Q1 2023 Capital Southwest Corp Earnings Call
Thank you for joining today's capital Southwest First Quarter fiscal year, 2023 earnings call. Participating on the call today are Bowen Deal, CEO , Michael Sarner, CFO and Chris Reberger, VP Finance. I will now turn the call over to Chris Reberger.
Thank you. I'd like to remind everyone that in the course of this call, we will be making 34-bit updates. These statements are based on cross-conditioned, highly available information, and management expectations, assumptions, and abilities.
They are not guaranteed the future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially in such cases.
For information dönt sur So we will follow until here.
The company does not undertake any obligations to the support'. Unless anyCs are Okay It????, skills, may be aligned But you are not veel due to need. Please pay attention to the support. Whether it will be Archer In theory, St vigilante, will speak to the you
whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, that is required by the state.
I will now hand the call off to our President and Chief Executive Officer, Logan Deel.
Thanks, Chris, and thank you to everyone for joining us for our first quarter of this year's 2023 Arnie Fault. Thank you for joining us for our first quarter of this year's 2023 Arnie Fault.
We are pleased to be with you this morning and look forward to giving you an update on the performance of our company and our portfolios as we continue to diligently execute our investment strategy to stewards of your capital.
Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found on our website at www.capitol.west.com.
You will also find our quarterly earnings release that she has left evening on the website.
We'll begin on slide six of the earnings presentation where we have summarized some of the key performance highlights for the quarter.
During the quarter, we generated pre-tax net investment income of $0.50 per share, which represented 11% growth over the $0.45 per share generated in the year ago June quarter. The $0.50 per share more than earned our regular dividend paid during the quarter of $0.48 per share.
Oval evidence for the quarter were 63 cents per share, which included a special dividend of 15 cents per share, also paid out during the quarter.
We are pleased to announce today that our Board has declared a 2 cent per share increase in our regular dividend of 50 cents per share for the quarter ending September 30, 2022.
This increase represented 4.2% growth over the 48 cents per share paid out in the June quarter and 16% growth over the 43 cents per share paid out in the year of those September quarter. includes
This increase in our recurring regular dividend reflects the increased earnings power of our portfolio, resulting from the increase in market interest rates over the past few months, the growth and performance of our credit portfolio, and the improvements in our operating leverage.
During the quarter, acquisition and financing activity in the lower middle market continued to be strong. This quarter we surpassed the $1 billion threshold in total investment assets.
and represented, representing 7.5% growth over the quarter of the year.
Fortfolio Grove during the quarter was driven by 148 million in new commitment.
consisting of commitments to six new portfolio companies, following 139 million, and add-on commitments to eight existing portfolio companies total nine million.
This was offset by 50 million in proceeds from three debt repayments and one equity access in quarter.
Appalization front, we raised 46.8 million of equity through our AT&T program at an average price of $20.66 per share, representing an average of 123% of the prevailing benefit for value for share.
Our liquidity remains robust in approximately 180 million in cash and drawn capital community as there's been a minute quarter
We feel very good about the condition of our portfolio overall and of our company.
That said, we have remained diligent in funding a meaningful portion of our investment asset growth with accretive equity issues on our equity ATM program. As we think it is critical that we maintain a conservative mindset to BDC leverage given the uncertainty of the economy and capital markets.
On slide seven and eight, we illustrate our continued track record that producing steady dividend growth, consistent dividend coverage, and value creation since the launch of our credit strategy.
We believe the solid performance of our portfolio as well as our company's sustained access to a capital market.
has demonstrated the strength of our investment and capitalization management strategy.
Maintenance and growth of both shareholder dividends and NAV per share remain as core tenets of our long-term investment objective.
Maintenance and growth of both shareholder dividends and NAV per share remain as core tenets of our long-term investment objective of creating long-term value for our shareholders.
For even slide nine, as you were impression, our investment strategy has remained consistent in this launch in January of 2015.
We continue to focus on our core lower middle market lending strategy where we directly originate and lead opportunities.
consisting primarily of first-lending senior secured loans with smaller equity code investments made alongside many of our loans.
the end of the quarter, our equity co-investment portfolio consisted of 44 investments.
with a total fair value of 89.5 million.
which included 26.6 million in embedded, unrealized appreciation or approximately 97 cents per share....
Our equity portfolio, which represented approximately 9% of our total portfolio fair value over the end of the quarter, continues to provide our shareholders the participation and the attractive upside potential.
of these growing lower-middle market businesses.
which will come in the form of NAB per share growth and special dividends over time.
If demonstrated on flight 10, our on balance sheet credit for folio is of these of the quarter excluding our high 45 senior loans.
We're at 9% to 865 million that's compared to 794 million as was the end of the prior quarter. We're at 965 million that's compared to 865 million that's compared to 865 million that's compared to 865 million
Over the past year, our credit portfolio has grown to $194 million, or 29% from $571 million as of June 20, 2021.
For the quarter, 100% of the new portfolio of company debt originations were first-lane senior which grew up that.
And as I'd be into the court of 94% of my total credit were followed with the first lane finisher.
On slide 11 and 12, we detail the $148 million of capital invested and committed to portfolio companies during the quarter.
Capital committed this quarter included $136 million in first-lane senior security debt committed to six new portfolio companies.
including four in which we also is co-invested a total of 3.1 million.
inequity.
Finally, during the quarter, we also committed $9 million in first-lane senior security debt to eight existing portfolio companies.
Turning to slide 13, we continue our track record of successful access with three debt three payments and one equity effort during the quarter.
In total these exits generated 49 million in total proceeds.
realizing gains of 2.3 million and generating a weighted average RR of 19.6%.
Since the launch of our credit strategy over 7 and a half years ago, we have had 63 portfolio exits, representing 745 million in proceeds.
that have generated a cumulative weighted average of 14.8%
The market for acquisition capital continues to be active, albeit at a slower pace than we saw at the turn of County Year 21.
Not surprisingly, we have also seen a slowdown in the reef and after their activity.
As a result, we would expect continued solid net portfolio growth in the near term.
The activity in our investment pipeline is strong in terms of volume and quality of deal opportunities. The activity in terms of volume and quality of deal opportunities.
as well as the breadth of financial sponsors and other deal sources represented.
We are pleased with the strong market position that our team has established in the lower middle market as a premier debt and equity capital partner.
and evidence by the broad array of relationships across the country from which our team is sourcing quality opportunities. Let's bring up.<|en|><|transcribe|> Thank you.
On slide 14, we detail and key stats for our on-balance sheet portfolio as of the end of the quarter. Again, excluding our 45-year-old budget.
As of the end of the quarter, the total portfolio fair value is weighted 85.4% to first-laying senior secured debt, 5.1% to second-laying senior secured debt, and 0.1% to subordinated debt.
and 9.4% to equity code methods.
The credit portfolio had a weighted average yield of 9.3%.
weighted average leveraged through our security of four times, both flat from the prior quarter.
Turning to slide 15.
We have laid out the rating migration within our portfolio.
During the quarter, we had one loan with a fair value of $10 million upgraded from a 2 to a 1.
We have three small loan positions across two portfolio companies with an aggregate fair market value of $10 million. Now I'm graded with a two to a three.
And we had one loan position with a fair value of $693,000 downgraded from a 3 to a 4.
As a reminder, all load the upon origination on initially assigned and invested rating of two on a 4.0 scale.
with one being the highest rating and four being the lowest rating.
Because at the end of the quarter we have 74 loans representing 95% of our investment portfolio fair value rated in one of the top two categories a one or two.
The number of one rated loans decreased from 7 to 5 this quarter, and all three of the loan prepaidment says quarter had a rating of 1. Offset by the aforementioned portfolio company that is upgraded and added to the list of 1 rated loans this quarter.
In Adriant, we had a total of 10 loans representing approximately 5% of the portfolio fair value.
rated at 3 or at 4 as of these in the quarter.
As illustrated on slide 15, a total and best footballer continues to be well diversified across the industry.
with an asset mix which provides strong security for our shareholders capital.
The portfolio remains heavily weighted towards personally senior secured debt with only 5% of the total portfolio and secondly, senior secured debt.
I'll also note that 90% of our credit portfolio is backed by a financial fund.
providing for potentially meaningful financial support for these portfolio companies that lead it.
I will now hand the call over to Michael to review more specifics about financial performance for the quarter.
to Michael to review more specifics of our financial performance for the quarter. Thanks, Bowen.
Pacific Tour Performance for the June quarter. We summarize on fly 18. We earn pre-tax net investment income of $12.6 million or 50 cents per share.
We paid out 48 cents per share in regular dividend and 15 cents per share.
special dividends for the quora.
As mentioned earlier, our board has approved an increase to the regular dividend for the September quarter to 50 cents per share from the 48 cents per share that was paid to the June quarter.
maintaining a consistent track record of meaningfully covering our dividend with pre-tech and I. It's important to our investment strategy.
We continue to maintain our strong track record of regular dividend coverage with 105% for the last 12 months ended June 30, 2022 and 106% cumulative since the launch of our credit strategy in January 2015.
Given the floating rate nature of our credit portfolio.
Rising interest rates will be a significant?. bigger li reported deployed outbreak rates too quickly. and left an income.
In fact, the index used to calculate interest on a majority of our loans reset in early July to 2.29%. From the early April reset at 96 basis, the basis point.
This significant increase, quarter over quarter, will provide an immediate step up in portfolio income in the September quarter.
With that as context, we will continue to execute our policy of having regular dividends follow the trajectory of recurring pre-tax NII per share, while maintaining our track record of strong dividend coverage.
So the quarter, our investment portfolio generated total investment income of $22.5 million by producing a weighted average yield on all investments of 9.1%.
The whole investment income was 1.5 million higher this quarter due to a higher average balance of credit investments out of the family, as well as an increase in prepayment and amenities compared to the prior quarter.
says at the end of the quarter
There were four loans on non-accrual with an average fair value with aggregate fair value of approximately $16 million representing 1.6% of the investment portfolio at fair value.
And July 1, 2022, one of the non-accro-ing loans with a fair market value of approximately $13 million, was restructured in the transaction that resulted in capital-southwet, equitizing a portion of the state, providing capital-southwet to significant participation in the company's tournament.
and reinstating the remainder of our quarter end debt for the new company.
The transaction also resulted in a significant amount of new equity capital being invested into the company by the sponsor. The transaction also resulted in a significant amount of new equity capital being invested
We expect that our reinstated debt will be back on accrual over the coming quarters.
Finally, as of the end of the quarter, the weighted average yield on our credit portfolio was 9.3% for the quarter.
As seen on slide 19, we further improved LTM operating leverage to 2.1% as of the end of the quarter. We expect operating leverage to approach 2% or better in the coming quarters.
During the slide 20, the company's NAV per share at the end of the June quarter decreased by 32 cents per share to $16.50.
which included a 15 cent per share special dividend paid to shareholders during the play.
This represented a 1.9% decrease quarter over quarter compared to $16.86 per share as of the end of the March quarter. Outside of the special dividends, the primary driver of the NAV per share decrease for the quarter was investment portfolio depreciation, which consisted of $5.9 million of depreciation at I-45, most of which was mark-to-market quote activity in the syndicated market.
We also saw 5.5 million of depreciations on the on-balance sheet debt portfolio. Partially offset a 1.5 million of net appreciation on the equity portfolio and accretion from the issuance of common stock at a premium to NVIDE for share under the equity AGM program. Under the equity AGM program. Under the equity AGM program.
Turning to slide 21, as Bowen mentioned earlier, we're pleased to report that our balance sheet of liquidity continues to be strong, but approximately 180 million in cash and on-draw and leverage commitment as we end the course.
During the quarter, we successfully completed an amendment with a lender group on our IMG-led CNUSHICary Credit Facilities, which increased commitments on the credit facility by $45 million, bringing total commitments to $389.
Based on our boring basis, at the end of the quarter, we have full access to the incremental revolver capacity. We have full access to the incremental revolver capacity.
A bank syndicate continues to support our growth and we are pleased with the flexibility to increase the revolving credit facility commitment to our capital structure.
In addition, we continue to draw the benches in our SBIC cidiaries as we originate SBIC-eligible assets. For more information, visit www.sbic.gov
As at the end of the quarter, we had drawn 80 million into ventures with an average cost of 2.4%. kilo,
We intend to apply for another FBA leverage commitment shortly as we continue to see strong origination by them in SBIC eligible investment. We intend to apply for another FBA leverage commitment shortly as we continue to see strong
As of June 30, 2022, approximately 49% of our capital structure liabilities were unsecured, and our earliest debt maturity is in January 2026.
A regulatory leverage has seen on Y22 and is the quarter at a debt to equity ratio of 1.1 to 1.
Over the past year, we've made a concerted effort to strengthen our balance sheet to ensure we are prepared for any macroeconomic headwind that we may encounter.
These efforts have included our opportunistic, unsecured bond issuances at record low rates in the late calendar 2021, and our continued diligence in moderating leverage through accretive sheer wishes, on our equity ATM program. In mm 4-f??
We will continue to work towards stressing the balance sheet, ensuring adequate liquidity, and maintaining conservative leverage in the covenant question throughout the economic
And we now hand the call back to Bo and there's some final time.
Thanks, Michael. And thank you, everyone, for joining us today. We appreciate the opportunity to provide you an update on a business and progress executing our strategy to the stewards of our stakeholders capital. The stewards of our stakeholders capital.
A company in Fortfolio continues to perform well and I continue to be impressed by the job our team has done in building a robust asset base. The company has done in building a robust asset base.
Deal-origination capability as well as what's a flexible capital structure.
As for the uncertainty in the economy, we have been underwriting with a whole economic cycle mentality since day one, which we believe has positioned us well for the potential economic volatility in the coming months and years. In the coming months and years.
We continue to believe that our performance demonstrates the investment, the commitment and capital structure management capability of our team at Capital and Southwest. We continue to believe that our performance demonstrates the investment, In fact, it's a tough question.
as well as the merit for the first lane senior security strategy.
We feel very good about the health and positioning of our company in portfolio, and we are excited to continue to execute our and discuss the strategy of Stewards and Steak Holders Capital.
This concludes our prepared remarks operator. We are ready to open the line up for Q&A. We are ready to open the line up for Q&A.
As a reminder to ask a question, you will need to press star 11 on your telephone. Please stand by when we compile the Q&A roster. Please stand by when we compile the Q&A roster.
Our first question comes in the line of Kevin Foltz from J&P Security.
You know, given the evolution of market conditions over the past two quarters, I'm curious if you've seen that translate to improve pricing on new deals that you're viewing. And then more broadly, if you can discuss the attractiveness of deals you're seeing in the lower number of middle market currently.
Yeah, thank you for the question. Yes, I think for a comment on the spread in the market, I think we're seeing kind of...
For quality deals, you can underwrite.
especially giving the economic cycle and with reasonable leverage levels there's still a lot of competition in the field. And so we have really seen
Spread lighting tremendously, maybe a little bit on margin 25 to the 25 basis points, plus or minus.
And so, you know, still seeing productivity, you still seeing, you know, kind of spreads. And so, you still seeing, you know, kind of spreads.
Can't wait to hear what they've got.
Okay, that makes sense, Owen. And then just to follow up for Michael, looking at the nav bridge on slide 20, there's an 11th test per share loss related to other corporate. Just curious, you can identify the items that are included in that bucket. That are included in that bucket.
Yeah, I think that needs to do with our RSUs. We do our June , our distribution to a full age for RSUs in the June quarter. And so you'll see that annually in this quarter. And so you'll see that annually in this quarter.
Okay, got it. That's it for me. Congrats on a nice quarter.
Thank you. The next question comes in the line of Mickey Shilin from Latinburg.
Born, I want to dig a little into credit. Any high level comments you can give us on how your borrowers, revenues are trending and how their margins are trending. I understand it's case by case and sector by sector, but we're getting such mixed signals as to the trajectory of the economy. Any comments you can make would be helpful.
Yeah, sure, Mickey, thanks for the question. So we wouldn't look at that. If you look at our portfolio and let's take the 95% of the portfolio that are either performing, kind of, I'd expect that they're ahead of expected. You kind of give the 5% that are underperforming. Let's set those aside for a second. Because I would say if we look at those underperformers, they're all idiots and credit situations of the company. So let's take the 95%.
And let's look at that. When we look at that, you know, revenues.
Year over year and eve dye year over years up about 23%
If you look at the last quarter, revenue is about a little over 5%.
and either dies basically flat.
Which I thought that was kind of interesting. I mean, obviously different industries are different. So you take the latest average across the portfolio, it's kind of the index that's the easiest thing to look at. And so it's not perfect, but let's just say that. So revenues are over 5% and EBITDA is basically flat. And so I look down through the portfolio, and I say, why is that? And it's hard to look at it and say it's necessarily the economy per state, but there are certain things like labor increases.
and cost of inputs, hard inputs.
And so, and I look at that and I say revenues up and EBITDA is flat. So, we certainly have seen the companies who are very general comments with the pricing power to increase prices to maintain margins.
And so, you know, I'd say the quarter of the general economic activity. The quarter of the general economic activity.
is kind of flat with these kind of sub-issues that we're all hearing about in the economy, we look across our portfolio and they seem to be doing a good job at having those costs onto their customers.
to maintain the mortgage.
Margin dollars. Mickey, from a timing perspective, we also say we're using April and May for all our valuations. Not that we're seeing any softening since then, but a lot of the financials are yet to come to see whether anything is occurring. I would say from just commentary, we talk about these companies a lot. I would say commentary-wise, I think those steps would continue.
Through now that Michael is right, I mean the financials all BDCs use for regulations, as you know, make your, you know, for May for June 4th.
Yes, I understand. And Bowen, this may be idiosyncratic, but there was one loan downgraded to a three. Is there any, what was the nature of the problem there? Is it something specific to that company or something broader?
Well, you're acting out the one small hole that was downgraded to a four.
They are done.
I thought there was a migration to a 3 of 10 million at fair value.
Yeah, now that's, so there was one upgrade to a one, it was 10, and there were three loans across two portfolio companies that were downgraded to three.
And they were all very small-owned physicians. They were definitely idiots and critics. One has to do with, you know, it's...
It's very innocent and credit based on certain pipeline stats and things that they have to achieve to basically off-take their product. It's very innocent and credit to that company.
And it's also, I should also say, that the back five are very strong funded sponsors as well.
You know, we've got an empty, we've got a lot of equity to support the heads more certainly in that company 2D.
And Bowen, is there any update you can provide us on the loans that are on non accrual in terms of progress you might be making with those credits?
Yeah, so as Michael said in his remarks, I'll read or can might have gotten lost. So there were 16 million in fair value on non-accrual at the end of the quarter. One of those loans was restructured on the first day of the new quarter, so July 1 of 22. The new quarter, so July 1 of 22.
And that alone had a fair value of 13 million out of the 16.
And that restructuring resulted in an equitizing portion of our debt. And that portion of our debt. And that portion of our debt.
and the sponsor putting in a very meaningful amount of equity into that business.
And so, you know, and so we've got significant equity services.
It's participation in the turnaround served on the board of that company. And you know, if you feel okay about where we are, I'm certainly very happy about the significant amount of liquidity that the company that the sponsor put in the business and is sitting on the balance sheet, currently.
I understand that that's helpful. And in terms of the unrealized appreciation of the on balance sheet debt portfolio, was that, I mean, you have the downgrades that you mentioned, was there also something attributed to wider credit spreads in general?
Yeah, so on the depreciation, there's two pieces where I mentioned the five and a half million bond balance sheet. And that's probably a little more than half. And that's probably a little more than half.
more than half credit and less than half spread market indexer.
And the I-45 piece is two thirds.
two thirds market indexes of cold movement as you can imagine and kind of one third you know credit that you stop
Okay, and just to wrap up, in the SBIC, are you gonna ask for the full 87.5 million of regulatory capital and the full two turns of leverage or how should we expect that to work out the next several quarters?
We'll absolutely over time be drawing the entire amount, but what you're facing to do during this process with the FESA is you need to actually bed a portion of eligible assets and to go in at equity prior to asking for a commitment to draw upon. So we have to go to the FESA with a further leverage commitment, which we plan on doing. So it'll probably be something in the neighborhood of 50 million for the next commitment.
So right now in the process of betting that 50 before we're able to ask for the formal commitment.
Okay, 50 million of new debatures, right?
So the 59 would be the next deck in the, yes. So we'll put 25 million eligible assets as R equity and then we'll draw the next 50. And as you get full, you know, and that's the piece.
completed, then you go back to the SBIC for another commitment. It was your immediate bet prior to asking for a commitment. Yeah, as Mickey, you know, that's very typical for these SBICs. We've always presented it to the shareholders as kind of showing the different steps.
and the post just presenting the entire SPICT, but it's very typical to be stair steps like that. And
You know, there's not real agony.
notable or even risk at all of really getting those commitments, but it's a step.
documentation process until we presented it that way not to get confused by it being like, you know, no, no, it's very helpful. The transparency is really helpful, Bowen. Bowen, have you adjusted your target leverage goals given the current market environment or does that remain unchanged and if you could just remind us what those are?
Yeah, Michael, why can't you comment on that? I'll comment on the stuff lost a year or a minute. We certainly have, I mean, looking at whatever economic policy that we might be heading into, we previously stated a target of 1.2 to 1.3 on economic and one-on-one to one-two on regulatory. Right now we're targeting regulatory at 1.0 and probably economically something more like 1.1 to 1.2.
And I think until we see how long and deep the recession, if it was to come to pass, that's kind of where we'll try to target. And by doing so, we're gonna need to raise equity. We started that, we know that in early rate, 46 million in this previous quarter, as long as we're trading, meaningfully about book, I think we'll continue to see us raise meaningful equity. We haven't seen the slow down portfolio, and I think Bowen noted earlier that that even in an environment where...
You know, M&A activity might slow down. Repayments will slow as well. So we will continue to see net portfolio growth. So raising equity alongside these originations and maintaining leverage in this conservative range is certainly one of our targets. Yeah, I think that's well said. I mean, we think about full-file economics and our full-file underwriting and we think about full-file economics and our BDC as well. I think Michael, that's perfect. Okay, that's great. That's it for me this morning. I appreciate your time.
Thank you. Thank you. Thank you. Our next question comes to the line of Kyle Joseph from Jeffries.
Any questions? There are just one really, but two parts.
in terms of the margins that pretty stable quarter-on-quarter i think he said uh... rates either reset post-corder late in the quarter and just so how do we think about you know your
Your assets resetting versus the kind of the cadence of your liabilities resetting, recognizing it, a lot of your liabilities are fixed rate. You have a lot of your liabilities are fixed rate.
And then on rising rates, how are you, how is that impacting your expectations for credit going forward? Obviously it's a good thing. We should see your net interest income go up, but at the same time companies have a higher debt servicing. But at the same time companies have a higher debt servicing.
God.
So on the, for our liability side, you know, those reset, probably you could think of them on a monthly basis. And so there's that. And so there's that.
Probably I'm more of a weighted basis. You saw I go from 96 points to 2.29%. So from one quarter to the next. So the average is probably something in the mid-15 in terms of the increase on the interest expense. For the assets, pretty much 90%. If not more of the assets reset on the quarterly date. So we're looking at, you know, with up to our 630 numbers, of the bid goals and the growing debt awards represented on the you
We were using the 2.9% at the end of June proformer on our balance sheet. We would have had an additional 3 cents of NII. So the 50 cents that we produced probably would have been closer to 53 cents. And that's a spectacular guy first of all. And that's a spectacular guy first of all.
Yeah, to the second part of your question, second part of your question, you know we've got an analysis we tracking.
Looking across the portfolio and taking the current index.
the 2.29% index and looking at the portfolio and then increasing that index up to a point where you start seeing meaningful credit issues.
You really have to get that index up into the mid 5%. So 5.5 plus or minus percent on the index before you start seeing fixed charge coverage ratios across. You know, technically a lot of the portfolio is still fantastic, but you kind of take your red, the number of names at a 5.5 plus percent kind of LIBOR and you start seeing your red light names that start to make you nervous, start to move like in a meaningful way.
You really don't have to index up to 5.5 plus percent. So, feel pretty good that we're not going to see. I don't think we're going to see 5.5, 6 percent on the index, but that's, feel pretty good about what Paul did.
Got it really helpful. Thanks for answering my question.
Thank you. Our next question comes in the line, Robert Dodd from Raymond James. Robert Dodd from Raymond James.
There's been asked and answered. So just one quick one if I can. I think Michael in your prepared remarks, he said you expect the dividends to follow the trajectory of pre-tax income. So you're talking about basically, you know, if rates. So you're talking about basically, you know, if rates.
I mean, nature up, like the burnings go up along the lines of free sensor or whatever, and if an exporter and the subsequent quarters through at least the beginning of 23, that the base dividend would be increasing at the same time. And just for carlovis see that.
The poor worker, et cetera, is lower in the second half of 23, that it is in the first half of 23. So, is that taken into account in terms of what path that the dividend...
might follow because I receive don't necessarily want to be cut in the dividends when rates are falling if that comes to pass obviously.
Absolutely, that is certainly the way we're looking at things. If you look at the Fed Fund right now, we're given the range of 2.25 to 2.5 and it's considered neutral. And so we're looking at projecting forward. We're not really assuming that there's gonna be any increases beyond the levels that they are today. So we do believe that there's between the 50 cent dividend we announced today and where we see earnings going just based on the 2.29, and there's certainly room for another dividend.
Increase, however, we do want to maintain, that we probably say we want to maintain maybe two to three cents difference between the dividend paid and pre-tax net investment income earned. So that's what we're going to focus on going forward. We're not going to be projecting additional.
rates to increase and you know if it was going to come back down we feel like the dividend that we will have set will match the rate where it comes back to.
That's helpful.
That is very helpful. Thank you when I'm on the one of the early solar quarters.
Thank you, Aaron. Thank you.
Thank you. I would now like to turn the conference back over to Bowen Beale for closing remarks. Well, thanks everybody for joining us. We appreciate the opportunity to give you an update and we look forward to talking to you in future course. And we look forward to talking to you in future course.
This concludes today's conference call. Thanks for participating. You may now disconnect.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 1-1. The conference style and pen and press pound when finished. The conference will begin shortly. The conference will begin shortly. The conference will begin shortly.