Q2 2021 New Mountain Finance Corp Earnings Call
Okay.
As shown on page 4 on May 19th 2021, we celebrated our 10th anniversary as a public company.
Since our IPO and with the support of our shareholders employees sponsor clients coverage analysts and lenders, we have paid out $874 million or $13.56.
Our regular cash dividends per share.
Supported by $879 million of adjusted NII.
Covering our regular dividend of 101% with net investment income.
We have accomplished this with just $79 million of realized default losses, a crossover $8.4 billion of debt investments, which we have mostly offset with various portfolio gains.
After quarter end, we monetized a portion of our position in Edmonton at an attractive gained and we remain optimistic about potential gains at other existing portfolio companies.
Overall NMFC has delivered a 10, 5% compounded annual return per share since the date of our IPO.
Furthermore book value adjusted for special dividends is now $13.94.
Which is higher than our IPO price of $13.75 per share we.
We are excited to celebrate 10 years as a public company.
And are proud of the accomplishments to date and we look forward to many more years and accomplishments ahead.
Now, let me turn to the specifics of this earnings report on page 5.
Net investment income for the quarter ended June 30th was <unk> 30 per share fully covering our dividend of <unk> 30 per share that was paid in cash on June 30th and in line with our prior guidance.
No new borrowers were placed on non accrual this quarter.
Our June 30, net net asset value was $13.33 per share an increase of 48 per share or 3.7% from the March 31, NAV of $12.85 per share.
The write up of Ed Mentum as well as a few of our net lease assets, primarily drove the meaningful increase in NAV.
Which brings US ahead of our pre Covid NAV level.
The regular dividend for Q3.2021 was again set at <unk> 30 per share and will be payable on September 30th to holders of record as of September 16th.
As a reminder, last quarter, we implemented a dividend support program for at least until December 31, 2022 by pledging to charge no more than 1.5% management fee on all assets.
For that period.
Also pledged to reduce our incentive fee if needed to support the <unk> 30 per share dividend. We do not currently anticipate needing to use this pledge, but want shareholders to have greater confidence in the dividend.
Together, new mountain professionals have invested over $480 million personally into NMFC and new mountain's credit activities I and management remain as Nmfc's largest shareholders. We have continued to add to our personal positions in the last 12 months and.
Rob John and I have never sold a share with that let me turn the call back to Rob.
Thank you Steve.
As we have throughout the Covid crisis, we continue to have extensive conversations with the company management and sponsors and update each portfolio companies scores on our heat net using the same criteria discussed in the past and as outlined on page 8.
The updated heat maps show the positive risk migration this quarter as summarized on pages, 9 and 10 with $211 million.
A positive intra green migration.
$7 million of positive migration from yellow to green and $101 million of positive migration from orange to yellow.
Offset by $32 million of negative migration, primarily concentrated in 1 specialty chemicals business at migrated to Orange.
This business has faced some market and execution challenges, but we believe there are a few specific initiatives that could result in near term improvement.
Dentists and dental practice management business that we discussed last quarter has migrated from orange to yellow as we continued to see signs of improvement in the underlying operating metrics as a result of the new management team and our private equity teams engagement.
Overall, we remain pleased with the asset quality and credit trends across the portfolio.
The updated heat map as shown on page 11.
As you can further see from the heat map, given our portfolio's strong bias towards defensive sectors like software business in federal services and Tech enabled health care. We believe the vast majority of our assets are very well positioned to continue to perform no matter, how the public health and economic landscape.
We continue to spend significant time and energy on our remaining red and Orange names and believe as the impact of the pandemic hopefully continues to recede in the months ahead. The majority of these credits will benefit materially.
Page 12 outlines of the quarter's net asset value increase in Q2 net asset value increased by 48.
$13.33.
Which is higher than our pre COVID-19 NAV of $13.26.
A material driver of this quarter's strong NAV growth were 1 the value increase in Edmonton, which I will address on the following slide and to continued increase in the fair value of 2 net lease assets modestly offset by the specialty chemicals name that migrated from Green Orange looking.
Looking forward, we would anticipate further positive price movement in our green yellow and Orange rated loans, which if our risk assessment is correct should continue to recover in the coming quarter as the world normalizes and if they recover to par would increase book value and additional 32 per share.
To a book value of $13.65.
We believe the opportunity for value creation across our restructured and equity portfolio as evidenced by the recent monetization of amendment provides additional upside from here.
We have included an illustrative sensitivity analysis, showing the impact of a 10% change in fair value of our red risk rating restructured in equity assets.
Each 10% change in fair value would result in change to NAV of <unk> 35 per share and we continue to believe there is more upside and downside from this portfolio.
On page 13, we are excited to present, a case study on the recent increase in value and successful partial monetization, we had on a net and post quarter end.
As a reminder had mentioned as a leading provider of education technology, primarily for K 12 students.
NMFC has been a minority owner of Edmonton since the restructuring in 2015, and we have since helped guide a significant turnaround in performance.
In December 2020, the history of group, a Chicago based private investment firm acquired a 50% stake in <unk>, which resulted in a full recovery of our cumulative investment plus significant gains as previously discussed.
NMFC chose to reinvest $80 million to $90 million of the proceeds $74 million of which an equity and remain a meaningful shareholder due to our strong conviction and the continued growth of the company and the likelihood of material further value creation.
On July 26 at Mentum closed the acquisition of apex learning a leader in digital curriculum and virtual learning, which is a highly strategic and complementary combination.
Incumbent in connection with this transaction the company raised additional equity at a significant write up on the <unk> from the 2020 transaction, which was reflected in the Q2 net asset value on an unrealized basis. Additionally.
Additionally, post quarter end, we sold approximately 34% of our equity position to history here and they are co investors at that same value, which will show is realized in Q3.
Specifically as compared to a $74 million of equity reinvested in December 2020, we received $48 million from this recent sale and Mark our remaining position at $91 million in.
In summary, we have invested $51 million cumulatively into Edmonton since our original investment in 2012, excluding all opportunistic first lien and seasonal revolver investments made.
And have received $57 million of proceeds to date, representing a realized multiple on invested capital of 1.1 times.
We mark our remaining equity ownership in Edmonton at $91 million, which brings the total multiple of invested capital, including our unrealized position to 2.9 times or 17, 9% IRR.
Page 14 shows that we continue to manage our statutory leverage ratio at a very comfortable level.
Gross debt for the first quarter increased by $6 million to $8 million, but the increase in net asset value of $48 million resulted in a relatively flat statutory leverage ratio of 119 times.
We continue to have a number of portfolio companies currently in active sale processes, the anticipated culmination of which will give us additional financial flexibility to either reinvest or further delever. Our intention remains to manage the business at a statutory leverage ratio net of cash of 1.0 to 1.
2.5 times.
With that I will turn it over to John to discuss market conditions and other elements of the business.
Thanks, Rob we're pleased to report that overall conditions in the direct lending market continued to be very healthy companies within most industries have very good access to capital and new sponsor back purchases are generally occurring at very high multiples across a range of industries company.
With many of our within many of our core defensive growth sectors, such as software Health Tech healthcare technology field services and technology enabled business services have compelling momentum in their businesses and are attracting a particularly high level of sponsor attention.
Interest spreads and loan structures across the direct lending market are consistent with what we have observed last quarter, reflecting the ongoing competitive lending environment. Despite this strong competition for new loans, we still believe that returns remain attractive both on an absolute basis and relative to other credit markets that we see.
<unk>.
While deal flow has been solid over the last couple of months, we expect an acceleration in the second half of the year based on the deal velocity that we see a new mountain's private equity business and the building backlog of credit opportunities in our forward pipeline.
Turning to page 16, we now show how potential changes in the base rate could impact Nmfc's future earnings as you can see the vast majority of our assets are floating rate loans, while our liabilities are 55% fixed rate and 45% floating rate Mfc's current balance sheet mix offers our shareholders.
<unk> consistent and stable earnings.
In all scenarios, where LIBOR remains under 1% if base rates rise above 1% as the economy normalizes or accelerates there is meaningful upside to NFC net investment income.
For example, assuming our current investment portfolio and existing liability structure, if LIBOR reaches 2% our annual NII would increase by 8.4% or <unk> <unk> per share.
At 3% LIBOR earnings would increase by 19% or <unk> 23 per share.
We believe this positive interest rate optionality offers meaningful value to our shareholders compared to that offered by fixed rate debt investments.
Page 17 addresses historical credit performance, which shows Nmfc's long term track record on the left side of the page. We show the current state of the portfolio, where we have $3.1 billion of investments at fair value with $24 million or less than 1% of our portfolio currently on non.
On accrual.
This quarter as mentioned earlier, we did not place any new borrowers on non accrual.
On the right side of the page, we present nmfc's cumulative credit performance since our inception in 2008, which shows that across 8.4 billion of total investments.
We have $647 million that had been placed on our watch list with $236 million of that amount migrating to non accrual.
Of the non accruals only $79 million have become realized losses over the course of our 12 plus year history.
Page 18 is a view of our credit performance based on underlying portfolio company leverage relative to LTM EBITDA as.
As you can see the majority of our positions have shown results that are very consistent with our underwriting projections exhibiting either very minor leverage increases or in many cases leverage decreases.
We believe the strong and consistent performance across our portfolio is particularly notable in a period of time effected by a global health crisis.
On the lower right side of the page we show a group of 7 companies that have more than 2 and a half turns of negative leverage drift. These companies represent a small portion of our portfolio that have underperformed, partially due to adverse conditions caused by the well documented volatility in certain parts of the economy.
From a liquidity perspective, we believe that all 7 companies have adequate resources to pursue their post COVID-19 business plans, which all contemplate higher profit compared to those of the past 12 months.
2 of the companies are still rated green due to strong equity support.
And meaningful momentum in 2021 after a more difficult year in 2020.
Unitek is ready yellow based on some performance volatility through Covid, but has shown solid momentum in 2021.
Our orange and Red names with material leveraged drift.
<unk> still facing challenges relating to the people in certain segments of the economy. However of the 4.3 have positive business momentum, which gives us optimism regarding a longer term recovery.
The chart on page 19 track the company's overall economic performance since its IPO at the top of the page we show that our net investment income has always cumulatively covered our regular quarterly dividend.
On the lower half of the page we focus on below the line items, where we show that since inception highlighted in the Blue box and MFC has experienced approximately $20 million of net realized losses and in Gray. We showed that NFC has total net unrealized portfolio markdowns.
Of $18 million.
Combined these 2 numbers represent $38 million of cumulative net realized and unrealized losses.
This bottom line number represents a $47 million improvement compared to last quarter driven by the positive change in our portfolio marks that we discussed in detail earlier in the presentation.
At $38 million, our net realized and unrealized losses are lower than before COVID-19 and at the lowest level that we've experienced since the end of 2017.
As we look forward, we remain confident in our core credit portfolio continued to see strength in our well performing REIT subsidiary and have very good momentum in our equity positions.
Page 20 shows a stock chart detailing nmfc's equity returns since IPO, while the performance of our stock was impacted by fears around the pandemic over the course of the last year, we've seen material improvement in our share price as investors have become more comfortable with the trajectory of the U S economy and gained <unk>.
And the stability attractive yield and upside of our portfolio.
Since our IPO over 10 years ago, NMFC had a compounded annual return of 10, 5%, which represents a very high return for our fixed income strategy.
To that end Nmfc's performance has materially exceeded that of the high yield index as well as an index of BDC peers that have been public at least as long as we have.
Page 21 provides a final look at MFC to cumulative returns compared to the individual returns of peers.
As you can see NMFC has been the second best performer amongst the peer group that we've tracked since the IPO.
We continue to build on this total return performance with our <unk> 30 per share dividend, which based on the current stock price represents an annualized dividend yield of approximately 9%.
Turning to our investment activity tracker on page 22, this quarter, our total originations were $102 million offset by $95 million of loan repayments, yielding 7 million of net originations.
This balanced activity is reflective of our business continuing to operate well within the range of our new leverage guidance.
Page 23 shows the strength of our new deal activity since the end of the quarter, reflecting the active market that I mentioned in my opening comments.
So far in the quarter, we are committed to new investments of $229 million, consisting mostly of high quality private financings offset by $151 million of repayments, yielding net originations of $78 million.
Given the active deal environment, we do have a long list of companies on our repayment watch list, which we believe could be exiting our portfolio throughout the next quarter.
These loan repayments represent a material source of cash to fund both our commitments and forward pipeline of new deals.
Yes.
Turning to page 24 as shown on the left side of the page our origination mix by asset type in Q1 was heavily oriented towards senior assets, including first lien loans and new investments supporting the expansion of our S. L. P loan programs.
Overall, the senior oriented assets represented 76% of our total new deal flow in the quarter.
Repayments consisted of 46% second lien assets and 30% first lien assets.
Additionally, we show repayments in our net lease portfolio, which occurred as a result of applying modest asset level leverage to certain real estate properties that were purchased with 100% equity earlier in the year.
The resulting portfolio mix shown on the right side of the page remains heavily weighted towards senior and secured assets.
On page 25, we show the average yield of Nmfc's portfolio was stable from Q1 to Q2 at approximately 8.8%.
For the quarter, we were able to originate a group of assets with a weighted average yield of 9.5%, while actually improving our asset mix towards more senior oriented assets.
While this environment is competitive the available spreads in the marketplace remains supportive of our NII targets.
On page 26, we have detailed breakouts of Nmfc's industry exposure the.
The Center Pie chart shows overall industry exposure, while the surrounding pie charts gives more insight into the very significant diversity within our health care software and services portfolio.
As you can see we have successfully avoided nearly all of the most troubled sectors, while maintaining high exposure to the most defensive COVID-19 resistant sectors within the U S economy.
Finally, as illustrated on page 27, we have a diversified portfolio with our largest single name investment at 5% of fair value and the top 15 investments accounting for 39% of fair value. It is worth noting that while our mentum was our largest position at 5% of the portfolio at quarter end.
After the partial exit of our equity position had mentioned now represents approximately 3.4 percentage of our portfolio with that I'll now turn it over to our CFO Shiraz <unk> to discuss the financial statements and key financial metrics Trust.
Thank you John.
For more details on our financial results and today's commentary. Please refer to the form 10-Q that was filed last evening with the SEC.
Now I'd like to turn your attention to slide 28.
The portfolio had $3.1 billion in investments at fair value at June 32021, and total assets of $3.2 billion.
We had total liabilities of $1.9 billion of which total statutory debt outstanding was $1.5 billion, excluding $300 million of growth SBA guaranteed debentures.
Net asset value of $1.3 billion or $13.33 per share was up 48 from the prior quarter.
At June 30, our statutory debt to equity ratio was 119 to 1 and as noted net of available cash on the balance sheet.
The pro forma leverage ratio would be 1.107 to 1.
On slide 29, we show our historical leverage ratios and our historical NAV adjust.
Adjusted for the cumulative impact of special dividends.
On slide 30, with shallow quarterly income statement results.
We believe that our NII is the most appropriate measure of our quarterly performance.
This slide highlights that while realized and unrealized gains and losses can be volatile below the line. We continued to generate stable net investment income above the line.
Focusing on the quarter ended June 32021.
Total investment income of $66.2 million and $1.2 million a decrease from the prior quarter due to lower fee income this quarter.
Total net expenses were approximately $37.4 million, a slight decrease quarter over quarter.
As discussed the investment advisor has committed to cap the management fee for the 2021 and 2022 calendar years.
Such that the effective annualized management fee this quarter was $1.2 5%.
It is important to note that the investment adviser cannot recoup fees previously waived.
This results in second quarter, NII of $28.8 million or <unk> 30 per weighted average share.
Which covered our Q2 regular dividend of <unk> 30 per share.
Okay.
As a result of the net unrealized appreciation in the quarter for the quarter ended June 32021, with an increase in net assets, resulting from operations of $76 million.
Slide 31 demonstrates our total investment income is recurring in nature and predominantly paid in cash.
As you can see 95% of total investment income is recurring and cash income remains strong at 80% this quarter.
We believe this consistency shows the stability and predictability of our investment income.
Okay.
Turning to slide 32, as briefly discussed earlier, our NII for the second quarter covered our Q2 dividend.
Based on preliminary estimates, we expect our Q3.2021 NII will be at least 30 per share prior to any fee waivers under our new dividend support program.
Given that our board of directors has declared a Q3.2021 dividend of 30 cents per share, which will be paid on September 32021 to holders of record on September 16.2021.
Yeah.
Slide 33, we highlight our various financing sources.
Taken into account SBA guaranteed debentures, we had almost $2.3 billion of total borrowing capacity at quarter end with over $400 million available on our revolving lines subject to borrowing base limitations.
On June 4 we amended and extended our NMFC credit facility pushing out our maturities to 2026, while decreasing our applicable spread materially by 40 basis points.
As a reminder, both our wells Fargo and Deutsche Bank credit facilities covenants are generally tied to the operating performance of the underlying businesses that we lend to.
<unk> is a marks of our investments at any given time.
Finally on slide 34, we show a leverage maturity schedule.
As we've diversified our debt issuance, we've been successful at ladder, our maturities to better manage liquidity.
We have no near term maturities and over 75% of our debt matures after 2025.
Also given our recent investment grade rating from Moody's will continue to explore the unsecured debt market.
Further ladder out maturities and the most cost efficient manner.
With that I would like to turn the call back over to Robert.
Thanks for us in closing we are optimistic about the prospects for NMFC in the months and years ahead.
Our longstanding focus on lending to defensive growth businesses.
Courted by strong sponsors should continue to serve us well, we once again. Thank you for your continuing support and interest wish you all good health and look forward to maintaining an open and transparent dialogue with all of our stakeholders in the days ahead.
I will now turn things back to the operator to begin Q&A operator.
We will now begin the question and answer session to ask a question you May Press Star then 1 on a touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Finian O'shea with Wells Fargo. Please.
Please go ahead.
Okay fine.
Hi, everyone. Good morning.
First.
A small question on admin thumb.
It looks like this puts you in a.
Undistributed earnings.
Situation in some way I don't know if its how the split is between the ordinary capital income but.
If you can give any color on that and most importantly will you be able to.
Retain.
The spillover.
Or is that something that you're.
What will this push you into a higher.
Undistributed income situation.
So it's a great question fin and we're still running the accounting on that as the third quarter evolves.
And we'll have much more to say on that.
After the debt at.
At the end of the third quarter.
Okay.
Fair enough.
And Robert I think John talked about this.
The second half backlog being.
We're very strong.
For both from the private equity and credit side.
Would you describe this says.
Still being.
Pent up demand from.
From Covid or.
More of a.
It's a secular shift in the demand for private credit.
From private equity.
Perhaps being from the volatility we saw in Covid.
Hum.
Wow.
Comfortable do you feel about the sustaining.
Or <unk>.
Versus it all kind of going back to the syndicated market say 1 to 2 years from now.
Yeah, I'll take a crack at that and John May have some thoughts as well, but I think we're just seeing a permanent and ongoing shift I don't want a shift.
The scale of capital formation.
<unk> to increase pretty meaningfully if you look at private equity fund size really across the board.
And the velocity of transactions.
Transactions has really picked up I do think COVID-19 wasn't accelerant, there because people realize they can get a lot done without always having to travel to south Dakota, or new Mexico or wherever.
And so we're seeing that very much in our own private equity business, we're seeing it very much in our sponsor clients private equity businesses and I think it's it's secular not not temporary.
And I think that the.
The role of private credit in that larger accelerated market.
It's here to stay I think there is there is plenty for the syndicate has got to do but there is more than ever for the private credit private credit folks to do whether it's both more deals as well as larger deals.
And there are a variety of factors that will dictate whether a sponsor wants to go to the private credit route or wants to go the syndicated route.
But I think private credit market share of an expanded market is.
It has more growth ahead of it.
As opposed to some cyclical downturn.
Yeah, I don't have a lot to add I think that was a great answer the question. The other only other thing I would say that we see going on out. There is you know over the last 5 years, it's pretty amazing to watch the evolution of our clients' lot of our clients have gone from a fund sizes of 1 billion and a half to $3 billion 84 billion.
And now a lot of these same clients are.
Pushing $10 billion in size in some cases.
And.
A lot of these clients are used to using the private credit lenders that exist.
And the private credit universe.
And they are comfortable with what with the relationships that we all offer and they're comfortable with the terms and they know how we're going to act. So I do think that Theres, just a natural shift upwards.
With the growth of our of our sponsor clients and I think that's a healthy thing from.
The industry I think that is 1 trend that really does soak up a lot of capital in.
And the private credit market the.
The thing that I always say is while the private credit market is certainly competitive and theres a lot of capital in the market.
I still feel like we all collectively struggled to grow as fast as the middle market private equity firms that we serve and so I think that does keep a certain amount of equilibrium in the market.
Very well Thats helpful.
Wanted to congratulate the team on the momentum outcome as well, it's great to see.
All from me and thanks for taking my question.
Great. Thank you I appreciate it.
Again, if you have a question. Please press Star then 1.
The next question comes from Ryan Lynch with <unk>. Please go ahead.
Hey, Ryan.
Hey, Rob contain thanks for taking my questions.
First off congratulations on celebrating 10 years as a public company this quarter Thats a nice milestone.
My first question has to do with with advent.
I've been covering you guys from a long time and I'm asking that.
The long winding road that you guys have had with that investment you know some ups and some downs with that but you guys have stuck stuck with it and they've actually had a really good outcome. So.
Congratulations on that in that channel show like a proud moment to crystallize some of those gains.
But my question is regarding the exit that you guys made about a 30 year position post quarter or did you guys have the option to retain your full position.
As part of that transaction or Conversely, sellier whole position as part of that.
And.
Depending on what your answers war to that how did you guys come about to exit off 1 third of your position if those 2 other options on the table, which I'm not sure if they were not.
Yes, it's a fair question, we really never entertain the possibility of of exiting the full position just given the the growth path. We see ahead of us So we didn't really even solicit.
Interest in that to see if that was doable or not doable, we could have rolled our entire position.
But we did think it was important to take some chips off the table you can see it in our in our Q2 numbers that reflect the before we sold in late later in July 5% position, even for the right reasons right because value has grown so meaningfully it just gets uncomfortable.
So and there was definitely demand.
In the newer Investor group, even at this higher valuation.
And so we sort of we kind of tried to find the happy medium to preserve what we still think we're selling frankly cheap.
But important just from a diversity standpoint, because you never know what's going to happen right.
So we saw them honestly came to me.
We did this in conjunction with Blackrock our partner.
<unk> came to the kind of 1 third 2 third.
There is no magic to that it could have been 50.50, it could've been 2080, but that was our.
Best judgment as to.
The twin goals of 1 derisking and monetizing and bringing some cash and that can earn NII as opposed to equity on the 1 hand versus.
I'm not selling too early and but I think as an incredibly strong cyclical winter with great execution capabilities.
Yes, that's helpful color, yes never never backing day.
Walk in you know some of those game box build.
Right.
Exactly you mentioned new mountain.
Net lease Corp had had some nice gains.
From a.
Evaluation perspective can you just talk about what what is happening in the underlying market their debt that's driving those gains and how do you guys. How is the fair value for that asset determine based on the fundamentals that are going on in kind of the underlying end markets that that that operates in.
Yes, I think theres 2 things going on there 1 is pretty obvious which is just cap cap rates as a function of base rates declining right.
So you are seeing.
Base rates come in but more recently, it's really been more about the risk premia.
And just the value of the quality of the real estate I'll give you..1 example, the biggest driver of the gains this quarter was.
Our collection of properties we have.
In the infill L. A market and it is just such a scarce asset and what you see is our rents are really under under the market. So we have incoming.
I don't want to say weekly or daily, but we have.
Met multiple times, a month incoming unsolicited bids on those properties from people at extremely low cap rates and those cap rates are a function of the view of long term very long term real estate investors that this real estate is <unk>.
When our lease expires, which is 10.12 14 years down the road.
Can be re let it.
Much higher.
Our values.
They are not obviously, not making any more infill L. A and for all kinds of reasons around Amazon and delivery and other other other trends.
That type of real estate is incredibly valuable so it's things like that.
That are driving it obviously there is some rate risk rate of treasuries exploded upward, we'd see that part compress, but I think the secular component and the quality of the real estate being recognize that that's here to stay irrespective of rates. So it's really those 2 those 2 pieces.
That that that drive that.
Got it.
We are constantly evaluating whether it makes sense to hold these certain of these assets or at some point, we're just not earning enough that we may elect to sell 1 or more assets.
Okay.
At which point, we would obviously crystallized.
The gain from unrealized to realize yes.
Yes.
Got you that's very helpful commentary on what's going on in the underlying business there.
And then the last 1 I had was in the prepared comments you mentioned kind of a long list of companies potentially on the repayment watch list, which would make sense I think just get in your guys'.
Portfolio composition of software.
Technology enabled healthcare business services and those are very desirable sectors right now for direct lenders given the fundamental performance through COVID-19.
Do you guys feel that debt you guys pipeline is strong enough that if those repayments kind of come to fruition do you guys feel like your pipeline is strong enough.
To be able to at least offset those with with with new originations and if you guys or do you see an accelerated level of repayment or prepayment activity.
Should we expect potentially.
An increase in accelerated OID or fees associated with these prepayments that can increase the portfolio yield of visa in the near term. While this is going on or are these kind of more longer dated assets, where some of those.
Accelerated fees kind of already run off.
Sure Hi, Ryan this is John.
I think as I said in my comments, we feel.
We feel like there will be a lot of velocity in the portfolio there will be.
A lot of repayments on existing assets.
That's life as a lender.
Especially life as a lender that tries to target really quality assets.
No we're going to constantly receive paydowns and we really feel that we're very well prepared for that when we look at our pipeline and just the amount of opportunities just generally that are out there. We do feel very confident that we can that we can very successfully fill any gaps that are that are left from from.
Repayments or prepayments et cetera.
And I think on the on the point around accelerated OID and just extra income that comes from prepayments that that is definitely true.
And it's a mixed bag some are going to be longer lived assets and some are gonna be shorter lived assets and so I think as you know velocity as our friend when it comes to releasing a certain amount of modest income.
So that is a I would call it a modest <unk>.
Aylwin.
Okay.
Understood that debt.
Helpful.
Those are all my questions I appreciate the discussion today and nice quarter guys.
Thanks, Ron I appreciate that.
Again, if you have a question.
Please press Star then 1.
The next question comes from Bryce Rowe of hope the growth.
Please go ahead.
Hey, Bryce.
Hello, how are you.
Hey, thanks.
Good.
I've got a kind of a higher level question I think.
People have appreciated.
The introduction of the of the heat map during Covid and clearly you've continued to.
Just to show that as we've moved away.
Moving away from.
From the peak of it is that is that something that you guys plan to kind of keep as a.
As a best practice.
And does it does it kind of get to a point where.
Where they.
There just arent enough investments in the the red or the Orange buckets too.
To continue to use that and show that to us on a on a quarterly basis, just trying to trying to understand how you how you kind of feel about.
The use of that and how it kind of came together during COVID-19 and I'm sure. It was.
Helpful exercise.
So just any commentary around that would be helpful.
Yeah sure. It's a very good question and 1 where we're debating frankly that there was some talk about maybe retiring the COVID-19.
<unk> of it this quarter and then delta kind of made us a probably not yet.
Listen hopefully hopefully that'll be a day sooner rather than later, where we're just not all talking about COVID-19 as the you know 1 of the 2 or 3 main drivers of of asset values and risk factors.
Sadly that day is not here.
In August of 2021, but when that day arrives I think it's our view that at some point the horizontal access of Covid impact is no longer a relevant metric, but we do kind of like the spread of.
Of.
Green yellow Orange Red and you know I'd love to say.
Say that 1.
1 day, all our assets will be green and that may be the case, but.
We all know in the real World. There are always assets that struggled for 1 reason or another so I think we will always have some version of the heat map.
<unk> seem to like it a fair a fair bit and it's a good management tool for us.
So I think the heat map will always be with us, but the the metrics may change a little bit over time, and again, hopefully sooner rather than later vis vis the COVID-19 metric.
Yep, Okay, Alright that was that was all I had I just kind of popped in my head and I thought I thought I'd ask you appreciate.
I appreciate the color and.
Great great quarter.
Yes, great no. Thank you.
Yeah.
Once again, if you have a question. Please press Star then 1.
This concludes our question and answer session I would like to turn the conference back over to Rob family for any closing remarks.
Great. Thank you and thank you everybody, we always as always appreciate the time and attention and interest.
When people know where to find us if need be.
And look forward to speaking to you all in the in the months ahead.
Thanks have a great great rest of the day Bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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