Q3 2021 Golub Capital BDC Inc Earnings Call
Welcome to the G. P D. CS August 10th 2021 quarterly earnings conference call before we begin I would like to take a moment to remind our listeners that remarks made during this call may contain for.
Looking statements within the meaning of the private Securities Litigation Reform Act of 1995 statements other than statements of historical facts made during this call may constitute forward looking statements.
And are not guarantees of future performance or results and involve a number of risks and uncertainties.
Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described from time to time in G. B D C 's filings with the SEC for them.
On T rules the company intends to refer to on today's earnings conference call.
Please visit the Investor resources tab on the homepage of the company's website Www Dot G O L. U B C. A T I T. A L. B D C Dot C O M.
And click on the events presentation link.
G B D. CS earnings release is also available on the company's website in the Investor Resources section as a reminder, this call is being recorded for replay purposes.
I will now turn the call over to David Golub, Chief Executive Officer of Gollop Capital C. D C.
Thanks, Operator, Hello, everybody and thanks for joining us today I'm joined by Ross <unk>, Our Chief Financial Officer, Gregory Robbins, Senior managing director and Jon Simmons Managing director, Yes.
Yesterday afternoon, we issued our earnings press release for the quarter ended June 30th and we posted an earnings presentation on our website will be referring to that presentation throughout the call today.
For those of you who are new to G. B D. C. I wanted to briefly describe our investment strategy. Our investment strategy is and since inception has been to focus on providing first lien senior secured loans to healthy resilient middle market companies that are backed by strong partnership oriented private equity sponsors.
The headline for the quarter ended June 30th is that GBT sees results for very strong TBD.
G. B D. C had solid net investment income continued strong credit performance and robust new deal activity, we will be discussing each of these topics in greater detail as we go through todays presentation.
Gregory is going to start by providing a brief overview of G. D. CS performance for the June 30th quarter, and then we'll hand, it off to John and Ross for a more detailed review of those results. I'll then provide some closing commentary and then we'll open the line for questions.
With that let's take a closer look at GBT sees results for the quarter and the key drivers of those results Gregory.
Thank you David turning to slide for for the quarter ended June 30th G. P. D. CS adjusted NII per share was 29 cents.
Just that EPS was 49 cents and ending that per share was $15.06.
The key drivers of the strong results are summarized on slide 6.2 key themes I want to highlight for.
First our portfolio continued to perform well.
Olive capital Middle market report for G. C. MMR for June 30th, which we published about a month ago reflected this strikes the G. C. MMR normally looks at year over year revenue and profit growth of golf capital Middle market borrowers, but our approach for June 30th was a bit different.
We didn't think year over year comparisons were particularly informative as they would be comparing the locked down economy of April and May 2020 should the booming economy of April and May 2021.
We thought it would be more informative to compare 2021, which is the per.
Pre COVID-19 economy of April and May 2019.
And the results were striking.
Median EBITDA growth from 2019 to 2021 exceeded 30%.
Strong earnings growth across G. Bdc's portfolio was reflected in the for positive credit quality trends listed on the right hand side of the slide will go into them in more detail shortly.
Second middle market, new deal activity was strong.
Order ended June 30th was a new record for golf capital origination volume.
You may recall that the quarter ended December 31, 2020 was a record breaker at the time.
Well, we beat that record by 30% in the June quarter.
While the impact on G. Bdc's portfolio growth was muted by elevated repayments in the June quarter. We think the key takeaway is that G. P. D. C is delivering strong originations amidst a robust M&A environment by leveraging the competitive advantages of the Golub capital platform.
Let's now drill down on the for positive credit quality trends listed on the right hand side of the slide starting with our internal performance ratings.
Slide 7 summarizes the positive trends in the internal performance ratings of G. Bdc's portfolio in the post Covid period.
2 key trends continued through the quarter ended June 30th.
First portfolio companies performing materially below expectations in categories, 1 and 2 remain very few in number.
Those 2 categories constituted only 1.1 per cent of the portfolio at fair value at quarter end.
We are also seeing continued upward migration in credit quality.
Steady increase in categories, 4 and 5 those are loans performing at or better than our expectations on underwriting and a corresponding decrease in category..3 those are loans that are performing are expected to perform below expectations.
Specifically in the quarter ended June 30th categories, 4 and 5 increase from 86, 9% of the portfolio as of 331 to $89.4 per cent of the portfolio as of June 30th at a per.
Movement to 13.4 percentage points year over year.
Category 3 decreased from 12% of the portfolio as of $3.31 to 9.5% on the portfolio as of 630.
The proportion of the portfolio weighted 3 as of 630 was right in line with our pre Covid normal of around 10% as you can see for the fiscal year end 2018, and 2019 data at the far left on this slide.
A second key indicator of continued credit improvement is the fact that non accruals remained very low just 1% of investments at fair value at quarter end.
The non accrual rate was unchanged quarter over quarter, but about 50% lower year over year, we'll come back to this point in our usual discussion of <unk> financial results.
Slide 8 shows 2 other indicators of improving credit quality net realized gains and net unrealized gains. This slide provides a bridge from GBT $614.86 NAV per share of $3.31 to its increased $15.06 snap per share as of 630.
Let's walk through the bridge adjusted.
Adjusted NII per share was 29 cents in line with our quarterly dividend.
No net realized losses were recorded during the quarter. In fact, there were <unk> <unk> per share of net realized gains.
And net unrealized gains were 21 per share excluding the purchase premium adjustment, reflecting the continued reversal of unrealized losses incurred in the March 2020 quarter.
In fact on a price basis 90 per cent of the unrealized losses recorded in the quarter ended March 31, 2020 had been recovered as of June 30th 2021.
Finally, slide 9 shows that the continued strength and quality of Chi Bdc's portfolio enabled us to further optimize the company's debt capital structure post quarter end.
On August 3.2021 G. BDC completed its third unsecured bond offering.
Pro forma for the August offering unsecured debt represents approximately 50% of GBT seize debt capital stack.
You can see from the chart on the right hand side of the slide that G. P. D. C is expected to have no contractual debt maturities until 2024, and the vast majority of G. P. D. C's funding matures in 2025 or later.
In short, we believe G bdc's balance sheet is stronger and more flexible than ever.
Let's now take a closer look at on our results for the quarter ended June 30th and for that let me hand, the call over to John Simmons to walk you through the results in more detail John.
Thanks Gregory.
11 summarizes our results for the quarter ended June 30th.
You can see in the column on the rate debt adjusted NII per share was in line with our quarterly dividend and that our credit results remained strong as G. BDC generated 20 cents a share of adjusted net realized and unrealized gains.
As a result, our net asset value per share at June 30th 2021 increased to $15.06.
On August 6th our board declared a quarterly distribution of 29 cents a share payable on September 29th 2021 to stockholders of record as of September 8.2021.
Turning to slide 12, new investment commitments totaled $614.7 million for the quarter ended June 30th.
After factoring in total exits and sales of investments of $583.5 million as well as unrealized depreciation and other portfolio activity.
It'll investments at fair value increased by 1% for $44.3 million during the quarter.
As Gregory noted originations this quarter were strong while repayments were also elevated.
As of June 32021, we had $45.4 million of Undrawn revolver commitments and $171.9 million of Undrawn delayed draw term loan commitments. These.
These unfunded commitments are relatively small in the context of G. B D 6 large balance sheet and strong liquidity position.
As shown on the bottom of the table the weighted average rate on new investments and spread over LIBOR on new floating rate investments each increased slightly quarter over quarter.
Slide 13 shows that G bdc's portfolio mix by investment type remained consistent quarter over quarter with 1 stop loans continuing to represent 80 per cent of the portfolio.
Slide 14 shows that G. Bdc's portfolio remained highly diversified by obligor with an average investment size of less than 40 basis points.
As of June 30th 96% of our investment portfolio remained in first lien senior secured floating rate loans and defensively positioned in what we believe to be resilient industries.
Turning to slide 15, this graph summarizes portfolio yields and net investment spreads for the quarter.
Focusing first on the light Blue line. This line represents the income yield or the actual amount earned on our investments, including interest and fee income, but excluding the amortization of upfront origination fees and the G. C I see purchase price premium.
The income yield decreased by 10 basis points to 7.4% for the quarter ended June 32021.
The investment income yield or the dark Blue line, which includes the amortization of fees and discounts also decreased by 10 basis points to 7.9% during the quarter.
Our weighted average cost of debt or the Aqua Blue line decreased by 20 basis points to 2.8% primarily due to the early redemption of $165 million in higher priced S. P. I C debentures in the prior quarter.
Our net investment spread the Green line, which is the difference between the investment income yield and the weighted average cost of debt increased by 10 basis points to $5.1 per cent.
With that I'll hand, the call over to Ross to continue the discussion of our quarterly results Ross.
Thanks, John flipping to the next 2 slides nonaccrual investments as a percentage of total debt investments at cost and fair value remained low and consistent quarter over quarter at 1, 4% and 1% respectively as of June 30th during.
During the quarter the number of non accrual investments remained unchanged at 6 portfolio company investments.
As Gregory discussed in his opening commentary as a result of continued strong portfolio company performance. The percentage of investments rated 3 on our internal performance rating scale decreased to $9.5 per cent of the portfolio at fair value as of June 30th.
As a reminder, independent valuation firms value of at least 25% of our investments each quarter.
Slides 18, and 19 provide further details on our balance sheet and income statement as of and for the 3 months ended June 30th.
Turning to slide 20, the graph on the top summarizes our quarterly returns on equity over the past 5 years and the graph on the bottom summarizes our regular quarterly distributions as well as our special distributions over at the same time period.
Turn to slide 21, this graph illustrates our long history of strong shareholder returns since our IPO.
As illustrated investors in <unk> 2010, IPO have achieved a 10% IRR on NAV since inception.
Slide 22 summarizes liquidity and investment capacity as of June 30th, which remains strong with over $800 million of capital available through cash restricted cash and availability in our various credit facilities.
We also highlight our continued progress in optimizing the right hand side of the balance sheet.
3 key highlights here first on April 13th 2021 we amended our revolving credit facility with Morgan Stanley to among other things extend the reinvestment period for April 12, 2024 for my third 2021extend the maturity date to April 12, 2026 for May 1.
1.2024 and reduced the interest rate on borrowings to 1 month, LIBOR plus 2.5% from 1 month LIBOR plus 2.45 per cent.
Second on July 16, we issued a notice of redemption to redeem all of the $189 million of notes issued under the 2020 debt securitization, which are priced at 3 month LIBOR plus 2 point for 4%.
This redemption is expected to occur on August 26, 2021.
And third as Gregory mentioned earlier on August 3rd we issued $350 million unsecured notes, which bear a fixed interest rate of 2.5% and mature on February 15, 2027, bringing on.
Unsecured debt up to approximately 50% of G. Bdcs total funding mix.
Slide 23 summarizes the terms of our debt capital as of June 30th.
Lastly, slide 24 summarizes our recent distributions to stockholders.
Recently, our board declared a quarterly distribution of 29 cents per share payable on September 29, 2021 to stockholders of record as of September 8.2021.
With that I'll turn it over to David for his closing remarks, David.
Thanks, Ross to sum up G. B D. C had a very strong quarter adjusted NII matched our dividend realized and unrealized gains were substantial and robust new origination enabled the portfolio to grow despite unusually high payoffs.
Let me talk about our outlook and then I'll take your questions.
The headline is the same as last quarter, we're cautiously optimistic I'll start with why we're cautious we've been concerned about COVID-19 variance for some time you've heard US talk about this on our last 2 earnings calls as much as we'd all like to put this tragic pandemic behind us. It seems we're far from done with hundreds of millions of Covid cases around the globe 80.
<unk> 5 per cent of people worldwide, not yet fully vaccinated and the possibility of more mutations.
That said there are also reasons for optimism we.
We believe G. B D. C is prepared for this environment that we're in right now and has a set of powerful tailwind I'll focus on 3 we've spoken about them before but they bear repeating.
The first tailwind is G. B D C strong portfolio performance, we've highlighted throughout today's presentation. The positive credit trends since March 31.2020.
Our pre Covid underwriting has proved to be strong realized and unrealized gains and losses for the 18 months from January 1 'twenty 'twenty through June 30th 2021 have netted to a loss of only $7 million or 0.16 per cent of the portfolio at cost that's an annualized loss rate of <unk>.
Less than 11 basis points.
And as Gregory describe the portfolio today has very low non accruals and minimal category, 1 and 2 loans. So.
So it's apparent we're not gonna be distracted by needing to play defense on a troubled portfolio.
Our second tailwind is the attractive opportunity set before us 2 of the last 3 quarters set new records for Golub capital origination all signs are pointing to robust middle market M&A activity in the second half of the year, while it's too early to tell if it will set another record before yearend, we think olive capitals, capturing more than our fair share of.
Or active deals the competitive advantages of leading lenders have grown stronger through this COVID-19 period advantages like scale on sponsor relationships Incumbencies breath of solutions industry expertise and reputation for reliability we.
We believe G. B D. C has a compelling opportunity to grow its portfolio in this environment without compromising on credit quality.
And finally, a third tailwind the third tailwind as the G. B D. C has ample liquidity and flexibility to capture opportunities. We've achieved our goal of substantially increasing the proportion of unsecured debt and G. B D. C's funding mix, while keeping our cost of debt for a low unsecured debt is now about 50% of our debt stack and.
We believe G. B D. C has among the lowest unsecured funding costs of any BDC GB.
G B D CS debt stack as well diversified long term low cost and highly flexible.
We're currently operating at the low end of our target leverage range of 0.85 to 1.15 times debt to equity and we think we have room to operate closer to the high end of that range in the coming quarters, which will help drive even stronger earnings power for the company.
Thank you operator, please open the line for questions.
At this time, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad to withdraw your question press the pound key.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Finian O'shea with Wells Fargo Securities.
Hi, good afternoon first.
Question David on the.
On the common sewer just touching on on the market opportunity in your.
On your market share, which remains very strong.
Can you.
Go specifically into the.
The the comeback.
These larger private you know 1.2 billion dollar transactions.
Last last time around before Covid your.
You know the obvious ring leader and in these especially on a senior basis and.
You know this time.
I'm around there's a couple of more couple more big players in those as I'm sure you're familiar with so.
How do you feel that your market share in our competitiveness in terms of underwriting is holding up and then.
As a second part there you know how much of a challenge is is that it is do you think that paper is you know much better than the core middle market paper or is it less of a challenge to the to the Golub platform.
Sure. Thanks Finn. Thanks for your question so by way of context for we I call. It capital, we underwrite loans debt range in size from a 10 or $20 million at the low end up to multiple billions as you pointed out fin we've been a market share.
Peter in what we call Mega 1 stops, which are 500 million dollar and up 1 stop since those really began to to be on the scene in 2019 on Mega 1 stops remain a relatively small portion of the overall mix of what we do the predominance of what we do is is finance.
<unk> companies that generate between 20 million and 50 million of EBITDA are those are not companies, where a mega 1 stop would be appropriate.
In the last quarter, we closed 95 separate loans are representing a bit a bit more than the $9 billion in in total commitments. So you know if you just do the math on that you can quickly.
Calculate that our average loan size is is in the approximately $90 million range.
Over the course of the last couple of years, we've seen and as you pointed out pointed out fin we've been a pioneer in expanding the role of private debt in larger sized transactions and Ive said previously that there are a couple of key drivers of that phenomenon.
1 is that our sponsors increasingly are looking at buying build transactions transactions, where they're building a company over time through acquisitions as a means of of creating a company of great scale.
And and have a great promise there not just doing financial engineering anymore. There, they're looking at are creating great companies in large measure through acquisition strategies.
On the broadly syndicated bank loan market is not.
It's not an extremely efficient way of financing a company that's doing serial acquisitions. What many sponsors have found is that using a 1 stop and a series of of either delayed draw term loans or cereal expansions of that 1 stop can be a more effective way of financing.
There their portfolio company, that's doing serial acquisitions.
Until relatively recently that large scalable 1 stop was not on the menu. It wasn't 1 of the choices that are sponsor could choose from if they were looking at financing a company that had low needs in excess of $500 million.
That's now changed and as you point out are in the last 6 months or so we've seen transactions as high as as as $3 billion are being pursued by a private private market by direct lenders are.
And we're not alone in this were still among the market leaders, but there are a number of very large players who are also capable of playing in this in this arena.
My view is that the Mega 1 stop product is a great option for sponsors.
It is not always a great opportunity for direct lenders. We here just as we are in smaller loans, we need to be very selective we need to.
Make sure that we're backing really good companies that the terms and conditions of the loans that the pricing of the loans are attractive relative to other options that we have so we're we're always going to be evaluating the relative attractiveness of different niches within direct lending that we operate in and.
We're purposefully gonna be moving around as we see.
The best opportunities arise in in 1 area 1 industry sector.
1 geography vs versus others and I think that's what we've been doing over the course of recent months.
Thank you.
So a follow on on the.
Equity co investment looks like.
This quarter.
At least versus historical.
You know given you're able to earn your.
On dividend at such a low rate of leverage.
1 way 1 might say that.
For the ability to.
Swing the bat.
Much more often on on equity co invest.
Any thoughts on.
On the bottom there.
Yeah, we've been pretty consistent in our percentage of the portfolio debt in equity co investments. If you look at page 13 of our Investor presentation. It's been in the 2 to 3 per cent range for an extended period of time I think that you can reasonably expect that we're going to continue to grow the portfolio.
That we're going to move our debt to equity ratio from where we are now which is at the low end of our range a more more toward the middle or higher end of our range I don't anticipate a meaningful change at this point in in the mix that we're going to see of course, that's always subject to change based on.
Market conditions, but but that's my expectation now.
Thanks Fin so let's we can go to the next question.
Your next question comes from the line of Paul Johnson with K B W.
Good afternoon, guys. Thanks for taking my questions.
First I know you guys were just slightly below the low end of your hurdle rate this quarter and therefore did not earn an incentive fee of just curious are you. Okay with I guess operating around that area kind of right at or even below the low end of your hurdle or would you was just the goal.
You know to essentially generate an ROE that's maybe above that 8% I'm just trying to get your thoughts around around the our hurdle rate.
I think this quarter was a bit of an anomaly because the degree of repayments was as high as it was my expectation as I mentioned is that we're going to see growth in the size of the portfolio that in turn will will grow net investment income and and will give us more.
Our pre incentive fee net investment income.
I I think I think when we look backs backwards, we will see this quarter is a bit of an anomaly in in the respect that you're you're mentioning I think it's good for shareholders. If we can operate in inner above the catch up as opposed to below the catch up provided we can do so without taking too much credit risk right.
I think we can do that.
Great. Thank you.
Thanks, David Thats very helpful. And then just want on your your software lending portfolio. It's you know I think 26% or so I think from the slide deck of your portfolio I'm, just maybe trying to get your thoughts on on how you guys view that market today, how you guys view that sort of competitive.
Land Scape, obviously, we've seen a lot of growth in popularity of that type of lending. So is there anything that you guys.
See differently today, maybe versus a several quarters ago or you know what are you looking out for in the new deals that you evaluate there today.
Sure again, let me just provide some context. So we've been leaders in software lending to sponsor backed companies for more than a decade, I think we have a larger portfolio and more transactions under our belt in this sector than any of our competitor Brethren.
It's an area, where we have very strong sponsor relationships.
Very strong incumbencies because of the portfolio that we've built a.
I am very strong expertise, we have a group within our underwriting team that specializes in in software lending.
We think we're very good at it our results over time and in software have been outstanding and we think that it's a robust area for future opportunity.
Your statements fair that we're seeing somewhat more competition in the software area then than we did years back.
But the flip side is also true that the the.
The private equity ecosystem the component of that ecosystem. That's that software companies continues to grow and so we continue to find very attractive opportunities in the software space, We really haven't changed our approach in any meaningful way, we continue to be focused on really high quality companies.
With mission critical software tools that have been well integrated in and are difficult to rip out of their their clients with high recurring revenue streams and high renewal rates the same sorts of.
Underwriting criteria that we started out investing in the industry with more than 10 years ago.
That's it thanks for that and then my last question was just again your thoughts around the market for 1 stop unitranche loans versus may be the senior loan you know first lien traditional first lien second lien structure.
What we've kind of seen the returns have compressed over time, obviously net in the unit tranche market I'm wondering.
Isn't seem to show up in your new investment mix, but do you evaluate those 2 markets any differently today.
Today in terms of just the the value proposition of 1.1 stop loans versus the first lien traditional structure.
So every time, we're looking at a new transaction, we're thinking about what the right way to play in is in it is and what the right answer is for the transaction and we'll proceed with it.
A first lien solution, if we think that it's compelling from a risk reward standpoint, and right for the transaction on.
Or Alternatively will proceed with a 1 stop solution. If we think the risk reward is is compelling and it's right for the transaction. So so it's it's a multifaceted tests that we used.
To assess what's the what's the right solution to be.
To be emphasizing in our discussions with sponsors at the end of the day, obviously, it's the sponsors make that choice, we don't make the choice as to what what.
Financial structure to to put in place, but we do have choices about where we play and where we don't play right now I would tell you that we continue to find a lot of attractive 1 stop opportunities.
To your point, we're seeing a lot of steadiness in our income yield and in our weighted average net investment spread I think you are seeing.
Meaningful compression in junior debt spreads are second lien spreads in particular, <unk> have come down and and so I think perhaps that's putting some pressure on on.
On if you think about a 1 stop as being a.
An instrument, that's that's price as a hybrid that debt.
Could be seen as is putting some pressure on 1 stop spreads as well, but I think the data suggests more steadiness more continuity than change there.
Great. Thanks for that those are all my questions.
Your next question comes from the line of Ray Cheesman with Enfield capital.
Thanks for taking my questions David as we approached the end of the year and we get closer to LIBOR going poof and going away do you perceive there to be any challenges in rolling all of the clients over to a I think they're now talking about so for term is the are the preferred way theyre going to steer everybody is.
Is everybody ready for that and do perceive there'll be any impact on any income lines in your P&L.
So thanks for the question about LIBOR and so for us.
I think you may know I serve on the board of the L. S. T. A that the the main industry Trade Association has been very involved in this LIBOR transition and ensuring from an industry standpoint that the industry's ready are we at Golub capital have also dedicated significant resources to.
To make sure we're ready look I think it's going to be a meaningful amount of work whether this transition happens at the end of this year or later I think that's still an open question I'm confident that.
Whenever the timing is we'll be ready and we'll have the resources in place to do the the work with our borrowers to make sure that debt that whatever changes are required and loan agreements are made.
This is this is gonna be a very significant lift, but I'm not I I say that for more work standpoint, not from a risk standpoint, I think from a risk standpoint, it's it's quite under control.
Super glad to hear.
Based upon the experience that you've had when loans at the beginning you were saying that the number of loans outperforming expectations category porn 5 has increased at a very good speed coming up out of the lousy period a year ago.
When when your portfolio performed above expectations should we expect to see a higher churn or a higher repayments than otherwise because obviously they've got higher profit levels.
Sure. Let me clarify 1 thing category for is performing at or above and category..5 is performing above so the statement that I hope we made before I'm I'm not sure exactly how we phrase this is that the proportion of our portfolio that's performing in categories 4 and 5.
Meaning there they are performing at or above expectations has grown significantly if you flip to page 17 of our presentation deck, you'll you'll see that.
Cat those those 2 categories are just under 90% of our or our loans as of June 30th 2021 and that's right that that that's back in the range of the pre Covid numbers.
I think you're onto an important point, which is more relevant for category 5 loans and for category for loans I think category 5 loans do have a tendency.
Tendency to be refinanced or repaid.
More quickly than loans in other categories and and I think.
That.
Has been part of the story of the more rapid than expected repayment rate that we saw on this last quarter I don't think that's the main factor I think the main factor is the.
A very rapid pace of M&A debt.
We've seen in in the middle market generally.
But I I think you make an interesting point, which is.
Debt the category 5 loans do tend to refinance more quickly than 123 and for loans.
It's always the truth you lose the good ones right Yep nature credit [laughter] last as kind of a it's an open ended question and you've done unbelievably well at at steering the company through a credit thunderstorm you've lowered the cost for your funding well what are we looking for in the neck.
First couple of quarters to move the whole organization back from I'm, just going to use the base number for shareholders 29 cents to 32 cents what is it a function that we need the macro rate environment to change or is it something else.
A great question, so youll recall in prior quarters I've talked about how our dividend policy has historically been linked to our Nab, we seek to over time have a dividend that corresponds to about an 8% annual rate of our of our NAV per share.
And we seek to change it rarely and to increase it over time, so the path for for us to raise our dividend is 2 fold right now it's too increase our NII per share pre.
Pre incentive fee by by increasing our portfolio size and to continue to see some on net unrealized and realized gains that did increase our NAV per share and those those 2 will put us in a position where we can start to raise the dividend from 'twenty.
9 cents to north of that.
Thank you.
Your next question comes from the line of Robert Dodd with.
Raymond James.
Hello, Rob Hi, guys and congratulations.
Congratulations, particularly on all the way.
Ability side.
And everything else.
Yes.
On the kind of a follow up to these other question me take to get back into it to just the catch up and.
Do you need to do.
Openness supervised by the portfolio of low, but and you've talked about yet.
You're comfortable with that going for me do you expect lease payments.
The elevated level this quarter I'm getting to is that going to moderate somewhat and I mean, obviously I'm not particularly concerned about your ability to originate assets that we've put the repayment question is much harder to predict.
So every day, let's look at each other on the trending debt.
Let's look together at page 12 of the presentation and the <unk>.
The second line in the table exits and sales of investments incorporating repayments and you can see that the June 30th 2021 quarter at $583.5 million as the outlier on this chart.
It's literally.
More than twice for the December 31 quarter, 1 and a half times. The March 31 quarter. So if you ask me to to makeup.
Prediction my prediction is that we will not see a sustained level of exits and sales of investments.
At June 30th level over time in my experience our assets tend to have a weighted average life between 2 and a half and 3 years of the 583 and a half is is effectively a weighted average life. That's that's closer to 2.
So so I just I don't see I don't see a high likelihood of that sustaining over time, Robert I think we're gonna be able to continue to.
Make good good progress on on originations I think exits and sales will moderate and I think we'll start seeing some portfolio growth.
Excellent. Thank you and then 1 more if I got on the credit question and this may be maybe overly picky, but I'll ask anyway, you have 18, 3 assets right slightly below expectations in terms of performance.
None of them on a half it has improved.
Sequentially again, it's still a tiny bit above where it wasn't in 2019 I presume those are still the somewhat the COVID-19 impacted assets on to cash.
Just wanted to.
All the ones, where the lives of the assets debt a category 3 this quarter and last quarter, because obviously some of them got upgraded.
Once the performance like for those assets I mean yesterday below expectations, but it is a less below expectations. This quarter than they were last quarter on if that makes sense.
So a couple of comments first and let's let's look at the numbers together if you flip to page 17 of the presentation. You are correct that category 3 assets at 9 and a half per cent now are a little bit above where they were at the end of 2019, but they're actually lower than they were at the end of 2008.
<unk> 2017, and 2016, so I think it's fair to say that the overall picture of performance ratings right now looks very much like like it looked in pre COVID-19 periods.
As to the specifics of the category 3 loans most of them were actually challenged loans pre COVID-19 these or not.
So much COVID-19 impacted loans as as they are just ones that have been underperforming for some time.
Are we making progress and seeing improved performance from from this group in many cases, yes Ah.
I can't speak with specificity.
In this forum on on a loan by loan basis, but you know we have as you know a day.
A workout team that focuses on working with management teams to improve our our underperforming credits and they do have they do a really good job.
So I'm.
I'm cautiously optimistic that we're going to see continued improvement in the portfolio over the coming several quarters.
Got it thank you.
Yeah.
Yeah.
Yeah.
You have a follow up question from the line of Ray Cheesman with Anfield capital.
I wanted to specifically say, thank you very much because you give us great comfort when you released that middle market report.
And you show on things like 31, 5% improvement in earnings in the portfolio performance.
I'm wondering it is already the 10th of August and your measurement period for the next report closes in about 20 days will we be as happy when we see the trend in the next report will it will the good stuff continue.
I think that's that's more speculative than than unprepared to answer right now on on August 10th, but thank you for the compliment and and I appreciate.
Your your enthusiasm for it for the D. C. MMR fill us do we have any last question.
At this time there are no further questions I would like to turn the call back over to management for closing remarks.
Thank you Phil for your help and thank you to all of you who have been listening today, we very much appreciate your support as always if you have questions that we didn't get to today. Please feel free to reach out to any of the 4 of us from G. BDC management, and we look forward to talking to you next quarter.
Ladies and gentlemen that does conclude today's conference. We thank you for participating you may now disconnect.
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