Q3 2022 FS KKR Capital Corp Earnings Call
Good morning, ladies and gentlemen, welcome to the F. S. KKR capital Corp's third quarter 2022 earnings Conference call.
Your lines will be in a listen only mode during remarks by adverse case management.
At the conclusion of the company's remarks, we will begin the question and answer session at which time I will give instructions on how to enter the queue.
Please note that this conference is being recorded at this time, Robert <unk> head of Investor Relations will proceed with the introduction Mr. Paul you may begin.
Thank you good morning, and welcome to Ipass KKR capital Corp's third quarter 2022 earnings Conference call.
Please note that FX KKR capital Corp may be referred to as <unk>.
Okay.
<unk> or the company throughout the call.
Today's conference call is being recorded and an audio replay of the call will be available for 30 days.
Replay information is included in our press release that <unk> issued.
On November seven 2022.
In addition, I bet Sky has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended September 32022.
The length of today's webcast and the presentation is available on the Investor Relations section of the company's website under events and presentations.
Please note that this call is the property of SK <unk>.
Unauthorized rebroadcast of this call in any form is strictly prohibited.
Today's conference call includes forward looking statements and are subject to risks and uncertainties that could affect appetite or the economy generally.
I ask that you refer to graphics case, and most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements.
<unk> does not undertake to update its forward looking statements unless required to do so by law.
In addition, this call will include certain non-GAAP financial measures.
For such measures reconciliations to the most directly comparable GAAP measures can be found in <unk> third quarter earnings release that was filed with the SEC on November seven 2022.
non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.
In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies.
Copies of the company's latest SEC filings, please visit <unk> website.
Speaking on today's call will be Michael Forman, Chairman and Chief Executive Officer.
Dan Pietrzak, Chief investment Officer, and co President.
Brian Gerson co president.
And Steven Lilly Chief Financial Officer.
Also joining us in the room are co chief operating officers drew O'toole and Ryan Wilson.
I will now turn the call over to Michael.
Thank you Robert and good morning, everyone and welcome to Fs KKR Capital Corp, third quarter 2022 earnings Conference call.
That's S. K again delivered strong earnings in line with our quarterly guidance. Our results were driven both by the positive impact of rising interest rates and consistent dividend and fee income.
During the third quarter, we generated net investment income totaling 76 per share and adjusted net investment income totaling <unk> 73 per share. This compares to our.
Our public guidance of approximately 76, and 72 cents per share respectively.
Consistent with the overall private debt market the value of our investment portfolio declined during the third quarter, due primarily to spread widening and market multiple contraction.
The two 1% decline in the value of our investment portfolio equated to a four 2% decline in our net asset value quarter over quarter.
As Dan will discuss in more detail.
Now during his comments DFS KKR advisor continues to maintain its high quality credit standards and disciplined underwriting process, we originated approximately $900 million of investments during the third quarter and we ended the quarter with ample liquidity totaling approximately $2 75 billion.
Okay.
Based on our third quarter financial results. Our board has declared a fourth quarter total distribution of <unk> 68 per share which consists of our quarterly base distribution of <unk> 61 per share and a supplemental distribution of <unk> <unk> per share.
In terms of our forward looking view, while we believe transaction flow for the next few months, we will continue to be below historical norms. We also believe our favorable liquidity position will enable us to take advantage of quality investment opportunities may present themselves during 2023 and beyond Additionally, as Stephen will discuss later.
On the call our net investment income will continue to be positively impacted by the rise in base rates as almost 92% of our yielding debt investment portfolio is comprised of floating rate investments.
And with that I'll turn the call over to Dan and the team to provide additional color on the market in the quarter.
Yes.
Thanks, Michael.
From a market perspective in the near term, we continue to expect above average levels of volatility.
Given the federal Reserve's primary focus on curving inflation.
We believe the transactions and the resulting impact on the economy.
Continue to create compelling investment opportunities for large scale private debt investors such as KKR over the next several quarters.
Our belief is based on the view that before the fed began increasing interest rates the private debt market already has established itself as an attractive alternative to the syndicated debt markets.
As a result going forward. We believe sponsors are likely to continue to trust the execution capabilities of the largest platforms in the private debt industry.
That being said, we do believe it will take some time for the federal reserve's actions over the last several months to be fully absorbed by the economy.
And therefore, we believe M&A transaction volumes will remain below average until investors to gain confidence that inflation has stabilized.
And a greater consensus forms around what the broader economic landscape might look like going forward.
Despite the current market backdrop, the vast majority of our portfolio companies continue to experience solid fundamental performance.
We attribute to our focus on larger companies at the upper end of the middle market.
Companies with strong competitive positions resilient cash flows and businesses are non cyclical industries.
These types of portfolio companies.
Due in large parts of their size and market presence are continuing to find ways to pass along price increases as evidenced by the weighted average year over year EBITDA growth of 12%.
Across portfolio companies in which we have invested in since the establishment of the Fs KKR adviser in April of 2018.
In addition to this EBITDA growth by continuing to focus on larger companies. We have increased the weighted average EBITDA of our portfolio companies to $207 million as of the end of the third quarter.
As compared to just $78 million at the end of the second quarter of 2018.
In terms of our quarterly results.
As Michael mentioned the decline in value associated with our investment portfolio.
To us it seemed natural that some level of decline is appropriate simply from a mark to market perspective.
More specifically, our independent valuation firms factored in spread widening and our valuations of approximately 25 to 100 basis points, depending on the seniority of the facility.
This is in line with the wider pricing we are seeing in our more recent originations.
Separately, an example of a mark to market move as highlighted in one of our largest attractors during the third quarter Athena health.
The company continues to perform in line with our underwriting expectations, yet the value of the asset declined to the movement in rates and spreads as opposed to underlying performance issues.
Certain companies in our portfolio that will have been meaningfully impacted by a combination of inflation and supply chain issues and the increasing interest rate environment.
Which contributed to a portion of our portfolio depreciation during the quarter.
Given the macroeconomic environment is still includes many uncertainties, we are exercising caution with respect to new originations.
Additionally, the human capital investments that we have made in our platform over the last several years enables us to proactively manage our remaining legacy portfolio from a position of strength.
When assessing our sector exposure today, we take comfort in the fact that we have focused on more defensive industries over the past several years.
As our top industry exposures today includes software services health care services, and insurance services businesses, which represent approximately 37% of our portfolio.
This compares to more cyclical and volatile sectors, such as materials capital goods and energy, which represented approximately 34% of the total portfolio at the end of the second quarter of 2018 and today represent only 17% of our portfolio.
Turning to our quarterly investment activity during the third quarter, we originated $907 million of investments, which were primarily focused on fundings and add on financings to existing portfolio companies.
Approximately 81% of our originations came from opportunities in companies previously invested in by KKR.
Our new investments combined with $651 million of net sales and repayments when factoring in sales to our joint venture equated to a net portfolio increase of $256 million during the quarter.
In terms of interest coverage at the end of the third quarter. Our portfolio companies had a median interest coverage ratio of two three times.
Furthermore, most of our borrowers have access to revolving lines of credit which provides them with additional committed liquidity should an economic downtown occur.
With that I'll turn the call over to Brian to discuss our portfolio in more detail.
Thanks, Dan.
As of September 32022.
Our investment portfolio had a fair value of $15 8 billion.
Consisting of a 195 portfolio of companies.
This compares to a fair value of $16 2 billion in.
And 192 portfolio companies as of June 32022.
At the end of the third quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio.
We continue to focus on senior secured investments as our portfolio consisted of 61, 9% first lien loans and 75% senior secured debt as of September 30th and.
In addition, our joint venture represented nine 3% of the fair value of the portfolio and asset based finance investments represented 11, 6%.
Waiting to an additional 29% which is comprised predominantly of first lien loans are secured asset based finance investments.
The weighted average yield on accruing debt investments was 10, 4% as of September 32022, compared to nine 2% as of June 30.
As a reminder, the weighted average yield is adjusted to exclude the accretion associated with the merger with <unk>.
The increase in our weighted average yield during the third quarter, primarily was associated with the continued rise in base rates benefit, which will continue to accrue in our favour given the fed's actions last week.
During the third quarter, excluding the impact of merger accounting, we experienced net portfolio depreciation on investments of approximately $376 million.
Approximately 75% of the portfolio depreciation we experienced during the quarter tied primarily to market technicals, such as spread widening and market multiple contraction with the remaining 25% due to specific company performance issues related to the current economic environment.
But.
The largest negative movers in our portfolio, which are impacted by credit related issues during the quarter or by Ryder finance LLC and NPG home.
I would also point out that these names both were placed on non accrual during the third quarter, which means they are already factored into our third quarter reported earnings.
Our new non accrual investments during the quarter had a combined fair market value of $56 million.
In addition, there were three investments that were removed from non accrual status. During this during the quarter with a fair market value of $13 million.
Based on the third quarter's activity as of September 32022, non accruals totaled 5% of our portfolio on a cost basis, and two 5% on a fair value basis compared to four 9% on a cost basis and two 9% on a fair value basis as of <unk>.
June 32022.
And we would note that none of the non accruals were related to assets originated by the <unk> take care advisers since April of 2018.
With that I'll turn the call over to Steven.
Thanks, Brian .
The recent increases in interest rates have positively impacted our net investment income and as Brian mentioned, we are well positioned to continue to benefit from the fed's. Most recent action is.
89% of our debt investments are floating rate.
From a starting point of September 30 of 100 basis point move higher.
Higher in short term rates ultimately will increase our net investment income by approximately <unk> 25 per share per year.
Which equates to approximately <unk> <unk> per share per quarter.
As a reminder, there is a detailed breakout of how every 50 basis points of interest rate increases is expected to positively impact our investment income provided in our 10-Q filing.
In terms of our financial results for the third quarter total investment income increased by $32 million quarter over quarter, largely driven by increased interest income.
The components of our total investment income during the quarter were as follows.
Total interest income was $318 million during the third quarter, an increase of $31 million quarter over quarter.
Dividend and fee income totaled $93 million during the third quarter, an increase of $1 million quarter over quarter.
Our dividend and fee income during the third quarter is summarized as follows.
$50 million of recurring dividend income from our joint venture other.
Other dividends from various portfolio companies totaling approximately $17 million and fee income totaling approximately $26 million.
Our interest expense totaled $96 million, an increase of $13 million quarter over quarter due to the fact that we basically were operating at target leverage throughout the quarter as well as the impact of rising base rates.
Our weighted average cost of debt was four 2% at September 30.
Management fees were $61 million during the quarter, a decrease of $2 million quarter over quarter.
Incentive fees totaled $25 million during the third quarter, which is net of the $15 million incentive fee waiver.
As previously noted as part of the S. K S K, our merger, which closed in June of 2021.
The advisor agreed to waive $90 million of incentive fees spread evenly over six quarters, which began during the third quarter of 2021.
As a reminder, the fourth quarter of 2022 will be the final quarter of the incentive fee waiver.
And as we have discussed on prior earnings calls the advisor does not earn an incentive fee on any of the merger related accretion associated with <unk> acquisition of <unk>.
The detailed bridge and our net asset value per share on a quarter over quarter basis is as follows.
Our ending <unk> 2022, net asset value per share of $26 41.
With increased by GAAP net investment income of <unk> 76 per share and was decreased by $1 21 per share due to a decrease in the overall value of our investment portfolio.
Our net asset value per share was reduced by <unk> 67 per share dividend paid during the quarter.
And increased by one penny per share due to share repurchases.
But some of these activities results in our September 32022, net asset value per share of $25 30.
From a forward looking guidance perspective, we expect fourth quarter 2022, GAAP net investment income to approximate <unk> 74 per share and we expect our adjusted net investment income to approximate 75 per share.
Detailed fourth quarter guidance is as follows.
Our recurring interest income on a GAAP basis is expected to approximate $347 million.
We expect recurring dividend income associated with our joint venture to approximate $53 million.
We expect other fee and dividend income to approximate $31 million during the fourth quarter.
From an expense standpoint, we expect our management fees to approximate $61 million, we expect incentive fees net of the $15 million quarterly waiver.
To approximate $24 million.
We expect our interest expense to approximate $110 million and.
And we expect other G&A expenses to approximate $11 million.
During the fourth quarter, we expect our excise taxes.
Will approximate $17 million as many of you know our spill back level currently approximates two quarters' worth of dividends, which we believe represents a healthy balance of having some spill back cushion while.
At the same time, not allowing our spill back balance to grow too large.
We expect our excise taxes to be largely offset by the accretion of our investments due to merger accounting, which is why our projected fourth quarter GAAP net investment income, it's one penny per share below our projected adjusted net investment income.
In terms of the right side of our balance sheet, our gross and net debt to equity levels were 128% and 119% respectively at September 32022.
This compares to gross and net debt to equity of 125% and 115% respectively. At the end of the second quarter of 2022.
At September 30, our available liquidity was $2 75 billion.
At the end of the third quarter, approximately 52% of our drawn balance sheet and 42% of our committed balance sheet.
It was comprised of unsecured debt and our overall effective average cost of debt was four 2%.
And with that I'll turn the call back to Michael for a few closing remarks before we open the call for questions.
Thanks Steven.
As we begin focusing on 2023 I believe we are well positioned with respect to our investment and portfolio management team.
<unk> capital structure and committed liquidity position.
Going forward, we believe the benefits of size and scale that we in a very few other debt providers offer will further separate us from the broader industry in terms of both transaction volume and asset quality.
As we near the completion of our internal portfolio rotation, we believe the forward opportunity for our platform is extremely attractive.
And as always we thank you for your continued support.
And with that operator, we'd like to open the call for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please.
These standby, while we compile the Q&A roster.
And today's first question will come from John Hecht with Jefferies. Please go ahead.
Hey, guys, thanks, very much for taking.
All my questions and good morning.
And I'm just wondering maybe can you describe or I guess, Dan or Brian on mobile.
Describe.
Neil environment now I mean, how many deals are you looking at what are the characteristics.
Would you rank them as high quality revenue.
Two years.
Two years ago, or a lower quality overall, when you're looking at the deal.
Yes, Jonathan and good morning, I can start.
Probably a couple of different points in there in terms of deal volume is itself I think total volumes are down right. This business is heavily driven by kind of M&A activity M&A activity has slowed.
That said, we also are seeing some deals that would normally just making their way into the syndicated market. The private debt market has really.
The market itself, so thats I think.
A positive fact, and we talked about that in the script.
I think there was a lot of tailwind for private debt going into this.
As long term sort of tied up capital. So I think that tailwind remains and it's exacerbated.
I think the new lending environment is extremely attractive I mean, just thinking about kind of the unit tranche product.
Yes.
It is probably one point wider than it was a year ago spreads are probably 100 basis points wider than it was a year ago call pros better.
At the end of the day. It is just a lender friendly environment.
Yes.
Which were quite frankly excited about and then I think thats going to continue for some time as I think.
23 will be bumpy out of the gate.
But those those platforms getting.
Play in this market I think youre going to have quite good investing opportunities.
I think I would just add I think the quality of what we're seeing.
Is good.
Quite honestly given.
Slowing in deal activity.
Sponsors are really selling there or better companies, because that's where they're going to get the best possible multiples.
Given what's happened overall in the market, so I think youre seeing better better companies and better structures overall.
Okay very helpful.
And then you bought them.
Hope you guys have accomplished our recruiting clinical Google Glu.
Let's go rosters, so congratulations on that.
About the coming were coming quarters.
How much of the legacy portfolio.
You still have to rotate what do you think the primary with Google and then are there any maturities next year that we should just think about with respect to models and the liability structure.
Yes.
Starting on the liabilities. The short answer is not in terms of maturities nothing has really had any maturities until 'twenty five I think we feel quite good about.
Both where we are on the unsecured debt side.
As well as the fact that I think we talked about this on our last call we increased.
The revolver size wise, we also extended it sort of last quarter. So I think our our liability structure, we're quite proud of.
On the rotation of the legacy book I mean, if you recall April 2018, it was probably 70% of the.
Of the income earning portfolio without some attend today.
Overall legacy book, including some of those non income producing assets is probably closer to 15% of the portfolio.
When we do kind of Peel that onion away a little bit.
Five names that make up probably more than half of that.
One of them, we've got a good sense is actually I think we know is repaying in the near term.
One of them is an amortizing position and then kind of three names were intimately involved with.
To try to look to maximize value, we'll look to sell those businesses those would be.
<unk> sort of GWA and global jet. So yes, I think you can see a lot of activity.
Coming forward in the next.
Two years.
But I do think we're pretty proud of how we've rotated that I think we've talked about some things in the script, just kind of broader portfolio rotations as well.
Average EBITDA the weighted average EBITDA number up meaningfully in the sector exposure transition meaningfully from what I'd call less cyclical sort of industry. So still a little bit of work to go on that John but I think we see the path.
Great. Thanks very much.
Thank you.
And one moment. Our next question that will come from the line of Casey Alexander with Conference point Research and trading. Please go ahead.
Hi.
Good morning. Thank you for taking my questions I have three here first of all $300 million downstream too.
The credit opportunities.
Portfolio.
Feels like a lot this quarter and what's the opportunity set there that has you driving that much capital down into COPD.
Hey, good morning Casey.
I mean, I'll go back and kind of check I don't think that $300 million is necessarily a lot if I looked at.
The last sort of four to six quarters.
I think that we're probably thinking about that entity from a total return perspective and what it enables.
Itself to pay in terms of recurring dividend income.
S. K I think the biggest thing is got a targeting where we want to be there from a leverage perspective, which we're kind of approaching sort of that number. So I think we're happy with where that asset. He says I think we're happy with how it's grown its.
Steve It's kind of prepared remarks, youre $51 billion plus of recurring dividend income.
Expect that to continue.
Alright secondly.
Sure.
Yeah.
Steven mentioned that the excise taxes could be $17 million in the fourth quarter with it with a variable dividend structure like you have which is an attractive dividend structure. You can really manage your distribution to your earnings stream. So is it really necessary to have that much spill back.
Youre managing your distribution stream against your earnings.
And to continue to have.
$17 million is a reasonably significant charge against against your earnings.
And I'll, let David sort of add to that I think we've been thinking about it.
To ensure that we had kind of one to two sort of quarters of spill back income.
At the midpoint build a closer to sort of two quarters, there, but that's been I think our stated goal of a stated objective, but David you might want to add to that.
And Casey I think it is.
Our target is.
Dan.
On the low end one quarter on the on the high end.
Three quarters is sort of the range and Thats I think a sweet spot a lot of bdcs tend to operate in.
Yes.
Understand certainly your observation on the on the dividend and what we're paying there.
We believe investors have.
I have found that to be quite attractive.
Yes.
Spill back perspective.
Looking at the excise tax perspective, excuse me is.
I think it's 4% or so of our.
On a quarterly on an <unk>.
Fuel basis, our quarterly revenue so.
From our standpoint, it's sort of in line with where some other folks are we think about the total spill back number at just north of two quarters of dividends as a real healthy position.
So.
Maybe we're tending a little conservative there.
Admit that.
But it feels like a very comfortable place to date.
Yes, well.
I would just point out that.
These spill backs grew when when Bdcs had really a fixed dividend level and their earnings would fluctuate and they needed to make sure that they had a level.
That that would protect them for periods, where their earnings fell below the distribution rate, but the variable dividend structure tends to protect the bdc's better from that and I'm not sure such a large spill back continues to be necessary for a lot of bdcs that have taken that structure.
But that's my own Soapbox My last question is.
In relation to looking at your portfolio Dan.
You can see where the pressure points are in the portfolio, where they are coming because you get the numbers from each of your companies how.
Aggressively can you get in front of problems with portfolio companies by working with the portfolio company by working with the private equity sponsor and creating amendments and modifications that allow this portfolio of companies the flexibility to get through this cycle and come out better competitors on the other side.
Yeah, Thanks, guys yeah.
I mean I put it in a couple of different buckets right I think one of the great advantages of the private debt market is allowing lenders generally to do that Ryan. These documents are.
Tighter they are generally.
Financial.
Evidence.
I think you want to be good.
Good and responsible lender, but you want to sort of de risked your positions over time.
Havent seen I think anything outside the normal of.
Kind of amendment activity, yet, we will not be surprised if that does.
Over the coming quarters.
Our expectation and our approach there is we will work with these companies to work with the sponsors to allow them to get to the other side of this but that said we're going to look to.
Both reduce risk and where we can reprice our portfolio.
To be honest I think we're going to be more focused on.
Risk.
And then I would.
Pointed out and I mentioned this in my prepared remarks, I think we've got the team to do that.
We've talked about this on a handful of prior calls we build out our private credit business materially we build out our our work out in governance team, we build out our portfolio monitoring team. So that is that is a major focus for us.
If you think about just.
We will continue to do.
Deals that we find very attractive is environment, we will continue to see sort of payoffs in the portfolio. We will continue to look to reduce risk and are set to reprice. The existing portfolio is that's the focus for the handful of coming quarters.
Alright, great. Thank you for taking my questions I appreciate it.
Good morning.
Thank you one moment for our next question.
Sure.
And that will come from the line of Ryan Lynch with <unk>. Please go ahead.
Okay.
Hey, good morning.
First question I had was just you talked about kind of looking forward.
Fundings are new kind of portfolio growth would probably be focus more around funding commitments and adding on to existing portfolio companies. But then at the same time you are talking about the environment being significantly better for deploying capital spreads have widened covenants has gotten better leverage levels are down and just general stronger.
Folio of companies are getting funded today, but because youre your leverage level is where it is and kind of your focus just on mostly funding existing commitments and add ons because it puts you in a spot where you guys arent going to be able to benefit as much from from kind of the overall outside of your existing portfolio of companies kind of mute.
Deals that are taking place in this marketplace today.
Yes.
Good morning Rod.
I don't think Thats exactly the way I would look at it I mean I'm just off the top of my head one.
One of the biggest realizations in Q3.
<unk> was our joint venture with home partners of America that realized almost $300 million of.
Of cash proceeds it was probably at two times the money multiple deal.
I can think of three other names that have either repay it or announced to repay and we're going to kind of.
We recycle that money.
One of those names we actually.
Did the financing for the new sponsors so.
I think repayments are definitely slower.
<unk>.
I don't expect that to change that are meaningfully, but I think we will continue to see some in.
We will continue to see new deal opportunities and then we.
We are kind of in the middle of our targeted leverage range.
It is important that we kind of stay within that in our mind, So we'll be balanced.
So maybe we're not going to be able to be as forward leaning as we might necessarily like.
But I do think we will be able to capitalize on top of that and gone back to Casey's question I do think some of the existing portfolio. When you do either do an add on or if there is an amendment request that comes on you have a very good opportunity and potentially reprice or de risk of the entire loan structure.
Okay.
That makes sense, that's all for me today. Thank you.
Thanks, Ron.
One moment for our next question.
And that will come from the line of Kenneth Lee with RBC capital markets. Please go ahead.
Hi, good morning, and thanks for taking my question just one follow up on the previous question.
You mentioned, you don't see debt Paydowns pick it up.
Any time soon.
What are the key factors that could drive a pickup.
Going to really depend on M&A activity or or would there be anything else that could potentially drive a pickup in debt pay down volumes over time. Thanks.
Thanks, Scott I think M&A will be the biggest point.
These we don't have a lot of worries about near term maturities on our assets in the portfolio.
Most of those loans would have gotten done is five six or seven year lows.
History has shown us the weighted average life of that loan book is probably somewhere between three to four years. So it does sort of turn.
I think it will be the pick up in M&A volumes, maybe a bit of a pickup in and just kind of the broadly syndicated markets as well, but I think that those.
Two items are probably correlated.
And I think again, you just sort of tie that together I mean, you can see this quarter I mean, we did $900 million.
<unk> got a new deals.
You can see the repayment numbers the numbers I gave up a little bit there was both Q3 and Q4 for stuff, we're seeing in the portfolio, but I think you are right I think M&A is a big driver.
Got you very helpful. There.
One follow up if I may you mentioned that on the non accruals were within.
Outside the <unk> kicking our advisor originated investments.
Wonder if you could just give us a better sense of how the credit performance is for some of these newer investments that the ones that originated since 2018. Thanks.
Yes, maybe a couple of points there I mean, I think we've talked about in the script a year on year EBITDA growth for those names.
<unk> has been quite impressive that was the 12% number. So I think we feel good about that obviously the new names have had a much larger EBITDA number.
You can see the weighted average EBITDA number from April 2018.
One meaningfully probably almost growing roughly three times as we continue to target at that sort of upper end of the middle market.
Yeah, a couple of points that I just mentioned on the non accruals I mean, yes, there was a handful of new names.
Not necessarily happy about that but there was named that sort of came off as well.
Overall non accrual move was roughly 10 basis points. We did talk about in this in our prepared remarks, we've done roughly $21 billion of deals. That's April 2019, none of those deals show up in the non accrual numbers, which we think thats important.
And then we talked about this I think broadly on the last call as well.
The set of assets from an income producing perspective attributed to the legacy advisor of roughly 10% but.
They are roughly 60%.
Cost basis of the non accrual number. So we know we have some work to do there, but I think we're pretty proud of what we've done from a new origination perspective.
And as we continue to sort of rotate this portfolio.
Okay.
Got you very helpful. Thanks again.
Thank you and have a good day.
Thank you one moment our next question.
That will come from the line of Robert Dodd with Raymond James. Please go ahead.
Hi, guys looking at.
As you say, it's a more lender friendly environment.
<unk>, most gas et cetera et cetera.
It would tend to imply that it is a good time to hoard cash.
It might be even better in certain verticals, so all of that.
And I'm thinking in asset based finance to be honest.
The terms and structures of moving even more.
Favorably than than the broad market given how scarce.
Capital is in the case of asset based finance has been creeping up.
Percentage of the portfolio over time should we expect that to.
Okay.
It may be higher.
Incremental deployments over the next 12 months may be all for now.
Yes, we're probably.
Robert Good morning, probably inside of the range with where we want to be there and we've talked to the market about 10% to 15%.
There may be absolute bucket I mean, I think we do believe the investing environment there kind of a.
<unk> is quite compelling.
I think there's been different kind of shocks to the market.
Some ways.
<unk>.
In some ways. The overall kind of rate shock is probably impacted that market more.
Just from a.
Either in and investing perspective or people being forced to reprice kind of loan books.
But again, we've been pretty happy with what we've seen their performance wise.
I mentioned the home partners realization that happen.
During Q3.
That was roughly $300 million of proceeds received I think the physician had an overall sort of two times money multiple from the time, where it was initially invested which was probably 2007.
<unk> 2018.
Yes, I think on the.
The thing that remains interesting I'll just call it the more regular way private debt markets is youre kind of basic deal today.
11% plus unlevered.
And that is probably a bigger company than usual, which you know we like as we talked about that all the time.
But also is probably a deal that has 50% sort of plus sort of equity below it.
All right.
At that number.
In 2000 and December two.
2021 was probably closer to seven or seven 5%.
Now obviously honored that as credit spreads probably 25 of that is additional set of OID and the rest of the rest is kind of a benchmark but.
We just think it's a very compelling environment to deploy capital. These days I do think our bar is just higher.
A little bit to make sure that.
We're not making mistakes as we always do but obviously, it's just more heightened in an environment like this.
And we're also the question that Ryan asked I think being mindful about operating inside of our target leverage but.
Other parts of the market are pretty darn interesting right now the things that probably arent as much as yes.
There are certain asset classes that themselves probably have not repriced it up.
And if you are using.
<unk> our leverage against those.
Those levered returns might be too tight and you I think you are waiting for that markets are on price.
Got it I really appreciate all that color.
Okay.
Thank you.
Sure.
As a reminder, if you would like to ask a question. Please press star 111 moment for our next question.
That will come from the line of Melissa Wedel with Jpmorgan. Please go ahead.
Thanks, I appreciate you taking my questions. This morning.
Most of them have actually been asked already.
And I'll follow up here I don't think I missed it but if I did I apologize.
Given where portfolio leverage is right now can you talk about how you're sort of thinking about.
And.
Staying within that target range, while preserving some capital for future deals, but also how that.
Interacts with your thinking on share repurchase.
Yes happy to do that.
I think we've put out that target range of one and so on in the quarter right. That's on a net basis. Obviously these deals were quite hands on sort of with so we have.
A pretty strong view of what expected repayments might be those.
Those repayments are never necessarily guarantee but I think if you look at our.
Almost estimated repayments you probably have roughly $1 billion of names that we could see getting repaid over the.
So the next handful of quarters. So I think let's see you are managing that.
<unk>.
It's kind of new deal opportunities you want to do coupled with ease.
These are the commitments that you've made sort of have outstanding so it's.
I don't think its rocket science, but it's got a bunch of different inputs to kind of go into that.
I think it's a one to one in the quarter, we still have some dry powder, if we wanted to.
Capitalize on that.
Sort of market opportunity, obviously, we're just mindful about.
Credit ratings, and we're supposed to be prudent with our overall so the capital base. So.
So it gives you some wiggle room, but obviously as you get.
At or above that target range, and you would probably start to get a little bit more worried and I think one of them want to look to bring that down.
I think when you couple that with share repurchases, we've had this $100 million plan.
We intend to fill that plant.
And I think no.
I think we've been contemplating what that sort of thing.
We've done that with probably the other $505 million of shares we have repurchased over the last handful of years and I think you should expect that in the coming quarters.
Okay, that's really helpful.
Have a good analyst.
Thanks, so much.
Thank you one moment for our next question.
And we do have a follow up from Ryan Lynch with <unk>. Please go ahead.
Okay.
Hey, guys I just had one quick follow up.
You mentioned, none of the non accruals.
In your portfolio today are from kind of.
From the new advisor of the 2018 KKR.
Advisor, which is a really great accomplishment, but I'm just curious do you have a percentage of those loans on nonaccrual today that we're just legacy KKR originated.
Non accruals versus the legacy black.
Blackstone GSO.
I mean, we can we can probably get it for you more formally offline Ryan.
The only number that I do know off the top of my head.
As roughly from a cost basis perspective.
60% of.
The non accruals related to the legacy advisor, which is probably.
It's which is 10% of income producing assets.
I think.
Hi, Bob probably by simple math, you could just add the other 40 related to sort of the cake yarn numbers, which is probably <unk>.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call over to Mr. Dan Pietrzak for any closing remarks.
I wanted to thank everyone for their time and questions today, and we're always available. If you have any follow up items. Please do not hesitate to reach out thanks, again and have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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