Q2 2023 Golub Capital BDC Inc Earnings Call
Hello, everyone and welcome to G. B D. C is March 31, 2023 quarterly earnings call before we begin I'd like to take a moment to remind our listeners that remarks made during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
1995.
Statements other than statements of historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties actual results may differ materially from those in the forward looking statements as a result of a number of factors.
Including those described from time to time in G. P. D. C. S F E SEC filings.
For materials, we intend to refer to on today's earnings call. Please visit the Investor resources tab on the homepage of our website, which is www dot Golub capital BDC Dot com and click on the events presentations link.
Our earnings release is also available on our website in the Investor Resources section as a reminder, this call is being recorded.
I'm pleased to turn the call over to David Gala, Chief Executive Officer of G. B D C.
Hello, everybody and thanks for joining us today.
And by Chris Eric Steen, our Chief Financial Officer, and by Matt Bengtsson, Our Chief operating officer.
For those of you who are new to <unk>. Our investment strategy is to focus on providing first lien senior secured loans to healthy resilient middle market companies that are backed by strong partnership oriented private equity sponsors.
Yesterday, we issued our earnings press release for the quarter ended March 31, 2023, and we posted an earnings presentation on our website, we will be referring to that presentation during the call today.
Going to start as usual with headlines and a summary of performance for the quarter. Then I wanted to talk about our outlook. Good news I'm going to be less long winded than last quarter.
Next Matt and Chris will go through our financial results for the quarter in detail and finally, I'm going to come back to make some closing remarks and take questions.
Before we jump in I also want to mention that we intend to publish another update to our equity investor presentation over the next couple of weeks it'll be available to you on our G. P. D. C website. We hope you find these presentations are useful source of additional information on G. B D C and oncology capital.
Okay, Let me start with headlines GBT.
<unk> performance for the quarter ended March 31, 2023 was solid and it was consistent with recent trends.
Four highlights first adjusted net investment income per share increased by 14% to 42 cents from 37 cents per share in the quarter ended December 31.
That's a record for <unk> and it equates to an adjusted NII Roe.
Of 11, 5%.
We believe this adjusted NII per share reflects how higher base rates and higher spreads.
Both materially increase G Bdc's earnings power.
Second quarter.
Quarterly dividend coverage quarterly dividend coverage increased to 127% as adjusted NII per share significantly exceeded G. B D. CS dividend of 33 per share.
Third overall credit performance of <unk> portfolio remains strong and.
And it remained strong despite rising interest rates and slower economic growth adjusted.
Adjusted net realized and unrealized losses for fiscal Q2 came to eight cents per share.
Non accruals did not meaningfully change and migration performance ratings was in line with and in fact, it was somewhat better than our expectations.
Fourth highlight <unk> executed on its share repurchase program during the quarter purchasing 750000 shares at a weighted average price of 12 84 per share.
This is the first time that we've repurchased shares and we believe this speaks to the conviction we have in GBT sees value proposition.
Together the results drove a <unk> increase in NAV per share quarter over quarter to $14 73 per share.
While we're pleased with <unk> performance for the quarter I want to be clear that we don't view our calendar Q1 results as a reason for complacency.
We anticipate and we are preparing for more challenging conditions now I'm, not saying a recession is coming and I'm not predicting a soft landing as we'll talk about over the course of this call. We see conflicting signals today, we want to talk about those conflicting signals and we and we wanted to talk about what we're doing in response to them.
Let me start by describing the conflicting signals.
On the one hand, we see indicators that are wanting to rough patch ahead.
GDP growth has slowed it's barely above 1% for calendar Q1 on an annualized basis. There are lots of layoffs in the news a recent report by Challenger and Outplacement firm said that employers have announced more than 330000 layoffs year to date.
We've seen high profile companies announce weak Q1 results, including the likes of Eli Lilly and Paramount.
And the chorus of economists and commentators predicting recession has grown louder.
On the other hand, the golf capital Middle market report for calendar Q1 showed double digit revenue and earnings growth.
Second consecutive quarter of surprisingly strong results. Our default rate also remains low we haven't seen material movement and non accruals were significant migration and performance ratings.
So when these conflicting signals mean well.
Well I think the right way to think about these conflicting signals as to think about them in terms of potential scenarios.
I'll talk about two a good case scenario and a bad case scenario.
A good case scenario is that inflation continues to decelerate and puts the fed in a position to start cutting rates later this year or in my judgment, we're likely early next year.
In this scenario, we would expect to see muddling growth for the rest of 2023, and we would expect to see an acceleration in growth when rates start to decline.
The bad case scenario I want to talk about is that macro conditions keep getting worse.
One potential culprit for this bad case scenario relates to the string of recent bank failures, not yet clear what the full impact of these failures, there's going to be but it's easy to imagine that the bank failures are going to cause a reduction in consumer spending a dampening of business investment have tightened.
Being a bank lending activity or where all three of those outcomes.
What are we seeing in the portfolio right now.
Most of our borrowers are adapting well despite.
The challenging environment, we're generally seeing borrowers take steps to raise prices to cut costs and to shore up liquidity.
This isn't surprising we're very selective about the companies we lend to we look for companies that are capable of adapting ably, even under changing conditions and under challenging conditions.
In our view this is the kind of market, where strong management teams and strong sponsors are particularly valuable partners.
On the other hand. This is also the kind of market, where we expect to see some credit migration, we expect to see this in markets generally we expect to see it in the BDC market generally and we expect to see it in G bdc's portfolio.
To date, we've seen less credit migration and G bdc's portfolio than we expected to see.
We'll discuss this in more detail when we look at G. B D. CS internal portfolio performance ratings later in the presentation.
The point I want to emphasize here is that based on Golub Capital's 28, plus years of experience a more challenging environment typically leads to greater dispersion and borrower performance.
And that typically leads to greater dispersion in lender performance and that in turn lead to different outcomes for investors based on which managers they're invested in.
Let me say that differently.
While we expect most of our borrowers to continue to navigate the coming periods successfully we also expect to see more credit stress.
Last quarter, we talked about some of the things we're doing to prepare for that more credit stress I want to reiterate some of that in this quarters call on.
On last quarter's call. We described in detail the enhanced portfolio monitoring procedures that we put in place last summer, which we continue to use.
These procedures help us identify less resilient borrowers and to allocate additional resources to those borrowers to refresh your recollection.
In our enhanced procedures, we focused on six key risk factors.
Higher interest rates higher inflation.
Recession resistance international exposure quality of earnings and software sector specific issues.
We evaluated golub capital's entire middle market loan portfolio on a company by company basis against the six factors and we were looking for potential vulnerabilities.
We did this because in the words of golf capitals had a direct lending break cashman Theres just no substitute for granular credit analysis.
So we keep revisiting our resiliency analysis, we're laser focused on the relatively small tail of vulnerable borrowers in G bdc's portfolio.
We're monitoring the performance of those borrowers closely and we're working with sponsors and management teams to increase their margin for error. One final thought before I pass the mic to Matt. This isn't our first rodeo. We believe the power of the Golub capital platform is going to help G. D C navigate the coming period successfully much as we.
Successfully navigated prior bumpy periods.
Thanks, David Let's turn to slide four now.
G B D. CS adjusted NII per share increased by five cents quarter over quarter to 42 cents, which represents a sequential increase of approximately 14%.
On an annualized basis, the 42 cents per share of adjusted NII represents in Oro AE of 11 at a half a percent. This increase was primarily driven by the impact of higher base rates and increased spreads on G. Bdc's portfolio as well as JBT cease low cost of funding.
G. B D. C had an adjusted net realized and unrealized loss per share of eight sets primarily from unrealized depreciation due to the limited credit migration as David discussed earlier.
Adjusted EPS was <unk> 34 cents per share representing an annualized Roe of 9.4%.
This represented a sequential increase of approximately 127% quarter over quarter. Finally, NAV per share increased by two cents to $14 73, a sense. Overall, we are pleased with <unk> results and believe the quarter reflected solid performance, especially in the context of the current macro and market backdrop I'm going.
Turn to slide seven now to walk through the drivers of the changes to NAV this quarter.
Yeah.
On slide seven you can see that NAV increased quarter over quarter to $14 73 per share.
Let's walk through the components adjusted NII was <unk> 42 cents per share and the company paid 33 cents per share of dividends.
Adjusted NII was offset by a loss of four cents per share from net unrealized depreciation on investments and finally net realized appreciation drove a loss of three cents per share.
I think there are a couple of key takeaways from this slide first JBT see strong growth in adjusted NII enabled G BDC to generate nine cents per share of excess income above its dividend.
This excess income allowed us to grow Jbt's is NAV per share despite some net realized and unrealized depreciation.
Given our cautious near term economic outlook, we think it's prudent to hold the quarterly dividend constant at 33 per share for now at the same time, we continue to believe in the strength of Gbt's. His forward looking earnings potential. So we plan to reassess our approach to dividends in future quarters.
Second there is a new line item on our NAV bridge this quarter share repurchases simply put we think the stock is undervalued.
Share repurchases in calendar Q1 were accretive to NAV by a penny per share. We believe GBT see strong balance sheet gives us valuable flexibility to continue to buy back shares opportunistically.
Turning now to slide 10, this summarizes our origination activity for the quarter net.
Net funds increased modestly as new investment commitments and delayed draw term loan fundings exceeded exit sales and fair value changes of existing investments.
The asset mix of new investments shown in the middle of the slide remain predominantly one stop loans.
Looking at the bottom of the slide the weighted average rate on new investments increased by 70 basis points. This quarter due to a combination of higher base rates and wider asset spreads on new originations the weighted average spread on new investments increased by 40 basis points over the prior quarter from six 7% to seven 1%.
While overall deal volume remain muted, we believe market conditions remained lender friendly for the deals that did happen and we expect that to continue for the foreseeable future.
Slide 11 shows GBT CS overall portfolio mix as you can see the portfolio breakdown by investment type remained consistent quarter over quarter with one stop loans continuing to represent around 85% of the portfolio at fair value.
On slide 12. This shows the G. Bdc's portfolio remained highly diversified by obligor with an average investment size of approximately 30 basis points.
As of March 31, 2023, 94% of our investment portfolio was comprised of first lien senior secured floating rate loans and defensively positioned in what we believe to be resilient industries.
Now, let's turn to slide 13.
As we explored in detail over the prior couple of quarters, the rising interest rate environment highlights the asset sensitive nature TBD safe balance sheet.
Let's start with the dark Blue line, which is our investment income.
As a reminder, investment income and includes the amortization of fees and discounts.
She bdcs investment income increased by 100 basis points, primarily from rising interest rates.
By contrast, our cost of debt the Teal line only increased 40 basis points, our cost of debt benefits meaningfully from our approximately one 5 billion of unsecured notes that are fixed rate and have a weighted average coupon of two 7%.
Combining these two factors our weighted average net investment spread the gold line increased by 60 basis points over the prior quarter.
We believe GBT seas, adjusted NII per share still has some room to grow as existing loans reset the higher base rates and given the most recent fed funds increase however, we believe the growth from here will likely be modest unless the fed decides to raise rates further.
You'll see additional details on JBT SEIS asset sensitivity in the Form 10-Q.
Finally, I'd note that the current lender friendly environment also provides us opportunities from time to time to reprice existing loans at higher spreads for example, when borrowers want additional financing or flexibility. This is a dynamic in the existing portfolio. We anticipate will continue to provide additional upside over the near term.
I'll turn it over to Chris now to cover credit quality.
Thanks, Matt.
Let's move on to slide 14, and 15 and take a closer look at credit quality metrics on.
On slide 14, you can see that the number of nonaccrual investments as of March 31 decreased to eight nine compared to December 31 due.
Due to the write off of one non accrual portfolio company investments, which had a fair value of zero as of December 31, 2022.
Additionally, the percentage of investments on non accrual measured at fair value as of March 31 decreased modestly to one 7% of our total portfolio from one 8% as of December 31 2022.
On slide 15, as David mentioned earlier internal performance ratings have been strong and relatively stable approximately 87% of investments have an internal performance rating of four or higher which means they are performing as expected or better than expected at underwriting.
And only one 2% of investments have an internal performance rating of two or lower which means they are performing materially below expectations at underwriting.
Our internal performance rated three bucket increased modestly as expected given where we sit in the current cycle to 11, 8%.
Youll recall that category three loans are performing below expectations or are expected to perform below expectations.
When a loan migrates to category three it automatically triggers enhanced monitoring and oversight and it doesn't mean that we necessarily expect a default or loss.
Given the current dispersion of potential economic outcomes that David described earlier, we are currently and having similar environments historically, the more conservative and evaluating investments.
We're going to skip past slide 16 through 19. These slides have more detail on <unk> financial statements dividend history and other key metrics.
Just mentioned a couple of takeaways from these sites.
On Slide 16, you can see that GBP six shares of common stock outstanding decreased this quarter to 171 million shares outstanding from 179 million shares outstanding as of December 31, 2022. This is a result of the share buybacks we executed.
In addition, as noted in our 10-Q filing we repurchased additional shares through May eight resulting in aggregate share repurchases totaling over 930000.
Please note on slide 17, the reduction and Jamie six common shares outstanding didn't fully flow through to the weighted average share count during the quarter.
We believe the full impact of the share repurchases made during the March 31 quarter and subsequently through May eight will be beneficial from an earnings accretion perspective next quarter all else equal.
Yeah.
Finally on slide 18 note that GBP six quarterly return on equity was two 4% this past quarter.
The last slides I want to cover before handing it back to David our slides 20 and 21.
We believe Jimmy D C has meaningful value embedded in its funding structure.
We ended the quarter with almost $960 million of dry powder from unrestricted cash and undrawn commitments on our meaningfully over collateralized corporate revolver and the unused unsecured revolver provided by our adviser.
<unk> robust liquidity represents over five times its current unfunded asset commitments.
And the funding structure is an important element that underpins our three investment grade ratings from Fitch Moodys and S&P.
Also wanted to share some quick perspective related to GBT six corporate revolver.
On March 17, we amended and extended GBT sees revolver with its bank group.
First we extended the term of the revolver by two years to March 2028.
Second we increased aggregate commitments under the facility by $250 million to approximately 1.49 billion.
Third we decreased the credit spread adjustment related sofa to 10 basis points.
While all other material terms, including pricing remain constant.
We think our ability to close this transaction despite regional bank turmoil demonstrates the power of the gala brand with the bank lending community.
As of March 31, 2023, <unk> debt to equity ratio net of cash was 121 times.
46% of our debt funding is in the form of unsecured notes the majority of which have maturities in 2026 and 2027.
We issued these fixed rate notes with a weighted average coupon of two 7% and did not swap these out to floating rates.
Our weighted average cost of debt for the quarter ended March 31, 2023 was four 8%, which we believe is among the lowest in our peer group of publicly traded bdcs.
Now I'll turn it back over to David for closing remarks and Q&A.
Thanks, Chris to sum up Q Bdc's performance for the quarter ended March 31 was solid.
Adjusted NII per share was strong and it was well in excess of our dividend.
Portfolio is generally performing well from a credit perspective.
And at the same time, we're starting to see more dispersion and borrower performance.
We don't know exactly what the future's going to brain, but we're preparing for a future with more credit stress and more migration of loans from categories, four and five on our internal performance ratings to category three and future quarters.
Our game plan remains the same we talked about last quarter, it's to detect vulnerabilities early to take corrective actions early and to stay laser focused on avoiding realized credit losses as long as we can keep realized credit losses low we should see a large portion of the unrealized losses that we've taken over the last 12.
Month's reverse.
Finally, I want to reiterate that we think GBT sees exceptionally well positioned for the long term in part this reflects the powerful competitive advantages of the Golub capital platform, our strong relationships with sponsors and borrowers are market, leading scale, our deep industry expertise and our long track record of low credit losses.
And in part this reflects the strengths of G bdc's balance sheet and fee structure.
We're buyers of G BDC stock in fiscal Q2, because of our conviction about the companys prospects and we've kept the dividend level constant to build NAV and to position ourselves to go on offense and are relatively attractive lending environment.
With that we'll open the line for questions.
Yeah.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. If you would like to withdraw your question again and press Star one.
We'll pause for just a moment to compile a Q&A roster.
Your first question is from the line of Raymond Cheesman with Anfield capital. Your line is open.
With all the volatility in the last several months there has been increasing discussion in Washington about Nonbanks needing to have more supervision I'm wondering what you think might come down the road and how it might impact gala.
Yes. Thanks for your question I think Youre right. There is an increasing amount of discussion about potential changes to regulatory frameworks and it's interesting to think about these.
These discussions in the context of the.
Last 30 years of history. If you think about what's happened over the course of the last 30 years, starting with regulatory changes during the savings and loan crisis in the early 19 nineties, we've seen a series of moves by regulators and through legislation to.
Get banks to be less involved in lending to private equity backed companies.
We saw it in the each L T phase in the early 19 nineties, we saw it in the.
Telecom debacle of the early two thousands and we thought maybe most particularly in the concerted effort of the three different bank regulators post Dodd Frank.
The result of these actions has been to a very significant degree.
The ties lending to private equity backed companies Theres relatively little bank ownership of loans to private equity backed companies.
<unk>.
<unk> been intentional it's been the objective of the regulators to avoid having federally deposit insured institutions be owners of these kinds of loans.
I'm puzzled by what the goal would be a new round of regulation I don't think the goal is to bring back this kind of lending to banks.
And because <unk>.
Lenders like Golub capital don't use deposits. We don't have the same dynamic we don't have the same bank run risk that we've seen in the case of Silicon Valley bank or signature banker or first Republic.
So.
I think your question is fair we are hearing more about this I think there's going to be a need for more discussion about what the goals are and then about what the potential modalities for achieving those goals are I don't think there's clarity yet about either.
If you let me I have a follow up.
Again theres been.
Kind of talking heads Wall Street Journal, what have you about private.
Capital.
Coming to the rescue or helping to support the.
The CRE rollover over the next 18 to 24 months and while I don't think that that category of asset is necessarily attractive to you on a risk return basis.
Wondering what you think about private debt getting into the CRE swamp at this moment.
Yeah.
So.
Again very interesting question, you're right not one that's directly relevant to us because we we don't we don't do real estate lending. We don't think were capable of doing real estate lending well, but I'll make a few observations. If you look at the data coming out of the fed the.
Largest lenders to the local commercial real estate industry or regional and local banks.
That data points to about two trillion dollars of local commercial real estate lending.
I think it's likely coming out of the.
Bank runs in bank failures that we've seen that theres going to be pressure on those local and regional banks to reduce that level of lending. Partly this is gonna be a function of continued consolidation in the banking sector. We've gone from 14500 banks to a little over 4000 over the last 30 years.
I think recent troubles in the bank sector are going to accelerate that trend. So partly we're going to see lower commercial real estate lending from banks, just because there are fewer local and regional banks and partly I think local and regional banks are going to respond to the recent events by reducing leverage and by increasing their cautiousness.
So I think theres going to be a need for incremental lending capital in the space I think it's logical to look to the private credit and real estate private credit segment as a potential source of capital I.
I don't think it's going to be easy because.
This isn't just an issue of availability of credit. This is also an issue of credit worthiness. We've got a lot of commercial real estate in this country that is seeing declining rent trends and increasing interest expense trends in.
There, there's there's not a need for more debt capital theres going to be a need for more equity capital.
Thank you very much.
Your next question comes from the line of Ryan Lynch with K VW. Your line is open.
Hey, good afternoon, I really appreciate all the comments you've given on kind of how you guys are viewing the your portfolio and the economy as we as you go through these choppy times.
I know each individual business that you lend to individual circumstances that affected performance, but I would just love to hear as you kind of take a step back and look at that.
Your overall portfolio in the different.
Different circuit segments and sectors are there any sectors in your portfolio that you are noticing having very strong returns in this current environment and you expect that to continue throughout the year. Then Conversely are there any sectors in their portfolio of that that are noticeably more challenged.
Currently the expectation is to run into additional challenges throughout 2023.
Sure good to hear from you Ryan I'd point to a couple of observations you are right every everything's a situation.
Granular level, but there are some trends that are visible.
One trend and you can see this in the Golub capital Middle market report numbers for the last several quarters. One trend is is sustained strength in.
Business to business mission critical software companies and I don't think this is surprising right. If you think about these companies they are selling services that are.
Aimed at improving the efficiency of their clients so as their clients and their prospective clients are under more pressure to achieve efficiencies that actually drives more business for them.
I think we're likely to see continued reasonably strong results in the.
Business to business software space, it's interesting because that's not what we're seeing in consumer facing software.
We're not meaningful lenders to consumer facing software companies, but.
As as as investors, we all know what's what's been happening in the large consumer facing technology sector with companies experiencing falling demand. So there's an interesting split between consumer facing and business focused software.
<unk>.
Second trend I identified is in.
Health services Health care services.
The companies that are very heavily reliant on Medicare or Medicaid.
Payments and.
To some degree those that are focused on on payments from insurance companies Theyre seeing.
Challenge managing price as quickly as their costs are changing.
So in many cases, we're seeing a similar dynamic here we're seeing.
Costs go up primarily wage costs because of challenges filling positions.
I think it's going to get a little easier with the slowing economy, but this has been a challenge.
And we're seeing these companies unable to pass through fully those cost increases in the form of higher pricing.
And I think we're going to continue to see some health care service firms.
It's not all of them, but selectively we're going to see some continued to struggle with that.
They simply don't have the same pricing power that that they wish they had.
Okay Yeah.
Okay.
Is it that makes sense.
I was just curious on <unk>.
Obviously, it's been a pretty slow environment right. Now you know multiples are not necessarily high spreads are wide base rates are high growth is slowing so it's not a great time I don't think for for.
And there will be M&A and <unk> companies are really transact.
Just curious what type of companies.
Do you see transacting and in this current environment number one and then number two what do you think has to change and maybe there is multiple things that need to change before do you think there will be a more consistent level of deal volume out in the marketplace.
Sure. So first again just.
Sure a fact based.
M&A volumes have been very slow not a little low not not a small decrease from 2021 or the early part of 2022, but a very dramatic decline.
And.
It's small deals it's large deals it runs across the board and I think to your point, it's not entirely surprising we saw in the spring and summer of 2022, we saw a decline in public equity prices and we saw very significant increase in financing costs.
So when when we've seen that pattern before it typically takes a bit of time for buyers and sellers to recalibrate and to to come to agreement again on on what constitutes fair value.
I think it is changing right now we're seeing some improvement in.
Deal activity in our pipeline I think private equity sponsors are in many cases eager to get new deals done I think some private equity firms are now.
Testing the market by bringing by bringing out for sale companies that are that are strong performers.
So I think it's going to start improving over the course of calendar Q2, and more particularly over the second half of the year.
But it would help us a whole lot Ryan if we also saw an improvement in the macro picture. So we saw signs of continued deceleration of inflation and people could get.
Get more comfortable that.
The interest rates are have already peaked and are going to head down in 'twenty four I think that would help a lot.
Yes makes sense and then just one last question if I can.
I don't remember if this has been addressed in the past but.
Both of your Securitizations.
Both exited or both exited their reinvestment period earlier this year.
I know theres not a lot of repayments in the marketplace occurring today, but as theres more repayments in each of those vehicles I think they've become less efficient from a from a.
Our capital funding source I'm, just curious longer term.
What do you I would assume at some point youre going to want to replace those as they become less efficient.
What do you anticipate replacing those with and is there sort of any estimated timeline of when they would be replaced and I would assume that that probably depends on the level of repayments in those vehicles, which I'm assuming is probably pretty low at this point.
Yes, as Kris Ericsson said, we've got enormous liquidity. So there's no rush to do anything you are correct that over time, it's good to us.
Refresh securitization so that at.
At least some of them are in reinvestment period.
And we do have two that are very attractively priced but that are now out of their reinvestment period, it's not a problem we have.
Such ample liquidity that that there is no need to.
To manage the this in prepay those early.
We don't want to prepay them early because the pricing on them is is below where market is today.
But at some point in the future as as we see repayments it will make sense to refresh those securitizations I like having a mix of different kinds of financing a combination of unsecured notes and securitizations and the and the bank revolver I think that combination works very well.
So I would anticipate we would continue to want.
To manage the right hand side of the balance sheet with a mix of those three.
Okay.
Understood I appreciate the time today.
Your next question comes from the line of Robert Dodd with Raymond James Your line is open.
Hi, guys just wanted to go back to one of the.
The visible trends and put it out there, but in terms of the health care services.
When we look at the Ultimate index for your portfolio I mean health care team.
And expansion in this most recent quarter.
So there's that.
Is there any connection between that industry and the increase in kind of category three.
Assets, given I mean do 80% of your portfolio.
Consumers learned anything getting coveted some help catherine could maybe be more discretionary than.
In years past I mean is there any any connection between those those issues or.
Any color there.
I think it's fair to say Robert.
We've had a higher proportion of our.
Credits our problem credits were avoiding problem credits, but we don't we don't avoid them entirely we've had we've had more in health care than I than.
And then I think in other sectors.
And.
And I anticipate that as a trend that's going to continue for a bit.
Okay. Appreciate it thank you.
Your next question is from Jordan <unk> with Wells Fargo. Your line is open.
Hi.
You've mentioned international exposure in the portfolio.
It's something we watch as a potential credit risk I'm curious if you view this as currency risk or different behavior from sponsors internationally or just your views on growth outside the U S. Any color you can give there on what.
In particular concerns you about international businesses more than others.
Sure.
So flashback to summer of 'twenty two the U S has raised interest rates very rapidly faster than we've ever raised interest rates before.
That in turn has had a very significant impact on currency exchange rates.
We believe that many companies, we're not expecting those changes in that.
Hedging.
Forward exchange rate movements is very challenging for most companies. So we wanted to take a new look at.
Our cost structures and revenue structures for our portfolio with a real focus on companies, where there were revenues in one currency and.
<unk> expenses in the second currency to determine whether they had found themselves in a difficult spot.
There were some other factors as well we also put on the list related to the war in Ukraine and changes in trading patterns associated with the war in Ukraine, but the major area that we found ourselves focused on was FX.
Alright, great. Thank you that's all for me.
Again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
There are no further questions at this time I will now turn the call back to the presenters for closing remarks.
Great. Thank you all for attending today, we appreciate your time and as always should you have any questions. Prior to our next quarterly scheduled call. Please feel free to reach out look forward to talking to you all in three months.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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