Q3 2022 BlackRock TCP Capital Corp Earnings Call
Ladies and gentlemen, good afternoon, welcome everyone to Blackrock TCP Capital Corp, 's third quarter 2022 earnings Conference call. Today's conference call is being recorded for replay purposes. During the presentation. All participants will be in a listen only mode. A question and answer session will follow the companys formal remarks.
Ask a question. Please press the star key followed by the digit one I will repeat these instructions before we begin the Q&A session and now I would like to turn the call over to Katie Mcglynn director of the Blackrock TCP Capital Corp, Investor Relations team Katy. Please proceed.
Thank you to me and before we begin I'll note that this conference call may contain forward looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance.
Forward looking statements involve risks and uncertainties and actual results could differ materially from those projected any forward looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented May have been derived from third party sources and has not been independently verified.
Accordingly, we made no representation or warranty with respect to such information earlier today, we issued our earnings release for the third quarter ended September 32022, we also posted a supplemental earnings presentation to our website at www Dot TCP capitals dot com to view, the slide presentation, which we will refer.
On today's call. Please click on the Investor Relations link and select events and presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today.
I will now turn the call over to our chairman and CEO Raj Vig.
Thanks, Katie and thank you all for joining us today for <unk> third quarter 2022 earnings call.
As usual I will begin today's call with a few comments on the market environment as well as highlights from our third quarter results. I will then turn the call over to our President and Chief operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity.
Our CFO , Eric <unk> will review, our financial results as well as our capital and liquidity liquidity positioning in greater detail I will then conclude with a few closing remarks before we take your questions.
The third quarter closed with a continuation of the public market turbulence, we are seeing across global financial markets. This year is.
It isn't often that both equity and bond markets trade negatively in the same year. However, a combination of geopolitical uncertainty and central banks moved to raise interest rates to curb the highest levels of inflation and more than 40 years.
Driving significant volatility.
In this environment direct lending continues to provide a strong value proposition for both investors and borrowers in terms of safer visible returns and availability of capital solutions respectively.
Well, we are increasingly cautious in this environment, we take comfort in the fact that the investments in our portfolio are structurally senior.
Our loans are primarily first lien and underwritten with meaningful covenants that provide us with an avenue to constructively engage with our borrowers as challenges are foreseeing.
This proactive approach combined with structural seniority are hallmarks of our strategy and long standing commitment to strong credit quality and principal protection.
Our strategy has always focused on core middle market businesses and diverse resilient and less cyclical industries.
Although large public companies are often perceived to be less risky. The middle market has historically proved to be nimble and resilient during economic downturns.
To date, we are seeing our portfolio companies take actions to address the more challenging market environment.
We are observing companies reduced marketing budgets and other discretionary spending.
Certain companies are also raising capital where needed and focusing on acquisitions that continue to drive scale and reduce costs.
Turning to our portfolio, we continuously monitor all of our investments and are actively doing so in this environment.
While we are seeing some margin pressure as a result of the inflationary environment and they generally tempered growth outlook. We are very comfortable with our typical position as a senior secured lender and believe our loans are very well covered.
We are also seeing a general ability to pass along cost increases to end customers given inelastic demand for our portfolio of companies products and services.
Regardless of the market environment, we have always been disciplined with our underwriting standards.
We evaluate each borrower's ability to manage in times of duress through both a forward looking at the historical lender performance through prior periods of stress for dislocation.
Ultimately, we have confidence in our underwriting our team and the strength of our diverse portfolio to continue to withstand periods of economic volatility.
Let's now turn to our third quarter performance and a few highlights from the quarter.
First we delivered strong net investment income of 42 cents per share.
Given the floating rate nature of our portfolio. Our net investment income continued to benefit from the increase in base rates through this year.
Our net investment income again exceeded our third quarter dividend <unk> 30 per share and we are pleased to announce today. Our board of directors declared a fourth quarter dividend of 32 per share an increase of two cents payable on December 30 to shareholders of record on December 16th.
We have always emphasized the stability of the dividend and coverage through our recurring net investment income and our board's decision to increase the dividend is an acknowledgement of the increase in the ongoing earnings power of the portfolio and confidence in maintaining our continuous track record of dividend coverage.
Second increased one 1% during the quarter driven by net unrealized gains in our portfolio and net investment income in excess of the dividend.
Net unrealized gains were primarily driven by increasing the value of our investment in 36th Street, and partially offset by decreases in the value of our investments in auto alert and so curious as well as the impact of wider market spreads across the portfolio.
Third our portfolio credit quality remains strong and we had no new non accruals in the quarter.
As of September 30, non accruals were just 3% of the portfolio at fair value.
Our excellent asset quality is both a function of our disciplined and consistent underwriting practices and our vigilant credit monitoring.
Fourth and as Phil will discuss in more detail the strength of our underwriting platform continued to drive solid investment opportunities that resulted in a total of 17, new investments totaling $48 million.
We have also had several prepayments that occurred at the end of the quarter, including the full repayment at par plus accrued loan to juul.
As a result repayments during the third quarter totaled $170 million, resulting in net dispositions of $122 million.
Finally, we are excited to welcome Karen leads Tcp's board of directors, expanding our board to seven members, including six independent directors.
Karen.
Excuse me senior Vice President and.
Treasurer of Baxter International a multinational health care company and she brings a distinguished background and a welcome governance experience. It will further strengthen our board on behalf of shareholders.
TCP C continues to deliver strong results for shareholders. Our total return remains above our cumulative total return hurdle.
As a reminder, tcp's he maintains a 7% hurdle rate.
Onshore returns, including realized and unrealized gains and losses on both the income and capital gains component of the incentive fee the cumulative look back.
Since 2012, when we took T C P C public we.
We have generated a 10, 7% annualized return on invested assets a total annualized.
<unk> cash return of nine 4%, demonstrating our ability to consistently identify attractive opportunities at premium yields and deliver strong and consistent results and returns to our shareholders across market cycles.
Now I will turn it over to Phil to discuss our investment activity and portfolio positioning.
Thanks Raj.
Despite the public market volatility that is driving uncertainty in the capital markets. We continued to capitalize on the scale of the broader Blackrock U S private capital.
And breath of our teams experience to identify attractive investment opportunities in this environment at.
At quarter end, our portfolio had a fair market value of approximately $1 7 billion.
87% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk.
As we previously noted our portfolio is weighted towards companies with established business models and less cyclical industries.
The portfolio at quarter end consisted of investments in 132 companies, an all time high for this portfolio.
As the chart on the left side of slide six of the presentation illustrates our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company in fact more than 90% of our portfolio companies each contribute less than 2% to our recurring income.
84% of our debt investments are first lien, providing significant downside protection and 95% of our debt investments are floating rate, providing an important benefit in this race rate environment.
Moving onto our investment activity is one of a small group of reputable lenders capable of providing complete and customized financing solutions, we focused on transactions, where our U S. Private capital team access to elite co lead or part of a small club of lenders.
This enabled us to negotiate deal terms and conditions that we believe provide meaningful downside protection.
These include substantial collateral and tailored covenant packages that are important.
Especially in periods of economic volatility like we are in today and expect to be in for the foreseeable future.
In addition, our industry specialization, which our borrowers value bolsters, our ability to assess and effectively mitigate risk in our underwriting and when negotiating terms in the credit documents.
We've delivered for borrowers and deal sources on over 1000 transactions across the U S private capital platform through our more than two decades of lending to middle market companies.
Our long standing relationships cultivated over those two decades, coupled with the power of the Blackrock platform provides us with an advantage of sourcing and identifying attractive investment opportunities.
We also believe that our ability to source from multiple channels and our ability to lend and unique or less understood situations are benefiting our pipeline of investment opportunities in the current environment.
While we've been actively deploying capital in this market, we maintain a very disciplined approach to investing.
General market activity has slowed relative to the record levels in 2021.
However, we continued to see strong new deal activity in areas, such as add on acquisitions and opportunities from non sponsored deal sources.
TCP see invested $48 million in third quarter, primarily in 17 investments, including loans to 14, new portfolio companies and three existing laws.
In terms of dollars invested 60% of total investments in the third quarter came from our existing portfolio companies.
Follow on investments in existing holdings continued to be an important source of opportunity accounting for nearly 50% of total dollars deployed over the last 12 months. We believe this incumbency is an important advantage in sourcing investments that will only increase.
Comic conditions deteriorate further.
Companies, we already know well and understand well and therefore are comfortable making these follow on investments.
TCP six largest investments during the third quarter was a senior secured first lien term loan to achieve.
We achieved as a founder led personal finance company that helps consumers overcome and reduced outstanding debt burdens.
Given the complexity of the transaction and our team's experience lending to financial services companies. Our team was selected to lead this transaction.
And this financing will be used to pay down existing debt answer achieved growth initiatives.
Our second largest investment in the quarter was a senior secured first lien term loan to Anaconda.
With over 29 million active users, including more than 700 enterprise customers and accounted a scaled global data science and machine learning platform Black.
Blackrock served as a sole lender on this transaction, which will go towards refinancing existing debt as well as to fund this growth.
As Raj mentioned, new investments in the third quarter were offset by several meaningful payoffs, including Dude solutions, Foursquare juul and metrics stream.
In light of the challenges Juul continues to face we are thrilled that we were able to opportunistically exit our loan at par.
Total dispositions and repayments totaled $170 million.
The overall effective yield on our debt portfolio rose meaningfully from nine 8% as of June 30th 211, 3%, reflecting the benefit of higher rates during this quarter.
Potently the full benefit of rates in effect at September 30 will be reflected in our fourth quarter results given the majority of our loans reset quarterly.
Investments in new portfolio companies during the quarter had a weighted average effective yield of 11, 3%.
Exceeding the nine 9% weighted average yield on exited positions.
Although the private markets tend to be slower to react to changes in the market environment. We are seeing a shift toward award lender friendly environment with improvements in pricing and terms relative to six to nine months ago.
We continue to invest selectively maintaining our underwriting discipline and being mindful of this inflationary environment.
We focus on companies with established business models that are well positioned to succeed throughout economic cycles, and we emphasize the companies that have significant pricing power to pass on increasing input costs, including the cost of capital.
It's also important to note that we did not underwrite to perfection, but build in sufficient buffer to ensure companies can withstand higher costs and changes in the market environment without impairing their ability to service our loan.
Well, we're seeing a slowdown in deal activity relative to the flurry of deals we saw in the fourth quarter of last year, our pipeline remains healthy.
The yields on investments in our pipeline are generally in line with our current portfolio and to date, we have had limited prepayment income in the fourth quarter.
I'll now turn it over to Eric to walk through our financial results as well as our capital and liquidity positioning.
Thank you Phil.
As Raj noted our net investment income in the third quarter benefited from the increase in base rates. So far this year as well and <unk> from prepayment income.
Net investment income of 42.
What's up 14% from the second quarter and more than 30% from one year ago.
Net investment income again exceeded our second quarter dividend of <unk> 30 per share.
We're committed to paying a sustainable dividend that is fully covered by net investment income as we have done consistently over the last 10 plus years.
Today, we.
We declared a fourth quarter dividend of <unk> 32 per share increasing our dividend by <unk> <unk> per share.
Investment income for the third quarter was 83 per share.
This included recurring cash interest of 67%.
Recurring discount and fee amortization of <unk>.
And Pik income of <unk>.
Notably our Pik income remains lower than our historical average.
Investment income also included three cents of dividend income.
Plenty of other income and <unk> from accelerated OID and exit fee.
As a reminder, we amortize upfront economics over the last one on investment rather than recognizing all of it at the time the investment is made.
Operating expenses for the third quarter were 32 per share and included interest and other debt expenses of 18 <unk> per share.
Incentive fees in the quarter totaled $5 $2 million or <unk> 90 per share.
Net realized and unrealized gains in the third quarter totaled $1 $8 million or <unk> <unk> per share and were driven primarily by $1 $6 million of net.
Net unrealized gains on our portfolio.
These net realized gains in the third quarter included an $18 $8 million increase in the value of our investment in 36th Street.
Unrealized gains in the third quarter also included a $3 3 million.
Reversal of prior unrealized losses on our investment in Juul as we exited our investment at par during the third quarter.
Unrealized gains were partially offset by $5 $9 million decrease in the value of our investment in auto over.
And at $2 million Mark to market decline in the value of our investment in <unk> technology as.
As well as the impact of wider market spreads across our portfolio.
The net increase in net assets for the quarter was $26 to $9 445 per share.
Substantially all of our investments are valued every quarter using prices provided by independent third party sources.
These include quotation services and independent valuation services.
And this process is also subject to rigorous oversight.
Putting back testing every disposition I guess our valuation.
Our credit quality remained strong with non accrual loans at quarter end limited two portfolio company.
That represent just 30 basis points of the portfolio at fair value.
And 50 basis points at cost.
Before turning to our liquidity a quick comment on our fourth quarter earnings expectation.
While we don't provide forward looking guidance. It is important to note that our third quarter NII benefited from six cents of nonrecurring items.
Additionally, while we expect to further benefit from the increase in base rate. We also had a significant amount of paydowns that occurred at the end of the third quarter that reduced leverage and the size of our portfolio going into the fourth quarter.
Turning to our liquidity.
We ended the quarter with total liquidity of $351 million.
Relative to our total investments of $1 $7 billion.
This included available leverage of $246 million in cash $106 million.
Unfunded loan commitments to portfolio of companies at quarter end equaled, 7% of total investment or.
Or approximately $124 million.
Of which only $20 million revolver commitment.
Our diverse and flexible leverage program includes two low cost credit facility too.
Two unsecured note issuance.
And our SBA program.
Notably our unsecured debt continues to be investment grade rated by both Moody's and Fitch.
Yeah.
Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing.
And our maturities remain well here.
Additionally, due in part to opportunistic.
This show that we can do.
In the second half of last year.
In which we took advantage of attractive financing environment at the time.
We are comfortable with our current mix of secured and unsecured financing and.
Do not have any immediate financing needs.
Also given our higher percentage of fixed rate borrowings.
Buying the weighted average interest rate on our outstanding borrowings increased only modestly to 341% from.
Three 6% at the end of 2021.
Now I'll turn the call back over to Raj.
Thanks, Eric despite volatility in the broader markets, we are leveraging the power and comprehensiveness of the Blackrock platform and our team's deep experience to selectively deploy capital on favorable terms. Our liquidity is strong and we have ample dry powder to deploy incremental capital, where we see the opportunity.
Our investment teams breath of expertise consists of performing direct lending and special situations investing a combination that is particularly well suited for the current environment.
While we remain disciplined in our investment approach and focus on credit quality, we have been able to continually build and diversify the portfolio the.
The consistency of our performance demonstrates both the efforts of our experienced team.
And the value of our risk reward proposition and with that operator, please open the call for questions.
Absolutely we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one of your telephone keypad.
Any reason at all you would like to make a question. Please press star followed by two again to ask a question press Star one.
A reminder, pega speaker phone please pick up your handset before asking your question. We will close here briefly ask questions are registered.
The first question comes from Kevin folks with JMP Securities. Please proceed.
Hi, good morning, and congratulations on a really nice quarter. My first question is from level one.
On your deal productivity rate in deal volume could you remind me what your historical average deal activity rate is and how that is kind of recently and then secondly could you give us an idea on the total dollar value or a number of deals you review on an annual basis.
Yeah.
Yeah sure. Thanks for the question Kevin This is Phil.
Our selectivity rate generally ranges anywhere between 4% to 6% on any given year and that's consistent with the current environment.
So we'll evaluate you know anywhere between 10000 to 12.
1200 deals a year on average and our pipeline today.
<unk> two.
Be healthy.
It's not quite as robust as you can imagine you know versus let's say 12 months ago.
Given the environment around refinancings in M&A generally, but for us it doesn't take a lot for us to stay busy.
But.
Quite a wide funnel and we always achieved to do so.
Based on our.
Our sources of deals.
It's a very wide set of channels not just sponsors but also.
Very much focused on the non sponsored channel, where we find real thriving sounder or family owned businesses that neper fantastic credits.
But it's also important keep in mind that you know quite a number of our of our pipeline opportunities come through our pipes start come through our existing portfolio.
This past quarter happen to be quite high at roughly 60%, but generally.
Anywhere between 40% to 50% comes from our existing portfolio, which which is.
Certainly deal flow that we like because we know those business as well we have a great relationship with management, we've seen management execute in April .
If we're comfortable then that's putting good money after good debt portfolio companies.
Okay. That's all really helpful. Phil and then my follow up is around how you are thinking about leverage in the current environment. No I realized you had some sizable repayments during the quarter on the other side origination activity was fairly light. So I'm curious if that was intentional deleveraging of the portfolio.
More so driven by the attractiveness of investment opportunities you are seeing in the market.
Yeah, Kevin This is Eric I'll take that.
In terms of the pace of the repayments, that's probably the one factor that's hardest to predict.
But as you mentioned it was it was elevated during Q3 in terms of the leverage levels we're comfortable.
What are your shrink.
Having said that it is lower than it's been over the last.
Last few quarters.
But it gives us the flexibility to deploy we see attractive opportunities.
Okay. That's helpful and I appreciate your time this morning.
Thank you thank you Kevin.
Thank you. Our next question comes from Ryan Lynch with K B W.
Proceed.
Hey, good afternoon.
First question I had you mentioned the $19 million unrealized gain on 36th Street.
Capital I love to use here.
What drove that increase in that valuation.
Sure. Thanks for the question.
It was two factors really and again just a reminder that all of this is through third parties.
One is that the group has just been performing in the investment.
Very well.
And we're very pleased with that.
That also accretive to a better.
Better multiple relative to the to the comps from the valuation providers they get more credit just because the performing and the consistency of that performance.
Part of it there's also a benefit.
Based on some pending strategic initiatives.
Is that are you know at the company level.
Hope to have more detail to talk to you about that with clarity soon hopefully next quarter, but it was a combination of getting just current market.
Valuation and also company specific strategic benefits.
Benefits.
Okay.
And then the other one I had was.
What is your current weighted average interest coverage on your portfolio and how is that trended, let's say over the last six months.
Yeah, I think it's strong.
You know, we don't really necessarily give specific numbers because there there's a lot of variances in the portfolio that.
Can make an average a little misleading, but I would say on the cash flow coverage.
On a portfolio, it's roughly two five times and has trended has trended up.
Part of that is where we have covenants many of them will have step downs that require.
People two or in the case of a coverage ratio of step ups that were required people to have.
You know credit improvement.
And also to the extent these are companies, even if they're growing slower.
Growing or at worst stabilizing and seeing a benefit of deleveraging that accrete to the coverage obviously the part of the offset is the rate increase.
But.
The number of applicable to casual coverage is roughly the two and a half times range.
Okay. That's helpful.
And then my final question was just on dividend and dividend coverage.
You guys. Obviously, you raised the dividend this quarter excuse me for the upcoming fourth quarter, if I look at that coverage relative to.
Q3 earnings, which you did say there were a couple of one time items. There was six sense of kind of accelerated prepayments versus maybe three cents in the last quarter salads kind of help for third quarter earnings as well as <unk>.
Some some late quarter.
Repayments, which could pressure earnings you still had you know about 130 over 130% dividend coverage.
Which feels extremely high so can you walk through the thought process of you know that the dividend increase I mean, how you chose the the level that you increased the two and where do you guys want to be running at from a from a dividend coverage standpoint, because it feels like theres a lot of room based on the current current trajectory.
But what are the different set up.
Yeah, Let me I appreciate that and let me try to provide some color.
There's no science to it I think first and foremost we have stated very clearly that we believe it's important to maintain a.
A stable and well covered dividend.
The factors that have been driving the dividend increase through this year.
Our obviously reference rate so far in this in most cases increases that had been playing through and you know.
On a core on a quarterly basis and will continue to play through.
We don't know where silver goes we know that we benefit as it increases it feels like it's you know theres, maybe theres more room, or it's not coming down necessarily.
We're rapidly, but we're not prognosticators on rate at the same time, we are now seeing as we as we invest the marginal dollar the benefit of investing in high returning investments, including some spread benefits.
Being at worst stable if not increasing.
So I think we try it and then the third thing obviously, it's just the environment.
We're very cautious where we're pleased that we have chosen to stay very defensive both by industry and by structure coming into this environment I think we've always been cautious, but increasingly so and so to the extent.
There's a view that this is lower for longer there just an importance of having continued buffer to provide that strong and stable and well covered dividend, even though at the moment there might be some.
You know additional room, I think we would rather take it up and have confidence that well covered and stable and then continue to reassess as the environment. Clarifies then do something that requires a reversal or puts pressure on our coverage.
Our shareholders view of the confidence in our in our dividend level. I think we took all that into account had a healthy discussion with our board and came to the conclusion that you know the two sense was a good.
Good race this quarter, maybe it's a start but at the current environment with fields.
You know that we are sticking to our sort of.
<unk>.
Our our template and our thinking on how we want it.
Level set and provide dividends and benefits to shareholders.
Okay fair enough.
When that discussion.
That's all my questions I had a nice quarter and congrats on the exit of juul.
Thank you.
Thank you.
As a quick reminder, if you would like to ask a question. It is star one on your telephone keypad.
The next comes from Robert Dodd with Raymond James. Please proceed.
Hi, just going back to kind of the the leverage question, but kind of I mean, obviously, you've got available liquidity available capital now and saying you know terms and structures do seem to be moving in a more.
Linda friendly Linda fluent and direction of the pipelines a little bit more maybe modest today.
Certainly than it was a year ago.
How do you feel.
How should we expect you to kind of utilize that that available liquidity I mean, obviously, you'll be opportunistic, but he's going to be a little bit more content.
To wait to hold that low leverage in this environment still a bad thing.
Especially with the latest helping earnings anyway.
Or is it you expecting to leverage back up in the relatively near term or maybe wait and take opportunity of it.
Take advantage of it may be even more lender friendly terms.
Yep.
It sounds good.
Yeah, no good question and I'll try to provide a little more color I think part of it just to keep in mind is the level and the timing of the pay down was pretty backend loaded, including the last quarter or.
So there was an impact that.
Just given the cadence of a typical deal doesn't.
It's much quicker to have it pay down then to redeploy into the right types of deals and so there's a there's just a.
Processing, the new capital.
The cadence and timing.
That said it is great to have capital and available capital to invest in this environment, we're seeing a lot of good opportunities and so part of it but I think the answer it is partly a bit of both we will expect to utilize the available leverage to do what we think are very attractive deals.
Wouldn't you know maintaining defensive stance in the industry isn't that the structures that we have worked thus far through other market environments.
Whether we decide to maintain some buffer as we approach you know really the rating guidelines.
It's a function of both those guidelines that we have to stay on top of and also our view that.
You know, we don't need to stretch in any fashion.
Because the returns are quite compelling you know even even at this level.
But the bit additional benefits and leverages its something that we anticipate will be able to.
You utilize so I think it'll be a balancing act I don't think there's any hard and fast target.
We expect it to go up just because it came down so quickly at the end of the quarter and we expect that there'll be an additional benefit for the re leveraging.
You know to the extent.
To the level that we're comfortable with as the environment dictates what.
With a clear.
Cap on not exceeding any.
Investment grade thresholds as those thresholds you know.
What do they move around or not a TBD.
And that's exactly the point.
Have you received any indications maybe because the rating agencies.
And then the and I'm not necessarily just talking about.
It would be an industry kind of indications about them wanting to sea level lower leverage at this point in the cycle in order to maintain obviously you want to keep the investment grade rating and I expect you will but it has that.
This had been any.
Preliminary feedback from the rating agencies about concern in that regard.
There hasnt to our to our knowledge or in our case I don't want to speak for others, but.
And I don't say that with any implication that that's been.
The message or can.
Conveyed.
But again, we're in a we're in sort of a new environment.
I think we're just being trying to be cognizant and as informed as we need to be but to answer. Your question no. There hasnt been any feedback and that are on that.
Thank you for that.
Yeah, Robert I wouldn't say the recently issued a report on the sector.
Changing of their limit having said that normally they.
They look at longer term changes in the environment before they they change those things.
Got it appreciate it thank you.
Thank you.
Thank you. Our next question comes from Christopher Nolan with land and Baird Salmon.
You May proceed.
Hey, guys, how much spillover income do you guys have.
Okay.
It's significant.
It is.
Oh boy.
17.
On a cumulative basis.
<unk> per share.
But but that's that's.
On a book basis on a tax basis.
Significantly less given.
The tax treatment, primarily on prepayment income, which gets capital treatment for tax purposes.
Versus ordinary uninterrupted.
Gotcha.
And I guess a general question.
Last quarter were talking about the effect of the supply chain constraints and so forth.
Any update to that I mean are you seeing or your company seeing better supply chain or is it still seem issues as before.
Is it for me thanks.
Yeah. Thanks for the question I think last quarter. The commentary was around acknowledging that there are supply chain issues, you know broadly speaking.
However, given our focus on.
At an industry level on a company level, it's less relevant for our portfolio. It's something we have to be aware of.
And monitor and in a broader context, but we're really investing you know for the most part in asset light.
The I P high gross margin type casual businesses.
It's less of something we see in the portfolio, but something that we observed in the market just to be clear.
Okay.
Okay.
Yeah.
Thank you there appear to be no further questions.
I will now pass it back to Raj Vig.
Thank you. We appreciate your participation on today's call I would like to thank our team for all the continued hard work and dedication I would also like to thank our shareholders are.
Capital partners and our business partners for their confidence and their continued support thanks for joining US. This concludes today's call.
This concludes the conference call. Thank you for your participation you may now disconnect your line.