Q1 2024 Capital Southwest Corp Earnings Call
[music].
Speaker 1: I will now turn the call over to Chris Rebergh.
Okay.
<unk> CFO and Chris Rehberger, VP Finance I will now.
Turn the call over to Chris Rehberger.
Speaker 2: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements.
Thank you.
To remind everyone that in the course of this call we will be making certain forward looking statements.
Speaker 2: These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs.
These statements are based on current conditions currently available information and management's expectations assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks uncertainties and assumptions that could cause actual results to differ materially from such statements.
Speaker 2: They are not guaranteed the future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such states.
Speaker 2: For information concerning these risks and uncertainties, see Capital Southwest publicly available filings with the SGA.
For information concerning these risks and uncertainties see capital Southwest's publicly available filings with the SEC.
Speaker 2: The company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances, or any other reason after the day of this press release, except is required by law. I will now hand the call off to our president and chief executive officer, Owen D.
The company does not undertake any obligation to update or revise any forward looking statements whether as a result of new information future events changing circumstances or any other reason after the date of this press release, except as required by law.
I will now hand, the call off to our President and Chief Executive Officer Tony.
Speaker 3: Thanks, Chris. And thank you, everyone, for joining us for our first quarter fiscal year 2024 earnings call.
Thanks, Chris and thank you everyone for joining us for our first quarter fiscal year 2024 earnings call.
Speaker 3: We are pleased to be with you this morning and look forward to giving you an update on the performance of our company and our portfolio as we continue to diligently execute our investment strategy as stewards of your capital.
We are pleased to be with you. This morning, and look forward to giving you an update on the performance of our company our portfolio as we continue to diligently execute our investment strategy as stewards of your capital.
Speaker 3: Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found in the investor relations section.
Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found in the Investor Relations section.
Speaker 2: of our website at www.capitolsouthwest.com.
Of our web site at Www Dot capital southwest Com.
Speaker 2: You will also find a quarterly earnings press release issued last evening on our website.
You will also find our quarterly earnings press release issued last evening on our website.
Speaker 2: We'll begin on slide six of the earnings presentation, where we have summarized some of the key performance highlights for the quarter.
Well begin on slide six of the earnings presentation, where we have summarized some of the key performance highlights for the quarter.
Speaker 2: During the quarter, we generated pre-tax net investment income of 67 cents per share, which represented 3% growth over these 65 cents per share in the prior quarter.
During the quarter, we generated pre tax net investment income was <unk> 67 per share, which represented 3% growth over the 65 cents per share in the prior quarter.
Speaker 2: and 34% growth over the $0.50 per share generated a year ago in the June quarter.
34% growth over the 50 cents per share generated a year ago in the June quarter.
Speaker 2: 67 cents per share more than covered both our regular dividend and our supplemental dividend paid during the quarter of 54 cents and five cents per share respect
67, <unk> per share more than covered both our regular dividend and our supplemental dividend paid during the quarter of 54, six and five cents per share respectively.
Speaker 2: is at the end of the quarter, we estimate that our undistributed taxable income was $0.34 per share.
Is that the end of the quarter, we estimate that our undistributed taxable income was 34 cents per share.
Speaker 2: We're also pleased to announce today that our board has declared a two-cent per share increase in our regular dividend to 56 cents per share for the quarter ending September 30, 2020.
We're also pleased to announce today that our board has declared a two cent per share increase in our regular dividend to <unk> 56 per share for the quarter ending September 32023.
Speaker 2: This represents an increase of 4% compared to the $0.54 per share regular dividend paid during the June quarter. And 12% growth over the $0.50 per share paid a year ago in the September quarter.
This represents an increase of 4% compared to the 54 cents per share regular dividend paid during the June quarter.
And 12% growth over 50 <unk> per share paid a year ago in the September quarter.
Speaker 2: These increases in our regular dividend are a result of the increased fundamental earnings power of our portfolio given its growth and performance, as well as further improvements in our operating list.
These increases in our regular dividend.
Ultimately increased fundamental earnings power of our portfolio given its growth and performance as well as further improvements in our operating leverage.
Speaker 2: In addition, due to the excess earnings being generated by our flowing rate depth in decimal portfolio in this high interest rate environment, our board is declaring one per share increase to our supplemental dividend to six cents per share for the September 23 quarter.
In addition, due to the excess earnings being generated by our floating rate debt investment portfolio and there's high interest rate environment. Our board has declared a one cent per share increase to our supplemental dividend six cents per share for the September 23 quarter.
Speaker 2: Bring total dividends to Claire from September quarter to 62 cents per share.
Bringing total dividends declared for the September quarter to 62 per share.
Speaker 2: While future dividend declarations are at the discretion of our board of directors, it is our intent and expectation that Capital Southwest will continue to distribute quarterly supplemental dividends for the foreseeable future, while base rates are above historical averages, and we have meaningful UTI generated by earnings in excess of our dividends and realized gains from our equity co-investment portfolio.
While future dividend declarations are at the discretion of our board of directors. It is our intent and expectation.
Capital Southwest will continue to strip to distribute quarterly supplemental dividends for the foreseeable future while base rates were above historical averages and we have meaningful UTI generated by earnings in excess of our dividends and realized gains on our equity co investment portfolio.
Speaker 2: During the quarter, deal quality and activity in the lower middle market continued to be strong.
During the quarter deal quality and activity in the lower middle market continued to be strong active.
Speaker 2: Activity continued to be focused mainly on acquisitions rather than refinancing.
Activity continues to be focused mainly on acquisitions rather than refinancings.
Speaker 2: And the environment could continue to be a favorable one for non-bank first lien lenders like Capital Southwest.
Any environment continued to be a favorable one for non bank first lien lenders on capital southwest.
Speaker 2: private equity firms and business owners continued to transact, while non-bank lenders continued to provide more certainty to closing than traditional bank financing structure.
The private equity firms business owners continue to.
Two trends act, while non bank lenders continue to provide more certainty to closing the traditional bank financing structures.
Speaker 2: We continue to see loan pricing spread on new portfolio company loans that were 50 to 100 basis points higher than a year ago, and leverage levels on new portfolio company loans that were generally lower by half to a full turn of EBITDA.
We continue to see loan pricing spread on new portfolio company loans that were 50 to 100 basis points higher than a year ago.
And leverage levels on new portfolio company loans that were generally lower by half to a full turn of EBITDA.
Speaker 2: We also continue to see loan-to-value levels on new loans calculated as our first lien loan divided by the enterprise value being paid for in acquisition.
We also continue to see loan to value levels on new loans calculate as our first lien loan divided by the enterprise value being paid for an acquisition.
Speaker 2: that were down meaningfully from a year ago, as private equity firms remain willing to pay relatively full multiples for quality companies.
They were down meaningfully from a year ago as private equity firms remain willing to pay relatively full multiples for quality companies.
Speaker 2: Portfolio growth during the quarter was driven by 111.9 million in new commitments consisting of commitments to six new portfolio companies totaling 98.6 million.
Portfolio growth during the quarter was driven by $111 9 million in new commitments consisting of commitments to six new portfolio companies totaling $98 6 million.
Speaker 2: into seven existing portfolio companies totaling $13.3 million.
And to seven existing portfolio companies totaling $13 3 million.
Speaker 2: This was offset by 3.4 million proceeds for one equity exit during the quarter.
This was offset by $3 4 million in proceeds from one equity.
Exit during the quarter.
Speaker 2: On the capitalization front, we are pleased to announce that subsequent to corner end, we successfully amended and extended our corporate revolving credit facility.
On the capitalization front, we are pleased to announce that subsequent to quarter end, we successfully amended and extended our corporate revolving credit facility.
Speaker 2: Total commitments under the facility increased from 400 million to 435 million. And the final maturity of the facility was extended from August 2026 to August 2028.
Total commitments under the facility increased from $400 million to $435 million and the final maturity of the facility was extended from August 2026 to August 2028.
Speaker 2: Additionally, during the quarter, we issued $71.9 million in aggregate principal of 7.75% of federal topents due August 2028.
Additionally, during the quarter, we issued $71 9 million in aggregate principal of 775% notes due August 2028.
Speaker 2: These unsecured notes, commonly referred to as baby bonds, are publicly traded on the NASDAQ under the ticker CSWCZ.
These unsecured notes, commonly referred to as baby bonds are publicly traded on the NASDAQ under the ticker G. S. W. C Z.
Speaker 2: These notes have a five-year maturity and are fully callable after year two, giving us significant flexibility to manage our balance sheet in all raised environments. Furthermore, in lockstep with the
These notes have a five year maturity and are fully callable after year, two giving us significant flexibility to manage our balance sheet in all rate environments.
Furthermore, in lock step with our strong deal pipeline.
Speaker 2: We raised a total of $45.6 million in gross equity proceeds at a weighted average price of $18.03 per share, or 110% of the prevailing NAV per share.
We raised a total of $45 6 million in gross equity proceeds at a weighted average price of $18 <unk> per share or 110% of the prevailing NAV per share.
Speaker 2: We have remained diligent in funding a meaningful portion of our investment activity with accretive equity issues, as we believe it is important to maintain a conservative mindset to BDC leverage.
We have remained diligent in finding a meaningful portion of our investment activity with accretive equity issuances as we believe it is important to maintain a conservative mindset to BDC leverage.
Speaker 2: continue to manage our BDC with a full cycle, full economic cycle mentality.
We continue to manage our BDC with a full cycle full economic cycle mentality.
Speaker 2: This starts with our underwriting of new opportunities, but this still applies to how we manage the EDC's capitalization.
This starts with our underwriting of new opportunities, but it also applies to how we manage the bdc's capitalization.
Speaker 2: Managing leverage to the lower end of our target range positions us to invest throughout a potential recession when risk-adjusted returns can be particularly attractive.
Managing leverage to the lower end of our target range positions us to invest throughout a potential recession.
When risk adjusted returns can be particularly attractive.
It also allows us to support our portfolio companies.
Speaker 2: while also opportunistically repurchasing our stock if it were to trade meaningfully below NAB.
While also opportunistically repurchasing our stock if it were to trade meaningfully below NAV.
Speaker 2: With this as contact, we are very pleased with the strength of our balance.
With this as context, we're very pleased with the strength of our balance sheet.
Speaker 2: regulatory leverage remains slightly lower our stated target range at 0.87 to 1. And as of the end of the quarter, we had approximately 225 million in cash and underarm capital payments that's on our evolving credit.
Regulatory leverage remains slightly below our stated target range at <unk> 87 to one.
And as of the end of the quarter, we had approximately $225 million in cash and Undrawn capital commitments on our revolving credit facility.
Speaker 2: Furthermore, after our recent bond deal, approximately 53% of our balance sheet liabilities were in unsecured, covenant-free bonds, the earliest of which mature in the U.S.
Furthermore, after our recent bond deal approximately 53% of our balance sheet liabilities or an unsecured covenant free bonds.
The earliest of which mature in 2026.
Speaker 2: Finally, in June 2023, we received a triple B minus investment grade rating with a stable outlook from Fitch Rades. Michael will provide further detail on this.
Finally in June 2023, we received a triple B minus investment grade rating with a stable outlook from Fitch ratings.
Michael will provide further detail on this later in our prepared remarks.
Speaker 2: On slide seven and eight, we illustrate our continued track record of producing strong dividend growth, consistent dividend coverage, and solid value creation since the launch of our credit strategy back in January of 2015.
On slide seven and eight we illustrate our continued track record of producing strong dividend growth.
<unk> dividend coverage and solid value creation since the launch of our credit strategy back in January of 2015.
Speaker 2: Since that time, we have increased our regular dividend paid to shareholders 27 times and have never cut the regular dividend.
Since that time, we have increased our regular dividend paid to shareholders 27 times.
Speaker 2: Even in the tumultuous environment, we all experienced during the COVID pandemic.
Never cut the regular dividend.
Even in a tumultuous environment, we all experienced during the Covid pandemic.
Speaker 2: Additionally, over the same time period, we have paid or declared 21 special or supplemental dividends totaling $3.77 per share, including the six cents per share. The board has declared the set to September 2023 quarter.
Additionally over the same time period, we have paid or declared 21 special or supplemental dividends totaling $3 77 per share, including the fixed <unk> per share. The board has declared for the September 2023 quarter.
Speaker 2: All generated from excess learning and real life gains from our best portfolio.
All generated from <unk>.
Excess earnings and realized gains from our investment portfolio.
Speaker 2: We believe our track record of consistently growing our dividend, the solid performance of our portfolio, as well as our company's sustained access to capital market.
We believe our track record of consistently growing our dividend.
Solid performance of our portfolio as well as our company's sustained access to capital markets.
Speaker 2: has demonstrated the strength of our investment in capitalization management strategies, as well as the absolute alignment of all our decisions with the interests of our shareholders.
It has demonstrated the strength of our investment in capitalization management strategies as well as the absolute alignment of all our decisions with the interests of our shareholders.
Speaker 2: Turning to slide nine, we lay out the core pinnets of our industrial strategy.
Turning to slide nine we lay out the core tenets of our investment strategy.
Speaker 2: core strategy is lending and investing in the lower middle market. The vast majority of which is in first-line senior security loans to sponsor back some
Our core strategy of lending and investing in the lower middle market.
Vas majority of which is in first lien senior secured loans to sponsor backed companies.
Speaker 2: In fact, approximately 91% of our credit portfolio is backed by private equity firms.
In fact, approximately 91% of our credit portfolio is backed by private equity firms.
Speaker 2: which provide important guidance and leadership to the portfolio companies, as well as the potential for new junior capital support if needed.
Which provide important guidance and leadership to the portfolio of companies as well as the potential for new junior capital support if needed.
Speaker 2: We have increased with the support that our private equity firm partners have provided in the few instances where capital has been required to maintain the operating and growth strategies of the portfolio company and a rising interest rate environment.
We have been pleased with the support that our private equity partners have provided in the few instances where capital has been required to maintain the operating and growth strategies of the portfolio company and a rising interest rate environment.
Speaker 2: In the lower-bental market, we often have the opportunity to invest out of minority basis in the equity, in the equity, peri-per-su with the private equity firm when we believe the equity thesis is compelling.
In the lower middle market, we often have the opportunity to invest on a minority basis and the equity and the equity Parry pursue with a private equity firm when we believe the equity thesis is compelling.
Speaker 2: And at the end of the quarter, our equity co-investment portfolio consisted of 57 investments with a total fair value of $122.5 billion.
And at the end of the quarter, our equity co investment portfolio consisted of 57 investments with a total fair value of $122 5 billion.
Speaker 2: which was marked at 154% of our costs representing 4242.9 million in embedded, unreliable appreciation or a dollar on
Which was marked at 154% of our cost representing $42 $42 9 million in embedded unrealized depreciation.
Or $1 11 per share.
Speaker 2: Our equity portfolio, which represented approximately 10% of our total portfolio of fair values at the end of the quarter, continues to provide our shareholders participation in the attractive upside potential for these growing lower middle markets.
Our equity portfolio, which represented approximately 10% of our total portfolio at fair value as of the end of the quarter continues to provide our shareholders participation in.
And the attractive upside potential for these growing lower middle market businesses.
Speaker 2: which will come in the form of NAV for share growth and supplemental dividends over time.
Which will come in the form of NAV per share growth in supplemental dividends over time.
Speaker 2: Our lower income market strategy is complemented by club participation in larger companies led by like-minded lenders with whom we have relationships and have gained confidence in their post-closing loan management from working together across multiple deals. Virtually all of these club deals are backed by private public down payment dysfunction by the
Our lower middle market strategy is complemented by club participations in larger companies, whereby likeminded lenders with whom we have relationships and have gained confidence in their post closing loan management from working together across multiple deals.
Virtually all of these club deals are backed by private equity firms.
As illustrated on slide 10.
Speaker 2: Our on balance sheet credit portfolio, as of the end of the quarter, grew 7% quarter over quarter to $1.11 billion.
Our on balance sheet credit portfolio is at the end of the quarter grew 7% quarter over quarter to $1 1 billion.
Speaker 2: Compared to 1.04 billion as of the end of the part.
Compared to $1 4 billion as of the end of the prior quarter.
Speaker 2: Year by year, portfolio agreed 28% from 865 million as of the June 2022 quarter.
Year over year portfolio grew 28% from $865 million as of the June 2022 quarter end.
Speaker 2: In the current quarter, 100% of the new portfolio company debt originations were first lien senior secured. And as of the end of the quarter, 97% of the credit portfolio was first lien senior secured.
For the current quarter, 100% of the new portfolio company that originations were first lien senior secured.
As of the end of the quarter, 97% of the credit portfolio with first lien senior secured.
Speaker 2: We are also pleased with the trend and granularity in our credit portfolio.
We are also pleased with the trend and granularity in our credit portfolio.
Speaker 2: As the average credit exposure per company across the portfolio is currently 1.2%.
As the average credit exposure per company across the portfolio is currently one 2%.
Speaker 2: On slide 11, we detail the $111.9 million of capital invested in and committed to portfolio companies during the quarter.
On slide 11, we detail the $111 9 million of capital invested and committed to portfolio of companies during the quarter.
Speaker 2: Capital committed in court included 95.3 million first-lane seniors cured debt, committed to six new portfolio
Capital committed this quarter included $95 3 million first lien senior secured debt committed to six new portfolio companies.
Speaker 2: including four in which we invested a total of 3.3 million in equity.
Including four in which we invested a total of $3 3 million in equity.
Speaker 2: We also committed a total of $12.7 million in first-winning senior secure debt.
We also committed a total of $12 $7 million in first lien senior secured debt.
Speaker 2: and 0.6 million in equity to seven existing portfolios.
And $6 million in equity to seven existing portfolio companies.
Speaker 2: Turning to slide 12, during the quarter we had one equity active associated with the sale of the portfolio.
Turning to slide 12 during the quarter, we had one equity exits associated with the sale of a portfolio company.
Speaker 2: This exit generated 3.4 million proceeds generating weighted average IRL of 13% in a realized gain of 1.9 million since its original closing in January 2016.
This exit generated $3 4 million in proceeds generating a weighted average IRR of 13% and a realized gain of $1 9 million since its original closing in January 2016.
Speaker 2: Since the launch of our credit strategy, we have realized 68 portfolio actions.
Since the launch of our credit strategy, we have realized 68 portfolio exits representing approximately $802 million in proceeds.
Speaker 2: representing approximately 802 million in proceeds that have generated a cumulative weighted average IRR of 14.1%.
It has generated a cumulative weighted average IRR of 14, 1%.
Speaker 2: We are pleased with the strong market position that our team has established in the lower mental market as a premier, deaf and equity capital provider.
We are pleased with the strong market position.
Team is established in the lower middle market as a premier debt and equity capital provider.
Speaker 2: is evidenced by the broad array of relationships across the country from which our team is sourcing quality opportunity.
As evidenced by the broad array of relationships across the country, which our team is sourcing quality opportunities.
Speaker 2: Current deal activity continues to be strong while refinancing activity is light due to the wider spread in the market.
Current deal activity continues to be strong while refinancing activity is light due to the wider spreads in the market.
Speaker 2: As a result, we expect solid net portfolio growth in the coming quarter.
As a result, we expect solid net portfolio growth in the coming quarters.
Speaker 2: On slide 13, we detail some key stats of our on-balance sheet portfolio as at the end of the quarter, excluding our I-45 joint.
On slide 13, we detail some key steps of our on balance sheet portfolio as at the end of the quarter, excluding our I 45 joint venture.
Speaker 2: As of the end of the quarter, the total portfolio fair value was was weighted 87.2% to first lean senior secured debt, 2.8%.
As of the end of the quarter. The total portfolio at fair value was eight was weighted 87, 2% to first lien senior secured debt.
<unk>, 8%.
Two second lien senior secured debt.
Speaker 2: 0.1% to subdebt and 9.9% to equity co-invest.
1% to sub debt and nine 9% to equity co investments.
Speaker 2: Credit portfolio has weighted average yield of 12.9% and weighted average leverage through our security of 3.8 times.
Credit portfolio had a weighted average yield of 12, 9% and weighted average leverage through our security of three eight times.
Speaker 2: If C on slide 14 are totally invested portfolio now including high 40
As seen on slide 14, our total investment portfolio now, including I 45.
Speaker 2: continues to be well diversified across industries with an asset mix which provides strong security for our shareholders capital.
<unk> continues to be well diversified across industries with an asset mix, which provide strong security for our shareholders' capital.
Speaker 2: The portfolio remains predominantly weighted towards firstly senior secured debt with only 3% of the total portfolio and secondly senior secured debt.
The portfolio remains predominantly weighted towards first lien senior secured debt with only 3% of the total portfolio in second lien senior secured debt.
Speaker 2: Turning to slide 15, we have laid out the rating migration within our portfolio during the quarter.
Turning to slide 15, we have laid out their rating migration within our portfolio during the quarter.
Speaker 2: As a reminder, all loans on origination are initially signed in investment rating, too.
As a reminder, all loans upon origination are initially assigned an investment rating too.
On a four point scale.
Speaker 2: with one being the highest rating and the four being the lowest...
With one being the highest rating and four being the lowest rating.
Speaker 2: You feel very good about the performance of our portfolio with 96.1% of the portfolio fair value rated in one of the top two categories, a one or two.
We feel very good about the performance of our portfolio was 96, 1% of the portfolio at fair value created in one of the top two categories of one or two.
Speaker 2: I will now hand the call over to Michael to review more specifics about financial performance for the quarter.
I will now hand, the call over to Michael to review more specifics of our financial performance for the quarter.
Speaker 4: Specific to our performance for the quarter, to summarize on slide 17, we increased pre-tax net investment income by 10% quarter over quarter to $25 million, or $0.67 per share, compared to $22.8 million, or $0.65 per share in the prior
Thanks, Bowen specific to our performance for the quarter are summarized on slide 17, we increased pre tax net investment income by 10% quarter over quarter to $25 million or <unk> 67 per share compared to $22 $8 million or <unk> 65 per share in the prior quarter.
Speaker 2: During the quarter, we paid out 54 cent per share regular dividend and a 5 cent per share supplemental.
During the quarter, we paid out 54 cents per share regular dividend and a <unk> <unk> per share supplemental dividend.
Speaker 2: As mentioned earlier, our board has approved both a 2 cents per share increase to the regular dividend for the September quarter to 56 cents per share, and a 1 cent per share increase to the supplemental dividend for the September quarter to 6 cents per share.
As mentioned earlier, our board has approved both a <unk> <unk> per share increase to the regular dividend for the September quarter to <unk> 56 per share and a <unk> <unk> per share increase to the supplemental dividend for the September quarter six cents per share.
Speaker 2: Maintaining a consistent track record of meaningfully covering our dividend with pre-tax net investment income is important to our investment strategy.
Maintaining a consistent track record of meaningfully covering our dividend with pre tax net investment income is important to our investment strategy.
Speaker 2: We continue our strong track record of regular dividend coverage with 118% coverage for the last 12 months and a June 30, 2023, and 109% cumulative coverage since the launch of our credit strategy in January .
We continue our strong track record of regular dividend coverage with 118% coverage for the last 12 months ended June 32023, and 109% cumulative coverage since the launch of our credit strategy in January 2015.
Speaker 2: Given the floating rate nature of our credit portfolio, elevated interest rates continue to be a tailwind toward net investment.
Given the floating rate nature of our credit portfolio elevated interest rates continued to be a tailwind to our net investment income.
Speaker 2: The base rate index used to calculate interest on a majority of our loans reset in early July to approximately 5.24%
Base rate index used to calculate interest on a majority of our loans reset in early July to approximately $5 two 4% representing an increase of 35 basis points from its early April base.
Speaker 2: representing an increase of 35 basis points from its early April base rate reset of approximately 4.89.
Great reset of approximately $4 eight 9%.
Speaker 2: Our intent is to distribute approximately half of the excess of our quarterly pre-tax net investment income over our regular dividend to our shareholders in a quarterly supplemental.
Our intent is to distribute approximately half of the excess of our quarterly pre tax net investment income over our regular dividend to our shareholders in our quarterly supplemental dividend.
Speaker 2: We are confident in our ability to continue to distribute quarterly supplemental dividends for the foreseeable future based on our current UTI balance of 34 cents per share, our ability to grow UTI each quarter organically by overearning our total BS dividend.
We're confident in our ability to continue to distribute quarterly supplemental dividends for the foreseeable future based upon our current UTI balance of <unk> 34 per share our ability to grow UTI each quarter organically by over earning our total dividend.
Speaker 2: and the expectation that we will harvest gains over time from our existing one dollar and eleven cents per share and unrealized appreciation on the equity.
And the expectation that we will harvest gains over time from our existing $1 11 per share and unrealized depreciation on the equity portfolio.
Speaker 2: for the quarter will increase total investment income from our portfolio 9%
For the quarter, we increased total investment income from our portfolio 9%.
Speaker 2: quarter over quarter to $40.4 million, producing a weighted average yield on all investments of $12.5 million.
After over quarter to $44 million, producing a weighted average yield on all investments of 12, 6%.
Speaker 2: Total investment income was $3.2 million higher this quarter due to growth in our credit portfolio as well as in
Our investment income was $3 $2 million higher this quarter due to growth in our credit portfolio as well as increased average base rates.
Speaker 2: As at the end of the quarter, we had three loans on non-accrual, representing 1.7% of our investment portfolio at fair value.
At the end of the quarter, we had three loans on nonaccrual, representing one 7% of our investment portfolio at fair value.
Speaker 2: A scene on slide 18, we maintained LTM operating leverage at 1.9% for the current quarter.
As seen on slide 18, we maintained LTM operating leverage at one 9% for the current quarter.
Speaker 2: achieving 2% or lower operating leverage was one of our initial long-term goals when we relaunch CSWC as a middle-market lender back in two days.
Achieving 2% or lower operating leverage was one of our initial long term goals when we relaunched the swc as a middle market lender back in 2015.
Speaker 2: Put this metric in perspective, our 1.9% operating leverage is the second best in the entire BDC.
But this metric in perspective, our one 9% operating leverage as the second best in the entire BDC industry. We believe this metric speaks to our fiscal responsibility as well as our absolute alignment with shareholders.
Speaker 2: We believe this metric speaks to our fiscal responsibility, as well as our absolute alignment with share of
Speaker 2: Though we are pleased to have reached a few miles down, looking ahead, we expect our internally managed structured to produce incremental improvements in operating leverage over time.
We're pleased to have reached this milestone looking ahead, we expect our internally managed structured to produce incremental improvements in operating leverage overtime.
Speaker 2: Turning to slide 19, the company's NAB per share at the end of the quarter increased by $1 per share to $16.38.
Turning to slide 19, the company's NAV per share at the end of the quarter increased by <unk> <unk> per share to $16 38.
Speaker 2: The primary drivers of the NAV per share increase for the quarter were earnings in excess of our dividends for the quarter and accretion from the issuance of common stock at a premium to NAV.
The primary drivers of the NAV per share increase for the quarter were earnings in excess of our dividends for the quarter and accretion from the issuance of common stock at a premium to NAV per share partially offset by the annual issuance of restricted stock awards to employees.
Speaker 2: partially offset by the annual issuance of restricted stock awards to
Speaker 2: Turning to slide 20, as Bowen mentioned earlier, we are pleased to report that our balance sheet liquidity remains strong with approximately 225 million in cash and undrawn leverage commitments on our revolving credit facilities.
Turning to slide 20, as Bowen mentioned earlier, we are pleased to report that our balance sheet liquidity remained strong with approximately $225 million in cash and undrawn leverage commitments on our revolving credit facility as at the end of the quarter.
Speaker 2: We're thrilled to have recently completed an amendment up size and extension on our revolving credit facility as our bank syndicate continues to support our-
We're thrilled to have recently completed an amendment upsize and extension on our revolving credit facility as our bank Syndicate continues to support our growth in fact eight of our existing lenders in the facility upsize their commitments, which we believe demonstrates their confidence in our stewardship, especially in the current capital markets environment.
Speaker 2: In fact, eight of our existing lenders in the facility up size their commitments, which we believe demonstrates their confidence in our stewardship, especially in the current capital markets environment.
Speaker 2: The amendment increased total revolving facility commitments to $435 million and extended the maturity of the facility to August 2028. Based on our current borrowing base, we have full access to the incremental revolver.
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The amendment increased total revolving facility commitments to $435 million and extended the maturity of the facility to August 2028 based on our current borrowing base, we have full access to the incremental revolver capacity in.
Speaker 2: In addition, we have $5 million in committed but unfunded SBA adventures to be used to fund future SBIC eligible investments, as well as $45 million in uncommitted capacity to draw from in the future.
In addition, we have $5 million in committed but unfunded SBA debentures to be used to fund future spic's eligible investments as well as $45 million in uncommitted capacity to draw from in the future.
Speaker 2: As at the end of the June quarter, more than half of our capital structural liabilities were an unsecured covenant-free bond, and our earliest debt maturity is in January , 2000.
At the end of the June quarter more than half of our capital structure liabilities, where an unsecured covenant free bonds and our earliest debt maturity is in January 2026.
Speaker 2: As Bowen mentioned earlier, we received a triple V-investment grade rating for ditch ratings during the quarter. In addition to receiving a B-WA3 investment grade rating from Moody's investor services earlier in March for the-
As Bowen mentioned earlier, we received a triple B minus investment grade rating for gets ratings during the quarter. In addition to receiving a <unk> III investment grade rating from Moody's Investor services earlier in March of this year.
Speaker 2: The second investment grade rating is further validation of our first lean focused investment strategy, our strong credit underwriting track record, and our prudent balance sheet management through a variety of capital markets environments.
This second investment grade rating is further validation of our first lien focused investment strategy, our strong credit underwriting track record and our prudent balance sheet management through a variety of capital markets environment.
Speaker 2: is worth noting that CSWC is one of the smallest BDCs in terms of market capitalization currently rated by either Moody's or...
It's worth noting that <unk> is one of the smallest bdcs in terms of market capitalization currently rated by either Moody's or Fitch. We believe both ratings will help immensely as we look to grow and diversify our investor base and future capital raises.
Speaker 2: We believe bull trading will help immensely as we look to grow and diversify our investor base in future capital.
Speaker 2: A regulatory leverage is seen on slide 21 and is a quarter that it debt to equity ratio of .87 to 1 down significantly from 1.10 to 1 as of the June 2022.
Our regulatory leverage as seen on slide 21 ended the quarter at a debt to equity ratio of eight 7% to one down significantly for 110 to one as of the June 2022 quarter.
Speaker 2: We believe we have further strength in our balance sheet this quarter with the Baby Bond transaction, as well as the upsize and extension of the credit facility. These efforts, along with the
We believe we have further strengthened our balance sheet this quarter with the baby bond transaction as well as the upsize and extension of the credit facility. These efforts along with our previous unsecured bond issuances.
Speaker 2: issuances, our SBA license, which gives us access to long-term fixed debt at attractive rates, and our continued diligence in moderating leverage to accrete equity issue issuances utilizing both our ATM program as well as the secondary equity market, ensure we will continue to maintain significant liquidity, conservative leverage, and adequate covenant cushions throughout the economic cycle.
Our SBA license, which gives us access to long term fixed debt at attractive rates and our continued diligence and moderating leveraged through accretive equity issuance insurances utilizing both our ATM program as well as the secondary equity market ensure we will continue to maintain significant liquidity conservative leverage and.
Adequate covenant cushions throughout the economic cycle.
I'll now hand, the call back to Bowen for some final comments.
Speaker 3: Thanks, Michael and again, thank you everyone for joining us today.
Thanks, Michael and again, thank you everyone for joining us today.
Speaker 3: We appreciate the opportunity to provide you an update on our business, our portfolio and the market environment.
We appreciate the opportunity to provide you an update on our business our portfolio and the market environment.
Speaker 2: Our company in Portfolio continues to demonstrate strong performance and that continue to be impressed by the job our team has done in building a robust asset base.
Company and portfolio continue to demonstrate strong performance and a continued to be impressed by the job. Our team has done in building a robust asset base.
Speaker 2: deal origination capability as well as flexible couch.
Deal origination capability as well as a flexible capital structure.
Speaker 2: That's the uncertainty economy. Again, we have been underwriting with the full cycle economic mentality since day.
After the uncertainty of the economy again, we have been underwriting with a full cycle economic mentality since day, one, which we believe has positioned us well for the potential economic volatility in the coming months and years.
Speaker 2: which we believe has positioned us well for the potential economic volatility in the coming months and years.
Speaker 2: In summary, we have a credit portfolio heavily weighted to first-laying senior secure debt allocated across a broad array of companies and industries.
In summary, we have a credit portfolio heavily weighted to first lien senior secured debt allocated across a broad array of companies companies and industries nine.
Speaker 2: 91 percent, which is of which is backed by private.
91%, which is up which is backed by private equity firms.
Speaker 2: We have a well-capitalized balance sheet with diverse capital sources, strong liquidity, and flexible capital, much of which is fixed rate.
We are a well capitalized balance sheet with diverse capital sources strong liquidity and flexible capital.
Much of which is fixed rate and covenant light.
Speaker 2: We believe our first links to you secured investment focus in our capitalization strategy provide us complete confidence in the health and positioning of our company and our portfolio as we look ahead.
We believe our first lien senior secured investment focus and our capitalization strategy provide us complete confidence in the health and positioning of our company and our portfolio as we look ahead.
Speaker 2: This concludes our prepared remarks. Operator, we are ready to open the lines for Q&A.
This concludes our prepared remarks, operator, we are ready to open the lines for Q&A.
Speaker 5: If you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising that your hand has been raised. If you would like to remove yourself from the queue, please press star one one again. One moment while we compile the Q&A.
Thank you.
If you would like to ask a question. Please press star one on your telephone you will then hear an automated message advisers that Johanna Duane if you would like to remove yourself from the queue. Please press star one again, one moment, while we compile the Q&A roster.
Speaker 5: The first question that we have is coming from Kyle Joseph of Jack Regent Lines Open.
The first question that we have is coming from Kyle Joseph of Jefferies. Your line is open.
Speaker 6: Hey, good morning guys and thanks for taking my questions. I'm glad it's on the good quarter. Just wanted to get your thoughts. There's been a lot on banks coming in the post-SBB world in higher capital requirements. But just get a sense that if you think there's going to be any sort of reverberations down the lower metal market where you guys focus.
Hey, good morning, guys and thanks for taking my questions.
Quarter.
Just wanted to get your thoughts.
It allowed on banks and the SBB World.
In higher capital requirements, but just get a sense. If you think theres going to be any sort of reverberations down to the lower middle market, where you guys focus.
Speaker 2: Yeah, I'll make a comment on just the deal environment. We definitely are seeing less direct competition from banks in our world, mainly because they're just less reliable in this market to getting to close.
Yes, I'll make a comment on just the deal environment, we definitely are seeing.
Less direct competition from banks in our world, mainly because they're just less reliable in this market to getting to close.
Speaker 2: And so that's helping, you know, like I said my remarks, I mean, that's helping firstly unotroxed type lenders like Capitol Southwest and others. And so, you know, my guess is my expectation is that that will continue.
And so that's helping.
Like I said.
Remarks, I mean, thats, helping first lien unit tranche type lenders like capital southwest and others.
My guess is my expectation is that that will continue.
Speaker 2: You know, in our first loan, a lot of we hold the revolvers ourselves. And so, you know, having a bank above us that holds the revolver that may not find in the revolver, etc. if things were to get worse, for example, doesn't really affect our portfolio in a meaningful way. As long as the companies, under like companies are doing well across the portfolio.
Our first lien loans, a lot of all the revolvers ourself and so.
The bank above us that holds the revolver that may or may not find in the revolver et cetera, if things were to get worse for example.
Doesn't really affect our portfolio in a meaningful way.
And as long as the Companys underlying companies are doing doing well across the portfolio and.
Speaker 4: Yeah, and probably on the liability side, just having gone through the amendment, we have of our 11 lenders, eight of them participated in the upsides. And essentially what they communicated was there was a flight to quality that they took over to their portfolio and they were gonna get behind the horses that they thought were successful and that they trusted. And they were gonna pair back commitments to those pay less confidence in. So I think that's probably the mantra right now in the market.
And probably on the liability side, just having gone through the amendment.
We have of our 11 lenders eight of them participated in the upsize.
Essentially what they communicated was there is a flight to quality that.
They took a look at their portfolio and they were going to get behind the horses that they thought were successful and that they trusted.
And they were going to pare back commitments to.
I had less confidence in.
So I think that's probably the sort of the mantra right now in the market.
Speaker 6: Got it, that's helpful. And then, it seems like the outlook for the economy changes every week with each macro data point we get. But if you could just give us a sense for the rev and EVA dog growth trends you're seeing in your portfolio and how that's changed over the last few quarters.
Got it that's helpful and then I mean it.
It seems like the outlook for the economy changes every week, whether each makeover.
That data point and we get it.
Could you just give us a SaaS or kind of the ramp.
And EBITDA growth trends Youre seeing in your portfolio and how thats changed over the last few quarters.
Speaker 2: Yeah, so it's kind of been the same over the last few quarters. So our revenue growth year over year is kind of tracking in high single digits, kind of 8% or 9% on the top line. And the EBITDA growth, weighted average basis is 2.5%, 3% growth. It's kind of tracking. It's a good question to ask us and all the BDCs every quarter. But for us, it's kind of been tracking there for the last several quarters.
Yes, so it's kind of been the same over the last few quarters. So our revenue growth kind of year over year is kind of tracking at high single digits kind of 8% 9%.
The top line and the EBITDA growth weighted average basis is 253% growth over <unk>.
Tracking its.
It's a good question to ask us and all the Bdcs every quarter, but for US it's kind of been tracking there for the last several quarters.
Got it that's it for me thanks for answering my questions.
Thanks Scott.
Speaker 5: Thank you and one moment while we'll put together the next question.
Thank you.
Meanwhile, we continue for the next question.
Okay.
Speaker 5: The next question will be coming from Sean Paul Adams of Ring James. Your line is open.
The next question will be coming from John Paul Adams of Raymond James Your line is open.
Speaker 7: Good morning, guys. Can you provide some commentary on the portfolio companies responsible for the jump and non accruals as well as the general amendment outlook for the rest of 2023 and just provide some light on whether sponsors have been eager to provide equity infusions or cash infusions to some of the struggling businesses within the portfolio?
Good morning, guys can you provide some commentary on the portfolio companies responsible for the jump in non accruals as well as the general Amendment outlook for the rest of 2023.
And just provide some light on what other sponsors have been eager to prove.
<unk> equity infusions or cash infusions, just some of the struggling businesses within the portfolio.
Speaker 2: Sure, you know, I'll let that just go questions if I leave my comments, you know, across the portfolio.
Sure.
Good question, so as I alluded in my comments.
Ross the portfolio.
Speaker 2: We've been absolutely very happy with the support the private equity firms are willing to provide. It's not only just in struggling situations, you know, it's in, you know, their interest burden is going up. So they're looking for ways to cut operating costs to get the business efficient, providing that leadership to the companies is obviously I think can only help for the company.
Yes, we've been absolutely.
Very happy with the support that private equity firms are willing to provide but it is not only just in struggling situations.
The interest burden is going up so theyre looking for ways to cut operating costs to get the business sufficient providing.
At leadership to the company is obviously I think chaotic healthy companies.
Speaker 2: but also just, you know, definitely like to see them doing that. Also, you know, if they want to continue to spend, you know, a extra growth capital to maintain cap-ex budgets, et cetera, they put, you know, putting capital in to support those growth initiatives has been definitely there.
But also just.
Definitely like to see them doing that also if they want to continue to spend.
The extra growth capital to maintain capex budgets et cetera, they put putting capital in to support those growth initiatives has been definitely there.
Speaker 2: In the struggling situations, there's only a few of them fortunately, knock on wood in our portfolio. But in those situations, the sponsors have been stepping up and supporting the business.
And the struggling situations you know there's only a few are unfortunately, not going to win in our portfolio, but in those situations and sponsors have been stepping up and supporting the businesses.
Speaker 2: You know, the two non-acruals, this quarter, both were free rated last quarter. You know, the company is...
Two non accruals this quarter both were three rated last quarter.
The companies.
Speaker 2: I would just, they're both sponsored back. I would tell you, our expectation is probably the most relevant thing. Our expectation is that both of those will be restructured by the end of this year, which would, you know, we would expect to be partially debt, go back on a crew, and then part of our debt be converted to equity, and we would, you know, own a portion of the business. And so, I'd say in both of those situations, that is absolutely our expectation, based on what's going on.
I would just spot theyre both sponsor backed.
I'd tell you our expectation is probably the most relevant thing our expectation is that both of those will be restructured but by the end of this year.
Which would we would expect to be partially that go back and look back on accrual and then part of our debt converted to equity and we would own a portion of the business and so I'd say both of those situations that that is absolutely our expectation based on what's going on with the companies and those two companies it's pretty idiosyncratic.
Speaker 2: And those two companies, it's pretty idiosyncratic. I mean, you know, it's, you know, things like, you know, customer shifts.
It's.
Things like customer shifts.
Speaker 2: business lines, they're shutting down, because they were, you know, canally, because they were underperforming and so making a smart decision to stop them and there's cost associated with that.
Business lines, if theyre shutting down because they were candidly because they were underperforming and so making a smart decision to stop them and theres costs associated with that.
Speaker 2: Basically top line moving, but not really. It's more specific to those companies and those management teams that are supposed to do anything I can point to the economy.
Basically top line moving but not really it's more more specific to those companies and those management teams as opposed to anything I can point to the economy.
Speaker 7: Perfect, thank you. And is there any specific struggles with any sectors or any certain part of the market?
Perfect. Thank you and is there any specific struggles with any sectors or any.
Certain part of the market.
Speaker 3: Yeah, I mean, looking at our portfolio, and kind of look at what are the signals we're seeing in the portfolio. And I would say across the portfolio, in those sectors that I would say are bright light struggling.
Yes, I was looking at our portfolio.
Look at what are the signals, we're seeing in the portfolio, but I would say across the portfolio no sectors that I would say are like bright bright.
Speaker 2: You know, it's interesting on the, you know, we're still, we saw a couple of quarters go trend trends with a couple of our full-fledged companies that sell into retailers, inventories and those retailer inventories were pulling back. We are adjusting.
Bright light struggling.
On the on the we're still we saw a couple of quarters go trends trends with a couple of our portfolio companies that sell into retailers inventory retailer inventories were pulling back readjusting, if you will and those companies sales.
Speaker 2: And those companies sales, you know, decline in the short term, you know, once that inventory is normalized and the sales kind of sales from our portfolio companies is supplying those inventories, stabilizing the starch to increase in that.
Declines in the short term.
Once that inventory has normalized in the sales kind of sales from our company our portfolio companies supplying those inventories ste.
Babelized starts to increase and Thats happening in those two cases, because the retailers' inventories have been been reset on the consumer side is kind of mixed I mean half of our companies are looking down the list them half of them are.
Speaker 2: because the retailers' inventories have been reset. On the consumer side is kind of mixed. I mean, half our companies are looking down the list and half of them are doing great. And the other half are starting to talk about softness, but in one case, we're starting to see some softness.
We're doing great on the <unk>.
Other half are starting to talk about softness but in one case, we started we're starting to see some softness so I would say pretty mix from a consumer perspective across our portfolio.
Speaker 2: So I would say pretty mixed from a consumer perspective across our portfolio.
Speaker 2: The transport sector we've got a company in transport sector is clearly reporting softness. It's not about to really worry you as a first-leam lender, but it's definitely seeing softness.
Transport sector, we've got a company in the transport sector, clearly reporting softness not enough to really worry you as a first lien lender, but it's definitely seeing softness.
Speaker 2: Now the industrial companies are doing great. We've got three industrial companies and they're just there, you know, knock on wood, crank it along. All right.
On the industrial companies are doing great. We've got two or three industrial companies and Theyre just knock on wood cranking along.
Speaker 2: you know, data points, I guess, are going different directions. And again, no one sector that's causing us angst.
Data points, I guess were going different directions.
And again, no one sector thats, causing of angst.
Speaker 2: But some of those are some of the interesting kind of signals we've seen across the portfolio. Okay, perfect.
But some of those are some of the interesting kind of signals we've seen across the portfolio.
Okay perfect. Thank you for the commentary.
Thank you one moment.
Speaker 5: Our next question will be coming from Bryce Row of B. Riley. Your line is open.
Our next question.
We will be coming from Bryce Rowe.
B Riley your line is open.
Thanks, so much good morning.
Speaker 8: I wanted to maybe start on the prepared remarks about maybe M&A.
Let's see I wanted to maybe start on the prepared remarks about may.
Speaker 8: I'm starting to pick up a bit here and just kind of wanted to get your your view of potential repayment activity. You know, it's been muted for the last few quarters and certainly don't I know it's hard to predict, but do you think that we could see some pickup in repayment activity relative to what we've seen here over the last few quarters?
Maybe M&A.
M&A is starting to pick up.
Bit here.
And just kind of wanted to get your.
Your view.
Potential repayment activity.
Been muted for the last few quarters.
And certainly don't I know it is hard to predict but do you think that we could see.
Some pickup in repayment activity relative to what we've seen here over the last few quarters.
Speaker 2: Yeah, we have in our portfolio, out of 90 something companies, we have a handful of companies that we have visibility on sale processes that are starting. And so obviously, that would be an uptick from what we've seen in the past few quarters. But worse
Yes, we have in our portfolio 90, something companies, we have a handful of.
Companies that we have visibility on sale processes that are starting.
And so obviously that would be an uptick from what we've seen in the past few quarters.
Speaker 2: in most of the cases, those could end up being significant equity win for us. And so if that happens, that'd be fantastic.
But.
And most of the cases, those could be end up being significant equity wins for us and so if that happens that would be fantastic.
Speaker 2: I'm not sure, our comments that we expect kind of net growth across the portfolio, I think is definitely still the case. But refinancing, like I said, no surprise, refinancing activity tends to be relatively light because the spreads are wider. But the MA activity, there's a handful of situations where sponsors are seeking a chance to ring the bell. click the video to start visiting pro
I'm not sure our comments that we expect kind of a net growth across the portfolio I think is definitely still the case.
But reid.
You May ask me like I said, no surprise refinancing activity HFC relatively light because spreads are wider but.
But the M&A activity there is a handful of situations where sponsors are.
Speaking of chance to ring the bell.
Speaker 4: I think from a numbers perspective, I think it's potential to have something in the 35 to 75 million in repayments between now and the end of the year.
I think from a numbers perspective, I think potential and have something in the $35 million to $75 million in repayments between now and the end of the year.
Speaker 8: Maybe a follow up.
Okay.
Maybe a follow up.
Speaker 8: You know, you've seen good appreciation within the equity book. Is that, you know, is that more a function of what you're seeing with potential M and A? Like you just talked about or is it more kind of widespread across the portfolio?
You've seen good appreciation within the equity book.
Is that is that more a function of what youre seeing with potential M&A like you just talked about or.
Is it is it more kind of widespread across the across the portfolio.
Speaker 2: Well, equity portfolio is exactly that, it's a portfolio. So we have companies that are doing really well, and others that are doing fine, and then others that are, you know, even multiple of the sectors are coming down slightly, or the companies are softening a bit from an equity perspective, but overall the portfolio.
Well I mean, our equity portfolio is exactly that its a portfolio. So we have companies that are doing really well and others that are doing fine and then others that are.
Either multiples in the sector are coming down slightly or the companies are softening a bit from an equity perspective, but overall the portfolio.
Speaker 2: You know, it's done really well and we would, some of these companies have a lot of growth left.
It's done really well.
Some of these companies have a lot of growth left.
No.
Speaker 8: Got it. Okay. And one more for me from a kind of a balance sheet leverage perspective, you know, on the lower end of what we might see from other BDCs in terms of net debt to equity, you know, certainly your access to capital markets. Probably has something to do with that, but is that more, you know, is that signaling, you know, pipeline or some level of conservative conservatism on your part or maybe a combination of both?
Got it okay.
One more for me from a kind of a balance sheet leverage perspective.
On the lower end of what we might see from other bdcs in terms of net debt to equity.
Certainly your access to capital markets.
He has something to do with that but is that more is that signaling.
Pipeline or some level of conservative conservatism on your part or maybe a combination of both.
Speaker 4: I would definitely say it's a combination of both. I mean, we would probably tell you that this is where we are right now, is the low end and probably where we'd want to maintain. But having said your earlier question regarding repayments.
I would definitely say, it's a combination of both.
I mean, we would probably tell you that this is where we are right now at the low end is probably where we want to maintain but having said your earlier question regarding repayments if.
Speaker 4: If we do see a flurry of repayments towards the end of the year, you know, originations are robust as well, but you might end up, you know, even delivering slightly more. But, you know, we will continue to use our ATM and, you know, we certainly with the bond issuance and the revolver, we put in ample liquidity to be able to maintain, you know, net originations as well as...
If we do see a flurry of repayments towards the end of the year.
Originations are robust as well, but you might end up.
De levering slightly more.
But.
We will continue to use our ATM.
We've certainly with the bond issuance and the revolver, we put in ample liquidity to be able to maintain.
Speaker 2: Yeah, and Brad, I mean, to your more macro part of your question, I mean, you know, we've been...
Net originations as well as control leverage yes, Brian I mean to your more macro part of your question I mean, we've been attempting to.
Speaker 2: state to what we're doing at the BDC from a leverage perspective in the last several quarters.
Speak to what we're doing at the BDC from a leverage perspective for the last several quarters.
Speaker 2: And as we've always said, I mean, we're managing everything here from a full cycle perspective. And so certainly, I think everyone would agree that the potential for a recession is high. That's why all the comments or questions about what's going on in the portfolio across all BDCs.
And as we've always said I mean, we're managing everything here from a full cycle perspective so.
Certainly I think everyone would agree that the potential for a recession is high that's why all the comment or questions about the about what's going on in the portfolio across all bdcs.
Speaker 2: And so, you know, we're at the top of the cycle, right? And so we want to be low leverage at the top of the cycle. So when we go through the cycle, we can do all the things we want to be able to do. We want to be able to support our companies, you know, the economics on support capital end up being very, very linder friendly, very attractive.
And so.
We're at the top of the cycle and so we want to be low lever. It at the top of the cycle. So when we go through the cycle. We can do all the things we want to be able to do we want to be able to support our companies. The economics on support capital ended up being very very lender friendly.
Speaker 2: You know, there'll be deals that we can underwrite and do throughout the recession. You know, I think most asset managers will agree that your vintage deals invested kind of in the second half of a recession and that being the best vintage is most of the time. So we want to be in a position to participate in that.
Very attractive.
There'll be deals that we can underwrite and do throughout the recession.
Asset managers with agreed that Youre vintage of deals invested kind of in the second half of a recession and that being the best vintages. Most of the time. So we wanted to be in a position to participate in that.
Speaker 2: And if our stock doesn't trade well, trade means below NAD, we want to buy it back. And so all those things, and if we're not, and if our stock's not trading well, then all those things would be levering up a bit. And so we want to be at low leverage at the top of the cycle and then potentially lever up if the environment is described, you know, K-d-d-d.
If our stock doesn't trade well trades.
Below NAV, even on a buyback and so all those things and if we're not if our stock is not trading well then all those things would be levering up events and so we want to be at low leverage at the top of the cycle and then potentially lever up if the environment I just described.
In the past.
Speaker 2: And so, you know, so that's what we've done with position BDC. And if you look at our earnings divided by now, that's, you know,
And so that's what we've done to position the BDC and if you look at our earnings divided by Nab.
Speaker 2: one of the highest in the industry with one of the lowest utilization of leverage in the industry. So we don't really need to lever the BDC up as we sit here today. We can prepare for an economic cycle. And if for some reason it doesn't come, great. We'd all be thrilled. But that's kind of what we've been trying to do and feel really good about what we've accomplished as worry positioners.
One of the highest in the industry with one of the lowest utilization of leverage in the industry. So we don't really need to lever the BDC up as we sit here today, we can prepare.
For an economic cycle and if for some reason it doesn't come.
Right.
I'll be thrilled, but thats kind of what we've been trying to do and feel really good about what we've what we've accomplished and where we positioned ourself.
Speaker 8: Great. Appreciate the comments. You all have a good day. Appreciate it.
Great I appreciate the comment.
Have a good good day appreciate it.
Yes.
Speaker 5: Thank you. This concludes the Q&A session. I would like to turn the call over to Bowen Deal for closing remarks. Please go ahead.
Thank you.
Once the Q&A session I would like to turn the call over to Bowen Diehl for closing remarks. Please go ahead.
Speaker 2: Thank you everyone. And we appreciate everybody being on the call today and looking forward to giving you updates in the future and have a great rest of the week.
Thank you everyone and we appreciate everybody being on the call today and look forward to giving you updates in the future and have a great rest of the week.
Speaker 5: This concludes today's conference call. Thank you all for joining. You may now disconnect. Everyone enjoy the rest of your day.
This concludes today's conference call. Thank you all for joining you may now disconnect and everyone enjoy the rest of your day.
Okay.
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Okay.
Yes.
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Thanks.
Okay.
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