Q4 2022 New Mountain Finance Corp Earnings Call
Speaker 1: The.
Speaker 1: So.
Speaker 2: Good morning and welcome to the new Mountain Finance Corporation for us quarter and four year 2022 earnings call.
Speaker 2: Our participants will be in a listen only mode today. And should you need any assistance during the call, please signify conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
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Speaker 2: Please note that this event is being recorded today.
Speaker 2: I would now like to turn the conference over to John Klein, President and Chief Executive Officer. Please go ahead, sir.
Speaker 3: Thank you and good morning everyone. Welcome to New Mountain Finance Corporation's fourth quarter 2022 earnings call. On the line with me here today are Steve Klincky, Chairman of NMFC and CEO of New Mountain Capital.
Speaker 3: Robert Hamwey, Vice Chairman of NMFC, and Shiraz Kaji, CFO of NMFC. Laura Holson, our COO, is on maternity leave and will return on next quarter's earnings call.
Speaker 3: Steve is going to make some introductory remarks, but before he does, I'd like to ask Shiraaz to make some important statements regarding today's call.
Speaker 4: Thanks John , good morning everyone.
Speaker 4: Before we get into the presentation out, I would like to advise everyone that today's call and web ads are being recorded.
Speaker 4: Please note that they are the property of new mountain finance corporation and that any unauthorized broadcasts in any form is strictly prohibited. Information about the audio replay office call is available in our February 27th earnings press release.
Speaker 4: I would also like to call your attention to the customary SAFE Office disclosure in our press release and on page two of the slide presentation regarding forward-looking statements.
Speaker 4: Today's conference call on the Webcast may include forward-looking statements and projections, and we ask you to refer to our most recent filings with the SEC for the important factors that could cause actual results to differ materially from those statements and projections.
Speaker 4: We did not undertake to update our forward-looking statements or projections unless required to by law.
Speaker 4: to obtain copies of our latest SEC findings and to access the slide presentation that we'll be referencing throughout this call. Please visit our website at www.newmontonfinance.com.
Speaker 4: At this time, I'd like to turn the call over to Steve Klinzki, NMSC's Chairman, who will give some highlights beginning on page 4 of the slide presentation, Steve. Thanks, Sharaz. It's great to be able to address you all today, both as NMSC's Chairman and as a major fellow shareholder.
Speaker 4: I believe we have good news to report, despite the difficult U.S. economic conditions of recent months.
Speaker 4: Adjusted net investment income for the third quarter was 35 cents per share. More than covering our 32 cent dividend per share that was paid in cash on December 30th. Our annualized dividend yield at the 32 cent core dividend rate is approximately 10%.
Speaker 4: Our net asset value was $13.2 per share, just an 18 cent or 1.4 percent decrease.
Speaker 4: As we will discuss in more detail, most of the fair value change reflects widening market spreads in Q4, which caused a markdown on our existing book of loans, despite continued good credit performance.
Speaker 4: We believe our loans are well positioned overall in defensive growth industries that we think are right in all times.
Speaker 4: and particularly attractive in the challenging macro conditions of today.
Speaker 4: New Mountains' private equity funds have never had a bankruptcy or missed an interest payment.
Speaker 4: and the firm now manages $37 billion of assets.
Speaker 4: Similarly, NMFC has experienced just six basis points of net default loss per year since our IPO in 2011.
Speaker 4: Looking forward, the rising rate environment continues to be a substantial positive for our quarterly earnings since we cheerfully land on floating rates. As page 12 of the presentation shows, there is also the potential to significantly out-earn this 32 cent per share dividend at current interest rates.
Speaker 4: If all other factors hold constant.
Speaker 4: With this in mind, we are now announcing a formal supplemental dividend program. It will begin in Q1 2023.
Speaker 4: be payable starting in Q2 and we intend to continue it into future quarters.
Speaker 4: Specifically, we pledged to pay a variable supplemental dividend each quarter.
Speaker 4: to at least one half of earnings in excess of the current dividend.
Speaker 4: So for example, if we earn 40 cents a quarter or 8 cents more than our 32 cent dividend,
Speaker 4: We will pay at least 36 cents of cash dividends that quarter and retain the other four cents for the balance sheet or for special dividends later.
Speaker 4: Based on our view of Q1 earnings, we expected our first supplemental dividend will be 2-3 cents per share, raising our next dividend to 34-35 cents per share all in.
Speaker 4: and to be potentially more in future quarters. For clarity, this policy is based on current interest rates, and as always, management in conjunction with our board, we'll review NMFC's dividend policy on a regular basis and make adjustments as necessary.
Speaker 4: We believe the strength of new mountain and of NMFC is driven by the quality of our team.
Speaker 4: New mountain overall, now numbers 215 members, and the firm has developed specialties in attractive defensive growth, that is, acyclocal growth sectors such as life science supplies, healthcare information technology, software infrastructure services, and digital engineering. Regarding our credit team specifically,
Speaker 4: We promoted Joy Xu to managing director this year and gave Josh Porter the additional title of head of special situations.
Speaker 4: As described in our press release, our CFO Shiraz Kaji will be leaving us in April to pursue another career opportunity.
Speaker 4: Shiraz has been a valuable and respected member of the team and we part on good terms.
Speaker 4: Upon Shiraz's departure, Laura Holson, NMFC's COO, will assume the additional duty of interim CFO until a successor is found.
Speaker 4: Laura has been a senior leader in our credit group for many years and has a great command of NMFC's business and financials. Additionally, Adam Weinstein, former CFO of NMFC and current CFO of New Mountain Capital remains active and supportive. He will partner with Laura to ensure an orderly transition.
Speaker 4: We have engaged in executive search firm to identify a permanent successor as CFO and will update you in the coming months.
Speaker 4: Finally, we as management continue as major shareholders of NMFC owning over 11% of NMFC's total shares personally. Rob, John and I have never sold a share of NMFC even as we have been buying.
Speaker 4: With that, let me turn the call to Rob. Thank you, Steve.
Speaker 5: On page 7, we highlight our leading credit metrics and our strong return track record over our 14-year history.
Speaker 5: Additionally, we've included the detailed breakout of NMFC's industry exposure.
Speaker 5: We believe these sectors are well positioned in an inflationary environment given the pricing power and margin profile that comes along with the largely tech and services nature of these industries.
Speaker 5: In our view, the chart demonstrates the differentiated domain expertise our team has developed and shows why we operate with confidence in any economic cycle.
Speaker 5: On slide E, I will highlight three competitive advantages that set new mountain finance apart from other direct lenders.
Speaker 5: First, we focus on businesses that are quality, defensive growth companies, and a cyclical industries that have been targeted, researched, and invested in by new mountain over the course of two decades.
Speaker 5: We believe this process results in deep expertise and a broad executive network that allows new mountain the first mover advantage in these attractive sectors.
Speaker 5: Second, MMFC benefits from the unique connectivity between credit and private equity.
Speaker 5: We find this enables a deeper level of due diligence and stronger conviction in our investment.
Speaker 5: Simply stated, New Mountain's integrated approach results in a bigger, more robust credit selection engine.
Speaker 5: Third is shareholder alignment, which Steve touched on already. As fellow shareholders, the Mountain Team members own over 11 million shares, creating strong accountability that ensures decision making will always be aligned with our stakeholders. Turning to page 9, we believe our portfolio continues to be well positioned overall.
Speaker 5: particularly for periods of uncertainty. The updated heat map shows the relatively flat risk migration misquartered with one position representing $4 million of fair value, rating and two positions representing just $25 million or sending and rating. We are pleased that over 91% of our portfolio is rated green on our risk rates.
Speaker 5: like software, business services, and healthcare. We believe the vast majority of our assets are well positioned to continue to perform no matter how the economic landscape develops.
Speaker 6: Specifically.
Speaker 5: These industries, along with our other core verticals, benefit from predictable revenue models, margins stability, and great free cash flow generation. We continue to spend significant time and energy on our remaining red and orange names with the goal of either exiting individual positions or finding ways to improve
Speaker 5: performance of the underlying businesses as we have, for example, at Permian, which was a red name at the beginning of 2022, but is now yellow due to operational improvements and new customer wins.
Speaker 5: With that, I will turn it back to John to discuss market conditions and other important performance metrics.
Speaker 3: Thanks Rob. It's a pleasure to address my fellow shareholders for the first time at CEO . I am proud of the business that our team has built over the course of the last 12 years of the public company.
Speaker 3: We believe that our best days are ahead of us due to the competitive advantages that Rob outlined in his opening remarks. We have industry discipline, a superior underwriting model, and proprietary sourcing channels that provide access to many of the best deals in the direct lending market.
Speaker 3: The outlook for 2023 in the sponsor focused direct lending market looks positive.
Speaker 3: While deal flow is down overall, there are pockets of activity where we have the opportunity to make loans at very attractive spreads.
Speaker 3: Our sponsor clients are particularly active in software, business services, and infrastructure services. Additionally, we continue to see good opportunities to make incremental loans to existing, well-performing portfolio companies seeking to pursue a creative M&A.
Speaker 3: Overall, direct lending has continued to increase its share of the financing market, as sponsors seek ease of execution, single debt tranches, and committed capital for future acquisitions.
Speaker 3: Deal structures have become more lender friendly across the board, characterized by attractive spreads, higher fees, lower leverage, and more robust documentation. In general, sponsor equity contributions have remained generous.
Speaker 3: consistently representing 60 to 80 percent of the enterprise value of the company. Page 12 presents an interest rate analysis that provides insight into the positive effect of increasing base rates on NMSD's earnings.
Speaker 3: We have updated this page to provide more clarity into the impact of increasing base rates on our portfolio as well as the timing of that impact.
Speaker 3: As a reminder, the NMST Loanport Bullio is 89% floating rate and 11% fixed rate, while our liabilities are 58% fixed rate and 42% floating rate.
Speaker 3: Given this capital structure mix, we are long, li-bor, and thus have material positive exposure to increasing rates.
Speaker 3: Despite being positively exposed to increasing base rates, there is a lag in the flow through of higher rates for two reasons.
Speaker 3: First, our borrowers can choose to delay the impact of rising rates by selecting three months or six months sofa contracts, and second, many of our liabilities reprace at more rapid intervals.
Speaker 3: The result in Q4 was that we realized an average base rate on our assets of 3.6 percent.
Speaker 3: a 2 cent per share headwind during the quarter compared to a hypothetical scenario where base rates were 4% on both assets and liabilities.
Speaker 3: So for base rates have now risen to nearly 5%, which should generate a material uplift in earnings all else being equal.
Turning to page 13, we present more detail behind the 18-cent decline in our book value this quarter. Starting on the left side of the page, we show that credit-driven, fair value changes positively impacted NAV by 2 cents per share from Q3 to Q4.
As Steve mentioned earlier, the overall decrease relates to fair valuing well-performing names based on higher market spreads as of 1231.
It is important to note that if we were to value all of our green rated loans at par and keep the balance of the portfolio at current fair value, our book value would be $13.81 compared to our actual nav of $13.02 at 12.31.
While the timing is hard to predict, we believe that NMSC's book value will benefit from these higher quality names converging to par.
Page 14 addresses, and I must use long-term credit performance since its inception.
On the left side of the page, we show the current state of the portfolio where we have 3.2 billion of investments at fair value with 58 million or 1.8% of the portfolio currently on non-accrual. We had no new non-accruals this quarter.
NMSC's cumulative credit performance shown on the right side of the page remains strong. Since our inception in 2008, we have made 9.9 billion of total investments of which only 347 million have been placed on non-accrual. Of the non-accruals, only 79 million or less than 1% of our total investments have become realized losses over the course of our 14-year history. As shown on the next page, default losses have been more than offset by realized gains elsewhere in the portfolio.
The chart on page 15 tracks the company's overall economic performance since its IPO in 2011. As you can see at the top of the page, since our initial listing, NMFC has paid approximately 1.1 billion of regular dividends to our shareholders, which have been fully supported by over 1.1 billion of adjusted net investment income.
On the lower half of the page, we focus on below the line items where we show that since inception highlighted in blue, we have a cumulative net realized gain of $21 million, which is up 5 million from last quarter.
This cumulative realized gain is offset by $89 million of cumulative unrealized appreciation on our portfolio, which increased this quarter by about $15 million, largely driven by valuation changes previously discussed. On the bottom of the page in yellow.
We show how cumulative net realize and unrealized loss stands at just $67 million, which remains a tiny fraction of the $1.1 billion of net investment income we have generated since our IPO.
As we look forward, our team remains very focused on reversing the small cumulative loss and maintaining best-in-class credit qualities throughout the portfolio. Page 16 shows a stock chart detailing NMSD's equity returns since its IPO over 11 years ago. Over this period, NMSD has generated a compound annual return of 10%, which represents a very strong cash flow oriented return.
Over the last 12 months, NMSC's performance has compared favorably to most equity indexes and has materially exceeded that of the high yield index, as well as an index of BDC peers that have been public or at least as long as we have. Moving on to origination activity, in Q4 we originated $94 million of new loans in our core defensive growth verticals, including software, financial services, and consumer services.
We primarily funded these originations with repayments keeping us fully invested at the high end of our leverage range. Turning to page 18, we show that our asset mix is consistent with prior quarters where slightly more than two-thirds of our investments include a first-line SLPs, net lease, and net lease are senior in nature. Approximately 8% of the portfolio is comprised of our equity positions.
the largest of which are shown on the right side of the page. Assuming solid operating performance in a supportive valuation environment, we believe these equity positions could continue to increase in value and drive book value appreciation.
We hope to monetize certain of these equity investments in the medium term and rotate those dollars into cash yielding assets.
As an example, we expect our common equity ownership in Haven to be fully realized over the next two quarters. Pays 19 shows that the average yield of NMFC's portfolio remained flat.
For example, we expect our common equity ownership in Haven to be fully realized over the next two quarters. Pays 19 shows that the average yield of NMFC's portfolio remained flat from 11.3 in Q3.
Spreads remain wider and the supply demand imbalance in the market continues to favor lenders, which helps support our net investment income target. Page 20 highlights the scale and credit trends of our underlying borrowers. As you can see, the weighted average EBADAB our borrowers has increased over the last several quarters to $138 million.
While we first and foremost concentrate on how an opportunity maps against our defensive growth criteria and internal new mountain knowledge, we believe that larger borrowers tend to be marginally safer all else equal. We also show the relevant leverage and interest coverage.
From an interest coverage perspective, we have seen modest compression as face rates rise. The weighted average interest coverage on the portfolio declined slightly to 1.9 times from 2.1 times last quarter.
We do expect interest coverages to move lower in 2023 as so far contracts reset at today's rates. Based on sensitivities that we have run, interest coverage at 5.5% so far implies approximately 1.6 times coverage based on LTM EBIDA.
However, we believed earnings growth profiles of the companies in our portfolio created valuable offset to this negative trend.
Finally, as illustrated on PACE 21, we have a diversified portfolio across over 100 portfolio The top 15 investments inclusive of our SLP funds account for 39% of total fair value and represent our highest conviction names.
I will now turn the call over to our CFO , Shiraz Kaji, to discuss our current portfolio construction and financial results. Shiraz? Thank you. For more details on our financial results and today's commentary, please refer to the form 10K that was filed last evening with the SEC. Moving to the financial results in slide 22, the portfolio had over $3.2 billion in investments at Fair Value, at December 31, and total assets of $3.4 billion, with total liabilities of $2 billion, hoping total statutory debt outstanding was $1.7 billion, excluding $300 million of drawn SBA guaranteed debentures. Net asset value of $1.3 billion, $13.02 per share, was down 18 cents or 1.4% from the prior quarter.
At quota end, our statutory debt to equity ratio was 1.2921. However, net of available cash in the balance sheet net leverage is 1.2521 within our target leverage range. On slide 23, we are sure our quarterly income statement results. We believe that our adjusted NII is the most appropriate measure for our quarterly performance.
This slide highlights that while realizing unrealized gains and losses can be volatile below the line, we continue to generate stable net investment income above the line.
For the current quarter, we earned total investment income of $86.7 million and $8.6 million increase in the prior quarter. This increase was primarily driven by high interest income from base-rate resets offset by low of fee income this quarter. Total net expenses were approximately $51.2 million, a $5.6 million increase quarter
if and as needed during the spirit to fully support the 32-cent per shed quarterly dividend.
Based now, forward view of the earnings power of the business, we did not expect to use It is important to note that the investment advisor cannot recoup fees previously waived.
I will gap and I per-weighted average share for the quarter with 25 cents per-weighted average share. However, including one time non-cash charges, we are in 35 cents per-weighted average share, which exceeded our key for regular dividend of 32 cents per share.
The majority of the one-time items relate to NHME, which has been a challenging investment that we have marked down by 80% during 2022 to a carrying value of only $5.4 million, which represents just 0.4% of current NAV.
We also re-valuated our pick income and determined the income accrued in prior periods to likely be uncollectable and as a result we proactively chose to write off $12.7 million of pick income at the end.
and consistent with our prior practices, we elected to offset this right off with a $2.6 million incentive fee rebate to our shareholders. On slide 24, I'd like to give a summary for our annual performance for 2022. For the year end of December 31st, 2022, a total investment income of over $305 million, and total net expenses of $177 million. The year end of December 31st, 2022, a total investment income of over $305 million.
This results in 2022 total adjusted net investment income of $128 million for $1.28 for weighted average share, which more than covered our $1.22 regular dividends paid in 2022.
As slide 25 demonstrates, 95% of our total investment income is recurring this quarter. You'll see historically over 90% of our quarterly income is recurring in nature. At an average of 80% of our income is regularly paid in cash. We believe this consistency shows the stability and predictability of our investment income.
Turning to slide 26, the red line shows our dividend coverage. This quarter adjusted NII exceeded our Q4 regularly dividend by 3 cents per share.
For Q1 2023 outboard of directors has again declared a regular div in of 32 cents per share, which will be paid on March 31, 2023, share the record on March 17, 2023. Based on our preliminary estimates, we expect our Q1 2023 and I will be in excess of 32 cents per share. Given that, we are pleased to implement our supplemental dividend program beginning in 2023.
to pay out at least 50% of any earnings in excess of our regularly dividend. We expect the first distribution to be made in the second quarter. On slide 27, we highlight our variance financing source. Taking into account SBA guaranteed the benches, we had almost $2.4 billion of total borrowing to pass the quarter end, with over $413 million available on our revolving lines, subject to borrow based limitations. We have a valuable mix of fixed and floating rate debt, and the 58% of fixed rate that continues to be an earnings tailwind in this rising base-weight environment. As a reminder, both our Wells Fargo and Deutsche Bank credit facilities covenants are generally tied to the
2020
Lastly, our multiple investment grade credit ratings provide us access to various obscure debt markets and we continue to explore to further the latter of the majorities in the most cost-efficient manner. With that, I would like to send the call back over to John . Thank you, Shiraz. As we look out over the course of 2023.
We are confident New Mountain is well positioned to execute our defensive growth strategy and to maintain superior risk adjusted returns while driving long-term value for our shareholders. We once again thank you for your support and look forward to maintaining an open and transparent parent dialogue with all of our stakeholders in the days ahead.
I will now turn things back to the operator to begin Q&A. Operator? We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. Please.
To withdraw your question, please press star then two.
At this time, we will pause just momentarily to assemble our roster. And again, that is star than 1 to join the queue.
All right, first question here. We'll come from Ryan Lynch with KBW. Please go ahead, sir. Hey, good morning. First I just wanted to say, I appreciate you. Wow. HME was probably not an outcome that you guys are.
I'm happy about or shareholders. I do appreciate you guys making the reverse lift pick and comment and the incentive fee rebate, which is I think the right way to account for that, to ensure that the incentive fee is not that you pay it on income that you guys will probably never collect in cash, so I appreciate that.
I'm not sure if there's a, you know, necessarily a right or wrong answer will probably depend on, you know, you get 10 different answers, but just to love to hear your thoughts on why it was said at that 50% ratio. Sure Ryan, this is John and thanks for the compliment on A&M even though it was a, it was a,
not our best investment. But just in terms of the variable special, I mean, essentially the mindset is we want to continue our track record of returning capital in an efficient and pretty high manner to our shareholders. And when we look out, we basically see the opportunity to
while not getting out over our skis too much and raising the dividend too high where we can't cover in all scenarios. So we feel like we can cover the 32 cents in all scenarios. We think we have the opportunity to really out earn over the next couple quarters just given everything we see in the environment. And I think 50% was just rough justice. You know we want to both
Okay, that makes sense and helpful explanation. You know, I like to slide you guys to provide on the the the weighted average interest coverage and and EBITDA and net leverage multiple.
But you talked about looking forward to the Ford, so for a curve of 5.5% would equate to 1.6 times.
weighted average interest coverage, which is helpful to just see how interest coverage is moving, but obviously you guys aren't managing your portfolio on an average basis. I mean, the real risk is going to be in the tails of being able to pay.
make interest payments in a stress or more uncertain economic environment with higher rates. So I would love to hear. Did you guys as part of this analysis, did you guys look with rate at 5.5% what percentage of your portfolio would potentially be below one time interest coverage?
I mean, we do look at every name we monitor every name very, you know, intently, and interest coverage is just one metric. I mean, here's the way I think about the current environment we're in. The number one thing is we focus on when looking at our portfolio companies and really coming up with our heat map, you know, which is almost 92 percent green, is we focus on...
great businesses that operate in businesses that have really good secular tailwinds. And we really focus on revenue growth, margins stability, and free cash flow. And really, if you have those things in place, which the vast majority of our companies do, interest coverage is just not going to be the thing that kills these businesses. And on top of that, if you layer on backing businesses that are essentially equitized with twice as much equity as debt, we're just in a position where...
you know, volatility and interest is really the sponsor's problem even more than our problem. So the way I think about that is our portfolio is just very well positioned in this environment where in the right industries, we have companies that produce pre-cash flow and we have companies that are still growing even though the economy is spotty in certain sectors. And so it's a metric that we feel comfortable about and really I really think about that 1.6 is being an accurate metric for the vast majority of people.
You know, there's enough to cover that. But it does start to get, feels like a little tighter from after that point on, on available capital, remaining under credit facilities. Is the, are you guys anticipating repainting these untold to cure nose by just drawing on the credit facilities throughout the year? And do you feel that if you would draw?
on the credit facilities to repay these unsecured notes. You feel like you guys have to not do you guys would be forced to expand the credit facility, but would you like to expand the commitments on the credit facility to give you guys more buffer going forward? Yeah, I think, you know, we, so for the rest of the year, we have about 160, 170 million coming due. We have sufficient availability under the credit facilities currently to deal with that. So we feel good at least we're not. We're not rushed to do something unnatural from a financing perspective, but we're still looking at unsecured debt. You know, we might potentially do something else there to.
to replace that debt, we could back-level, so go out on the facilities, pay down the debt when they come due, and then lever up again when the environment is better. So I think we're continuously looking at both the secured and unsecured market to see what's available to us, but we feel comfortable at least we have enough availability currently on the revolvers to take care of what we need to this year. I also made one other thing, which is that, while it's obviously not the most robust environment for repayments, we do expect to have some repayments come through and we're given the earnings profile that we're demonstrating now.
We feel we can use some of those repayments to just modestly deliver a little bit. And that's another source of funds to address your term repayments as well as to address just overall liquidity position. So I don't want to lose sight of that as another important arrow in the quiver. I appreciate the time today. Thanks Ryan. Appreciate the questions. Thanks.
Again, if you would like to ask a question, please press star, then one. This will conclude our question and answer session. Our next question comes from Art Winston with Bank of America. Part of me. Derek, you with Bank of America, please go ahead. Good morning, everyone. Could you talk a little bit more about the supplemental dividend? Is there any sort of governor so that if you were in a situation where you had some unrealized losses and book value went lower, would that impact the calculation for the supplemental dividend?
Hi Derek, this is John , thanks for the question. So we chose to enact our variable supplemental dividend using effectively just one prong where we take, as Steve mentioned, 50% of the over earnings and we pay at 50% out in terms of, in the special and the supplemental dividend. And then the other 50% would go to stay within the company and increase book value.
And so we did not have a second prong to that test. And the reason that we didn't do that is, I guess, twofold. One is we wanted this dividend to be easily modeled by our shareholders and the analysts that follow us. And we also feel like marked market changes don't necessarily affect our dividend policy or our ability to pay the dividend. And the ability to pay the dividend is more affected by real non-accruals and losses, which is a little bit separate. So we have confidence in our book and we wanted to keep it very simple.
Okay, thank you. Our next question will come from Eric. Is Wic with Havdy Group? Please go ahead. Eric's Wic, your line is open for questions. Thank you. Good morning. What are you doing? I'm wondering if I can just expand on the earlier.
discussions without the capital allocation optionality you mentioned in the press release and you know some of the uses of liquidity to pay down to notes and the remainder of the year. I curious how you're thinking about the opportunity to buy back shares in this environment or does the economic uncertainty maybe keep you in the sidelines with regard to that option today.
Yeah, Eric, this is Rob, thanks for the question. We've historically talked about buying back shares when the stock was certainly below 80% of NAV and thinking about it between 80 and 90% of NAV. I think that remains our guideline for that. So it's not really operational in this moment in time. Obviously, if the market became further dislocated and we had that incremental.
liquidity, it's something we would consider like we've done in the path, but it's really got to be the intersection of us having material access liquidity as well as having the stock be dislocated. You know, our number one priority is to maintain.
our liquidity and our leverage in such a way as to maintain the investment grade rating. So we're obviously super hyper conscious of that as well. So I don't see that as a near to medium term likelihood, but of course the markets can change at any moment. So it is something that's always on the long term rate, or if you will. Sometimes one's going to see the engine model, it's manufacturing,
I think that's helpful. Just one more for me. When you repaid the notes in January , I'm curious if you went out to the market off to see what the opportunity would be there to raise additional, unsecured debt and chose not to either because of the rate environment or demands. Still, it's not there. I'm curious kind of the tenor of the market today if you are able to gauge that. Thank you.
So the market continues to be open for companies that the market perceives to be good credit risk. I think we're in that camp. We're constantly evaluating the market. We're very confident that we've accessed to multiple different segments of the market. And it's just an ongoing discussion. So we feel very good that...
When we look at our liquidity and we look at our capital structure, we have a lot of different options to choose from. And when we think about the convert that we did, it really addressed a really big chunk of the upcoming maturities and less than the overall magnitude of debt that we have to think about in 2023. And as Ross said, we can just go in a lot of different directions, whether it's the secured market, unsecured market, convert market, etc. Thanks for taking my questions. Our next question will be a follow-up from Ryan Lynch with KBW. Please go ahead. A good morning. I have one follow-up on slide number 12. Is the slide you guys provided last quarter as well? And I'm just curious as far as the...
the resets from your assets versus liabilities. Are your liabilities being reset on a daily basis, as I kind of look at that line chart on the top right of the slide? Are your liabilities being reset on a daily basis, and then are your assets being reset on a three to six month basis? Is that how it's working? Sure, I can take a shot. That assets are being reset.
Now, when rates go the other way, it will be good for us. But as rates continuously go up, it has been a headwind as we show on page 12.
Do most of your borrowers have the ability to switch to resetting on a monthly basis so that if rates do go the other way, you'll still have a nice positive spread if your large facilities resetting on a daily basis, but the spread won't be quite as big of all your borrowers then switched to a monthly reset.
Yeah, so borrowers in most credit agreements have the abilities to do one month, three month, or six month. And so that's a decision that CFOs that all of our borrowers are constantly making and they don't make the same decision at once. So it's a mix. But in the context of our main credit facility repressing daily.
in sort of a deflationary base rate environment, regardless of whether the CFOs choose 1, 3, or 6, it will be a tailwind. Hope that makes sense. Yep, give it a big sense. Thanks for the clarification. And our next question will come from Bryce Row with B-Riley. Please go ahead. Good morning, guys. Wanted to maybe ask about the...
You had a nice uptick in dividends from the senior loan funds or programs. John Robb, just curious if that same lag exists within those points that you see on balance sheet assets.
It's actually a lot less pronounced, namely because the leverage in the SLP or the LLF, the senior loan funds that invests in syndicated loans is much more matched. So when you think about just the overall, I guess the leverage in the funds.
It's really three to one on average or a little bit less than three to one. And so generally we're just less sensitive to that dynamic. And the only one of our SLPs does reprise on a daily basis. All right, all right.
Okay, okay. And then maybe one more for me, you know, you had some nice realized activity here, here in the fourth quarter, I think last quarter in November , in the November's call you talked about, you know, being able to monetize. There was some highlight of that here as we look out over the next couple quarters. Um.
Can you kind of talk about what's driving that? Is that kind of from the sponsor side of things? Or are you actively looking to help monetize some of these equity investments?
Sure. So the equity investments that we have the ability to monetize and where we have a control or at least a lot of influence are really listed on page 18. And so the names that you see on page 18 are the names that were over the medium term focused on selling and then using those proceeds to reinvest in cash-yielding loans. So it is an opportunity the first of those assets.
that will be monetized, should be haven, and you can see the value of that. And then when you look at these other names, we think that over the next 12 to 18 months, there could be another monetization, which could, I think really drive a positive evolution of our book from...
either non-yielding or pick yielding assets to cash yielding assets. Okay, thank you guys much.
either non-yielding or pick yielding assets to cash yielding assets.
This will conclude our question and answer session. I'd like to turn the conference back over to John Klein for closing remarks. Great. Thank you very much for your time and joining our call and we look forward to speaking with you next quarter. The conference has now concluded.