Q3 2023 Blue Owl Capital Corp Earnings Call
[music].
Greetings and welcome to the Blue out well Capital Corporation third quarter 2023 earnings call.
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At this time I'd like to turn the call over to Dana Sclafani head of Investor Relations. Thank you you may begin.
Thank you operator, good morning, everyone.
Our.
Third party.
This morning, our Chief Executive Officer.
Our Chief Financial Officer, and Chief operating Officer John.
We're also driving new.
Members of our team is putting a lot with Maggie.
Sure.
And our portfolio.
Portfolio manager.
Hi.
Got it.
I'd like to remind our listeners that remarks made during today's call.
But you're not guarantee future performance or results.
A number of factors.
Uh huh.
Actual results may differ materially.
As a result, a number of factors.
Right.
Yeah.
The company assumes no obligation to update them.
Yes.
Sure.
Material, including information related to portfolio.
Third party partners.
Yeah.
Coffee make note that our presentations or work with respect to this information.
The earnings release and supplemental.
Presentations are available.
Section of our website.
With that all right.
Thanks, Dana good morning, everyone and thank you all for joining us today.
The third quarter, we saw continued strong momentum delivering excellent credit performance across the portfolio and another quarter of record earnings.
The passion that income was 49 per share.
Marking our third consecutive quarter record NII.
This was driven by decreased interest income due to higher rates solid dividend income.
Our resilient portfolio performance.
These increased earnings translated into an attractive return on equity of 12, 7%.
In addition to growing distributions for our shareholders.
Based on our earnings well in excess of the regular dividends. Our board has declared a supplemental dividend for the third quarter of <unk> <unk> per share.
With our previously declared regular dividend 33.
This equates to total dividends paid for the third quarter of 41.
Reflecting our confidence in both the sustainability of NII and the continued credit performance of our portfolio.
Our board has also approved a two cent decrease to a regular dividend increase in the fourth quarter regular dividend of <unk> 35 per share.
The business is generating record earnings and we could see the share of those earnings with our shareholders.
This is the second increase in our base dividend since the second quarter 2022.
And our total dividend what he wants to add.
The third quarter represents a more than 30% increase in our total quarterly dividend during this period.
Net asset value per share increased to $15 40 up 14, SaaS in the second quarter.
This marks the highest NAV per share since our inception.
Our non accrual rate may slow at 25% at fair value.
But just renamed our non accrual unchanged from last quarter.
We continue to demonstrate our ability to resolve non accruals and protect our principle.
Since inception, we have deployed over $25 billion of capital and experiencing that loss ratio.
Basis points.
Our borrowers operating performance remains solid continuing to reflect the strength of the U S economy.
Consistent with last quarter, our borrowers reported modest quarterly growth revenues and EBITDA.
With many borrowers delivering margin expansion as a result of price increases and moderating inflation levels.
Our worst performance has grown steadily over the last past year.
Year over year basis, our borrowers reported revenue EBITDA growth roughly 10% to 12% for each of the last two quarters.
Our largest sectors software insurance food beverage and health care achieved to deliver strong results, reflecting the durable nature of these industries.
Less discretionary services they provide.
We believe the portfolio will continue to be resilient.
Perform in line with our underwriting expectations.
Even still we are closely monitoring the impact of a higher rate environment on our portfolio.
Over the course of this year, we have seen interest coverage levels come down as rates have increased.
Average moving from two three times to one eight times today.
While the rate outlook today is higher than it was six months ago.
The impact on coverage ratios, it's been meaningfully mitigated by better than expected operating performance.
As a result, although rates are higher and continue to believe interest coverage ratios or its trough levels mid one times in the first half 2024.
We expect that the vast majority of our borrowers will maintain an adequate coverage question.
<unk> operating performance through this period.
The list of borrowers, who we believe could seaboard showers liquidity needs remains small.
Our underwriting portfolio management teams remain very focused engaged with these borrowers.
We believe any challenges will be manageable across our portfolio as a whole.
We continue to be very pleased with performance of our companies despite the higher rates.
With that I'll turn it over to Jonathan Reich more detail on our financial results.
Thanks, Craig.
We ended the quarter with total portfolio investments of 12.9 billion outstanding debt of $7 $1 billion.
And total net assets of $6 billion.
Our third quarter NAV per share was $15.40, a 14% increase from our second quarter NAV per share of $15.26.
Largely attributed to the continued over earning our dividend from NII as well as the net unrealized gains in the portfolio.
Year over year, we have grown now by three 7%. In addition to paying out two 2% in distributions, which equates to a total return of 13, 9%.
In terms of deployment, we continue to largely match originations with repayments to maintain a fully invested portfolio.
Oh, BDC at $500 million new.
New investment commitments of which $387 million were funded.
It's Randy.
$90 million of repayments for the quarter.
Weighted average total yield the portfolio was 11, 8% up from 10% in the third quarter of the prior year.
Turning to the income statement.
We earned a record 49 cents per share in the third quarter up from 48 per share in the prior quarter.
Based on these results our board declared a supplemental dividend of eight <unk> per share for the third quarter of 2023, which will be paid on December 15 to shareholders of record on November 30.
For the fourth quarter of 2023, our board has increased our regular dividend 35 cents per share.
Which we believe is still a very comfortable well level relative to our earnings power.
And we expect to continue to declare and pay supplemental dividends quarterly to provide further distributions to shareholders.
The fourth quarter dividend will be paid on or before January 12 to shareholders of record as of December 29.
Since we instituted the supplemental dividends in the third quarter of 2022.
We have paid out 28 additional dividends per share.
This dividend structure provides increased income to our shareholders, while also allowing us to build NAV through excess earnings.
As a result, we have 26 cents a spillover income through the end of the third quarter.
<unk> continues to benefit from its flexible balance sheet and well diversified financing structure.
Overall, we continue to maintain significant liquidity of $1.9 billion and we ended the quarter with net leverage of 1.13 times in line with the prior quarter and within our target range.
With that I'll turn it back to Craig for closing comments.
Thanks, Jonathan.
I get to spend some time addressing one of the most frequent questions. We are hearing today.
Ours, there are higher for longer rate environment.
Interest coverage is the metric that is most widely cited.
It is certainly meaningful high level statistics to assess the health of the portfolio.
However, in our ongoing portfolio monitoring.
Eight borrowers in many different metrics you can give us a more comprehensive perspective.
In addition to interest coverage pretty cash flow and liquidity expectations.
We believe loan to value and potential equity or support.
Key considerations in assessing the overall health of our borrowers.
Over the course of the year private equity owners have been proactive in addressing the higher rate environment through cost cutting initiatives and liquidity management.
These include reducing operating costs, improving working capital and reducing capital expenditures acquisition spending.
We believe these actions and the sponsor's willingness to support the business with additional equity when needed are critical components. So the preservation of long term value for these businesses.
While we have had a limited number of comprehensive credit amendments. This year sponsors have contributed additional capital and 70% use cases.
An important part of our underwriting assessments as loan to value.
On average, we invest at approximately 40% on value ebay.
EBIT and a lower valuation environment as sponsors retain significant equity investments and their confidence.
While not contractually required this means that the private equity firms have a strong economic motivation to continue to support business.
It also means that we need to take over a business. We believe we will have the opportunity for a very high recovery.
Of course, all of this doesn't minimize the amount of time and effort that it takes to work through more challenging situations.
We have both the resources and the time horizon associated with our permanent capital base to work with borrowers to provide the operating runway needed to optimize value.
We continue to invest in our team with over 115 investment professionals today.
Our commitment to ensure we have the resources necessary to work on troubled situations and protect our portfolio.
To close I wanted to spend a minute on the current market opportunity and our outlook for the fourth quarter and into next year.
You'll activity has picked up nicely since the first half of the year driven by increased refinancings add on acquisitions and new buyout activity.
We have seen the reopening of the public markets, which has led to some tightening of spreads. However, we are still able to earn 11%, 12% returns a unit tranche loans, which we believe is a very attractive absolute returns on new opportunities.
Direct lenders continues to provide a.
Financing solution for borrowers and scale. We've had notable success, leading the financings on many of our largest deals announced in recent months.
<unk>, the multibillion dollar refinancing facilities or an Astro and pet.
Many of these larger deals across our broader portfolio.
We serve as the administrative agent.
Which is not just a tactical title, but instead is an important well what it is only one lender on each deal.
As the administrative agent we are in direct dialogue with the borrower and sponsor shaping the transaction terms and credit documentation.
Should this role allows our team to maintain a frequent dialogue with the borrower over the life of the loan.
Which gives us the single work that insight to its operating performance and liquidity profile, a real time basis.
Our franchise continues to win the support role across some of the most attractive deals in the market.
In recent months, we are committed to seven deals with financing size is over $1 billion and serve as the administrative agent on fiber.
We believe this reflects the confidence that the private equity sponsors have in our firm.
We are also seeing the benefit of incumbency.
With roughly 70% of our originations this quarter deployed into existing borrowers.
Both our confidence in our bars and the power of this growing incumbency with 187 borrowers in the portfolio today.
Looking forward, we expect deal activity will continue to rebound as valuations and the rate environment stabilize driving increased interest in M&A by both companies and sponsors.
We believe this more robust market environment will lead to a continued increase in repayment activity, which could drive further income Earl BDC and allow us to redeploy capital into new opportunities.
Finally, I just want to reflect on Ob <unk> continued success, what a strong quarter. This was this.
This is our third quarter a record NII.
The highest NAV since our inception, and we believe deliver an attractive ROE of 12, 7%.
Credit performance remains strong and is driving consistent earnings and increase distributions to shareholders.
We expect that our portfolio will continue to perform well and we will be able to deliver strong operating results and returns for our shareholders.
With that thank you for your time today, and we'll now open the line for questions.
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Okay.
Our first questions come from the line of Brian Mckenna with JMP Securities. Please proceed with your questions.
Thanks, Good morning, everyone. So just a question on the dividend to start you know coverage of both the regular and supplemental dividend she's been running around 120% year to date. So I guess is this a reasonable expectation for the next few quarters, assuming no material shift in the rate backdrop, and then also continued healthy underlying credit trends across the portfolio.
Sure Brian Good morning.
We felt really comfortable increasing the base dividend, obviously supplemental dividend has worked really well and deliver additional dividends.
Dividends to shareholders we.
We certainly feel extremely comfortable with this new base.
I think folks should expect us to continue to pay this going forward with the conditions that you suggested.
If the portfolio continues to perform well and rates continue to stay high we currently have little additional room as well so.
Feel really comfortable where we are in.
Didn't warrant, we will always evaluate whether or whether we should increase it but I think it's a good representation of where we sit right now.
Got it helpful and then switching gears, a little bit and so if I look at the average investment size of your portfolio companies, it's been holding steady around $70 million. The last several quarters. You know that said I know the broader blue all platform is more focused on on the large end of the market and deal sizes. In this part of the industry continue to trend upward so how should we.
Think about the size of new investments and then kind of the overall average size of the portfolio at all BDC overtime.
Sure we've been really pleased with the number of large high quality, new investment opportunities I talked a minute ago about 7 billion dollar deals five of which were waiting.
Continue to see this trend in this quarter and then our pipeline with large companies happening direct lending more and more so I think that's very exciting.
Particularly because of the quality companies are very high as for our position size.
As our platform when we sign up these new deals are aggregate.
<unk> is quite large it could be 456 $700 million and total investment across our platform.
It comes the sizing Ob DC, specifically, it's really a function of.
Our capital available on at that moment in time on the fund is squarely.
Squarely in our target leverage level and so we are sizing new investments.
Sensually.
To replace repayments and so in this quarter got it.
Hey, guys. It is perfectly accurate as you can get it but it can be a little bit a little bit lumpy. So if we get more repayments and those repayments are of greater size than we would love to put.
Marginally larger investments in this and it'll be D C.
<unk> said, all that I really like the increased diversification.
Able to achieve over the last couple of years and so that's also a goal so.
The one two or three quarters is not going to change the average size of the portfolio given the number of names in it.
<unk> hundred 87 names it would take a lot of a lot of turnover, but average size.
Probably won't drive much higher over time.
Which I think is a good thing because the diversification is very attractive.
Great. Thanks, Greg.
Thank you.
Thank you. Our next question is coming from the line of Robert Dodd with Raymond James. Please proceed with your questions.
Hi, guys and congrats on the quarter I mean, two questions I mean, one comment.
Comment some on the liquidity and an interest coverage.
Very helpful.
You've seen.
Any change in in revolver draws of the portfolio of companies I mean disclose only probably commitment sometimes.
To see when they they move from one quarter to the next or whatever whether those are getting drawn all the commitments.
Well whatever so it would be have you seen any change in pattern. There was it just you know.
Regular course of business.
Well, thanks, Robert no change in behavior on revolvers business as usual.
So companies use revolvers.
On the short term liquidity needs of their business and no.
No change.
In those regards our companies are performing really well and I highlighted some of the statistics, but we've been really pleased with the strong operating performance revenue growth EBITDA growth.
For the quarter year over year.
So.
Nothing of note to comment on revolvers.
As the overall strength of the portfolio company performance.
Got it thank you.
I mean on the outlook I mean, as you said I mean, yeah, yeah, youre, winning some very large deals.
Uh huh.
Are you do you expect 'twenty 'twenty four to kind of.
Okay.
Predicting the future.
But do you expect that kind of continue that theme more deals bigger deals and a rebound in the market or you.
Do you think the near term it may be.
The spread of activity by the industry and could it could.
Methylphenidate.
Okay.
Oh, I'm I'm I'm I'm pretty optimistic that 2024, we will see a significant pickup in activity and we're seeing that already as we look to the fourth quarter of this year I know that in my comments.
Our pipeline of deal activity for the fourth quarter. It looks good both in terms of repayments and new activity.
There's a lot of pent up.
Appetite for.
From the private equity firms to exit portfolio companies for.
For those of you that follow the private equity industry.
You'll be aware of that private equity fund raising is more challenged because private equity firms have not have the opportunity to return capital to their Lps as much as they would like.
Given some of the volatility over the last 12 months, they would like to exit their companies and that is the single biggest driver of deal activity and so we're seeing that beginning to happen and I think if we get stability in the rate environment.
And in the markets and the economy stays reasonable place I think you'll see a meaningful pickup in M&A activity that will drive.
New deals for US you will also see a pickup in banana refinancings.
Our portfolio.
<unk>.
We are pleased with his there've been some really sizable companies are very high quality.
That had been previously financed in the public markets that are increasingly choosing to refinance in the private markets.
That would be too great Examples high island.
This is extremely strong.
Drawn trend or direct lenders such as Obi do you see these are large companies.
They offer us really attractive risk adjusted returns and we're seeing some I think youre going to continue to see a meaningfully more in 2024, so I'm optimistic about deal activity.
Both in terms of repayments.
Income generation off of those repayments as well as deploying capital in high quality situations.
Thank you.
Okay.
Thank you. Our next question is coming from the line of Ryan Lynch with K VW. Please proceed with your questions.
Hey, good morning, and nice quarter guys.
One of the questions I had was you know you've talked a lot about you know.
Some large deals that you guys are are leading as well as potentially the pick up in 2024, there's a lot of loans coming from the broadly syndicated loan market that are now going to the private credit route I think you mentioned some phone pack that finasteride, Thailand.
Examples of that that you guys are either leading or participating in.
Can you maybe just speak to the notion that that some of these these large borrowers that were maybe in the broadly syndicated loan market before are choosing the private credit solution versus not being able to access the broadly syndicated loan market that that this is more of a choice versus <unk>.
I'm not being able to access that in that and that's why they're coming to the private credit side.
Sure.
Look obviously there is a multitude of factors, but I think that this phenomenon is extremely attractive for private credit.
The public loan market.
By far the dominant purchaser of those loans are close.
In strong market environments, when CLO CLO creation is high.
So lots of cash.
And can deploy and they do so.
At reasonable spreads.
But when those factors are not in place and the largest buyer base is missing.
All creation has been spotty this year there've been times in light.
Time for this rebounding.
Bumping around.
CLO user ratings profile.
The rating agencies have assert rubric that they use to evaluate credits.
And so if you get a certain rating you can go to the public markets don't get it whatever reason yeah.
The other factor is the private equity firms have become.
Sensitized.
That even when they have a deal that is issued in the public markets and you've got a rating that over time, they are vulnerable to that rating change at BT.
Meeting them with lack of access to the public markets.
That risk is one that they have had to live with.
Longer half of it is because the private credit markets, we can do our own independent work our own credit analysis.
Our own judgments about the credit worthiness, and we don't have that short term time horizon, if theres a downgrade so the private equity firms have become more and more comfortable just choosing a private credit solution with a certainty of privacy and customization.
Private equity firms are willing to pay a premium for that so.
So I think this is.
A great trend for our investors to get access to these extremely high quality companies.
And so it's part choice in some cases are may be companies that don't have ratings profile or they are trying to answer in a market where CLO creation.
Right.
Generally private credit we can also offer customization that the public markets can offer.
We can offer it maybe a bit more leverage for a high quality company and we're financing at 40% loan value.
So I think it's a combination of these things, but I would very much look at this as an opportunity for for our portfolio to invest in high quality businesses.
And we are in that opportunity set is growing and we have more to choose from and our capital base as an industry is allowing much bigger financings to get done in private credit markets.
Much sign of strength.
The sponsors tell us regularly that they like.
I would like to see more ways to finance the private markets.
Okay, that's really helpful background or color on that the other question I had was you guys credit quality has has fared really well you know as shown by the low non accruals and really nice snap performance.
But you mentioned something on the call that I was curious on I want to make sure I got the number correct, but I believe you said with some of the performance related amendments that you guys have made in your portfolio.
Private equity sponsors have contributed 70%.
Capital and 70% of those cases, I should say I'm just curious on the remaining 30% that's a private equity sponsored didnt contribute additional capital into was that because that was not a request that you guys had made was that something that the private equity sponsor was unwilling to do or is that something that the private equity sponsor, maybe just didn't have any capital.
And that that fund to do so just love to get a little color on that remaining 30% where private equity capital wasn't contributed.
Sure.
You know every situation is unique.
And I think that's one of the great attributes of private credit.
You have a broadly syndicated loan and credit problem, there's nobody to talk to their own <unk>.
200 CLO.
The ability to have a negotiation.
We have a bilateral loan.
We are definitely on more than half of it and the sponsors like being able to call us to discuss what's going on with the company one of the main things on our SaaS for as equity.
The company in our opinion needs some deleveraging.
That is always very high on our list.
But there are situations, where a company might be bumping into our company.
Where you can comfortably cover interest and.
The high quality loans at a spread where leverages mildly elevated and it doesn't require a duopoly requires some type of economic solution and so in those cases, we will work out a different type of solution with a private equity firm, maybe we'll ask Bert to show call protection or some repayments theres a lot of ways for us to answer.
Solve problems with private equity firms equity is certainly one that we really like probably as reasons, but.
Not.
The solution in every case the general answer to your question is in our material amendments.
Very amicably.
Solutions for us in the private equity firms shouldn't read it as a sign that we just had the amended deal and so we can get what we wanted to have the software that's not representative of the other 30%.
Okay.
That makes sense. Thanks for the color on that that's all for me today appreciate the time.
Thanks, Brian.
Thank you our next questions come from the line of Mark Hughes with true if securities. Please proceed with your questions.
Yeah. Thanks, good morning.
Following on that.
Amendment activity I don't know if you suggested whether you'd seen any trend there where they would pick up steady.
Obviously, you're getting a lot of private equity support.
<unk> been lately.
I would say it's been very light.
It's really.
A good way.
At the beginning of the year I was quite cautious given rates were higher.
Expected by now we would have a more.
More stress in the portfolio, we really haven't seen it.
It's low single digit amount of amendment activity garden variety.
And activity, we haven't seen any pick up.
I would say yes.
It's lighter than anybody would have expected him quite I'm quite pleased with it.
SaaS, we gave on sponsor support really over the course of last 12 months really.
The last quarter this quarter it was a really light.
At quarter end.
Sitting here.
Fourth quarter.
It remains light and we'll see how the rest of the workplace.
Yeah Yeah.
10% to 12% EBITDA growth I think you.
Adjusting for the last couple of quarters.
He's pretty impressive do you have a sense of whether there was an expectation for that could slow the fed does its work.
Any new ones on the economy here.
Sure.
So just to be clear.
The 12% that I referenced was a year over year statistic revenues EBITDA and.
And I also referenced in my comments a quarter.
Quarter over quarter growth of that growth.
In the low single digits, so quarter over quarter continued growth, but at a lower level year over year.
Our significant growth.
I think what we've been most pleased with is just the breadth of the performance, it's really in all of our sectors and in most of our companies and so.
We're pleased with it.
Just want to remind everyone I don't think of our portfolio as a perfect representation of the U S. Economy. We are very purposefully focus on recession resistant businesses that we expect to be stable in most economic environments sectors like software health care food and beverage insurance.
Insurance et cetera, we're not trying to be an early warning sign for economic weakness, we have almost little to no exposure in <unk>.
<unk> and commodity sectors like energy and chemicals homebuilding.
Retail and restaurants. These are the sectors that you would want to as early warning signs as an example.
We had a very significant strike in the auto industry was not in itself you have literally almost zero exposure to the auto industry in our entire portfolio.
So I'm pleased with the performance if the.
Economy stays the way it is.
That performance to continue.
We do have some businesses that are exposed to just general industrial conditions, where general consumer demand.
And so we'll watch that closely.
<unk> a strong oil do well if the economy goes and how does the downturn was I think this point most economic server site.
We will however, it's absolutely had a mild recession, resulting our portfolio will do really well, so I'm cautiously optimistic, but we'll feel better.
As the next 12 months on bolt.
Thank you I appreciate it.
Thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Erik Zwick with hub group. Please proceed with your questions.
Good morning, everyone.
Just wanted to start with a question one I appreciate all the detail that you put in the slide deck and just looking through a bunch of that Didnt noticed as I look at the new investments both the average interest rate and an average spread has come down over the past two quarters, but you know given the increase in base rates, you've still been able to exhibit some some increase.
The weighted average yield in the portfolio. So just just curious kind of given those.
Two trains of the declining.
Rates are and spreads on new opportunities.
So far is obviously up a little bit from 630 to 930. So I would think there's maybe a little bit more opportunity to expand the overall yield but.
Would you think kind of given those trends if interest rates holding a cycle when you've kind of near the peak of the yield for the portfolio for the cycle are there other opportunities to kind of hold the line there.
Yes.
Sure So I'll make a couple of comments.
What was the last the last couple of quarters have been noticed.
It was a little more active sort of light quarter from a volume standpoint.
So they're not going to have a meaningful impact on the overall return in the portfolio because they are.
A small sliver of the portfolio. If you look at the average spread that we have in the book.
It has been a rock solid for five quarters in a row and the six 7%.
And so I wouldn't read too much into any one or two quarters worth of activity I did note in my comments.
This quarter as the public markets.
Reopened.
We have seen a bit of tightening of spreads.
And so.
Spreads have been really wide in the first half of this year public market shot other private cloud providers pulling back was that was it.
Great opportunity for us to get lost spread.
That is waning a bit and youre seeing some tightening spread absolute returns still extremely high 11% to 12% I made the comment in the script.
So do.
Do you think that.
These these market conditions will move up and down on any given quarter based on what's happening in the broadly syndicated markets based on our peers are doing with their capital.
The base rate environment extremely attractive overall returns for new deals extremely attractive.
Are we at.
I think that Youre asking forward looking are we at the peak, it's hard to say, it's just so market dependent.
I think that you.
But our expectation investor expectation on rates right now and growing sentiment that maybe rates are at a peak and will come down certainly the forward curve would suggest that.
As to where spreads will go.
That is a function of as I, just said market appetite.
Where additional capital deploy we're always trying to get.
Basketball World. So we want to have great credits credit protections and get as much spread as we can.
We certainly have.
Competitive environment that we live with.
So I'd be very pleased if it stays like this for a while so if we go a little bit better we can.
I do think deal flow activity will pick up and that will generate some some prepayment income that we haven't had for a while.
But.
Where are these are really attractive returns in really attractive spreads, which 18 months ago 12 months ago were on these calls.
Anyone expected and so we're certainly very pleased pleased with what we're seeing.
It'll move up and down but spreads operating in the general band.
Yes.
700 over depending and we've moved in and up and up and down on that Dan.
Since our existence every quarter, we've operated somewhere on that Dan, but Alex on the site around why.
Wide now all it takes is some dislocation in the broadly syndicated markets for a quarter or two and spreads widen out again.
That's very helpful. I appreciate that the detailed comment there and second one for me just on leverage the leverage has come down over the past few quarters.
Closer to the lower end of your target range curious wonder if that was you know purposeful or more just reflective of the fact that there's been more exits the repayments relative to new commitments over the past couple of quarters.
Yes.
It was basically flat this quarter versus last quarter, but it has come down from earlier in the year again, it's mostly a timing.
Issue, we're matching repayments and new investments and so we're we're sort of squarely with my.
A key area, we could take it up a little bit.
But we're certainly happy where we are and.
Certainly operating a little bit higher which is where we are operating ROA.
I wouldn't I wouldn't read anything.
I mean, it's well you know what I'm really pleased that as even with the tick lower or elaborate on ROE is extremely high. So I think it's a great combination of great returns with dry powder and so we can best we see great opportunities to take leverage up it really like where we sit in our in our target leverage.
Right.
Thanks for taking my questions today.
Thank you.
Thank you our next questions come from the line of Mickey Schlein with Ladenburg. Please proceed with your questions.
Yes, good afternoon, I just have one question.
At this point.
Wanted to ask when do the reinvestment periods in your CLO financings begin to end and how significant could that unwinding be on your interest expense over the next couple of years. When you consider the current terms available in the market.
Thanks, Nicky so yeah, our CLO reinvestment periods.
The two to four years generally more for years and so there on a regular basis.
So coming close to where.
Whether they are coming close to or within a year of.
Secondly back.
These securities we will go out and do it.
So that has already occurred.
In some of our Clo's and will continue to be the case, we're not we're not that concerned.
Terms of what that will look like from a financing cost perspective, some of the pricing the pricing of those transactions.
On the unsecured side.
So when you do have.
Lower cost financing there.
Dan I'll say really material in 2024.
In future years, we do have some refinancings there that will.
We'll come up and we'll be doing those.
Accordingly in those future years.
Jonathan if I can just follow up I mean, AAA spreads in the CLO world are still pretty wide.
That's the reason that the machine is not working very well.
So are you, indicating that those spreads available in the market today are sort of similar to where you were already yet or.
Cause of your platform.
A little bit why a little bit wider but not meaningfully wider from where we printed all of the CLO.
Fair number of sellers in this.
In obesity and some of them were printed at wider levels. The later ones a little bit tighter, but the earlier ones a little bit wider and I think we are.
Okay.
Yeah.
I understand those are all my questions I appreciate your time. Thank you.
Thank you.
Yes.
Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Craig Packer for any closing comments.
Great. Thanks, all for joining we're extremely pleased with the quarter.
I'll speak for themselves.
But we're really excited to deliver the dividend increase in particular in the supplemental dividend continues to work well.
Right. So thanks, all for joining to have any questions as a follow up you know, we're easily reachable and we'd be pleased to.
Take them with that.
Great recipe that.
Thank you. This does conclude today's teleconference. We appreciate your participation.
Disconnect your lines at this time.
Enjoy the rest of your day.
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