and where we where we got bill.
Although the floors and most of our dad and Meanwhile, reliability generally speaking they'll continue to float lower so yeah, we probably hit the bottom I'm already but I've I hesitate to give too much forward guidance.
On that please.
Understood last one for me.
You know in terms of credit performance, obviously your portfolios hanging in there very well I just want to get a sense for.
You know any sort of a amendments or adjustments you made a on portfolio companies in the quarter and how prevalent that was dependent.
I'm sure, Matt and though do you want it ticked up.
Sure Thanks, Kyle hope well viewing.
The babies are doing well. So so we had had five companies that that.
Yeah, we did amendments to and they include some some combination of covenant relief ability to.
Turning to cash interest payment intent pick or partial tech sometimes equity contribution from the sponsor sometimes there was the Oh, yeah, an amendment fee.
These were not we're not a big number for the quarter and usually when they they choose to pick there's usually a higher a higher interest rate. So the it was just under about 6% of the portfolio on a fair value on a fair value basis, but isn't just a handful in and they had some kinda combination of of subjects.
The various adjustments and then that that I hit a hit on but what it wasn't a huge you know as a huge factor in terms of kind of amendment fees. The go to the corner.
And if you look at the Pik income that was it was pretty consistent this quarter versus the the march quarter up a little bit but not material.
I never said very helpful. Thanks for answering my questions and congratulations again on a strong quarter.
Thanks Kim.
Our next question comes from Finian O'shea of Wells Fargo. Please go ahead.
Hi, good morning, Thanks for taking my question.
First the I guess a two part question. One you mentioned the new private credit group can you expand on you know those kind of.
Capabilities or what focused it'll have and how that's.
On one to two to your strategy and then.
In other parts of that question, just noticing that the stream of.
Life Science deals that you know you've been doing since taking over is it is life science a capability within strategic credit orders Oak tree have.
Lending vertical there elsewhere.
Thanks, Thanks for the question so.
First on life Sciences, I would say, yes, the capability exists within strategic credit in particular, we have personnel here that have have scientific and medical background that are helping source underwrite those positions and we find that its an area where.
It's not it's a less efficient area, because it's harder to underwrite those businesses, they're not they're typically speaking not businesses that you could cleanly underwriter four times EBITDA or certain free cash flow yield. So you really need to understand the value the potential the quality of the counterparties the quality.
Of the management team et cetera, So, we're finding attractive opportunities to invest there and especially with the it was the backdrop with covance.
I'm seeing that that particular area.
As is mostly neutral to a impacts from coded and as we saw in the case of sorento.
Very positive potentially very positively correlated with covance. So its something that we find quite interesting and differentiated in terms of our new servicing and origination efforts you know what we really did there is to elevate all of the various personnel that were outward facing in the organization across Oaktree.
To speak for the entirety of the from rather than for their particular vertical and so the benefit of that gives US is there are pockets of of of groups or capital at Oaktree. That's really did not have an organized sourcing origination efforts, but they really could benefit from one of these these tend to be.
Businesses that are higher risk and higher return than what we're looking to do in strategic credit or in the Bdcs and so what we found is if we were able to speak with one unified voice externally and to provide the entirety of the Oaktree platform as a one stop shop from their low risk low return opportunity sets all the way up to the highest rate.
Equity like a return opportunity sets that we as a firm we'll see a broader swath of deal flow will widen our funnel and see more opportunities we will more efficiently past deals from one group to another as as risk assessment changes.
And so for the sake about efficiency and for the sake of bringing more $81 to bear to actually grow and enhance what we do in sourcing origination.
Was the Genesis of making that mood and so in addition to elevating those individuals were actually hiring additional individuals as well to cover a different industries in different geographies and so generally speaking.
Our sourcing origination efforts are gonna be are going to be growing.
Not shrinking as a result of this so.
I'm pretty excited about it we're already seeing some benefits in working this way you know we needed a we have done some deals with our opportunities funds.
In the last quarter and we're looking at a few other opportunities that frankly.
Our very large larger than what we could have done by ourselves and strategic credit and with the benefit of working across the platform. We're able to see those deals that frankly, there are less traffic by our competition and were able to get pretty attractive terms and I'm pretty large investors.
Opportunities from wide and so we're pretty excited about that about that opportunity.
Got it thanks for all the color.
Next question can you talk about the <unk> credit facility waiver and the Kemper JV post quarter.
Where they.
Did you have assets that were.
The banks valuation wasn't disagreement with or tripping something else any color you could add on that front.
Sure sure fit its Matt the we basically you know we leave there wasn't anything specific tenant to your point in terms of disagreements, but we just working with Deutsche is on it made sense to give us more flexibility and timing just given that the pandemic onions certainty.
Around valuations et cetera. So it was really just an abundance of caution given all the uncertainty and let's spend a little but it's going to.
Good because both of ourselves more time to the deal evaluate things.
[noise], Okay and just last question on isn't meant I know, we've you know talked when this before you've had a more or you know measured or are conservative view of that company.
And your as I'm sure you know your peers marked it up this quarter.
[music].
You know I used to just a question is understanding you know you may have differing views, but what why do you still have.
Those unsecured.
Pik notes marked at zero, if they're still accruing interest.
Correct me, if I'm wrong on that but just.
How do we think about how you would.
You know sort of harmonize the those two elements of your your evaluation.
And it's Matt how are you want to take it we're not a good good.
So just here no no interest by the way.
Well it shows one it it's it shows the revolver is non accrual, but it shows the doesn't have the footnote for the other ones I I'm I'm sure you're right, but if they're not to get there if they're not not an accrual then I guess scratched my question sorry about that.
No problem then.
Yes, and they're not only cruel then I think that you know we do recognize that are that other lenders that are public publicly traded bdcs do haven't mark materially higher you know, we do not have access to the information that they do those individuals those firms are on the board of the company and more actively engaged with it we based on the information we.
Avenue and the assessment of the risks that we see that's why our markets. What it is you know there there. It's possible. If you believe remarks of our competitors have done that were wrong, but based on information we have that's a that's.
The market, we've and we think as appropriate.
Okay. That's all for me thanks, so much.
Our next question comes from Rick Shane of JP Morgan. Please go ahead.
Good morning, guys. It's Melissa on for rent today I wanted to explore the dividend and then just make sure. We're understanding that properly and is this something that you're thinking of as sort of an ongoing longer term basis or is this something you're gonna be thinking about quarter by quarter.
Sure unless it's Matt So you know the skin on a higher level you know the dividend. This is Vince said by the board and and.
Declared by the board it every quarter so.
That's it kind of quarter to quarter thing.
This wasting, but this dividend it sounds like a special dividend somebody's he sent them a regular and special. This is this first quarter. This is the dividends as you know based on the earnings power in that sense, the cash flow in income coming after portfolio.
Lessen our expenses. So you should be should think of it as the dividends. That's that's helpful.
Sure and.
I guess in the past we've thought about your dividend it seems fairly.
Table over time.
Has there been any evolution and your willingness to less than that and Ah fluctuate a bit or satisfied in terms of air aircrafts to us.
No I think we like.
You know I think we think it's important have the haven't stable dividend so were and the dividend that supported by that's the earnings of the portfolio.
So that that hasn't changed you know the it we raised up a penny for the quarter just given that the earnings again of the portfolio. So it's a it's the same kind of same mind minds and philosophy and we've always had with the regarding the dividend.
Got it thank you.
Our next question comes from Ryan Lynch of KBW. Please go ahead.
Hey, good morning, Ah Thanks for taking my questions and hope all as well.
When I look through your your schedule investments and you mentioned this quarter or you know the William Morrison Best spent but but you guys also made a couple different other platform investments in air being be a new star, which you mentioned last call there seems to be a little bit of you guys leaning into some of the more coal that affected.
You know names or industries.
Construction those deals with was really good terms and structures versus.
You know moving away from some of that the heavier coated affected names that that maybe I'm still have really really tight.
Terms and structures in there. So can you just talk about that if that is that a a conscious strategy or just you know moving into somebody's D. These names that are more heavily affected by the coal the downturn or is that just just kinda seems to be where were you know kind of your sourcing origination deal flow took yours that kind of.
<unk>.
Conscientious effort.
Yeah. Thanks, Thanks for the crush question right.
So what I would say is we're looking at a variety of different opportunities. There are covert impacted opportunities that we're looking at there are.
Life Sciences opportunities as you know software information technology.
The opportunity set is quite large in terms of what we can look at.
Our underwriting a very tight in terms of what we're willing to accept and in those situations, where we have invested encoded sensitive situations is codes that covenant sensitive names. We've been very focused on a couple of things. One is as you mentioned structure downside protection through legal protections.
As well as pricing so in the case of air BMV that was LIBOR plus 750 in the case William Morrison with LIBOR plus 850 in the case of new store that was you know double digit coupon and Ah. So we felt like we're getting compensated pretty well.
For taking the risk and by the way in the case of William Morrison here being he they came at several point discounts to par. However, I wouldn't say that there's a conscious effort into you know going into the piece of the of the store and what we're we're really focused on is investing in those businesses that have the levers that they could pull from a capital management perspective.
Is to make it through to the other side of.
The of the you know the cobot storm.
And we need to feel comfortable that once we do make it to the other side of this business is gonna be worth well in excess of the debt. So theres those the liquidity considerations as well as the solvency considerations and not all businesses.
Check both of those boxes as well as appropriate structuring and pricing. So we were saying no a whole lot more there were saying, yes, and we're seeing both private and syndicated opportunities in the market.
I would say on the syndicated side generally speaking the pricing. It is have gotten tighter than we would like and the terms less attractive than we would like on the private side, we see a lot in the middle market, we're very very cautious about that because a lot of the businesses that we see that need financing.
Have an element of risk around them that could result in them not being worth their debt in a year or two from now and so you know, we're we're staying very cautious on her underwriting.
There so yeah I guess the the net of it is we're seeing a lot of deal flow because of our our reach as a firm for sure and given the firm's DNA in opportunistic investments in distressed investing.
The DNA of this particular teams you know it or this team's backgrounds coming from our distressed group, we're seeing a lot of opportunity there, but we're very focused on structure pricing and the underwriting both from a liquidity and solvency perspective.
<unk>.
With that they've like you know William more switch you itself. So I'm not calling you just mentioned you underwrite those two to ensure that that they can get to that the other side and actually right on the other side, but just in such a dynamic.
Economic environment ever into right now you know we don't know when we're done once you get to that other side is as an economy and we really don't know what that the other side will look like going forward and the dramatic changes so.
With no hose to create on knowns.
How can you get comfortable.
With an investment like that.
Well I mean look it's a it is a judgment call I would say, it's just as March art as it is science. So you know the case of indicates a really more as a there we spoke with management, we spoke with the sponsor.
At length with both and do have a very good sense that the properties they own the intellectual properties that they own are quite valuable.
And hard to replace.
And therefore, we think that there is a significant amount of pent up demand for the content that they own. They are obviously also have a very large representation business, where they represent athletes and stars and producers and screenwriters. So there's there's a there's some pent up demand there is.
Well, but have a different type where those people want to get back to work.
And so.
The firm in addition to having to owning those assets here for example, the parent company of William more as a which is which is the endeavor group. It's it's you know they own the older assets like the U.S.C. they own media marketing rights in College sports.
Obviously, there in Packer meaningfully right now, but they have the ability to manage cash flows and they are cutting costs to manage their way through its a have a fairly long term runway on.
How long they could survive in the current environment.
And but with that said, it's very hard for us not business to really go away or to be.
Or just you put back together because they've created an ecosystem with all of these different areas of talent with all these different areas of media rights ownership.
At that I think it's very challenging to refer to replicate and we'll we'll come back quite strong when it does so we're supportive of it we know that the sponsors very supportive of it you know the management team is top notch and on the ball.
And so it was frankly a judgment call is if there were there were easy going I think everybody would would be able to do it but.
Its case by case, and we made the judgment on that one.
Okay. That's what I really appreciate that color commentary out and that's really good insights and you're you're thinking you know upon making that investment.
But I just had one other question.
Im look like the investments in May temper JV, you know from a par standpoint decreased about 30 million quarter over quarter do you guys had some some nice gross oh on oak trees balance sheet during the quarter.
Can you just talk about why does that she'd be had had net repayments and then what's the potential outlook for growth in that vehicle versus the the growth that you discussed potentially on your balance sheet.
Not penta I mean, I'm happy to make take a comment and then Matt and I don't know if you have anything to add please do but no kemper that portfolio is largely a publicly traded portfolio we saw meaningful recovery.
In prices of the assets there, we thought that some of that some of that price appreciation was.
Inappropriate in terms of what we assessed to be the risk in a postcode world and we decided to.
To sell those assets in many of them out again, but to essentially sell those assets are reduced leverage not vehicle and and kind of just retain some dry powder. There because we've just off the market got got out of hand, we don't really have illiquid privates and that JV.
Okay.
That's helpful commentary I appreciate the time today and congrats on a really nice quarter guys.
Thank you.
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Yeah, No further questions at this time, Mr must Michelle.
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