Q4 2023 Barings BDC Inc Earnings Call

[music].

Operator: At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended and year ended December 31st, 2023. All participants are in a listen-only mode.

At this time I would like to welcome everyone to the Barings BDC, Inc Conference call for the quarter ended and year ended December 31 2023.

All participants are in a listen only mode.

Operator: A question and answer session will follow the company's formal remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com under the investor relations section. At this time, I will turn the call over to Joe Manzoli, Head of Investor Relations for Barings BDC. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results, and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from these projected and forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I'll now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC. Thanks, Joe. And good morning, everyone.

A question and answer session will follow the company's formal remarks, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Today's call is being recorded and a replay will be available approximately two hours. After the conclusion of the call on the Companys website at Www dot bearings with BBC Dot com under the Investor Relations section.

At this time I will turn the call over to Joe Mazzoli head of Investor Relations for Barings BDC.

Please note that this call may contain forward looking statements that include statements regarding the company's goals beliefs strategies future operating results and cash flows. Although the company believes these statements are reasonable actual results could differ materially from these projected in forward looking.

Statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled risk factors and forward looking statements in the company's annual report on Form 10-K for the fiscal year ended December 31.

2023, as filed with the Securities and Exchange Commission.

Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law.

I'll now turn the call over to Eric Lloyd Chief Executive Officer of Barings BDC.

Thanks, Joe and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter 2023 earnings presentation that was posted on the Investor Relations section of our website.

Eric Lloyd: We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter 2023 earnings presentation that was posted in the investor relations section of our website. On the call today, I'm joined by Barings Co-Head of Global Private Finance and President of Barings BDC Ian Fowler, the BDC's Chief Financial Officer, Elizabeth Murray, and BDC's Co-Portfolio Managers, Brian High and Matt Freund. We will dive into some quarterly results momentarily, but first, I would like to comment on some of the successes we experienced during the entirety of 2023. Investing in illiquid assets is often poorly suited for short-term investors. Measuring performance in a single quarter rarely gives investors the appropriate lens to measure a manager's performance.

The call today I'm joined by Barings co head of global private finance and President of Barings BDC, Ian Fowler, the Bdc's, Chief Financial Officer, Elizabeth Murray, and Bdc's co portfolio managers, Brian Hi, and Thats drawing.

We will dive into some quarterly results momentarily, but first I would like to comment on some of the successes we experienced during the entirety of 2023 <unk>.

Investing in illiquid assets, there's often poorly suited for short term investors measuring performance in a single quarter rarely gives investors the appropriate lens to measure a manager's performance.

Eric Lloyd: Net investment income, total dividends paid to shareholders, and NAV for BBDC all increased during 2023. While these items are important, we are eagerly focused on some developments not immediately captured in these metrics. During 2023, we continued executing on our commitment to rotate out of non-core assets, including three legacy MVC capital positions and more than $25 million of investments in legacy Sierra income positions. We again demonstrated our best-in-class alignment with shareholders, repurchasing more than 1.8 million shares for nearly $15 million. The number of issuers on non-accrual declined from seven at December 2022 to four as of December 2023.

Net investment income total dividends paid to shareholders and for.

For the BDC all increased during 2023, while these items are important we are equally focused on some developments not immediately captured in these metrics.

During 2023, we continued executing on our commitment to rotate out of non core assets, including three legacy MVC capital positions and more than $25 million of investments to legacy Sierra income positions.

We again demonstrated our best in class in alignment with shareholders repurchasing more than one 8 million shares for nearly $15 million.

The number of issuers on nonaccrual declined from seven at December 2020, 224 as of December 2023.

Eric Lloyd: We manage our portfolio based on operational metrics that drive stability of returns, and we expect that in the coming quarters, the commitment to our core strategies will continue to deliver for shareholders. However, successful financial results, such as those measured by NAB and distributions over time, are the outputs, not the inputs, to a successful asset manager. BBDC exhibited stability and strong offering results during the quarter ended December 31st. Our focus on the top of the capital structure, investments in sponsor-backed issuers, is serving investors well in these uncertain times. Our portfolio is predominantly sponsor-backed and is complemented by a selection of non-sponsored and platform investments. Our portfolio strategy is outlined in greater detail on slide 5. This strategy serves as our guiding light as we continue to successfully adapt throughout the market and deliver compelling returns to our shareholders. Net asset value per share was $11.28 compared to the prior quarter of $11.25 and $11.05 at December 2022, reflecting a year-over-year increase of 2.1%. Net investment income for the quarter was $0.31, unchanged from the prior quarter.

We manage our portfolio based on operational metrics that drive stability of returns and we expect that in the coming quarters, the commitment to our core strategies, while continuing to deliver for shareholders.

Successful financial results, such as those measured by Nab and distributions over time are the outputs not the inputs to a successful asset manager.

The BDC exhibited stability and strong operating results during the quarter ended December 31.

Our focus on the top of the capital structure investments and sponsor backed issuers is serving investors well in these uncertain times.

Our portfolio is predominantly sponsor back is complemented by a selection of non sponsored and platform investments our portfolio strategy as outlined in greater detail on slide five.

This strategy serves as our guiding light as we continued to successfully adapt throughout the market and deliver compelling returns to our shareholders.

Net asset value per share was $11 28 compared to the prior quarter of $11 25 and.

And $11 <unk> at December 2022, reflecting a year over year increase of two 1%.

Net investment income for the quarter was 31 <unk>.

Unchanged from prior quarter. Our performance was the result of our focus on the top of the capital structure and within more defensive industries. We believe <unk> remains well positioned for any further volatility and uncertainty in the market going forward.

Eric Lloyd: Our performance is the result of our focus on the top of the capital structure and within more defensive industries. We believe BBDC remains well positioned for any further volatility and uncertainty in the market going forward. Investment activity during the quarter reflected a modest degree of net repayments Driven by light transaction activity during the quarter and balancing the use of our share repurchase program with other opportunities, As our shareholders know, we are actively working to maximize the value in the legacy holdings acquired from MVC Capital and Sierra Income and rotate them into compelling Barings-originated positions. Non-Barings originated assets now only amount to 11% of the portfolio at fair value.

Investment activity during the quarter reflected a modest degree of net repayments driven by light transaction activity during the quarter and balancing the use of our share repurchase program with other opportunities.

As our shareholders know, we are actively working to maximize the value and the legacy holdings acquired from NBC capital in CRE income and rotate them into compelling bearings originated positions.

Non bearings originated assets now only amount to 11% of the portfolio at fair value that's down from 24% at the beginning of 2022 and potential losses from these assets are protected by the credit support agreements limiting downside risk for BDC investors.

Eric Lloyd: That's down from 24% at the beginning of 2022. Additionally, potential losses from these assets are protected by the credit support agreements, limiting downside risk for BBDC investors. Our investment portfolio continued to perform well in the third quarter. Including the acquired Sierra and NBC assets, our total amount of accruals was 2.5% of the portfolio on a cost basis and 1.5% on a fair value basis, with three assets being removed from the amount of accruals during the quarter. With the exception of two investments, all of our non-accrual assets were from acquired portfolios and therefore are covered by our credit support agreement. Subsequent to year-end, we removed our investment in Core Scientific Inc. from non-accrual status in connection with its January 2024 exit from Chapter 11 bankruptcy and our receipt of shares of its common stock in exchange for the debt investments that we previously held in part of the bankruptcy proceedings, on a pro forma basis

Our investment portfolio continued to perform well in the third quarter, including the acquired Sierra and MCC assets. Our total amount of rules are two 5% of the portfolio on a cost basis, and one 5% on a fair value basis with three assets being removed from non accrual during the quarter.

With the exception of two investments all of our non accrual assets were from acquired portfolios and therefore are covered by our credit support agreements.

Subsequent to year end, we removed our investments in core scientific Inc. The nonaccrual status in connection with its January 2024 exit from chapter 11 bankruptcy and a receipt of shares of its common stock in exchange for the debt investments that were previously held in part of the bankruptcy proceedings on a pro forma basis removing <unk>.

Scientifics that takes it on accrual down to 0.6% on a fair value basis, and one 3% on a cost basis.

Ian Fowler: That takes bond accruals down to 0.6% on a fair value basis and 1.3% on a cost basis. Turning to the earnings power of the portfolio, the increase in base rates has largely been reflected within the portfolio, with weighted average yields on floating rate investments stabilizing at 11.2%, substantially comparable to the prior quarter's figures. We remain conservative on our base dividend policy, and our board declared a fourth-quarter dividend of 26 cents per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of $11.28. Now, I'll turn the call over to Ian.

Turning to the earnings power of the portfolio. The increase in base rates has largely been reflected within the portfolio with weighted average yields on floating rate investments stabilizing at 11, 2% substantially comparable to the prior quarter's figures we remain.

Conservative on our base dividend policy and our board declared a fourth quarter dividend of <unk> 26 per share consistent with the prior quarter on an annualized basis, the dividend level level equates to a nine 2% yield on our net asset value of $11 28.

Now I will turn the call over to Ian.

Ian Fowler: Thanks, Eric, and good morning. Recall that BBDC is managed by Barings LLC, a credit-focused asset manager with more than $300 billion of assets under management. The bulk of the portfolio is sourced from the Global Private Finance Team, an organization with more than 100 investment professionals located around the globe providing financing solutions to preeminent middle market companies sponsored by private equity firms. BBDC's portfolio decreased by $51 million on a net basis in the quarter, with gross funding of $192 million, offset by $244 million of repayments and sales, which included approximately $50 million of sales to our Jocassee joint venture.

Thanks, Eric and good morning.

Recall that the BDC is managed by Barings LLC, a credit focused asset manager with more than 300 billion of assets under management.

The bulk of the portfolio is sourced from the global private finance team.

Organization with more than 100 investment professionals located around the globe, providing financing solutions two preeminent middle market companies sponsored by private equity firms.

The bdc's portfolio decreased by $51 million on a net basis in the quarter.

With gross fundings of $192 million offset by $244 million of repayments in sales, which included approximately $50 million of sales to our Joe Cassie joint venture active.

Ian Fowler: Activity during the fourth quarter continued to be tempered as private equity buyers took a pause in the rising rate environment, which we believe has a meaningful impact on enterprise valuation. Based on recent conversations, investment bankers, who serve as the tip of the spear, have reiterated their expectation that LBO activity is expected to meaningfully increase in the quarters to come. With that said, the messaging has been consistent for the past 12 months, as more and more opportunities are being added to the backlog, but the dam has not yet broken. Consistent with the prior two quarters, we have seen an increase in the number of early stage opportunities within the platform. But unfortunately, conversion rates to closed deals are trending towards historic lows.

Activity during the fourth quarter continued to be tempered as private equity buyers take a pause in the rising rate environment, which we believe has a meaningful impact on enterprise valuations.

Based on recent conversations investment bankers, who serve as the tip of the spear have reiterated their expectation that L. P. O activity is expected to meaningfully increase in the quarters to come.

With that said the messaging has been consistent for the past 12 months as more and more opportunities are being added to the backlog, but the dam has not yet broken.

Consistent with the prior two quarters, we have seen an increase in the number of early stage opportunities within the platform, but unfortunately conversion rates to close deals are trending towards historic lows sponsors continue to execute on add ons for companies already within their portfolios, which makes sense as add on multiples are built.

Ian Fowler: Sponsors continue to execute on add-ons for companies already within their portfolios, which make sense as add-on multiples are below the original platform purchase price, in effect enabling sponsors to reduce their cost bases and hedge against any compression and exit multiples. Investors in Barings BDC benefit by having a seasoned portfolio that provides opportunities to deploy capital into issuers we already know well. Refinancing activity has started to increase as performing issuers have plentiful access to capital without the need to sell.

So original platform purchase price in effect, enabling and sponsors as they reduce their cost bases and hedge against any compression and exit multiples.

Investors and Barings BDC benefit by having a seasoned portfolio that provides opportunities to deploy capital into assures we already know well refinancing activity has started to increase as poor performing.

Performing issuers have plentiful access to capital without the need to sell.

Ian Fowler: There is a logical reason to believe transaction volumes will improve in the months to come, namely a record backlog of sell-side mandates among the investment banking community and a need for private equity managers to show distributions to their LPs. However, counter to those facts is a high level of uncertainty created by two armed conflicts, persistently high inflation, and a rapid increase in interest rates in the forthcoming political cycle when opportunities ultimately do convert into an We will continue to use our disciplined, unranged strategy to invest capital in the most compelling opportunities. Turning to our current portfolio, 74% consists of secured investors, with approximately 67% of investments constituting first lien security, interest coverage within the portfolios to 2.2 times, a modest decline from 2.3 times a quarter earlier.

There's a logical reason to believe transaction volumes improve in the months to come namely a record backlog of sell side mandates among the investment banking community and a need for private equity managers show distributions to their Lps.

Counter to those facts is a high level of uncertainty created by two armed conflicts persistently high inflation rapid increase in interest rates in the forthcoming political cycle.

When opportunities ultimately do convert into an increase in closed transactions. We will continue to use our disciplined underwriting strategy to invest capital in the most compelling opportunities.

Turning to our current portfolio, 74% consists of secured investments with approximately 67% of investments constituting first lien securities.

Interest coverage within the portfolio stood at two two times.

Modest decline from two three times a quarter earlier.

Ian Fowler: We are forecasting that the steady-state weighted average interest coverage for the portfolio will ultimately fall between 2 and 2.25 times as the full impact of higher rates is reflected in issuers' financials and performance. Our avoidance of various industries prone to economic volatility, oil and gas, restaurants, retail, and metals, among them, has proven to be a sound strategy against a backdrop of less economic predictability.

We are forecasting that steady state weighted average interest coverage for the portfolio portfolio will ultimately fall between two and two and a core times as the full impact of higher rates as reflected in issuers financials and performance.

Our avoidance of various industries prone to economic volatility oil and gas restaurants retail metals among them has proven to be a sound strategy against the backdrop of less economic predictability.

Ian Fowler: One of the benefits of a predominantly sponsored back strategy has proven out over the past several quarters, combined with what we believe were reasonable going rates on leveraged multiples. The median gross margin in the North American Global Private Finance Portfolio, a portfolio similar to BBDC, stood at 49%, up from 45% one year earlier, and gives us confidence that our issuers are successfully pushing through price increases to combat inflationary pressures in their business. Adjusted EBITDA margins for the same sample set were 22%, up from 21% in the prior year's period, believed to be a reflection of the fact that wage gains have consumed some degree of gross margin expansion previously noted.

One of the benefits to a predominantly sponsor backed strategy has proven out over the past several quarters.

Combined with what we believe were reasonable going in leverage multiples. The median gross margin in the North American global private finance portfolio, a portfolio similar to BD B B D C stuewe.

Stood at 49% up from 45% one year earlier and gives us confidence that our issuers are successfully pushing through price increases to combat inflationary pressures in their businesses.

Adjusted EBITDA margins for the same sample set were 22% up from 21% and prior year's period believed to be a reflection of the fact that wage gains have consumed some degree of gross margin expansion previously noted.

Ian Fowler: While not a perfectly comparable metric period to period as the volume of transaction activity in the past five quarters will skew these metrics somewhat, we believe we have reason to feel comfortable with the performance of the portfolio. The portfolio composition remains highly diversified, with the top 10 issuers accounting for 20.1% of fair market value. Recall that the two top positions within the portfolio, Eclipse Business Capital and Rocade Holdings, are platform investments originating middle market loans. These positions have a number of underlying issues. Assets included in the other classification include structure positions and certain acquired positions that will not be originated on a new basis going forward. As Eric highlighted, we anticipate rotating these positions as market conditions allow in the quarters to come. Risk ratings exhibited minimal movement during the quarter as issuers exhibiting the most stress, classified as risk ratings 4 and 5, were 7% on a combined basis quarter over quarter.

While not perfectly comparable metric period to period as the volume of transaction activity in the past five quarters will skew. These metrics somewhat we believe we have reason to feel comfortable with the performance of the portfolio.

The portfolio composition remains highly diversified with the top 10 issuers accounting for 21% at fair market value recall that the two top positions within the portfolio Eclipse business capital and rotated holdings, our platform investments originated middle market loans.

These positions have a number of underlying issuers assets included in the other classification include structured positions in certain acquired positions.

That will not be originated on a new basis going forward.

As Eric highlighted we anticipate rotating out of these positions as market conditions allow and the quarters to come.

Risk ratings exhibited minimal movement during the quarter as issuers exhibiting the most stress classified ads risk ratings for in five or 7% on a combined basis quarter over quarter.

Elizabeth Murray: We anticipate this figure to decline when rolling to the first quarter in light of public developments with one of our issues, core scientific is Eric. Encouragingly, we also experienced some positive movement at certain issuers performing consistent with expectations that underwriting underperformed during the fourth quarter. We remain confident in the credit quality of the underlying portfolio, the uncorrelated nature and associated value of the investments, and Eclipse and Rockade should bolster the portfolio in the event the economy enters into a long-expected recession. BBDC is committed to delivering an attractive risk-adjusted return to shareholders over a long time horizon. We are investors in credit and the middle market; our global reach and significant scale across asset classes gives BBDC a unique ability to select risk and return compared to other managers, but our core middle market credit is what we do. I'll now turn the call over to Elizabeth.

We anticipate this figure to decline when rolling to the first quarter in light of public developments with one of our issuers core scientific as Eric mentioned incurred.

Encouragingly, we also experienced some positive movement at certain issuers performing consistent with expectations at underwriting have outperformed during fourth quarter.

We remain confident in the credit quality of the underlying portfolio, the uncoordinated uncorrelated nature and associated value of investments and eclipsing are located should bolster the portfolio in the event the economy enters into a long expected recession.

B B D. C is committed to delivering an attractive risk adjusted return to shareholders over a long time horizon.

We are investors of credit and middle market companies.

Our global reach and significant scale across asset classes gives P. B D C. A unique ability to select risk and return compared to other managers, but our core middle market credit is what we do.

Now I'll turn the call over to Elizabeth.

Elizabeth Murray: Thanks, Ian. On slide 15, you can see the full bridge of the NAB per share movement in the fourth quarter. NAB per share was $11.28 as of December 31st, which is an increase of 0.3% over the prior quarter and more than a 2% increase versus December 31st, 2020. Our net investment income exceeded the $0.26 per share dividend by 19%, and share repurchases added another penny per share. This is partially offset by net unrealized depreciation and realized gains of 3 cents per share.

Thanks, Ian on Slide 15, you can see the full branch at the NAV per share isn't it in the fourth quarter NAV per share was $11 28.

At December 31st which is an increase of 1.3% over the prior quarter and more than a 2% increase versus December 31st 2022.

Net investment income exceeded the 26 cent per share dividend by 19% and share repurchases.

Penny per share, it's just partially offset by net unrealized depreciation and realized gains of three.

Elizabeth Murray: The valuation of the credit support agreements increased by approximately $3.6 million, which is driven by unrealized depreciation in the underlying Sierra portfolio and a reduction in the applicable discount rates during the quarter. Our net investment income was $0.31 per share for the quarter, or $0.33 per share pre-tax, compared to $0.31 per share in the prior quarter. This is driven by continued benefits from higher base rates and dividend income from our platform investments and joint ventures. Our net leverage ratio, which is defined as regulatory leverage net of cash and net unsettled transactions, was 1.15 times at quarter end, down modestly from 1.18 times at the quarter end of September 30th and currently sits within our long-term target of 0.9 to 1.25 times.

Evaluation of the credit support agreements increased by approximately $3 6 million, which is driven by unrealized depreciation in the underlying portfolio and a reduction in the applicable discount rate during the quarter.

Net investment income was 31 cents per share for the quarter or 33 cents per share on a pre tax basis compared to 31 cents per share in the prior quarter. This is driven by continued benefits from higher base rates and dividend income from our platform investment in joint ventures.

Our net leverage ratio, which is defined as regulatory leverage net of cash and net unsettled transactions with 1.15 times at quarter end down modestly from 1.18 times in the quarter ended September 30th.

Currently sits within our long term target of 0.9 to 1.25 times, our funding mix remains highly defensible and turns of seniority and asset class, including the significant level of support provided by the unsecured debt in our capital structure.

Elizabeth Murray: Our funding mix remains highly defensible both in terms of seniority and asset class, including the significant level of support provided by the unsecured debt in our capital. At December 31st, our unsecured debt accounted for $725 million of our funding and equated to 50% of our outstanding balance. During the first quarter of 2024, Barings BDC issued a new $300 million Senior Unsecured Note to enhance the flexibility of our capital.

At December 31st our unsecured debt accounting for 725 million of our findings and equated to 50%.

Any balances during the first first quarter of 2024, Barings BDC issued a new 300 million senior unsecured notes to enhance the flexibility of our capital structure and that issuance is significantly oversubscribed and we are pleased to position a BDC with significant operating flexibility in the quarters to come.

Elizabeth Murray: The note issuance was significantly oversubscribed, and we are pleased to position BBDC with significant operating flexibility in the quarters to come. Pro forma for the note issuance, BBDC now has more than $1 billion of unsecured debt liabilities, accounting for more than 70% of our debt outstanding. We continue to maintain significant flexibility in our capital structure with the next bond maturity in the second half of 2025 and perform a further 300 million notes. We have expanded our ladder of maturities out to 2029, and currently have $241 million of unfunded commitments to our portfolio of companies, as well as $65 million of outstanding commitments to our joint... We have an available cushion against our leverage limit to meet the entirety of these commitments of call.

The far left for the net issuance maybe D. C. Now has more than 1 billion of unsecured debt liability accounting for more than 70% outstanding.

To maintain significant flexibility in our capital structure with the next bond maturity in the second half of 'twenty 'twenty five and pro forma for the 300 million net issued we have expanded our ladder maturities out to 2029.

Barings BDC currently has 241 million of unfunded commitments sharp portfolio company, it's all a 65 million outstanding commitments to our joint ventures.

Billable cushion against our leverage limit to meet the entirety of these commitments if called upon Eric.

Elizabeth Murray: Eric noted earlier that we have actively been utilizing our share repurchase plan during 2023. The fourth quarter was no exception, as we repurchased nearly 450,000 shares during the period and over 1.8 million shares in total for 2023. In addition, the board authorized a new $30 million share repurchase plan for 2024. Our focus on share repurchases is one example of BBDC's thoughtful approach to aligning our interests with shareholders. As mentioned earlier, the Board declared a first quarter dividend of $0.26 per share, a 9.2% distribution on net asset value.

Eric noted earlier that we have actively been utilizing our share repurchase plan during 2023 and fourth quarter was no exception as we repurchased nearly 450000 shares during the period and I for one 8 million shares entitled for 2023. In addition, the board authorized a new $30 million share repurchase plan for 'twenty two.

24, our focus on share repurchases as one example, a BBB thoughtful approach to aligning our interests with shareholders.

As mentioned earlier the board declared a first quarter dividend at <unk> 26 cents per share and nine 2% distribution on that asset that we.

Elizabeth Murray: We consistently evaluate our dividend policy in the same manner we manage our broader business, driven by stability. Since Barings became the advisor in 2018, we have a track record of increasing or maintaining a stable dividend. We believe we can maintain a stable dividend even in a normalized rate environment, and we expect that our platform investments, Eclipse and Rockade, as well as our Jocossi joint venture, will continue to generate significant dividend increases. These investments help highlight the importance of less correlated assets and the benefit of a diverse portfolio.

We consistently evaluate our dividend policy in the same manner, we manage our broader business driven by stability in bearings.

Bearings became the advisor in 2018, we have a track record of increasing our maintaining a stable dividend. We believe we can maintain a stable dividend, even a normalized rate environment and we expect that our platform investment eclipsing brocade.

As well as RJ coffee joint venture will continue to generate significant dividend income. These investments help highlight the importance of last correlated assets and the benefit of a diverse portfolio I'll wrap up our prepared remarks with a net on our investment pipeline. Thus far in Q1, we have made $42 million of new commitments of which.

Operator: I'll wrap up our prepared remarks with a note on our investment pipeline. Thus far, in Q1, we have made $42 million of new commitments, of which $35 million have closed in funding. With that, Operator, we'll open the line for questions. Thank you. The floor is now open for questions. If you would like to submit a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

35 million have closed and funded with that operator, well open the line for questions.

Thank you the floor is now open for questions. If you would like to register a question. Please press star one on your telephone keypad at this time all confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.

Operator: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. We do ask that you please limit yourself to one question and one follow-up. Again, it's Star 1 if you would like to register a question today. The first question is coming from Finian O'Shea of Wells Fargo Securities. Please go ahead. Hey, everyone. Good morning.

We do ask that you please limit yourself to one question and one follow up again star.

Star One if you would like to register a question today.

The first question is coming from Finian O'shea of Wells Fargo Securities. Please go ahead.

Hey, everyone. Good morning.

Question for and I appreciated your color on <unk>.

Transaction volumes being slow to transpire.

Ian Fowler: Question for Ian, I appreciated your color on transaction volumes being slow to transpire. The question is, if that continues to stall, do you think we're looking at sort of a triage, a great triage from private equity, and if so, if you, you know, then have to..., take keys for companies. Can you talk about how well you are positioned for that? Maybe how many sets of keys could you practically take on at the platform? Thank you. Good morning, Finn.

Hum.

<unk> is if that continues to stall do you think we're looking at sort of a triage a great triage from from private equity.

And and if so if you.

And then have to take.

Take keys.

For companies can you talk about how well you are positioned for that.

How many.

How many sets of keys, you could practically take on at the platform. Thank you.

Ian Fowler: Yeah. So, yeah, like I said, we had hoped that things were going to pick up, that investment bankers are pretty good about talking their book, and that really hasn't happened thus far this year. Now, what I will say is there's a lot of pressure for this market to open up. So, unless there's some kind of black swan event, I would be really surprised if we had another low anemic year of M&A activity.

Good morning, and yeah, so yeah like I said.

Yeah, we had hope that things are going to pick up that's you know.

Investment bankers are pretty good about talking their book and that really hasnt happened. Thus far this year now what what I will say is there's a lot of pressure for this market to open up so I would unless there's some kind of a black Swan event I would be really.

Apprised, if we have a a low anemic year again of M&A activity I mean, we're looking at you know base rates have plateaued. The fed has telegraph that there likely coming down that's that's obviously a positive given the valuation.

Ian Fowler: I mean, we're looking at, base rates have plateaued, and the Fed has telegraphed that they're likely coming down. That's obviously a positive given the valuation gaps that exist in the market between buyers and sellers. We have the election, so we need to get through that political uncertainty.

Gaps.

That exists in the market between buyers and sellers, we have the election, so we need to get through that political uncertainty I think most importantly, though and you you raised private equity and obviously, we're focused on private equity I think one of the biggest triggers as the pressure on private equity and.

Ian Fowler: I think most importantly, and you raised private equity, and obviously we're focused on private equity, is the pressure on private equity and the fact that a lot of LPs now are tying LP commitments to realization. And so, quite frankly, I think, based on what we've seen, the data we've seen, the valuation gap isn't huge, but it's not what private equity firms were expecting. And I think, ultimately, they're going to be forced to, you know, realize some companies maybe lose a turn or two on the exit multiple but still generate historically decent returns. So I think volume's going to pick up in 24, as we get later in the year and 25.

The fact that a lot of Lp's now are tying a L. P commitments to realizations and and so quite frankly, I think you know based on what we've seen the data we've seen that the valuation gap isn't huge but it's it's not what private equity firms were expecting and I think ultimately there.

Be force to to you know I realize some companies maybe lose a a turn or two on on the exit multiple but still generate historically decent returns.

So I think volume is going to pick up in 'twenty four as we get later in the year and twenty-five if rates come down a material it could be a watershed.

Ian Fowler: If rates come down materially, it could be a watershed environment. Of course, if that doesn't happen, you know, we're still in this period of, and for those platforms that have mature portfolios, there's still that incentive to do add-on acquisitions and create value. And that allows us to put more money to work; 70% of our origination last year came from our portfolio. It also means low runoff, and so that creates AUM stability.

Environment of course, if that doesn't happen.

We're still in this period of an end for those platforms that have mature portfolios you know theres still that incentive to do add on acquisitions and create value and that allows us to put more money to work 70% of our origination last year came from our portfolio also.

Also also means low run off and so that that creates a U M. Stability. So you know that's positive and this really gets stretched out I think is where you're going with your question. You know then you know then we're gonna have to figure out how to deal with you know some of these companies if they're not performing yeah, where are of course prepared or something.

Ian Fowler: So, you know, that's positive. If this really gets stretched out, I think is where you're going with your question, then, you know, then we're going to have to figure out how to deal with, you know, some of these companies if they're not performing. We're, of course, prepared. It's something we don't want to do.

We don't want to do to take the keys I can tell you that it's not in the BDC, but we had one company during COVID-19 that we had.

Ian Fowler: To take the keys, I can tell you that it's not in the BDC, but we had one company during COVID where we had to take the keys in North America, and, you know, the company is up for sale. So, you know, we've got experience doing that. We also have a very large team, over 100 people globally, so I think we're pretty well prepared if we have to go down that road. But, you know, that's kind of the... That's something you don't really want to go into unless you have to, and I'll just build on that.

I had to take the keys in North America, and you know the companies up for sale. So you know we've got experience doing that we also have a very large team 100 over 100 people globally. So I think we're pretty well prepared if we have to go down that road, but you know that's kind of the.

But that's something you don't really want to go to unless you have to yeah.

And they're not just build on that the 100 that Ian referenced that's just something that's on your investment side into direct lending area. In addition to that we have.

Eric Lloyd: The hundred that Ian referenced is just on the investment side in the direct lending area. In addition to that, we have a deep legal team internally that has strong experience working through situations like this. We have a special situations team now called capital solutions team, which has a lot of experience working through things like this. So at a firm level, we kind of bring all our resources to bear and all our expertise to bear to make sure we have the best outcome for our investors in those types of challenging situations. Very helpful; thank you.

Deep legal team internally that has strong experience working through situations like this we have a special situations now called capital solutions team has a lot of experience working through things like this at a firm level, we kind of bring all resources to bear and all the expertise to bear to make sure. We have the best outcome for our investors and those type of challenge.

Situations.

Very helpful. Thank you I used to do a follow up.

Ian Fowler: I guess we'll do a follow-up on the recent bond issuance this quarter, January or February. Although understanding the benefit of unsecured debt, it's also a more expensive market, and it looks like you already had adequate unsecured debt for your ratings and so forth. So I was wondering if you could provide color on the thinking there and the timing and why it is more unsecured. Thank you. Yeah, thanks. And, you know, when we originally went to market in 2021, we had announced at that point that, you know, we would be a serial issuer. And so, of course, the markets have been closed for the past couple years.

On the recent bond issuance.

This quarter January or February.

Hum understanding the burner.

Benefit of unsecured it's also a more.

Expensive market and it looks like you already had.

Adequate unsecured debt for your ratings and so forth. So seeing if you could provide color on.

The thinking there.

And in the timing and why more unsecured thank you.

Yeah. Thanks, Dan you know when we originally went to market in 2021, we had messaged at that point that we would be a serial issuer and so of course that the markets have been closed for the past couple of years and you know they recently opened up with with several other bdcs in the market.

Ian Fowler: And, you know, they recently opened up with several other BDCs in the market. And looking at our maturity ladder and also our mix between secured and unsecured, we felt like it was an appropriate time, you know, and this, again, extends our maturity ladder. As soon as the $300 million came in, we used that to repay some of our credit facility.

And looking at our maturity ladder and and also our mix between secured and unsecured and we felt like it was an appropriate time, you know and that's again extends our maturity ladder and as soon as the 300 million came in we use that to repay some of our credit facility.

Ian Fowler: So, in the long term, this really sets us up for success. I'll also say, Ben, that we did swap the interest rate on this. So, we have a swap in place. Thanks so much.

I think long term that this really sets us up for success and I'll also say that we could swap the interest rate on this so we have a swap in place.

Thanks, so much.

Yeah.

Operator: Thank you. The next question is coming from Kyle Joseph of Jeffries. Please go ahead. Thanks, guys. Good morning.

Thank you. The next question is coming from Kyle Joseph with Jefferies. Please go ahead.

Yeah. Thanks, guys. Good morning, Thanks for taking my questions I think first one for Ian just kind of want to get your take on how the competitive environment has evolved over the last few years with kind of the slower deal flow as you mentioned, but also recognizing you know bdcs at least publicly have been resilient too.

Ian Fowler: Thanks for taking my questions. I think the first one for Ian is, just kind of want to get your take on how the competitive environment has evolved over the last few years with kind of the slower deal flow, as you mentioned, but also recognizing, you know, BDCs, at least publicly, have been, you know, resilient to higher rates and inflation. But, you know, give us a sense for what spreads have been doing and, you know, what if, you know, the steel environment were to come to fruition, expectations for spreads in that environment. Yeah, great. Great question, Kyle. Good morning.

Higher rates.

And inflation, but you know give us a sense for what what spreads have been doing that and you know what.

You know the steel environment were to come to fruition.

Expectations for spreads in that environment.

Yeah, Great Great question, Kyle Good morning, So yeah like I said, obviously, yeah, well the economy is slow M&A activity down.

Ian Fowler: So like I said, obviously, the economy is slow, and M&A activity is down in our space. In the last few years, there have been more platforms that have been created, a lot of capital has been raised, but not deployed, just given the conditions in the M&A market. So there's a lot of pressure coming from, you know, investors for managers to employ capital. You know, again, I think if you've got a portfolio, you're in a sweet spot because at least you're putting capital to work in companies you know well and helping those companies become bigger, better, stronger, more diversified. So that's sort of a safer bet than if you've got to play the new M&A market, which, you know, not only is low in volume, but the quality of deals has been very inconsistent. And so that's a tough place to be, to have that pressure to put money to work.

In our space in the last few years, there's more platforms had been created a lot of capital that's been raised but not deploy just given you know.

The conditions in the M&A market.

So there's a lot of pressure coming from you know investors for managers to employ capital you know again I think if you've got a portfolio you're you're in a sweet spot because at least you're putting capital to work and companies you know well and helping those companies become bigger better stronger and more diversified.

Credits.

That's sort of a safer bet and if you've got to play the new M&A market, which you know not only being low in volume, but the quality of deals has been very inconsistent.

And so that's a tough place to be to have that pressure to put money to work.

Ian Fowler: You know, I think there's so much capital being raised because we're in this nirvana situation where, you know, for this asset class, it's the first time in years where you've had both an increase in base rates and spreads, and as we've talked about in the past, you're generating all-in yields in the low double digits. I will say that, you know, given the competitive nature and the number of platforms, it is becoming competitive, especially for good quality deals. You know, you can't really compete on leverage just given where rates are. So we're really seeing, you know, deals being moderately levered around, call it 4.5 times senior. Docs are still in our favor as lenders.

I think there's so much capital being raised because we're in this nirvana situation, where you know for this asset class. It's the first time historically in years, where you've you've had a both the increase in base rates and spreads and as we've talked about in the past.

You're generating all in yields in the low double digits.

I will say that just given the competitive nature and the number of platforms. You know it is getting competitive, especially for good quality deals you can't really compete on leverage just given where rates are so we're really seeing you know deals being moderately levered around.

I'll call. It a 4.5 times senior docs are still in our favor as lenders are but as you kind of raise you know we are seeing some compression in spreads.

Ian Fowler: But as you kind of raised, you know, we are seeing some compression and spreads. In the last quarter of last year, I'd say spreads compressed about 50 to 75 basis points, up fronts about 50 basis points. But all in all, you're still generating upper single-digit yields. I think as the market opens up and more attractive opportunities are out there, I think that competitive nature will continue. I mean, historically, this asset class generates senior debt of 6 to 8 percent. We're over that right now.

You know in the last quarter of last year, I'd say spread or last half of last year, I'd say spreads compressed about 50 to 75 basis points Upfronts about 50 basis points, but all in all you're still generating upper single digit yields I think of.

As the market opens up and more attractive opportunities are out there I think that competitive nature. It will we'll continue I mean, it's.

Again historically.

This asset class generates senior debt, 6% to 8%, where we're over that right. Now. So I think you have to expect over time as the market becomes more and more normalize youre going to have some reversion of all in yields back to sort of the historical.

Matt Freund: So I think you have to expect, over time, as the market becomes more normalized, you're going to have some reversion of all in yields back to sort of the historical returns that we've had in the asset class. Got it. Helpful. And then one follow-up, just on repayments, obviously they were elevated in the fourth quarter, but it sounds like some of that was self-induced, for lack of a better term, and you guys are rotating out of Sierra and NBC. But, you know, if we do get this pickup and deal flow, would you expect a corresponding increase in repayments as well? Or, you know, how does the higher rate environment influence that? Yeah, Kyle, this is Matt.

The returns that we've had in the asset class.

Got it helpful. And then one one follow up Peter on repayments.

I see they were elevated in the fourth quarter, but it sounds like some of that was self induced for lack of a better term and you guys rotating.

Out of Sierra and N B C. But you know if if we do get this pickup in deal flow and you can expect a corresponding increase in repayments as well or how it is the higher rate environment influenced that.

Okay.

Yes, Kyle this is Matt I would certainly.

Matt Freund: I would certainly agree with the sentiment that if we see kind of an increase in deployment opportunities, that's necessarily going to be a corollary to increased exit opportunities on the other side. I think that if we look at the portfolio average hold horizon, it's kind of stretched out to call it four-ish years, plus or minus. And while we feel really good about the quality of the credit in the portfolio, eventually, we're going to see some turnover. And so, you know, it's not something that concerns us in any capacity, but I think it'll start to return to kind of a historical mean. Did that answer your question? Thanks guys, I appreciate it. In order.

Agree with the sentiment that if we see kind of an increase in deployment opportunity that's necessarily going to be a corollary to increased opportunity increased exit opportunities on the other side, Yeah I think.

If we look at the portfolio average hold horizon is kind of stretched up to call. It four ish years, plus or minus and while we feel really good about the quality of the credit in the portfolio. Eventually we're going to see some turnover in tow.

It's not something that concerns if in any capacity, but I think it will start to return to kind of a historical mean that did that answer your question.

Yes, yes, thanks, guys I appreciate it.

Operator: Thank you. The next question is coming from Robert Dodd of Raymond James. Please go ahead.

Sure.

Yeah.

Thank you. The next question is coming from Robert Dodd of Raymond James. Please go ahead.

Operator: Hi guys. On Core Scientific, you mentioned, by my math, you've probably got a little over six million shares now on that after the exchange. I mean, is that, is that like, the same class of stock that's publicly traded? And what's the intent there?

Hi, guys Oh.

One.

<unk>.

Cool scientific.

You mentioned that in my mind, Matt.

A little over 6 million shares now on on that after the exchange I mean is it is that is it the second fastest stocked with publicly traded and what's the intent.

Brian High: I mean, are you intending to hold that? Are you locked up, or are you looking to liquidate the shares you've got from that position and maybe invest them in something else? Yeah, hey, Robert, this is Brian.

Are you intending to hold back.

Top point Youre looking to liquidate the shares you would go in that position.

Just a couple of countries.

Yeah, Hey, Robert this is Brian.

Brian High: So in terms of the stock itself, it is the same stock that you would see in the public. Our intent there is to maximize recoveries, but also, I think we've been pretty clear that that's not part of our ongoing strategy, so marrying those two things together over the course of the coming quarters is sort of on us to make decisions around that, uh... what to do with that obviously, having a public stock was some liquidity, and that Thank you. And I mean, because it ties in, I mean, you're at 15% equity. Some of that obviously is income-producing with the credit, et cetera. But you know, obviously, as of today, pro forma for this equity, you're gonna be 16% plus. I think my math is right.

In terms of the stock itself. It is the same stuff that you would see on the public markets.

Our our intent there is to maximize recoveries, but also I think we've been pretty clear that that's not part of our ongoing strategy. So marrying those two things together over the course of the coming quarters is sort of on us to make decisions around.

What to do with that obviously, having a public stock gives us some liquidity and that was the intent and making that election within the bankrupt bankruptcy proceeding.

Got it. Thank you I don't know because it ties in I mean.

The 15% equity some of that obviously being competency with look like et cetera.

But you know obviously this this as of today pro forma for this equity.

I'm gonna be 16% class I think if my math is right.

Brian High: Can you give us a recap, what's a reasonable timeline to get at least a non-income producing piece of equity down into that maybe the mid-single? So, it's a great question. And so, as we've tried to articulate in past quarters, you know, we have, Described our investment philosophy and kind of buckets around strategy and as it sits as of 1231 We kind of have 8% of the portfolio that fits in other the the big Kind of noteworthy items in that other bucket today would include two large European equity positions the position in core scientific that was Previously a debt security and will will now be an equity position as you know And then a handful of other candidly non core non future style strategies As we think about where that 8% goes over and so I I think organizationally We're really focused on the 8% not necessarily just on the equity piece of it but on the 8% of the other and the important distinction is that, Rocade and Eclipse both constitute equity, but we expect those will be part of our go-forward strategy, kind of into perpetuity.

Can you give us a recap what's what's the knees.

Volume line to get at least a non income producing pieces back putting.

Down.

Yeah.

The mid single digits.

So it's it's a great question and so as we've tried to articulate in past quarters, we have <unk>.

Described our investment philosophy, and kind of buckets around strategy and as it fits as of 12 31, we kind of at 8% of the portfolio that fits in other.

The big kind of noteworthy items in that other bucket today would include two large European equity positions. The positioning of core scientific that was previously a debt security and will now be an equity position as you note.

And then a handful of other candidly noncore non future style strategies.

As we think about where that 8% goes over.

I think organizationally, we're really focused on the 8% not necessarily just on the equity piece of it.

But on the 8% of the other and then the important distinction is that.

Rotate in eclipse, both obviously, both constitute equity, but we expect those will be part of our go forward strategy kind of into perpetuity.

Brian High: And so as we kind of roll forward four quarters in the future, our hope would be that we could cut that number, that 8% non-core, to something closer to 4 to 5% by the time we get to the end of the year. The biggest movers in that are going to be one of the two large European equity positions we're hoping to monetize, and then core scientific public equity, which we are hoping to monetize, of course, only at levels that we find to be reasonable returns of capital. And so I would guide you to that benchmark as we look forward to the next handful of quarters. And as a reminder, those two large European equity positions that don't have yield were acquired. Those aren't things that we made an underwritten investment in. I'm like, yeah, I'm like rotating their clubs, which are the attractive yields that come off them. I've got it, I've got it, yeah.

And so as we kind of roll forward four quarters in the future. Our hope would be that we could cut that number that 8% noncore to something closer to 4% to 5% by the time, we get to the end of the year. The biggest movers in that are going to be one of the two large European equity positions, we are hoping to monetize any core scientific.

Our public equity, which we are hoping to monetize of course only at levels that we find to be reasonable returns of capital and so I would guide you to that benchmark as.

As we look forward to the next handful of quarters and as a reminder, those two large European equity positions that don't have yield were acquired those arent things that we've.

Underwritten investment.

Yeah.

Yes, unlike repaying their clubs, which are attractive yields they come off them.

Got it got it yeah.

Operator: One more if I can, it relates to this. On McCaid, I mean, you made a, what, I think, $15 million incremental investment. I'm sure the platform made more, but in that business, I mean, was that, was that opportunistic? Or whatever it is, however I should phrase that.

If I can it relates to this on the Kate I mean, you made a well I think $15 million incremental investment.

Oh I'm sure on the platform.

And in that business I mean, it's got it was that opportunistic or it was big.

Hey, so or whatever it is I would actually turn that off.

Oh, sorry.

Operator: Or so is that kind of a temporary increase or should we expect it to continue to potentially grow at that pace? I mean, it grew about 30 million bucks during 2023. Is that the kind of growth that platform could add, and it's income-producing, and could return supply? Not credit rating, I'm just trying to scale the group.

So again it.

Is that kind of figured out.

Increase or should we expect it to continue to.

Potentially grow with that pace I mean, it grew about 30 million Bucks during June 2020.

The kind of.

All right.

Could add in its income producing.

So the criticizing just trying to scale.

For Geneva.

Yeah, Robert Good question and Enrique when we initially made.

Brian High: Yeah, Robert, good question. And on Rocade, when we initially made the investment, the platform as a whole had a $250 million preferred equity target. And so they're able to draw on that. And so the $15 million that you're referencing was just a preferred draw. And I believe we have about $17 million left on that draw. We don't anticipate much to be drawn in 2024.

And that's not.

Platform as a whole had a $250 million.

Preferred equity target and so they are able to draw on that and say that's the 15 million that you're referencing was just a preferred draw and I believe we have about $17 million left on that drop we don't anticipate a much to be drawn in 2020 alert.

Brian High: It was just that they were ramping up in 2023 and getting a credit facility in place. But you can just know that once that unfunded amount has been drawn, we are not going to make any additional commitments at the BDC level.

But it was just they were ramping in 2023 and getting a credit facility in place.

He can just know that once that unfunded amount has it been drawn we are not going to make any additional commitments at the BDC level.

Operator: Thank you. Thank you. The next question is coming from Casey Alexander of Compass Point. Please go ahead.

Got it thank you.

Yeah.

Thank you. The next question is coming from Casey Alexander of Compass point. Please go ahead.

Elizabeth Murray: Hi, good morning, and thank you for taking my questions. First off, you know, there's been some... Offhand criticism of the BDC surrounding the degree of complexity that the BDC has. And a good example, for instance, here in this quarter, is the puts and takes from forward currency contracts. You know, it costs about nine and a half million dollars, or about a nine cent per share swing that had not happened at all, this would have been a fabulous quarter. I think investors would benefit if you could explain why these puts or takes are there, what the foreign currency contracts are covering, are they doing what they are expected to do relative to the investment that they are covering, and what we should expect from that in the future because that is a pretty big Yeah, thank you for the question, Casey. And I certainly agree that there are layers, pardon me, to our strategy and to our structure based on kind of a historical makeup that has just clouded some of the picture.

Hi, good morning, and thank you for taking my questions.

First off you know theres been some.

Offhand criticism of the BDC.

Surrounding the degree of complexity that the BDC has and are good for instance here in this quarter.

Is the puts and takes from forward currency contracts that.

You know it costs about nine.

And a half million dollars or you know about a nine cent per share swing that had not happened at all this would've been a fabulous quarter. So I think investors would benefit if you could explain.

Why these puts or takes or there what the foreign currency contracts are covering are they doing what they're expected to do relative to the investments that they're covering and and what should we expect from from that in the future because that's a pretty big swing to earnings take that could've made this a good quarter, a really fabulous quarter.

Yes. Thank you for the question Casey and certainly agree that there.

There are layers pardon me too to our strategy into our structure based on kind of a historical make up that have just cloud and some of the picture we're working to simplify it and we will continue to do so specific to your question and so let me just at a high level describe why these are in place and then give you some perspective in terms of how to interpret at this.

Elizabeth Murray: We're working to simplify it, and we will continue to do so. Specific to your question, and so, let me just at a high level describe why they are in place and then give you some perspective in terms of how to interpret them this quarter as well as where we expect them to go in the future. And so, as I think our investors know, we have a global focus at Barings, and historically speaking, whenever the public vehicle was acquired in 2018 and then subsequently ramped up, we used a fair percentage of European assets to do that. And so, as we think about the non-USD denominated portions of our portfolio, we are not in the business of taking FX risk on those par and principal positions.

Quarter as well as where we expect it to go in the future and so as I think our investors know we have a global focus at bearings and historically speaking whenever that whenever the public vehicle was acquired in 2018, and then subsequently ramped we used a fair percentage of European assets to do that and so as we.

About the non USD denominated portion of our portfolio. We are not in the business of taking FX risk on those par and principal positions and so what we do is we are rolling out that we maintain rolling FX hedges on a quarterly basis that actually insulate the portfolio.

Elizabeth Murray: And so what we do is we roll, we maintain rolling FX hedges on a quarterly basis that actually insulate kind of the portfolio performance from the FX movement. Admittedly, as you have appropriately noted, that can have the capacity to create volatility if the FX movements are happening within the quarter and then whenever the FX hedges are themselves rolled. And so that did happen this quarter. And that also coincidentally happened last quarter.

Performance from the FX movement.

Admittedly as you have appropriately noted that will that can have the capacity to create volatility if the FX movements are happening intra quarter within the quarter.

And then whenever the FX hedges are themselves rolled and so that did happen this quarter and also coincidentally happened last quarter. If you look at the movement between the USD EUR FX rate from October one to December 31, you'll see that the euro strengthened meaningfully as part of that.

Elizabeth Murray: If you look at the movement between the USD and the EUR FX rate from October 1st to December 31st, you will see that the euro strengthened meaningfully as part of that. Whenever those contracts were rolled, there was a meaningful FX gain that was kind of recognized with respect to that position. In terms of the go-forward strategy, I'm confident in telling you that foreign transactions, non-U.S. denominated transactions, will be a lower percentage of the portfolio as we continue moving forward. And we are also actively working to kind of figure out ways to mitigate the severity of the movement that we see on the FX line because we agree with you that it creates a little bit more of a cloud that is actually intended to have a net neutral impact on the underlying shareholders.

They're whenever those contracts were rolled there was a meaningful FX gain that was kind of recognized with respect to that position.

In terms of the go forward strategy.

Confident in telling you that foreign transactions non U S denominated transactions will be a lower percentage of the portfolio as we continue moving forward.

We are also actively working to kind of figure out ways to mitigate the severity of the movement that we see on the FX line, because we agree with you that it creates a little bit more of a cloud.

Actually intended to be a net neutral impact to the underlying shareholder.

Elizabeth Murray: All right, thank you. Secondly, in the originations and repayment schedule, there was a significant amount of repayments that were actual sales, not to the JP, but outside the platform. I'm looking at the net debt-to-equity ratio that you're reporting on the last page of your release at 1.15 times. Should we think? I mean, it clearly looks like you're trying to manage to a particular level. Should we be thinking about that as, you know, kind of the sweet spot of where you'd like to stay, or do you think that, you know, you've calmed things down in the portfolio a little bit, as you get rid of some of the non-income-producing equity, you can take that number up a little bit and generate a little higher ROA? How are you thinking about managing to that level?

Alright, thank you.

Sure.

Secondly in the.

Originations had repayment schedule there was a significant amount of.

Repayments that were actual sales not to the JP, but outside the platform.

And I'm looking at the net debt to equity ratio. This year reporting on the last page of your release of 1.15 times I mean should we think I mean, it clearly looks like you're trying to manage to a particular level should we be thinking about that as you know kind of the sweet spot of where you'd like to see.

Day or or do you think that you know you've calm things down in the portfolio a little bit as you get rid of some of the non income producing equity you could take that number up a little bit and generate a little high higher our away. How are you thinking about about managing to that level.

Elizabeth Murray: Yeah, I'll start and then want to make sure that Elizabeth has a comment, has the ability to comment on the leverage targets generally. So our stated target is 0.9 to one and a quarter. We will and intend to operate within that range. As a theme for us this quarter, I think that we wanted to demonstrate flexibility. So we were focused on kind of the senior unsecured issuance, which gives flexibility to our capital structure. We appreciate that, historically, we've run a little bit higher in terms of our leverage ratio than perhaps we really wanted to. And so I think that there certainly was a very active momentum around freeing up some capacity for possible investment opportunities here moving into 2024.

Yeah, I'll start and then want to.

I want to make sure that Elizabeth has a comment has an ability to comment on on the leverage targets generally so our stated targeted at <unk> nine to one in a quarter, we will intend to operate within that range.

As a theme for us this quarter I think that we wanted to demonstrate flexibility. So we were focused on kind of a senior unsecured issuance was good flexibility to our capital structure. We appreciate that historically, we've run a little bit higher in terms of our leverage ratio than perhaps we really wanted to and so I think that there was certainly an active there was a very active momentum around.

<unk> freeing up some capacity for a possible investment opportunity here moving into 2024, and so as we think about where we want to be where we will operate we have no change in our guidance to the <unk> nine to one in a quarter, but I do think that to your point is there capacity when we see opportunity to invest to perhaps.

Elizabeth Murray: And so as we think about where we want to be, where we will operate, we have no change in our guidance to the point nine to one and a quarter. But I do think, to your point, is there capacity when we see opportunity to invest to perhaps increase that leverage ratio? The answer to that, I think, is absolutely yes. I want to make sure that Elizabeth has a chance to maybe augment any of those comments.

Increase that leverage ratio the answer to that I think is absolutely I want to make sure that Elizabeth had a chance to maybe augment any of those comments, yeah, what I would add Casey when we look long term at our leverage we're trending between one one and one point Teton and and I think youre going to continue to see that trend but.

Elizabeth Murray: Yeah, what I would add, Casey, when we look long term at our leverage, you know, we're trending between 1.1 and 1.2 times. And I think you're going to continue to see that trend. But we also want to have that flexibility if we do see investment opportunities to be able to take them.

We also want to have that flexibility, if we do see investment opportunity to be able to take that and then we also balance that with share repurchases, we don't ever want to be in a position where leverage is so high that we aren't able to repurchase shares. So we balance all three of them.

Elizabeth Murray: And then we also balance that with share repurchases. We don't ever want to be in a position where leverage is so high that we aren't able to repurchase shares. So we balance all three of them.

Brian High: Well, fair enough, thank you for that Elizabeth, because I do think that where the stock closed last night at.81 times, shareholders would like to see it continue with the share repurchase. My last question, and you may want to pass on this, but I'm going to throw it out there anyway. The core position, equipment leasing, was actually significantly larger than just what you held on the balance sheet at Barings. It was probably close to double that size.

Well fair enough. Thank you for that Elizabeth because I do think that where the stock closed last night 8.81 times shareholders would like to see it continue with the share repurchases My last question Hum.

And you may want to pass on this.

But I'm going to throw it out there anyway.

Core position equipment leasing position was actually significantly larger than just what you held on balance sheet at bearings. It was it was probably close to double that size. So I'm just wondering.

Brian High: So I'm just wondering, are you guys managing the equity position in coordination with the rest of the platform, or are you guys managing your position independent of the position that's held on the rest of the Barings platform? And that would be my last question. Yeah, Casey, I appreciate the question. It's Brian again. I don't think we're going to comment on the broader Barings platform strategy, so I will take you up on passing on that question. But I'm not surprised, but I thought it was worth a shot.

Are you guys managing.

The equity position in coordination with the rest of the platform are you guys, meaning mainly junior position independent of that position is held at the rest of the barings platform and that will be my last question. Thank you.

Yes, Casey I appreciate the question, it's Brian again.

I don't think we're going to comment on the broader barings platform strategy. So I will take you up on passing on that question, but.

But I'm not surprised but I, but it was worth a shot cost me nothing to ask that question.

Eric Lloyd: It cost me nothing to ask the question, so don't worry. Alright, thanks, Bryce. Thank you. At this time, I'd like to turn the floor back over to Mr. Lloyd for closing comments. I just really want to thank everybody for dialing in, for your interest in us, and we look forward to following up with you and putting together another great quarter for you. Thanks very much. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

No worries.

Alright, Thanks, Brad.

Thank you at this time I'd like to turn the floor back over to Mr. <unk> for closing comments.

Just really want to thank everybody for dialing in and your interest in us and we look forward to following up with you and putting together another great quarter for Ya. Thanks very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Okay.

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