Q1 2021 FS KKR Capital Corp Earnings Call
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Ladies and gentlemen, please standby your S. S. KKR capital Corp's first quarter 2021 earnings conference call will begin momentarily. Thank you for your patience and please standby.
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Good morning, ladies and gentlemen, welcome to the KKR capital Corp's first quarter 2021 earnings conference call. Your lines will be in a listen only mode. During remarks by a price case management at the conclusion of the company's remarks, we will begin the question and answer session at which time I will give you instructions on entering the queue. Please note that day.
Congress is being recorded at this time, Robert Pate and head of Investor Relations will proceed with the introduction Mr Pond and you may begin.
Thank you good morning, and welcome to F. Fs KKR capital Corp's first quarter 2021 earnings conference call.
Please note that F. S. KKR capital Corp may be referred to as S. K.
Sun for the company throughout the call.
Today's conference call is being recorded and an audio replay of the call will be available for 30 days.
Replay information is included in our press release that S. K issued on May 10th 2021.
And in addition F. S. K has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended March 31st 2021.
A link to todays webcast and the presentation is available on the Investor Relations section for the company's web site under events and presentations.
Please note that this call is the property of NFS.
Okay.
Any unauthorized rebroadcast of this call and any form is strictly prohibited.
Today's conference call includes forward looking statements and are subject to risks and uncertainties, including risks associated with the possible impact of COVID-19 that could affect F S K or the economy generally.
We ask that you referred to for this case, most recent filings with the S. E. T for important factors and risks that could cause actual results or outcomes to differ materially from these statements.
That's S. K does not undertake to update its forward looking statements unless required to do so by law.
In addition, this call will include certain non-GAAP financial measures for such measures reconciliations to the most directly comparable GAAP measures can be found and F. S case first quarter earnings release that was filed with the SEC and May 10 2021.
Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP and.
In addition, these non-GAAP financial measures may not be the same and similarly named Matt.
Measures reported by other companies to obtain copies of the company's latest SEC filings. Please visit <unk> website.
Speaking on today's call will be Michael Forman, Chairman and Chief Executive Officer.
Dan Pietrzak, Chief investment Officer, and co President.
Brian Gerson co president.
And Steven Lilly Chief Financial Officer.
Also joining us on the phone or co chief operating officers and drew O'toole and Ryan Wilson and.
I will now turn the call over to Michael.
Thank you Robert and welcome everyone to SaaS KKR Capital Corp, 's first quarter 2021 earnings conference call.
The first quarter represented another positive stable quarter for F. S. K during the quarter, our investment team originated $417 billion of new investments, we experienced an increase and our net asset value and we again out earned our target and 9% annualized dividend yield on our net asset value.
I'm pleased to report that the first quarter of 2021 represents the fifth consecutive quarter since the establishment of our current dividend policy and we have over earned our target annualized sales.
Again, I congratulate our team for achieving these solid results, especially during such a volatile period.
During the first quarter, our net investment income was 63 cents per share, which was three cents per share above our quarterly dividend of <unk> 60 per share and also two cents per share above our public guidance at the end of the fourth quarter.
From a liquidity perspective, we ended the quarter with approximately $1.9 billion of available liquidity with no meaningful near term debt maturities.
Looking forward to the second quarter, assuming the proposed merger between F. S K and F. S. K R closes before the end of the second quarter, we plan to file a single combined 10-Q for the quarter for the surviving entity F. S cat.
From an S. S. K dividend perspective, our board has declared a distribution of <unk> 60 per share for the second quarter, which equates to an annualized yield of nine 2% on a net asset value per share of $26.03 as of March 31, 2020 watch.
Assuming the proposed F S K and F. S. Hadar merger closes on schedule on our second quarter earnings call. We will provide detailed guidance and a few blocks for near term operating expectations.
However, based on the positive feedback we have received from the market regarding our existing dividend policy.
Assuming current market conditions remain relatively intact.
Currently expect to continue to target a 90% minimum annualized dividend yield.
As we prepare for the closing of the preferred proposed merger of F. S K and F. S. K R.
The board and I are extremely pleased with how the S. S. K care team is performing and how well our investment portfolio is positioned for the future. As a result, we believe that the proposed merger of F. S. K and F. S. K R will be consummated at an opportune time.
And with that I'll turn the call over to Dan and the team to provide additional color on the market and the Corp.
Thanks, Michael and.
And early November of last year on our third quarter, 2000, and 'twenty conference call.
We shared our belief that the fed's primary focus was reducing unemployment for the secondary goal of targeting inflation at around 2% per year.
At that time unemployment was six 9%.
And today, just two quarters later unemployment of $6, one per cent and impressive decline and its own right, but even more so and what accounts for the number of eligible workers still choosing not to work due to lingering pandemic related concerns.
And as well as the extra financial support provided by the most recent stimulus package.
Going forward, we believe fed policymakers will continue to lead with a primary focus on the labor market and the hiring in certain sectors, such as travel hospitality and leisure infrastructure and homebuilding will lead to a continued near term drop and I'm unemployment with wage growth perhaps occurring sooner.
And then many observers may expect.
And our conversations with financial sponsors and portfolio companies, we have and encouraged by their operating and financial performance, which has included meaningful increases in both revenues and EBITDA on a quarterly basis for the last three to four quarters.
Going forward, we believe the coming quarters will be marked by continued improvement and free cash flow growth across many sectors.
Offset only partially by the effects of expected higher near term inflation.
Over the immediate term, while we continue to believe that modest inflation is healthy for the overall economy, we believe inherent structural forces, including technology and demographic trends will help balance longer term inflationary pressures.
From an investing perspective, we like other large BDC platforms continue to experience the repayment of certain assets as sponsors and portfolios take advantage of the strength of the syndicated markets.
While repayments are normal and our business, we recognize the market's focus on our ability to reinvest.
To this and we continue to be encouraged by the significant growth, which has occurred and the private credit markets over the last several years.
As both sponsors and portfolio of companies have come to depend on larger well funded platforms as traditional and regular way sources of financing.
As we move forward in 2021, we will continue to be highly selective and our underwriting as we adhere to our internal view that we want to be well downside protected and this market.
Also later in the call Brian will speak about a few repayments of legacy positions, which were originated prior to the establishment of the Fs KKR adviser, where we played active roles with both for portfolio companies and their sponsors to create positive outcomes.
In terms of new investing activity during the first quarter. The S. Fs KKR advisor close on approximately $1 $1 billion of total investments across our BDC franchise and $417 million of which were within F. S. K.
From a volume standpoint, the first quarter began slowly as a frequently does.
As our transaction pipeline began to expand and we continued to exercise caution by being highly selective focusing only on investment opportunities, which met our criteria.
During the quarter, our closure rate approximated, 2%, which compares to our historical closure rate of approximately 4%.
Approximately 40% of our F. S. K originations this quarter came from opportunities and companies previously invested and by KKR and.
Again, illustrating the power of incumbency and our relationships.
Our for our $417 million of total investments combined with $684 million from net sales and repayments and.
When factoring and sales to our joint venture equated to a net portfolio decrease of $267 million during the quarter.
During April we closed $350 million and investments and we experienced $530 million and repayments.
As we said during our fourth quarter call, we continue to forecast a higher than average level of repayments over the next few months given the continued strength and abundant liquidity within the syndicated markets.
And in terms of color around a few of our investments during the quarter KKR credit was the lead arranger and committed $320 million to a $505 million first lien delayed draw term loan for MB, two dental solutions and dental service organization with a total of 266 practice locations.
Patients across 21 states.
S case portion of the commitment was $66 million well F. S. K R and other KKR managed accounts committed the remainder.
Yes.
KKR credit also committed $175 million to a second lien financing for paradigm Corporation, a large government services business focused on intelligence and defense.
The sponsor Veritas capital acquired a separate government it services business and merged it with paradigm.
The combination creates a scaled leader and the government services sector with a particular focus on higher and cyber security and product development work with over 10000 employees.
S K committed $57 million for the financing well F. S. K R and other KKR managed accounts committed the remainder.
The financing is an example of an investment opportunity with a larger company, where we believe the dynamics of the second lien structure are compelling.
Both of these investment opportunities are examples of the types of transactions, we find attractive.
<unk> capitalized solid operating companies that appear well positioned for future growth.
About a year ago, we began providing detailed investment performance metrics for the F. S KKR adviser.
The updated information is summarized as follows since the F. S. KKR advisor was formed through March 31, 2021, we have originated approximately $4 $8 billion of new investments and F. S. K and have experienced 86 basis points of cumulative appreciation.
We continue to be pleased with the investment performance. Our team has been able to deliver and we believe these data points continue to illustrate the manner in which we have taken measurable steps to turn on the investment portfolio toward what we believe to be more conservative investment structures and companies with more defensible.
Operating positions.
This information is detailed on slide 12, and our investor presentation on our website.
And with that I'll turn the call over to Brian to discuss some investment portfolio specifics.
Thanks, Dan.
As of March 31, our investment portfolio had a fair value of $6 5 billion <unk>.
Consisting of a 152 portfolio companies.
This compares to a fair value of $6 $8 billion and 164 portfolio companies as of December 31, and 2020.
At the end of the quarter, our top 10 largest portfolio companies represented approximately 23% of our portfolio, which remains in line with our results for the last several quarters.
We continue to focus on senior secured investments as our portfolio consisted of 51, 2% for clean loans, and 63 and 5% senior secured debt as of March 31.
In addition, our joint venture represented 11, 3% of the portfolio and our asset based finance investments represented 14, 7%.
Equating to an additional 26% of the portfolio, which is comprised predominantly of first lien loans or asset based finance investments, which we believe have meaningful principal protection.
The weighted average yield on accruing debt investments was eight 6% as of March 31, and 2021 as compared to eight 8% at December 31 and 2020.
The decline and our weighted average yield during the quarter was primarily associated with the repayment of higher yielding assets during the quarter and new lower yielding assets, which closed during the quarter.
In terms of color surrounding the repayments, we experienced during the quarter approximately 28% of our repayments were related to investments made by the Fs KKR adviser establishment and April 2018.
The other 72% of our repayments were associated with legacy investments as Dan mentioned two of these legacy investments are highlighted as follows.
First is Kodiak building partners, which distributes building products to commercial builders and Remodelers the.
And the investment was originated in December 2017, One Court square purchased Kodiak American builders and two small tuck in acquisitions, and we provided the full $174 million unit tranche and $52 million accordion and support the business.
Since the time that Thats S. K as original investment Kodiak completed more than 10 acquisitions.
In August 2018, we increased our investment by providing an incremental $100 million commitment to the company's delayed draw term loan.
The Companys growth and February this year, the business completed the dividend recapitalization.
Through the syndicated market and our investment was repaid in full and a call price of 101.
Another sizable legacy investment that was repaid during the quarter was all systems.
The company is a human capital solutions provider and the U S serving a diverse set of blue chip customers.
The investment and all systems was originated in October 2016, when THL partners acquired the business and was highly acquisitive during our hold period and.
In July 2019, we Opportunistically refinanced the company with the knee and a tranche facility.
This refinancing allowed us to repay the first outlined rainfall, thereby improving our financing position.
Our loan was repaid in full at par in January of this year upon the sale of the company.
Including the effects of these and other repayments as of March 31, and 2021, approximately 84% of our yielding investment portfolio is now comprised of investments originated by KKR.
Turning back to our existing portfolio during the first quarter, we experienced net portfolio appreciation of $121 million. The total amount of realized and unrealized depreciation we experienced across the portfolio during the quarter was $249 million and our realized and unrealized depreciation.
Totaled $128 million during the quarter.
During the quarter.
And we placed two investments on non accrual sequel youth and family services and Central Park leasing.
Sequel has been on our watch list and Central Park leasing a static pool of 30 for Airbus and Boeing aircraft has been heavily impacted by the COVID-19 pandemic.
Also during the quarter, we placed one asset and BG home back on accrual status and BG is a designer manufacturer and distributor of products for the home decor market.
During the depths of the COVID-19 pandemic, we invested additional capital to support the company and now several months later the business has recovered meaningfully driven by strong consumer demand for its products.
As a result of these activities at the end of the first quarter. Our non accruals represented approximately six 8% of our portfolio on a cost basis, and three 6% of our portfolio and a fair value basis, compared to six 6% and our cost basis and two 5% on a fair value basis as of December 30 <unk>.
For 2020 and.
And with that I'll turn the call over to Steven to discuss our financial results in more detail.
Thanks, Brian.
In terms of color behind our financial results for $12 million decline and our total investment income quarter over quarter was impacted by the following.
We experienced a decrease of $11 million and our interest income primarily due to the investment activity about which day in and Brian spoke at several of our higher coupon investments for refinancings during the quarter.
Activity was partially offset by new investments, which period weighted average yields of 8%.
Our fee and dividend income remained flat quarter over quarter for <unk>.
Largest components of our fee and dividend income included $22 million and dividend income from our joint venture during the quarter.
Other dividends from various portfolio companies totaled approximately $9 million during the quarter.
Finally fee income totaled $11 million during the quarter, representing a decrease of $1 million quarter over quarter with the change tied directly to our origination and repayment activity during the quarter.
Our interest expense remained relatively flat quarter over quarter and management fees decreased by $1 million during the quarter due to the lower amount of average gross assets during the quarter as compared to the prior quarter.
The detailed bridge and our NAV.
Per share on a quarter over quarter basis is as follows.
Our starting <unk> 2020 NAV per share of $25.02 was increased by GAAP net investment income of 63 cents per share and was increased by 98 per share due to an increase and the overall value of our investment portfolio.
Our NAV per share was reduced by <unk> 60 per share dividend.
Some of these activities results and our March 31, and 2021 NAV per share of $26 and three zones.
From a forward looking guidance perspective, we expect our second quarter net investment income prior to any effects of the proposed merger with S. S. K R to approximate 61 per share.
The bridge from our 63 per share of net investment income during the first quarter to our second quarter guidance is as follows.
Our recurring interest income is expected to decline by approximately $6 million due to a combination of the following and.
Anticipated repayment of certain higher yielding assets during the second quarter and.
And the effects of lower origination volumes that we experienced during the first quarter.
We expect recurring dividend income associated with our joint venture to remain flat with the first quarter at approximately $22 million.
We expect other fee and dividend income to approximate $24 million.
During the second quarter.
From an expense standpoint, we expect our operating expenses, including interest expense management fees and G&A costs to remain relatively flat quarter over quarter.
In terms of the right side of our balance sheet, our gross and net debt to equity levels for 113% and 100% respectively.
March 31, 2021 and this.
This compares to growth and net debt to equity of 131 per cent and 119% respectively. At the end of the fourth quarter.
Our available liquidity of $1 9 billion equates to approximately 29% from the value of our investment portfolio, which is a very comfortable percentage and allows for future portfolio growth.
At March 31, approximately 55 per cent of our committed balance sheet and 77% of our drawn balance sheet was comprised of unsecured debt.
We continue to be pleased with our overall weighted average cost of debt of four 2%.
And with that I'll turn the call back to Michael for it.
For your closing remarks before we open the call for questions.
Thanks, Steven the first quarter of 2021 represented a strong start to what we believe will be and active here from an investment standpoint.
In addition, our team has been preparing for our proposed merger with <unk> and we continue to be excited by the strategic offers <unk> a single BDC platform will provide our shareholders.
Last few years has represented a time of change across our platform from the establishment of what has proved to be and excellent partnership with KKR to repositioning our investment portfolio to broadening and deepening our team to fortifying our balance sheet, we are well positioned for the future.
And on behalf of our entire team of more than 200 professionals. We look forward to keeping you informed of our progress and we appreciate your interest and support.
And with that operator, we would like to open the call for questions.
Thank you as a reminder to ask a question and you'll need to press star one on your telephone to withdraw your question price with Honky, please standby with Sunpower and Q&A roster.
Our first question comes from Casey Alexander Alexandria, with Compass point, you May proceed with your question.
Hi.
And I have three and I'll just give them all to you at one time first if you could generally discuss the pipeline and the pipeline relative to the competition from the broadly syndicated loan channel.
Secondly, if you could discuss.
The potential for rotation from equity assets, which are close to 10% of the portfolio and obviously you have 10 per cent of the portfolio that is non income producing.
And then my last question is given the high level of free.
Repayments and prepayments during the quarter why sell a $193 million of investments down into the JV as opposed to holding them on balance sheet and and maintaining some more of the interest earning assets on balance sheet.
Those are my three questions. Thank you.
And for face and good morning. Thank you.
And I'll go through them and tell me, if I, Miss something Brian might add as well.
We've been happy with pipeline right and then we've talked about January as it historically is probably a little bit slower.
And you saw the $1 $1 billion across the entire.
BDC franchise.
And we have been seeing and certain amount of repayments happen.
Happening as people were getting refinanced and the syndicated market.
And that market has generally been frothy for most of the year, probably cooled down a little bit I would say normalized sort of a bit.
That is what we expect right, we're investing in companies and we aren't expecting them to grow and they have access to cheaper sort of forms of capital.
I don't view that we're in there and kind of slugging it out and competing every day with the syndicated market.
Because in many ways. We're just we're not trying to do that on a cost of capital game right that said, we have found more and more borrowers and sponsors are looking for what the private credit market provides certainty of execution, maybe some flexibility in terms of a delayed draw term loan.
And as I said in my remarks, I think the larger platforms have the ability to do that so I think theres a good tailwind in terms of the market dynamic.
And obviously the strength of the syndicated market and has maybe been a little bit of a headwind and just just in terms of and net deployment number but I think we feel good about pipeline.
I think on the it has been a focus of ours as you know for many quarters on rotating out of.
Some of the equity positions we have.
We've exited a fair amount of individual line items over the last handful of quarters I think that's been sort of positive we have kind of missed maybe some of the larger ones in terms of moving the needle that said one of the larger positions company called ISG you can find and announcement that business was sold I think other Q2 for Q3, we would get fully.
We repaid there I think we're happy to see that I think that was a good transaction for sort of all involved.
And maybe last question in terms of the high level sort of peace.
And obviously, we're keeping the supermajority of the economics when it does go into the JV. So it's not that material and move right that said we.
We are managing the portfolio for different things, including managing sort of non EPC capacity.
Alright. Thank you okay, Yeah, I think I got it thank you.
Great. Thank you.
Thank you. Our next question comes from John Hecht with Jefferies. You May proceed with your question.
John can you hear us.
Our next question comes from Finian O'shea with Wells Fargo. You May proceed with your question.
Yeah.
Hey, everyone and good morning.
First question for Michael or Dan, perhaps do you have the final.
That estimate.
How far you'd be behind on the incentive fee and how that compares to the $90 million of fee waivers.
I can take that for and then I am assuming you are.
And you're meeting sort of inside of FSA, and we could probably follow up offline because I don't have the sort of the details here.
That said I think we've been pretty happy with what we've seen vis vis <unk>.
NAV growth over the last handful of quarters.
I think some of that has been well call. It just general market bounce back, but there has been a handful of names.
Sound United like.
<unk>.
NCI like NPG, where we've talked about and the script, where we actually proactively put money into them.
During some of the darker days of COVID-19, and we've seen sort of that balance, but we can we can follow up offline with some of the exact math for you if you'd like after the call.
Okay.
I was interested on S S K and and.
Combined entity.
And we can follow up.
I was just a second question on our platform fund raising.
And once you get these.
And the potential merger.
Complete the.
You as an entity or per.
Perhaps separately.
S side and the KKR side.
And to resume.
Our fundraising efforts for direct lending and and.
And how will that book.
On the platform side.
Yes.
And obviously, we've been laser focused on getting those.
The merger done.
Yes.
All all things are pointing.
As we've talked about and the prepared remarks, and hopefully getting that done into the Q2, we do think about.
Various kind of pools of capital raise from time to time, I think you've heard us talking about that and the past right that said I think we've been mindful about.
And I will call the right amount of capital.
To address this market.
We do believe this is a space where size and scale matter, but we're also pretty cognizant about making sure that we are.
Appropriately deployed inside of of these companies.
And inside of our target leverage for the numbers, but also to ensure that we're.
Covering the dividends that were sort of out there sort of targeting so I don't think anything unique or different than kind of normal course of business, but those other ways, we think about it.
Okay, great. Thank you that's all for me.
Thanks, Tim.
Thank you and next question comes from Ryan Lynch with gave you Tobey and we proceed with your question.
Yes.
Hey, good morning, Thanks for taking my questions.
And then following up on Casey's question regarding just portfolio growth and leverage I mean.
This quarter you guys. When you combine kind of your balance sheet and cash Kbr's balance sheet, you guys youre going to be under your leverage target when you kind of use that that average so.
How much of a priority whether you guys have and a growing your portfolio is that even a main priority right now given kind of the spring.
And that you guys are going against them and the broadly syndicated loan market and do you think that that's.
Even possible with with how strong that market is right now.
Yes, sure and good morning, Ryan.
I mean, your math right, Brian I mean, we're.
And roughly one time sort of net here sort of under that and NFS chaos. If you look at the numbers that came out last night.
I think we're actually feeling pretty good about being kind of under that target leverage number right that means we have ample room for sort of growth.
And as you know we've invested meaningfully in our origination.
Footprint over the last several years, we've made them.
And in our opinion sort of a bunch of very good hires from very good sort of firm. So our origination pipeline is quite active.
As I sort of said and in the prior to the question I don't really view us kind of competing day in and day out right that said.
And the feeling of that market or the terms and conditions of that market and the pricing and that market and so the definitely bleed into ours.
<unk>.
And that also has driven some of those repayments, but I think we feel quite good about.
Being at our target leverage number.
And the medium term I think we feel good about the footprint of the business and.
Some of those tailwind that I mentioned for the overall industry, but I think also and in markets like this.
No I don't think Brian and I are necessarily unhappy about having a fair amount of dry powder to deploy when the opportunities do present themselves.
And maybe just last point right I mean, we're we're we're focused every day on origination and that's the name of the game and this business, but we are trying to be very disciplined when it comes through and our risk and underwriting side and youre going to see that continue.
Okay fair enough.
And then you mentioned you know.
M&A is increasing and you guys are seeing more deal opportunities book, but are still remaining highly selective on the investments and really meet your investment criteria and I'm. Just curious has your investment approach changed at all as you guys are deploying capital today given the backdrop.
The U S economy versus what you are maybe targeting and are focusing on back in 2018 or 2019.
Yeah, a little bit.
And obviously most of the team still working from home. So that's a change right.
Youre doing kind of appropriate levels of diligent about doing that and a different manner.
I think semantically and 18, and 19 where underwriting for a.
A recessionary environment to sort of.
And maybe in the normal course never really came.
But that was the general sort of view now we're sitting in AR.
And economic maybe sort of a tailwind now and the other side of this pandemic.
And it feels like we're going to have a pretty darn. Good couple of years of economic performance that said I think we're thinking about other things right we're thinking about.
Is there any potential for rising rates, we're thinking about wage inflation.
And we're thinking about probably that potential recessionary environment.
Two three plus years sort of out so.
I think a lot of the same basics and fundamentals, but trying to adjust for the market environment that we're in today.
Yes, the only thing I'd add this is Brian is that and then.
And we underwrite credits.
We're always in terms of the scenarios that we're looking at we're always underwriting a recession and the next year or two after we after we fund and investment. So we're focused very much on quality versus quantity.
In terms of our underwriting.
And I don't think our discipline has changed.
Okay understood.
You guys did happen and I have a really nice quarter.
This quarter, but I did want to just bring up one investment you guys' investment and sequel.
There are there are some really ugly articles out there on that investment.
Involving some since and human tragedy, and and and other things.
And regarding that business does that change kind of and kind of how public from some of those you know those items are and does that change. The way you guys approach really achieving some sort of resolution and that challenge for that investment and business.
Yeah, well I guess, Ron Thanks for the kind words on the quarter.
Yes, I mean, it has been a.
Challenge <unk> and as you know it is a legacy investment.
And it was originated in 2017 I think we've I think we're happy that we've kind of built the team on our side with a fairly deep and specifically of workout professionals to help us address situations like this I think we're quite capable to do that.
And this is this is the top of the priority list.
Without going and maybe into too much detail on the call.
I think we are cognizant to make sure that we're sort of doing the right thing, but also cognizant of the risk position and.
And we've got a very good dialogue with the existing sponsor and and we're going to work hard to find a resolution.
Okay.
That's all for me I appreciate the time today guys.
Thank you Ron.
Thank you. Our next question comes from Bryce Rowe with book do you May proceed.
Proceed with your question.
Thanks. Good morning, just wanted to hit on a couple of questions here for.
First in terms of.
Some of the commentary for.
From the last couple of quarters really around the 9%.
And.
Dividend yield target.
So I guess my question is just.
Around kind of how we've seen the equity portion of the portfolio from a fair value perspective really.
Kris.
And especially this quarter, both at <unk> and <unk>. So how do you how do you think about that relative to that to that 9% target.
It feels like it might be a tougher bogey to hit so to speak that 9% target with with more equity and the in the portfolio.
Yeah and.
And Brian Thanks for the question and Steve and literally might want us and have added to this as well and I think we've.
And then we've gotten a good reaction for the dividend policy, we put in and which I guess is now five quarters ago. I think we've been happy that we've been able to over earn I think youre correct, we have seen some appreciation and that.
Equity portfolio some of that can be driven by sales processes that we've talked about before some of that is just driven by new situations, where we put some new dollars and and you've seen some.
No meaningful.
Uplift and sort of earnings with those businesses and and.
And the other side of the darker days of the pandemic. So I think we're happy to sort of see that equity growth and obviously I think.
We're mindful about the we'll call it the tension between the two but I think we feel good about the dividend policy, where we sit now and sort of that 9%, but Steve and feel free to add.
No I think you covered it and make you covered it well.
Alright, and then maybe another another question on on the.
Outstanding debt from it from a capital capital structure perspective.
Youth usage on the revolving facilities at <unk>.
S K.
Down as the balance sheet for the the portfolio has come down here this quarter.
Im curious how youre, how youre thinking about and if you can comment on kind of the combined organization and.
How that how the capital structure might look on the right side of the balance sheet.
Being able to possibly combine some revolving facilities just any any guidance there would be helpful.
Yes, no happy to.
I mean, maybe a couple of points one I think on the revolver coming down probably a combo of two things right number one is correct. Obviously, our leverage has come down but we've also now has I think from a financial statement perspective.
For sort of benefit of the recent bond deals that were done being used to reduce debt instead of revolvers and I think thats the change you'll see at least over the past couple of quarters I think what we've talked about in the past is the <unk>.
K sort of right side of the balance sheet is probably what you should expect for the roadmap on a go forward basis.
Been happy that we've been able to access the unsecured.
Market from time to time I think our expectation is we would look to continue that.
And then from the revolver perspective, the way the revolver is set up is it can be collapsed into one.
And just as part of the regular way deal. So there's no sort of consensus for sort of needed for that.
The joint revolver, you could some of them together.
And our pro forma entity.
Okay, great. Thanks, so much.
Thank you.
Thank you and your next question comes from Robert Dodd with Raymond James You May proceed with your question.
Hi, guys and congratulations on the only and a and D V and earnings this quarter, if I can on the cash.
What do you think how do you feel about and the quality of the originations Q1, and maybe pipeline. Obviously you saw some pay downs, but interest coverage actually tick up which is which is pretty tough to do and a very competitive environment generally so it would tend to say your originations were.
The only one metric, but then maybe some of the repayments is that to and how does that look in the pipeline and maybe for your expectations as we go through.
The main let's say the first half of the year.
Yes, no a fair question.
And.
I think in terms of quality originations, we feel good right I think we've quoted you some numbers and the prepared remarks that showed where we've been selective I think we've been focused both on quality of business.
And as well as quality of structure.
And at the end of the day kind of not chasing basis points, right and we need to sleep well at night and that's got to be immaterial sort of focus.
I think we also feel good about the just that percentage of incumbency positions that we talked about a lot of these are names that we've known for a long time have allowed us and our comfort and the numbers.
So I think overall quality, Robert we feel good about I think there's a good amount of transaction volume out there, which is allowing us to be selective obviously some of the names you would prefer you didn't get announced and financed out of because they were performing so well, but again, that's the base case, and a credit business right and you're making a lot of it and at some point.
And you'll you'll try to protect it but you could very well be taken out.
Got it got it just kind of a follow up on the on the 2% close and in the quarter I'm and half of historical average.
I mean selectivity is good.
But is there.
You guys and looking for but maybe is coming to market right now or yet that's driving that and I work closely with that.
Some.
Desk kills the high up because of some particular thing and Youre looking for I mean any color there.
I don't think Theres anything specific right and I think there is.
So certain situations that we just will not lend into without a covenant and so that could very clearly via driver.
I think we are a big believer that the unit tranche market as it's supposed to be for lack of other word covenant heavy and that doesn't mean, we wouldn't do a cub light deal but.
You know that needs to be the more of the exception and sort of the rule I think that's one and then and markets like this you do see.
People looking at sort of a private option or a syndicated option so that 2% could be a little bit artificially low because we just know we're not going to compete with the syndicated option and they.
They're looking for.
Public one al and maybe a private too well and maybe it's not a business we're prepared to lend to from a second lien perspective.
So Matt.
And with bigger companies.
Appreciate it thank you.
Thank you.
Yes.
Thank you and and as a reminder to ask a question you will need to press Star 100, and telephone. Our next question comes from John Hecht with Jefferies. You May proceed with your question.
Morning, guys I apologize my phone book earlier on me.
And then I was because my phone and blip I was off and I apologize for some of these questions are redundant, but first of all thanks for the thanks for the additional disclosure this quarter at <unk>.
Super clear.
And it makes it easier to.
And what's going on and so I appreciate the disclosure.
So first first question is in this quarter, particularly the.
Clearly there was a lot of focus on first lien relative to second lien in terms of the percentage mix of ads.
And it's consistent with your focus on being more conservative.
And so is that mix, what we should expect for the near term based on your interest and pipeline or how do we think about the evolution of that over time.
Yeah, I think it's a free.
Safe assumption John.
And we were.
And we're trying to build that the overall portfolio with that level of conservatism you know that said we are.
Very much prepared to do.
Secondly, and and play and that part of the capital structure I think we're probably just a little bit more selective there are both him.
Both in terms of the quality and the size of our business.
As well as you know a pretty I think maybe more firm minimum and total return target when we sort of put those together, but I think.
Conceptually Youre correct.
Individual quarters, we could definitely be weighted and have a bit more sort of too well, but I think youre kind of starting point assumptions a farewell.
Okay and then.
And with the SA S. C. JV once the two entities are combined and the second quarter here.
What does that do in terms of the capacity and your ability to continue to grow that out.
Well I think it does two things.
And our our intention will be to alter.
<unk> urge the two individuals for the JV together I think.
<unk> no different than the combined sort of regular way BDC balance sheet I think for larger sort of balance sheets, there will give us some more flexibility and I think.
The team has been able to be a little bit more creative on the liability side of that to the JV. So I would view it as a positive, albeit it doesn't just sort of magically create additional.
And sort of capacity, but I think some of the flexibility of the financing structure as well.
Okay, great. Thanks, very much guys.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Dan Pietrzak for any further remarks.
Great. Thank you to everyone for taking the time for the call. This morning.
And we look forward to talking with you again in the coming months.
Good day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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Yeah.
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Okay.
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