Q4 2022 Barings BDC Inc Earnings Call
[music].
At this time I would like to welcome everyone to the Barings BDC, Inc Conference call for the quarter and year ended December 31st 2022.
All participants are in a listen only mode.
A question and answer session will follow the company's formal remarks.
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Today's call is being recorded and a replay will be available approximately two hours. After the conclusion of the call on the company's website at Www Dot Barings BDC dot com under.
Under the Investor Relations section.
Please note that this call may contain forward looking statements that include statements regarding the company's goals beliefs strategies future operating results and cash flows.
Although the company believes these statements are reasonable actual results could differ materially from those projected in the forward looking statements.
These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the section titled risk factors and forward looking statements in the company's annual report on Form 10-K for the fiscal year ended December 31 2012.
Two at.
As filed with the Securities and Exchange Commission.
Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law.
At this time I would like to turn the call over to Eric Lloyd Chief Executive Officer of Barings BDC.
Thank you operator, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter 2022 earnings presentation.
Posted on the Investor Relations section of our web site on.
On the call today I'm joined by Barings co head of global private finance and President of Barings BDC in Valor Barings head of capital solutions and co portfolio manager, Brian Hi, and Bdc's, Chief Financial Officer, Jonathan Landsberg.
Customary Ian Brian Jonathan will review details of our portfolio and fourth quarter results in a moment, but I'll start off with some high level comments about the quarter.
Let's begin with the market backdrop shown on slide five of the presentation.
In a market characterized by significant concerns around inflation economic growth and geopolitical risks and one in which the unprecedented pace of global interest rate hikes elevated volatility in both leverage loans and BDC equities Barings BDC continued to generate strong economic results.
Turning to the fourth quarter highlights on slide six net asset value per share was $11 <unk> compared to the prior quarter of $11 28.
Now by 2%, we had one new non accrual in the quarter for scientific which we discussed on our last call in November and on our unrealized write down of the asset contributed 17 sets of NAV reduction outside of core scientific the reduction in our NAV was driven primarily by unrealized write downs tied to macroeconomic factors in.
Fred widening as opposed to fundamental credit related factors in our portfolio.
Our net investment income was 34 per share compared to 26 cents per share last quarter, an increase of 33% quarter over quarter as our portfolio.
Benefited substantially from the rise in base rates. In addition, bearings are no incentive income incentive fee in the quarter due to the incentive fee cap and our shareholder friendly fee structure, which includes realized and unrealized gains and losses.
Turning to new investments, we had gross originations of $240 million in the fourth quarter. This was offset by a $113 million of sales and prepayments for our net portfolio increase of $148 million, our investment portfolio continued to perform well in the fourth quarter, including the acquired Sierra and MCC assets, our total non accruals.
Our three 9% of the portfolio on a cost basis and 1% on a fair value fair value basis with the exception of core scientific all of our non accrual assets were from acquired portfolios and therefore, a part of our credit support agreements.
Turning to forward earnings power the increase in fixed rates has increased the weighted average yields on our middle market and cross platform investments to 10, 2% and 11, 1%, respectively more than a 100 basis points higher than last quarter. We expect additional revenue contribution given the inherent lag and higher base rates flowing through our portfolio.
Particularly in our European portfolio, where it is customary for borrowers to elect a six month phase III contract as a result, our board declared a first quarter dividend of 25 per share an increase of <unk> <unk> from the prior quarter equating to a 9% yield on our net asset value of $11 five.
Slide seven outlines summary financial highlights from the previous five quarters as I mentioned continued strong investment performance and higher base rates drove total investment income meaningfully higher to $63 5 billion up 13% quarter over quarter below the line net unrealized depreciation of 56 million was primarily a function.
On a mark to market on our assets as a result of higher credit spreads as well as the write down of four scientific this unrealized depreciation eliminated the quarterly incentive fee because our total return incentive fee cap further lowering expenses and elevating net NII in the quarter to 34 per share.
Turning to liquidity net leverage which is leveraged net of cash and unsettled transactions was $1. One two times, which is in the middle of our target leverage range of <unk> 90 to $1. Two five times. This attractive liquidity position allows us to remain steady partners with our existing sponsor clients as well as look towards new investment opportunity.
These that present themselves in the face of economic uncertainty as we believe induct environments. Like this are fantastic opportunities to prudently deploy capital at higher spreads lower leverage and with better structural protections.
Looking ahead, we remain steadfast in our focus on risk management and prudent asset selection the lagged impact of increasing rates will continue to work its way through the private markets with many credit stresses yet to come.
Good about how our portfolio is positioned to weather a volatile environment with a diverse portfolio allocated across private asset classes and geographies plus a best in class industrial alignment and a dynamic low cost liability structure that we believe positions us well for both current and future markets.
I'll now turn the call over to Ed to provide an update on the market and our investment portfolio.
Thanks, Eric and good morning, everyone. If you turn to slide nine you can see additional details on the investment activity mentioned previously.
Middle market portfolio increased by $184 million on a net basis in the quarter with gross fundings of $205 million offset by repayments of $21 million it.
It is not surprising that repayment activity had slowed in this environment.
Market adjust to the realities of higher interest rates and what that implies for company valuations and supportable capital structures.
That said new middle market investments included 21, new platform investments totaling $167 million and $39 million follow on investments in delayed draw term loan fundings.
We continue to deploy capital at a very attractive risk return profiles and partnership with longstanding sponsors.
Our cross platform portfolio.
Increased by $26 million on a net basis in the quarter with $35 million of new originations versus $61 million of repayments.
We continue to remain active with realizations in sales at both MPC and Sierra in this quarter generated $30 million of liquidity via sales pay downs and prepayments.
Slide 10 updates of the data we show you each quarter on middle market spreads across the capital structure.
Clearly investment spreads across public and private asset classes have widened.
Most important public market spreads continue to exceed those of private middle market loans.
It looks like the illiquidity premium or the extra spread to take a deal private two.
The loan investors remains much smaller than in the past there had been stretches where the liquid loan market has been effectively shut to new issuers.
Meaning the relative attractiveness of the direct lending solution in today's marketplace for private equity sponsors is very high.
A bridge of our investment portfolio from September 30 to December 31st it's.
As shown on slide 11.
On slide 12, Youll see a breakdown of the key components of our investment portfolio as of December 31.
As we have discussed in the past the goal of this slide is to provide details on the key categories of our portfolio, which are the bearings originated middle market portfolio. The legacy MVC capital in Sierra income portfolios as well as our cross platform investments.
The middle market portfolio remains a core focus and makes up 61% of our portfolio in terms of total investments at fair value.
Our bearings originated middle market exposures heavily diversified amongst <unk> of 231 portfolio companies with a geographic diversification across the U S Europe and APAC regions.
The underlying yield at fair value on our middle market investment portfolio was 10, 5% up from nine 2% last quarter and weighted average first lien leverage of five two times with no loans on non accrual. It is reflective of our borrowing is beautiful approach to credit.
In addition to our middle market exposure, we continue to draw upon barings' wide investment frame of reference to complement our core portfolio with $335 million of investments in the legacy MVC and Sierra portfolios and $611 million of cross platform investments.
Turning to credit one bearings originated asset to MPC assets and foresee at share assets remain on non accrual.
<unk> assets are covered by the credit support agreement.
Eric discussed the one bearings originated non accruals core scientific which is currently working through the chapter 11 process.
Accordingly at a time when many borrowers are feeling the pinch of higher base rates and wage and raw material pressures, we don't have any assets with restructured pick interest in our portfolio restructured.
We restructured pick is what we call loan that was originally underwritten.
Fully cash pay loans, where the borrower has asked for relief by converting a portion of the cash interest coupon to pik for a period of time.
We view restructured pick its one of the early signs that could foreshadow potential future problems.
Slide 13 provides a further breakdown of the portfolio portfolio from a seniority perspective.
The core bearings originary portfolio at 74% first lien.
Note the combined MPC Sierra portfolios are comprised of senior secured debt.
Lien mezzanine debt and equity investments, which brings the first lien component of the total portfolio down to 69%.
Our top 10 investments are shown on slide 14.
This investment was five 9% of the total portfolio in the top 10 investments represent 21% of the total portfolio.
Call, our largest investment eclipse business credit is backed by a large portfolio of asset backed loans conservatively structured inside the collateral net liquidation value.
The eclipse portfolio remains diverse from an industry perspective, as well with 44 investment spread across 17 industries and that business.
<unk> performed quite well contributing healthy dividend distributions to the BDC as well as sustained business growth.
I'll summarize my market comments with a U S.
How we think about portfolio management and risk management in a challenging environment like the one we're currently in.
The longer that base rates remain at elevated levels naturally the more stressed we expect to see across our portfolio and the broader market.
That said, maintaining a vigilant focus on the tail risk in the portfolio and help lessen eventual obtained by being more proactive with borrowers and sponsors.
We have a weekly focus and watch list call across our direct lending platform and there are currently 17 names in the BDC portfolio that comprise our focus and watch list, representing three 6% of the Bdc's portfolio at fair value.
While there is no one common theme underpinning the names on the group we have seen that is not just a higher base rates alone results in borrower stress.
These gains were experiencing pressure before the move higher in interest rates, where they are from wage costs raw input costs or difficulty digesting recent M&A activity the.
The increase interest costs exacerbated pressures that already exists in these businesses.
That said, we maintain a very diverse portfolio with 322 issuers.
No middle market loans on non accrual no restructured pick and just to annual recurring revenue loans and the entire portfolio.
We feel cautiously optimistic about what we see today, but of course need to remain vigilant.
Success in this environment will favor those with investment discipline.
And long institutional memory deploying capital in inflationary environments at.
At Barings across our wide investment frame of reference we demonstrate both.
I'll now turn the call over to Jonathan to provide additional color on our financial results.
Thanks Ian.
Turning to slide 16, Here's a full bridge of the NAV per share in the fourth quarter, our net investment income exceeded our dividend by 10% per share share repurchases added another <unk> <unk> per share and combined net realized gains and unrealized depreciation reduced NAV by <unk> 35 per share additional details on our net.
Unrealized depreciation are shown on slide 17.
Of the total $56 million in unrealized depreciation in the fourth quarter, approximately $21 million was due to price or spread moves while $26 million, which you would credit factors. The cross platform portfolio contributed $9 million of the total price driven depreciation primarily tied to the more liquid investments.
It is situational BSL underlying investments in our joint ventures.
The majority of the credit related write down was due to core scientific.
Notably the legacy MVC portfolio, so total depreciation of $9 million tied to underlying credit performance. While this euro portfolio had total depreciation of $8 million.
<unk> 5 million of which was due to pricing we've mentioned predominantly tied to this year in JV.
Near the bottom of slide 18, you can see that the credit support agreements increased approximately $4 million as a result of investment marks.
Slides 18, and 19 show, our eco statement and balance sheet for the last five quarters.
Our net investment income per share was <unk> 34 for the quarter driven by an 18% quarter over quarter increase in total interest income and the elimination of the incentive fee because of our total return hurdle.
From a balance sheet perspective on slide 19 total debt to equity was $1. Two two times at December 31, although as is typical this level was elevated due to high quarter end cash balances are.
Our net leverage ratio was one <unk> times and we view. This measure is more reflective of the true leverage position of the vehicle, which currently sits in the middle of our long term target of <unk> nine times to one five times.
Turning to slide 20, you can see how our funding mix tied to our asset mix, both in terms of seniority and asset class, including the significant level of support provided by the $725 million.
Secured debt in our capital structure.
Details on each of our borrowings are included on slide 21, which shows the evolution of our debt profile over the last year as of year end half of our funding was comprised of fixed rate unsecured debt with a weighted average coupon of 379% and we have two and a half years until the next bond maturity.
Turning to slide 22, you can see the impact to our net leverage of using our available liquidity to fund our unused capital commitments.
Barings BDC currently has $241 million of unfunded commitments to our portfolio companies as well as $67 million of remaining commitments to our joint venture investments, we have available cushion against our leverage limit you meet the entirety of these commitments if called upon as well as over $450 million of available dry powder between cash on.
And availability on our revolving credit facility.
Slide 23 updates, our paid and announced dividend since barings took over as the advisor to the BDC.
Eric You mentioned earlier the board declared a first quarter dividend up <unk> 25 per share a one penny increase over the prior quarter to eight 9% distribution on net asset value.
While the current environment does suggest base rates will remain slightly higher for slightly longer than previously expected. We aim to set a dividend payout that hit Gino will through a market cycle and not over correct based on temporary market factors. We believe our portfolio will continue to earn above the high hurdle and a normalized rate environment and we expect that several of our <unk>.
Ross platform investments, including our fixed and our coffee joint venture we will continue to perform and we will continue to generate significant distributable cash even in an uncertain economic environment.
As a result, given the visibility we see in the forward earnings profile, we believe a <unk> increase in the quarterly dividend is prudent with that strong dividend base. We then seek to further enhance shareholder value through a combination of share repurchases growing dividend spillover and steady and systematic future special dividends.
We have discussed in the past our philosophy that share repurchases must heavier role in any long term capital allocation philosophy in Q4, we phase III, meaning repurchases under the $30 million share repurchase plan approved in connection with this year of merger.
We are pleased to announce that we have received board approval for a new share repurchase plan that seeks to purchase up to $30 million of stock over the next 12 months subject to liquidity and regulatory constraints.
Moreover, we will continue to assess it each year to determine the most effective level of buybacks to drive long term shareholder value.
Turn with me now to slide 25, which shows a graphical depiction of relative value across the triple B double b and single B asset classes.
<unk> remained elevated across nearly all asset classes as a result of increased economic uncertainty those spreads in most cases are well off the three year wise, which still incorporates the COVID-19 dislocation in 2020.
Slide 26 outlines the spread premium on our new investments relative to liquid credit benchmarks noticed our investment illiquidity premiums in the fourth quarter remained low for middle market transactions given the current elevated secondary spreads in the liquid market exclude.
Excluding certain equity investments Barings, BDC deployed $229 million and an all in spread of 758 basis points, which represents a 59 basis points spread premium to comparable liquid market indices at the same risk profile.
I'll wrap up our prepared remarks, with slide 27, which summarizes our new investment activity. So far during the first quarter of 2023 and our investment pipeline.
The pace of new investment activity has slowed in recent months in concert with the slowdown in middle market M&A activity.
That said so far in Q1, we have made $119 million of new commitments of which 74 million have closed and funded the weighted average origination margin or DM three of those new commitments was eight 8%.
We've also funded $4 million of previously committed delayed draw term loans. The current barings global private finance investment pipeline is approximately $1 1 billion.
On a probability weighted basis and is predominantly first lien senior secured investments as a reminder, this pipeline is estimated based on our expecting closing rates for all deals in our investment pipeline.
With that operator, we will open the lines for questions.
Thank you.
At this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Our first question today is from Kyle Joseph of Jefferies. Please proceed with your question.
Hey, good morning, guys.
On a strong quarter.
And I just want to pick your brain on kind of that supply.
The dynamics in the market.
Really from your comments I got the sense that supplies constrain more on the on the liquid side.
Borrowers are reliant on the <unk>.
On the direct lending path, but in terms of demand.
Relatively resilient in my mind, particularly when you look at what the fed is done and now it impacted.
There's sort of a fixed income instrument mortgage can you just talk about kind of.
How or why the origination environment had been as strong as it has been for you.
You guys in the face of 500 basis points of fed hikes.
Yeah. So great great question Theres, a theres a couple of things I wanted to cover on that first of all just just given the.
The liquid market and they shut down the liquid market I mean that really started happening last year obviously.
As we look at last year.
I think as we evolve further in the year some of these geopolitical and macroeconomic issues became.
More significant, especially with the rapid rise in hikes by the fed.
And so I think before that really started to take hold I think it's the liquid market was shutting down and having difficulty it was an opportunity for direct lenders to basically move up market and take market share from a from a dislocated liquid market.
I think as the year progressed and some of these economic challenges became.
Bigger or more significant headwinds I think the.
The capital that was.
Moving into that segment of the market.
<unk> pulled back and quite frankly, when you think about that part of the market segment, the larger part of that market.
In the past, what's been attractive or direct lenders in that space is the ability to recycle.
And recycle capital and that's a great return profile, but obviously with the luxury market being shut down there is no recycling of that capital. So there is they are really holding these big chunky position.
For us focus on the on the middle of the middle market.
A lot of our activity is coming from our portfolio, which is really attractive.
It basically allows us to in a challenging environment to put capital to work in companies, we know extremely well.
The add on acquisitions are effectively making these company bigger stronger more diversified credits, which enhances our portfolio.
And in an environment, where I think a lot of private equity firms are.
Turned about valuations and what they paid for the initial platform the ability to play the multiple arbitrage game and do add on acquisitions that are at a lower cost basis.
Actively brings down their cost basis of the original investment. So it's kind of a win win situation I would say in the last year about 50% of our originations coming from our portfolio.
Leo.
Does that answer the question.
Yes, yes.
Perfect and.
That's it for me I'll hop back in the queue. Thank you.
Thank you.
Our next question is from Casey Alexander of Compass point. Please proceed with your question.
Yes.
Nope.
Perhaps I'm not bright enough I'm not even sure that.
Maybe you just answer my question, but.
But I'm going to ask it anyway.
Our clear defined strategy of Barings BDC when it originally came out with when the risk premium from the private debt markets.
Was it not.
Not a sufficient premium relative to the liquid traded markets.
That the BDC had the opportunity to pivot.
And as opposed to banking private loans allocate more capital to the liquid markets at a discount to par, which could then be recycled out to private loans, where the risk premium for.
For private loans increased and I'm curious given this particular risk premium why the company is taking more advantage of that opportunity.
Yeah.
Well I mean look I'll, let Eric.
And two from a from a high level, but I mean again I think if you. If you kind of look at what's going on in the markets right I mean, the opportunity to take advantage.
And things are changing I think right now youre seeing some high quality deals in the liquid market.
Come to the market.
At attractive levels, but I mean again, if you kind of look at what's happened over the last year.
With the liquid market shut down.
Just.
Theres just no good new issues that are coming to the market.
This isn't a question about new issues. This is a question about liquid traded paper that you guys know it's out in the market at a discount to par. This has nothing to do with new issue no I understand I'm, just saying I'm getting there I'm, just saying that when I'm focused obviously on the on the middle market.
Boring is beautiful portfolio.
And so when we look at that portfolio and we can generate with good issues, we can generate senior debt at five times at 10% to 11% all in yield that's pretty attractive.
Thank you Darren.
At this way.
We evaluated all the time.
One of the things that Brian <unk> Who's one of our co portfolio managers on here too.
The past has been on the liquid investment committee.
We are plugged into that business very tightly, but when we look at it just don't think it's the right time on a relative basis of that asset relative to what we could get on the private side as Ian said, you can put five turns of leverage on something or intend to 11% with the best documentation we've seen in years, many many years and we compare that to what.
So on the liquid side on a secondary basis, we looked at that said it wasn't the right time to go into the secondary part of the liquid market relative to what we can generate through our cross platform and direct middle market business.
Alright, Thank you Mike.
My second question is.
Conditions underlying <unk>.
More scientific in the core scientific loan have changed since.
Guys had to make that mark at the end of the fourth quarter can you cant tour.
Certain extent, where your discussions are with core scientific and <unk>.
How you, perhaps see that playing out now that you have some more price discovery for crypto here in the first quarter and.
Maybe a little differentiated view towards the outlook.
Yes.
It's Brian .
Just in terms of giving too much detail there is not a lot we can share obviously.
We're engaged in a situation where.
Partnered with Massmutual and are a meaningful equipment loan holder.
Across the platform, but in terms of yes, the price of bitcoin, which helps buoy the business from a cash generation perspective has increased 50% is kind of seem to stabilize at the moment at higher levels.
In terms of engagement I mean, obviously there is.
It's public everything's out there change the dip lenders.
I think it's going to take some time to work through the process.
And.
We're playing our part in that process.
Alright, thank you.
The next question is from Robert Dodd of Raymond James. Please proceed with your question.
Hi, good morning, everyone.
And welcome back.
On <unk> and.
The names you said they've been 17 names on the watch list three 6% said, no particular thing, but any of those names.
Any of those on that solely because of the interest is higher.
And separate.
Question on any of those names non sponsored and one of the extra.
That you take in underwriting, but monitoring in discussion with the portfolio company. When there isn't a sponsor that given may be in the high rate environment capital injection as needed.
The sponsor who's.
Do it.
Yeah. So first of all just to clarify that we call it focus and watch list. So it incorporates watch list I think we all understand what a what a watch list says focus means the company is their performance is not tracking to.
To what.
We underwrote and what we thought it doesn't necessarily mean it.
It's extremely bad in some cases it could be the company is.
Okay.
Generating performance that can be.
Positive and it's trying to we're trying to figure out what what's driving the change the delta from how we underwrote. It so I want to be clear on that second of all <unk> got all the deals on this list.
Our sponsored back.
I think our focus again going back to the boring is beautiful.
So many reasons to focus on sponsor deals more information going in to your point you have more level.
<unk>.
Paul when you have issues and and most importantly, you're not the only source of capital and I think the deals that are the most challenging quite frankly are the ones, where the management team owns the company because.
Effectively they have all the leverage in the world that can just go across the street and open up.
Another shop and so.
I think as a.
As a business and it's a.
Portfolio manager of the key in this market as you know as I referenced is.
Being really proactive with these companies and these management teams.
Because what you really want to do is you want to identify.
<unk> early on you want to identify.
Trajectories that are not in line with expectations and start working and communicating with the.
The interested parties for the management team and the sponsor.
Figure out how are we going to get this company back on track and so when.
We've done a number of stress tests on the portfolio.
The most important one obviously base rates that's one.
Concerned about we took it up to five 5%, but we've looked at things on an LTV basis, and EBITDA cushion basis and.
Just a couple of high level things I'll just point out.
We've seen a continued resiliency in the portfolio.
Despite the high inflation in dairy environment revenue growth.
We have continued the management teams have been navigating.
Through these challenges.
With limited impact on financial performance. So that's obviously very important.
We did we did see some margin contraction early on in the year.
But that trend reverse as companies have been able to put through price increases.
And inflation or wage inflation, that's one that sort of picked up later in the year, that's sort of unchanged in terms of.
That's a risk out there but.
Very small percentage of our borrowers.
We've identified as having higher medium risk with that and then in terms of interest rate.
We've seen so far you know companies have been able to.
Deal with interest rates, obviously, the interest coverage has declined a little bit, but they've been able to the companies have been able to put through price increases.
I maintain margins.
Got it.
Appreciate all that color. Thank you and thank you very much.
And it's not really about interest coverage is about tails, but we've got an average interest coverage metric and on slide 12.
Two nine times I presume Thats, an LTM, where do you think where would that have to go.
Paul.
You too early appeal.
That's about the border.
All of the pull forward yet.
Obviously, it's an average and the average except for the problem, but is there anything.
We can look at.
On that two nine I mean, how how fall into comfortable language is that currently and how much do you have to move before yeah yeah.
Yeah.
Yeah.
Again I think this is the time, where you have to prepare for the worst and hope for the best none of us sort of a crystal ball.
And so we've taken base rates when we've done our stress tests, we've taking place.
The five 5%.
And we're just we're right around two times coverage just under two times coverage.
But you have to recall right or you have to remember that.
That is just taking the.
The existing LTM performance.
And of the company and putting in.
Elevated interest rates, obviously, our goal here is to work with these companies and hopefully they're doing things on their end to cut costs hopefully they continue to put through price increases.
So when we do these stress tests, we're really assuming that none of these companies are doing anything to address the challenges out there and I guess the other thing I'll point out is that.
Well Unfortunately, we used to have it in our documents, which was taken out over the life.
Five years, but we used the horse.
Sponsors to 650% of their interest rate exposure, that's been taken out in the market.
But I can tell you a lot of private equity firms that we're working with on a portfolio basis have incorporated.
What's in hedges to minimize the floating rate risk.
Got it thank you.
Yes. Thank you.
The next question is from Ryan Lynch of K B W. Please proceed with your question.
Hey, good morning, just following up on Robert classify seeing when you talk about stress in the portfolio and charge interest rates go.
Percent base range with two times interest coverage have you guys done any analysis that looks at what percentage of the portfolio would be below one times interest coverage was five 5% interest rates.
Yes, we've done the same yes, that's that was really the focus of the stress tests and it's a.
Low single digits and again this is not just the BDC. So we're talking about our entire platform, which the BDC, it's a representation of.
But.
And again I just wanted to emphasize when you do the stress test.
Again, assuming these companies aren't doing anything on their side.
And you're also assuming a completely it's boats and then unhedged. So again, we feel very comfortable about where we are.
If rates go to <unk>.
Base rates of five 5%.
Okay.
Okay.
Another question I had was.
And we've talked about this I've talked about this with you all in.
In the past, but when I look at your portfolio segmentation on on slide number 12.
You guys talked about in the past you kind of a boring is beautiful strat.
Strategy.
Overall, but when I'm going to get that portfolio to me there is at least when you compare it to a traditional BDC.
Mutation, it's much more complex.
And I know you guys think that there is some value in that complexity, particularly with some of the cross platform investments.
Yeah.
I'm just curious obviously some of those segments are going to roll off it's actually particular D.
The acquisition of Sierra and <unk> I'm, just curious now that there's been some recent leadership changes at bearings.
You guys proceed.
Focus on sort of the segmentation of some of these different strategies of only right now having 46% in U S. Middle market loans is quite a small percentage versus.
Most other bdcs out there.
Has there been any sort of strategy shift.
With the leadership change that how you guys one more.
Molding practice portfolio over the next couple of years.
It's Eric.
I would say I would see as much of a strategy shift as much as a simplification around some things.
Not all but some of the complexity of our portfolio was from the acquired portfolios that we put in place.
But as I said, we acquired as part of the two transactions, we don't intend to do those type of deals going forward and so as those roll off I think youll see some simplification within the portfolio. I also think that we will continue to look for opportunities where the core bearings capabilities can be brought to bear on behalf of shareholders.
But I don't think youll see it in some of the more complex way.
Some of the acquired portfolios that we did.
Yes, Ryan it's John the only thing I'll add is that you'll see you've seen maybe in some of the JV. This year JV. We're returning capital of that vehicle is winding down and you're seeing the same thing with Thomson rivers as those loans recall, we've been actively returning capital as that trade has sort of run its course, so at the margin, yes, youll see some vehicles that.
Wind down.
Going forward, but the view of finding relative value across the wide bearings favorite reference no. We don't think that that changed that strategy changes.
Yeah.
Okay.
I understand that's all for me today I appreciate your time.
There are no additional questions at this time I'd like to turn the call back to Eric Lloyd for closing remarks.
Thank you. Thanks for everyone, who participated today on today's call I. Appreciate you, taking the time to listen to us and ask your questions. Please stay safe and everybody have a great day and weekend.
This.
Today's conference you may disconnect your lines at this time, thank you for your participation.
Okay.
[music].
Uh huh.
Yeah.
Okay.
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